CONTRACT FORM AGENCY TO SELL G.R. No.

L-11491 August 23, 1918 QUIROGA, plaintiff-appellant,

ANDRES vs. PARSONS HARDWARE CO., defendant-appellee. Alfredo Chicote, Jose Arnaiz Crossfield & O'Brien for appellee. AVANCEA, J.: and Pascual B.

Azanza

for

appellant.

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the

Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The judgment appealed from is affirmed, with costs against the appellant. So ordered. QUIROGA vs. PARSONS HARDWARE CO.

38 Phil 501, G.R. No. L-11491, August 23, 1918 FACTS: On January 24, 1911, herein plaintiff-appellant AndressQuiroga and J. Parsons, both merchants, enteredinto a contract, for the exclusive sale of "Quiroga" Beds in the Visayan Islands. It was agreed, amongothers, that Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J.Parsons, subject to some conditions provided in the contract. Likewise, it was agreed that. Incompensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr.Parsons may find himself obliged to make, Mr.Quiroga assumes the obligation to offer and give thepreference to Mr. Parsons in case anyone should apply for the exclusive agency for any island notcomprised with the Visayan group; and that, Mr. Parsons may sell, or establish branches of his agency forthe sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, andshall immediately report such action to Mr. Quiroga for his approval.Plaintiff filed a complaint, alleging that the defendant violated the following obligations: not to sell thebeds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conductthe agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for thesame; and to order the beds by the dozen and in no other manner. He alleged that the defendant washis agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. ISSUE: Whether or not the defendant, by reason of the contract hereinbefore transcribed, was an agent of theplaintiff for the sale of his beds.

HELD: No. In order to classify a contract, due regard must be given to its essential clauses. In the contract inquestion, there was the obligation on the part of the plaintiff to supply the beds, and, on the part of thedefendant, to pay their price. These features exclude the legal conception of an agency or order to sellwhereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers tothe principal the price he obtains from the sale of the thing to a third person, and if he does not succeedin selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, onreceiving the beds, was necessarily obliged to pay their price within the term fixed, without any otherconsideration and regardless as to whether he had or had not sold the beds.In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by thecontract, the effect of its breach would only entitle the plaintiff to disregard the orders which thedefendant might place under other conditions; but if the plaintiff consents to fill them, he waives his rightand cannot complain for having acted thus at his own free will. G.R. No. L-20871 April 30, 1971 KER & CO., vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent. Ross, Selph and Carrascoso for petitioner. Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr. for respondent. LTD., petitioner,

FERNANDO, J.: Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v. Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical consequences must inevitably follow. We affirm. It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being fixed at P19,772.33. Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice. 2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. 5 Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6

All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor, required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such agreement. 10 On a date to be determined by the Company, the petitioner, as Distributor, was required to report to it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and types together with such information as may be required for accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any time, it was to render inventory of the existing stock which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision can be made by the Company for disposition." 13 The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15); and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal.

1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by vessels or other means of transportation. The term includes commission merchants." 16 The controlling decision as to the test to be followed as to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made.' "20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on Sales, were likewise referred to. Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and obligations on any theory other than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. These requirements and stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the final written expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine. 2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner, as was contended in the second assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not have included covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the control by the United States Rubber International over the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to that apparent from the language employed might even

yield the impression that such a mode of construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided. Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval. WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner. Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur. DIGEST KER & G.R. No. L-20871 April 30, 1971 Facts: CIR assessed the sum of P20,272.33 as the commercial brokers percentage tax, surcharge, and compromise penalty against Ker & Co. There was a request on the part of petitioner for the cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. CTA ruled that that Ker & Co is liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Ker & Co signed a contract with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The shipments would cover products for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mind anao except [the] province of Davao. Ker & Co, as Distributor, was precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. It was required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. Issue: CO., LTD. vs. LINGAD

WON the relationship Ker & Co and US Rubber was that of a vendor-vendee or principal-broker? PRINCIPAL- BROKER, hence liable under Section 194 (t) of the NIRC. Held: The relationship between them is one of brokerage or agency. That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that: 1. petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company; 2. it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company 3. every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company 4. on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month 5. the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss 6. upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former 7. upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter. CONTROLLING TEST (cited CIR vs. Constantino): Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the companys control, the relationship between the company and the dealer is one of agency. Sale vs. Agency a. In sale, the essence is the transfer of title or agreement to transfer it for a price paid or promised. In agency, the essence is the delivery to an agent. b. In sale, the transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale. In agency, the transfer does not make the property as the agents own, but that of principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agents commission upon sales made. Besides, The control by the United States Rubber International over the goods in question is pervasive.

G.R. No. L-34338 November 21, 1984 LOURDES VALERIO vs. PEOPLE OF THE PHILIPPINES, respondent. RELOVA, J.: Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo) From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo) The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged. The findings of facts of the appellate court are as follows: ... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads: To Whom It May Concern: This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold. This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug which reads as follows: LIM, petitioner,

Dear Salud, Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita. Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo) In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit: 1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof; 2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration of the period; and 3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo) It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code,

which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows: ... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo) The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold. ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs. G.R. No. 168987 October 17, 2012

PHILIPPINE AIRLINES, INC., Petitioner, vs. FRANCISCO LAO LIM, THE HEIRS OF HENRY GO, MANUEL LIMTONG and RAINBOW TOURS AND TRAVEL, INC., Respondents. DECISION PERALTA, J.: This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision1of the Court of Appeals (CA), dated March 22, 2005, and its Resolution 2 dated July 15, 2005, denying herein petitioner's Motion for Reconsideration of the aforementioned Decision, be reversed and set aside. The records reveal the CA's narration of the facts to be accurate, to wit: Plaintiffs are Cebu-based businessmen, that is, plaintiff Francisco Lao Lim is engaged in real estate and trading, Mr. Henry Go in export and distribution of weighing scales and Mr. Manuel Limtong in the printing press business. All three plaintiffs decided to venture into business transactions involving the purchase of weighing scales from one Mrs. Ng Yuen Ming of Hongkong and printing press equipments from Mrs. Myrna Irsch of Germany. In line with these ventures, they scheduled important appointments with the said dealers in Hongkong on 26 February 1991 in order to conclude their agreements and thereafter sign the necessary contracts.

On 22 February 1991, plaintiff Francisco Lao Lim went to the office of third-party defendant Rainbow Tours and Travel, Inc. ("Rainbow Tours") and purchased three (3) confirmed PAL roundtrip tickets. They were booked on a Link-Flight PR842 Cebu-Manila on February 25, 1991 (Monday) at 12:05 P.M. and Flight PR300 Manila-Hongkong on February 26, 1991 (Tuesday) at 8:00 A.M. The return trip was on March 1, 1991 at 11:05 A.M. Hongkong-Manila (Flight PR301) and Manila-Cebu (Link-Flight PR512) at 2:50 P.M. of the same day. On February 23, 1991, plaintiff Francisco Lao Lim returned to the office of Rainbow Tours to inquire on the availability of seats for the PAL Manila-Hongkong flight on February 26, 1992 at 5:00 p.m. so that they could reset their Hongkong meetings scheduled on 26 February 1991 to a later time. Francisco Lao Lim was referred to Rainbow Tours travel agent, Gemma Dingal, who called up PAL Reservations. Upon being informed of the unavailability of seats for the 5:00 p.m. flight, Francisco Lao Lim left Rainbow Tours without making any cancellations of their confirmed bookings that were stated in their respective tickets. As scheduled, plaintiffs took the Cebu-Manila Flight No. PR842 on February 25, 1991. The next day, February 26, 1991, at the check-in counter at the Ninoy Aquino International Airport (NAIA), plaintiffs Francisco Lao Lim and Henry Go were informed by PAL's check-in clerk that their bookings on Flight PR300 Manila-Hongkong (8:00 a.m.) had been cancelled and that their names were not on the computer's passenger list for the said flight. Plaintiff Manuel Limtong, however, was able to board the flight. Francisco Lao Lim and Henry Go explained to the check-in clerk that they were holding confirmed bookings and that they did not have the same cancelled. They likewise begged and pleaded that they be allowed to board the said flight but their pleas fell on deaf ears. At 5:00 p.m. of the same day, plaintiffs Francisco Lao Lim and Henry Go took Flight No. PR301 leaving Manila to Hongkong. Plaintiffs brought this suit for breach of contract of carriage and damages against PAL alleging that the PAL personnel at the check-in clerk at NAIA arrogantly shouted at them and humiliated them in front of the other passengers by labeling their tickets "cheap tickets" thus entitling them to moral damages in the amount of P350,000.00 each as such abusive and injurious language had humiliated them, wounded their feelings and besmirched their reputations. Plaintiffs further claimed that because of their failure to reach Hongkong in time for the scheduled business conferences, their contacts did not anymore wait for them. They claimed that the 26 February 1991 business meeting with Mrs. Ng involving the purchase of weighing scales at discounted rates should have pushed through since this was the last day given to the plaintiffs to close the deal otherwise Mrs. Ng is selling the stocks to other interested buyers. Even though Manuel Limtong was able to meet with Mrs. Ng, the deal was not finalized since it was only plaintiff Henry Go who could properly negotiate with Mrs. Ng as to what kind of scales they should purchase. Plaintiffs likewise claim that the transaction on the purchase of several German printing press equipments on consignment was not consummated because their German contact, Mrs. Irche, insisted on meeting all three plaintiffs considering that the proposed transaction involved a huge amount. According to the plaintiffs, Mrs. Ng disposed the stocks of weighing scales to another buyer whereas Mrs. Irche left Hongkong without meeting with them despite their efforts to schedule another meeting with her. Since the business deals that could have earned them a profit of P3,567,000.00 were not consummated, they should then be entitled to the said amount. Plaintiffs also seek the payment of exemplary damages and attorney's fees. In its defense, PAL contended that plaintiffs were revenue passengers who made their travel arrangements with Rainbow Tours. PAL then impleaded Rainbow Tours and Travel, Inc. as thirdparty defendants, ascribing liability on the latter for whatever damages were suffered by plaintiffs Lao Lim and Go. Based on the Post Date Investigation Print-out and the testimonies of PAL witnesses

Racil Corcuera (PAL Passenger load analyst at Cebu Mactan Office) and Rosy Mancao (Sales Representative), PAL contended that the cancellation of plaintiffs Mr. Lao Lim and Mr. Go's confirmed bookings for the 8:00 a.m. Manila-Hongkong flight on 26 February 1991 was upon request of Gemma Dingal ("Gemma") of Rainbow Tours. PAL alleges that Gemma called Racil Corcuera ("Racil") at 10:46 a.m. of 23 February 1991 and instructed Racil to cancel the original confirmed bookings of plaintiffs Mr. Lao Lim and Mr. Go. While in the process of encoding the new itinerary, Racil found out that PR310 Manila-Hongkong (5:00 p.m. flight) on 26 February 1991 was already fully booked. Racil asked Gemma if she was definite about the new itinerary even if there was no confirmation of the PR310 flight and that plaintiffs will be put on the waitlist, to which, Gemma replied that plaintiffs clearly instructed her that they did not want to stay overnight in Manila and that it was alright to cancel their original confirmed reservations, put the plaintiffs on waitlist status for PR310 February 26, 1991 and then book them for the PR511 (Cebu-Manila) flight at 12:10 p.m. on 26 February 1991 to be connected to PR310 (Manila Hongkong) flight at 5:00 p.m. on 26 February 1991. As for the Hongkong-Manila trip, Gemma instructed that plaintiffs be booked on PR301 at 11:05 a.m. on 3 March 1991 with connecting flight to Cebu at 2:50 p.m. of the same day. After giving all the foregoing instructions, Gemma then requested Racil to retain plaintiffs' confirmed booking PR300 (8:00 a.m.) Manila-Hongkong on 26 February 1991). Records show, however, that Racil erroneously requested for the reinstatement for the PR 300 flight on February 25, 1991 instead of February 26, 1991. Three hours later, Racil made the proper correction by requesting for the reinstatement of plaintiffs' booking for PR300 on 26 February 1991. Several requests for reinstatement were subsequently made but there was no respond from the flight controller. Eventually, Racil learned from Violy of the Manila Office that the request was on critical status because of the overflow of passengers since the PR300 (Manila-Hongkong) flight on 25 February 1991 had been cancelled. Despite several efforts by PAL employees, viz, Rosy Mancao, Lyndon Maceren (Senior Passenger Loan Analyst) and Lito Camboanga (Shift Supervisor), plaintiffs' bookings for the PR300 flight could not be confirmed. A perusal of the records show that PAL witness Rosy Mancao testified that PAL and Rainbow Tours agreed not to tell the plaintiffs that their confirmed bookings for PR300 on 26 February 1991 had been erroneously cancelled and that the said flight was on critical status due to an overbooking of passengers because if they inform the plaintiffs "it would just create further problems." PAL witness Mariano Aldee III who was assigned at the Check-In Counter disputed plaintiffs' claims that they were rudely treated by PAL employees, giving five reasons why passengers must be handled politely and courteously, to wit: (1) PAL employees underwent 5-week trainings on proper handling and courteous treatment; (2) airline employees' uniform practice of treating passengers politely; (3) PAL's corporate policy is "Total Passenger Care"; (4) PAL subjects employees to administrative sanctions when employees are impolite and discourteous, and (5) their superiors would make them explain if employees exhibit any rudeness or discourtesy to passengers. Mr. Aldee further testified that Flight PR300 on February 26, 1991 was an Airbus 300 with a capacity of 344 passengers, 24 of these on the business class while 220 seats for the economy class. Two jump seats were occupied by non-revenue passengers who were PAL employees but not on duty on that particular flight. For that said flight, PAL overbooked for 44 more passengers, that is, 28 for the business class and 260 for the economy class. Since there were only 22 business class passengers who showed up, two passengers from the economy class were "upgraded" to business class. Witness further testified that no waitlisted passenger was accepted for boarding on that flight. Rainbow Tours presented Gemma Dingal and Ruby Lim (one of the owners of Rainbow Tours) as its witnesses, whose testimonies mainly attributed the erroneous cancellation of Mr. Lao Lim and Mr. Go's confirmed bookings for the PR300 Manila-Hongkong flight at 8:00 a.m. to Racil Corcuera. According to Gemma, she called up PAL merely to inquiry (sic) as to the availability of seats for the 5:00 p.m. Manila-Hongkong flight on 26 February 1991. She was taken by surprise when Racil immediately cancelled the confirmed bookings even if there was no instruction on her part to do so.

Gemma immediately informed Ruby Lim of the erroneous cancellation and despite all their efforts to reinstate the original confirmed bookings, the same could not be done. On 18 June 1996, the court a quo RTC rendered a Decision with the following dispositive portion: WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Airlines and thirdparty defendant Rainbow Tours and Travel, Inc. to jointly and severally pay unto the plaintiff Francis Lao Lim the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00), in concept of reasonable temperate or moderate damages, and a like or similar sum to the substituted plaintiff-heirs of the late Henry Go, likewise by way of reasonable temperate or moderate damages plus the aggregate sum of TWENTY-FIVE THOUSAND PESOS (P25,000.00) as and for attorney's fees. Costs against defendant Philippine Airlines and third-party defendant Rainbow Tours and Travel Incorporated. SO ORDERED. Aggrieved by the court a quo's ruling, plaintiffs and PAL interposed their respective appeals. 3 On March 22, 2005, the CA promulgated its Decision, holding that petitioner clearly breached its contract of carriage with Mr. Lao Lim and Mr. Go. The CA disposed as follows: WHEREFORE, based on the foregoing premises, the 18 June 1996 Decision of the court a quo is MODIFIED, to wit: 1. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow Tours and Travel, Inc. are jointly and severally liable to pay plaintiffs-appellants Francisco Lao Lim the sum of PESOS: Fifty Thousand (P50,000.00) in concept of moral damages and PESOS: Fifty Thousand (P50,000.00) by way of exemplary damages for breach of contract of carriage; 2. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow Tours and Travel Inc. are jointly and severally liable to pay the substituted heirs of plaintiff-appellant of the late Henry Go (sic) the sum of PESOS: Fifty Thousand (P50,000.00) in concept of moral damages and PESOS: Fifty Thousand (P50,000.00) by way of exemplary damages for breach of contract of carriage; 3. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow Tours and Travel Inc. are jointly and severally liable to pay each of the plaintiffs-appellants the sum of PESOS: One Hundred Thousand (P100,000.00) by way of temperate or moderate damages; 4. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow Tours and Travel Inc. are jointly and severally liable to pay the aggregate sum of PESOS: Sixty Thousand (P60,000.00) as and for attorney's fees; 5. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines' claim for contribution, indemnity, subrogation and other reliefs from third-party defendant-appellee Rainbow Tours and Travel Inc. is DENIED for lack of merit;

6. Costs against defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow Tours and Travel Incorporated. SO ORDERED.4 Petitioner's motion for reconsideration of the CA Decision was denied per Resolution dated July 15, 2005. Hence, this petition before the Court, with petitioner alleging that: I THE MARCH 22, 2005 DECISION AND JULY 15, 2005 RESOLUTION OF THE COURT OF APPEALS DID NOT RESOLVE THE PETITIONER'S NOVEMBER 3, 1998 MOTION TO SUSPEND PROCEEDINGS ON THE GROUND OF THE LATTER'S REHABILITATION RECEIVERSHIP. II RESPONDENTS FRANCISCO LAO LIM AND THE LATE HENRY GO WERE NOT HOLDING CONFIRMED BOOKINGS OR RESERVATION ON PAL'S PR300 (MANILA-HONGKONG) ON FEBRUARY 26, 1991 SINCE THE SAME WAS CANCELLED PURSUANT TO THE CATEGORICAL INSTRUCTION OF GEMMA DINGAL OF RESPONDENT RAINBOW TOURS. III THE LATE RESPONDENT HENRY GO OR HIS HEIRS DID NOT TESTIFY IN COURT. HENCE, HE IS NOT ENTITLED TO THE AWARDS OF P50,000 AS MORAL DAMAGES AND P50,000 AS EXEMPLARY DAMAGES AND ATTORNEY'S FEES. IV RESPONDENT MANUEL LIMTONG IS NOT ENTITLED TO P100,000 AS TEMPERATE OR MODERATE DAMAGES AND ATTORNEY'S FEES BECAUSE HE BOARDED, SANS ANY PROBLEM, PR 300/MANILA-HONG-KONG/FEBRUARY 26, 1991 WHICH WAS THE FLIGHT AND DATE ON WHICH HE HELD A CONFIRMED BOOKING. V THE AWARD OF TEMPERATE OR MODERATE DAMAGES OF P100,000 TO EACH OF THE OTHER INDIVIDUALS IS BEREFT OF FACTUAL AND LEGAL SUPPORT. VI RESPONDENT RAINBOW TOURS AND TRAVEL, INC. SHOULD BE MADE LIABLE TO THE INDIVIDUAL RESPONDENTS AND PETITIONER SHOULD BE ABSOLVED OF ANY LIABILITY. 5 The petition deserves some consideration.

First, the issue of whether proceedings should be suspended on the ground that petitioner is under rehabilitation receivership, is now moot and academic. Petitioner is no longer under such status effective September 28, 2007, pursuant to the Order dated September 28, 2007 issued by the Securities and Exchange Commission.6 Therefore, this can no longer be an obstacle to legal proceedings against petitioner. Going into the merits of the case, it is best to set it against the backdrop of the basic tenet that "in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier."7 Petitioner then questions first, whether respondents Francisco Lao Lim and the late Henry Go had confirmed bookings on petitioner's flight PR300 (Manila-Hongkong) on February 26, 1991. Petitioner insists that respondents Lao Lim's and Go's bookings were cancelled because of the instructions of Ms. Dingal of the travel agency Rainbow Tours, with whom respondents were transacting. Petitioner points out supposed inconsistencies in the testimony, affidavits and other documents of Ms. Dingal, arguing that her testimony, i.e., that the erroneous cancellation of respondents Lao Lim's and Go's bookings were done by PAL's employee, Racil, without any instruction from her or respondent Lao Lim, should not be given credence as she appears to be a "coached" witness. A close examination of the supposed inconsistencies, however, reveals that the same are too inconsequential to give any serious consideration. Moreover, petitioner presented this matter regarding the alleged inconsistencies in the statements of witnesses before the trial court, and yet said court still found the witness and her testimony - that there was no instruction given to cancel respondents' bookings for the PR300 flight on February 26, 1991 - to be worthy of belief. The Court again emphasizes that "findings of the trial court on the matter of credibility of witnesses are entitled to the highest degree of respect and will not be disturbed on appeal,"8 because said lower court had the opportunity to observe, firsthand, how the witnesses testified. 9 The trial court ruled that respondents Lao Lim and Henry Go were indeed holding confirmed tickets for PR300 on February 26, 1991, as they did not have their bookings cancelled. Such factual finding was upheld by the appellate court. Petitioner should bear in mind that findings of fact of the trial court, when affirmed by the CA, are binding and conclusive on this Court, as it is not a trier of facts. 10 Although there are accepted exceptions to this general rule, this case does not fall under any such exceptions. Thus, the findings of the lower courts that respondents Francisco Lao Lim and Henry Go were holding confirmed plane tickets and yet were not transported by petitioner, are binding on this Court. Having proven the existence of a contract of carriage between respondents Lao Lim and Go, and the fact of nonperformance by petitioner of its obligation as a common carrier, it is clear that petitioner breached its contract of carriage with respondents Lao Lim and Go. The next question posed by petitioner is, are the appellate court's awards for damages in favor of respondents proper? The Court finds some of petitioner's arguments meritorious. Petitioner assails the award of P50,000.00 as moral damages granted to the heirs of Henry Go despite the fact that neither Henry Go nor any of his heirs testified on matters that could be the basis for such monetary award. In Philippine Savings Bank vs. Manalac, Jr.,11 the Court ruled, thus: x x x The award of moral damages must be anchored on a clear showing that the complainant actually experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury. There was no better witness to this experience than complainant himself. Since complainant failed to testify on the witness stand, the trial court did not have any factual basis to award moral damages to him. x x x Mere allegations do not suffice; they must be substantiated by clear and convincing proof.12 (Emphasis supplied)

Indeed, in this case, since respondent Henry Go was not able to testify, there is then no evidence on record to prove that he suffered mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury by reason of petitioner's conduct. Thus, on the award of moral damages in favor of deceased respondent Go, substituted by his heirs, the Court finds the same improper as it lacks the required factual basis. However, there was no error committed by the lower courts with regard to the award of temperate or moderate damages of P100,000.00 to respondents Lao Lim and Go. The New Civil Code provides: Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved, with certainty. Here, the trial and appellate courts also made the factual findings that the purpose for respondents Lao Lim's, Henry Go's, and Manuel Limtong's trip to Hongkong was to conduct business negotiations, but respondents Lao Lim and Henry Go were not able to meet their counterparts as they were not allowed to board the PR300 flight on February 26, 1991. As discussed earlier, said factual finding is deemed conclusive and the circumstances appearing on record convinced this Court that respondents Lao Lim and Henry Go suffered some pecuniary loss due to their failure to meet with their business associates. Understandably, it is difficult, if not impossible, to adduce solid proof of the losses suffered by respondents due to their failure to make it to their business meetings. Certainly, respondents' time and effort were wasted when they left their businesses in Cebu, all for naught, as the business negotiations they were supposed to conduct in Hongkong did not push through. One cannot discount the fact that business opportunities were lost. Thus, it is only just that respondents Lao Lim and Henry Go be awarded temperate or moderate damages. As to the award of exemplary damages in favor of respondent Go, Gatmaitan vs. Gonzales, 13 is instructive, to wit: x x x Article 2229 of the Civil Code provides that exemplary or corrective damages are imposed in addition to the moral, temperate, liquidated or compensatory damages. Exemplary damages are not recoverable as a matter of right. The requirements of an award of exemplary damages are: (1) they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established; (2) that they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner. x x x14 (Emphasis supplied) Since respondent Go is entitled to temperate damages, then the court may also award exemplary damages in his favor.15 Indeed, exemplary damages are in order because petitioner and Rainbow Tours, through their respective employees, acted in bad faith by not informing respondents Lao Lim and Go of the erroneous cancellation of their bookings on the PR300 flight on February 26, 1991. Both the trial and appellate courts are correct in their interpretation that Ms. Mancao, petitioner's employee, and Rainbow Tours Ms. Dingal acted in concert in not telling respondents Lao Lim and Go of the problems regarding their bookings. Ms. Mancao in effect reinforced and agreed to Ms. Dingal's decision not to tell respondents Lao Lim and Go, by telling Ms. Dingal that "if you tell the passengers, it might just create further problems."16 However, the Court agrees with petitioner that respondent Manuel Limtong is not entitled to any award for damages because, as to said respondent, petitioner faithfully complied with their contract of carriage. Respondent Limtong was able to board PR300 on February 26, 1991, as stated in his confirmed plane ticket. The contract of carriage does not carry with it an assurance that he will be

travelling on the same flight with his chosen companions. Even if petitioner failed to transport respondents Lao Lim and Go on the same flight as respondent Limtong, there is absolutely no breach of the contract of carriage between the latter and petitioner. Hence, petitioner should not be made liable for any damages in favor of respondent Limtong. Petitioner is also liable for attorney's fees, because records show that respondents demanded payment for damages from petitioner but it was only after respondents filed a case in court that petitioner offered some form of restitution to respondents, which the latter found insufficient. Clearly, respondents were forced to obtain services of counsel to enforce a just claim, for which they should be awarded attorney's fees. Lastly, the Court finds petitioner's claim that only herein respondent, (third-party defendant before the trial court) Rainbow Tours and Travel, Inc., should be made liable to respondents Lao Lim and Go, to be untenable. They have acted together in creating the confusion leading to the erroneous cancellation of aforementioned respondents' confirmed bookings and the failure to inform respondents of such fact. As such, they have become joint tortfeasors, and in Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation,17 the Court elucidated thus: x x x Where there are several causes for the resulting damages, a party is not relieved from liability, even partially. It is sufficient that the negligence of a party is an efficient cause without which the damage would not have resulted. It is no defense to one of the concurrent tortfeasors that the damage would not have resulted from his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern Shipping v. Court of Appeals, x x x. Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not have happened, the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case, it may appear that one of them was more culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury. 1wphi1 There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total damage. Where the concurrent or successive negligent acts or omissions of two or more persons, although acting independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194 of the Civil Code. [Emphasis supplied] 18 Thus, petitioner and Rainbow Tours and Travel, Inc. are jointly and solidarily liable for damages awarded to respondents Lao Lim and Go. IN VIEW OF THE FOREGOING, the Decision of the Court of Appeals, dated March 22, 2005, is hereby MODIFIED by DELETING the award for moral damages in favor of the substituted heirs of the late Henry Go, and DELETING the award of temperate or moderate damages in favor of respondent Manuel Limtong. SO ORDERED. DIOSDADO Associated Justice M. PERALTA

WE CONCUR: PRESBITERO Associate Chairperson J. VELASCO, JR. Justice

TERESITA J. LEONARDO-DE CASTRO* ROBERTO Associate Justice Associate Justice JOSE Associate Justice ATTESTATION CATRAL

A.

ABAD

MENDOZA

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. PRESBITERO Associate Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. MARIA Chief Justice LOURDES P. A. SERENO J. VELASCO, JR. Justice

CONTRACT FOR A PIECE OF WORK

G.R. No. L-8506

August 31, 1956 COMPANY, petitioner,

CELESTINO CO & vs. COLLECTOR OF INTERNAL REVENUE, respondent.

Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent. BENGZON, J.: Appeal from a decision of the Court of Tax Appeals. Celestino Co & Company is a duly registered general co partnership doing business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the

gross receipts of its sash, door and window factory, in accordance with section one hundred eightysix of the National Revenue Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Said the Court: To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-made doors, sash and windows for the public but only upon special order of its select customers. . . . I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber, of the best quality workmanships" solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a "Factory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a ready-made doors and windows of standard sizes for the average home. Moreover, as shown from the investigation of petitioner's book of accounts, during the period from January 1, 1952 to September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items. Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only special order of its customers, that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. there are no less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code, this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946. The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The

fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. Perhaps the following paragraph represents in brief the appellant's position in this Court: Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p. 11-12). But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically equipped to do so. That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by appellant special forms for sash, mouldings of panels it would not accept the order and no sale is made. If they do, the transaction would be no different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet the specifications desired by the purchaser. Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or servant of the customer,1 not the seller of lumber. The same consideration applies to this sash manufacturer. The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels a construction work in common parlance. 2 Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services".

Said article reads as follows: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for a piece of work filing special orders within the meaning of Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory. The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise? Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. The appealed decision is consequently affirmed. So ordered.

G.R. No. L-27044 June 30, 1975 THE COMMISSIONER vs. ENGINEERING EQUIPMENT AND APPEALS, respondents. G.R. No. L-27452 June 30, 1975 ENGINEERING EQUIPMENT AND SUPPLY vs. THE COMMISSIONER OF INTERNAL REVENUE AND APPEALS, respondent. COMPANY, petitioner, THE COURT OF TAX OF SUPPLY INTERNAL COMPANY AND THE REVENUE, petitioner, COURT OF TAX

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for Commissioner of Internal Revenue, etc. Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for Engineering and Supply Company.

ESGUERRA, J.: Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No. 681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on the Engineering Equipment and Supply Company. As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this case are as follows: Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering and machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design and installation of central type air conditioning system, pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960) On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which occasion voluminous records of the firm were seized and confiscated. (pp. 173-177 T.S.N.) On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the then Collector, now Commissioner, of Internal Revenue (hereinafter referred to as Commissioner) that Engineering be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I) On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of Engineering's penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner replied that the assessment was in accordance with law and the facts of the case.

On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating revenue examiners reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering's Accountant and Auditor. On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows: For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is hereby modified, and petitioner, as a contractor, is declared exempt from the deficiency manufacturers sales tax covering the period from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay respondent, or his duly authorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956. With costs against petitioner. The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was denied on April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452. Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, We have decided to consolidate and jointly decide them. Engineering in its Petition claims that the Court of Tax Appeals committed the following errors: 1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 30% compensating tax on its importations of equipment and ordinary articles used in the central type air conditioning systems it designed, fabricated, constructed and installed in the buildings and premises of its customers, rather than to the compensating tax of only 7%; 2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty of fraud in effecting the said importations on the basis of incomplete quotations from the contents of alleged photostat copies of documents seized illegally from Engineering Equipment and Supply Company which should not have been admitted in evidence; 3. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 25% surcharge prescribed in Section 190 of the Tax Code; 4. That the Court of Tax Appeals erred in holding the assessment as not having prescribed; 5. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable for the sum of P174,141.62 as 30% compensating tax and 25% surcharge instead of completely absolving it from the deficiency assessment of the Commissioner.

The Commissioner on the other hand claims that the Court of Tax Appeals erred: 1. In holding that the respondent company is a contractor and not a manufacturer. 2. In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the Tax Code instead of the 30% sales tax prescribed in Section 185(m) in relation to Section 194(x) both of the same Code; 3. In holding that the respondent company is subject only to the 30% compensating tax under Section 190 of the Tax Code and not to the 30% advance sales tax imposed by section 183 (b), in relation to section 185(m) both of the same Code, on its importations of parts and accessories of air conditioning units; 4. In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code on its importations of parts and accessories of air conditioning units, notwithstanding the finding of said court that the respondent company fraudulently misdeclared the said importations; 5. In holding the respondent company liable for P174,141.62 as compensating tax and 25% surcharge instead of P740,587.86 as deficiency advance sales tax, deficiency manufacturers tax and 25% and 50% surcharge for the period from June 1, 1948 to December 31, 1956. The main issue revolves on the question of whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code. The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows: Section 194. Words and Phrases Defined. In applying the provisions of this Title, words and phrases shall be taken in the sense and extension indicated below: xxx xxx xxx (x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially

manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-conditioning units and spare parts or accessories thereof subject to tax under Section 185(m) of the Tax Code, but a contractor engaged in the design, supply and installation of the central type of air-conditioning system subject to the 3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of a contractor rather than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code. The arguments of both the Engineering and the Commissioner call for a clarification of the term contractor as well as the distinction between a contract of sale and contract for furnishing services, labor and materials. The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. 2 If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. 3 Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus: Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not for the general market, it is a contract for a piece of work. The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Araas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished. With the foregoing criteria as guideposts, We shall now examine whether Engineering really did "manufacture" and sell, as alleged by the Commissioner to hold it liable to the advance sales tax under Section 185(m), or it only had its services "contracted" for installation purposes to hold it liable under section 198 of the Tax Code. I After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well as the exhibits submitted by both parties, We find that Engineering

did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into by it. Engineering, therefore, undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the hearing in the Court of Tax Appeals that relative to the installation of air conditioning system, Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be engineered separately. As found by the lower court, which finding 4 We adopt Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof used by petitioner are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts or accessories thereof are supplied and installed by petitioner upon previous orders of its customers conformably with their needs and requirements. The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a manufacturer. The Commissioner in his Brief argues that "it is more in accord with reason and sound business management to say that anyone who desires to have air conditioning units installed in his premises and who is in a position and willing to pay the price can order the same from the company (Engineering) and, therefore, Engineering could have mass produced and stockpiled air conditioning units for sale to the public or to any customer with enough money to buy the same." This is untenable in the light of the fact that air conditioning units, packaged, or what we know as self-contained air conditioning units, are distinct from the central system which Engineering dealt in. To Our mind, the distinction as explained by Engineering, in its Brief, quoting from books, is not an idle play of words as claimed by the Commissioner, but a significant fact which We just cannot ignore. As quoted by Engineering Equipment & Supply Co., from an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for easy reference: ... there is a great variety of equipment in use to do this job (of air conditioning). Some devices are designed to serve a specific type of space; others to perform a specific function; and still others as components to be assembled into a tailormade system to fit a particular building. Generally, however, they may be grouped into two classifications unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied

or built-up systems, require the installation of components at different points in a building and their interconnection. The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers. There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer, who was once the Chairman of the Board of Examiners for Mechanical Engineers and who was allegedly responsible for the preparation of the refrigeration and air conditioning code of the City of Manila, who said that "the central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes. Continuing further, he testified: I don't think I have seen central type of air conditioning machinery room that are exactly alike because all our buildings here are designed by architects dissimilar to existing buildings, and usually they don't coordinate and get the advice of air conditioning and refrigerating engineers so much so that when we come to design, we have to make use of the available space that they are assigning to us so that we have to design the different component parts of the air conditioning system in such a way that will be accommodated in the space assigned and afterwards the system may be considered as a definite portion of the building. ... Definitely there is quite a big difference in the operation because the window type air conditioner is a sort of compromise. In fact it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II) The point, therefore, is this Engineering definitely did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. Take for instance the case of Celestino Co where this Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a contractor's bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which "sales" were reflected in their books of accounts totalling P118,754.69 for the period from January, 1952 to September 30, 1952, or for a period of only nine (9) months. This Court found said sum difficult to have been derived from its few customers who placed special orders for these items. Applying the abovestated facts to the case at bar, We found them to he inapposite.

Engineering advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system as testified to by Mr. Rey Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not have ready-made air conditioning units for sale but as per testimony of Mr. Parker upon inquiry of Judge Luciano of the CTA Q Aside from the general components, which go into air conditioning plant or system of the central type which your company undertakes, and the procedure followed by you in obtaining and executing contracts which you have already testified to in previous hearing, would you say that the covering contracts for these different projects listed ... referred to in the list, Exh. "F" are identical in every respect? I mean every plan or system covered by these different contracts are identical in standard in every respect, so that you can reproduce them? A No, sir. They are not all standard. On the contrary, none of them are the same. Each one must be designed and constructed to meet the particular requirements, whether the application is to be operated. (t.s.n. pp. 101-102) What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs. McFarland,Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the Position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty." The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed was levied in the performance of its contracts with its customers, and that the customers did not purchase the equipment and have the same installed. Applying the facts of the aforementioned case to the present case, We see that the supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Therefore, We have but to affirm the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than a manufacturer, subject to

the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved to Our satisfaction that Engineering imported air conditioning units, parts or accessories thereof for use in its construction business and these items were never sold, resold, bartered or exchanged, Engineering should be held liable to pay taxes prescribed under Section 190 5of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. Engineering, therefore, should be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section 183(b). II We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of the imported air conditioning units and parts or accessories thereof so as to make them subject to a lower rate of percentage tax (7%) under Section 186 of the Tax Code, when they are allegedly subject to a higher rate of tax (30%) under its Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found adversely and said" ... We are amply convinced from the evidence presented by respondent that petitioner deliberately and purposely misdeclared its importations. This evidence consists of letters written by petitioner to its foreign suppliers, instructing them on how to invoice and describe the air conditioning units ordered by petitioner. ... (p. 218 CTA rec.) Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying the 50% surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as follows: The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code is based on willful neglect to file the monthly return within 20 days after the end of each month or in case a false or fraudulent return is willfully made, it can readily be seen, that petitioner cannot legally be held subject to the 50% surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be held subject to the 50% surcharge under Section 190 of the Tax Code dealing on compensating tax because the provisions thereof do not include the 50% surcharge. Where a particular provision of the Tax Code does not impose the 50% surcharge as fraud penalty we cannot enforce a non-existing provision of law notwithstanding the assessment of respondent to the contrary. Instances of the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on receipts of insurance companies, and franchise tax. However, if the Tax Code imposes the 50% surcharge as fraud penalty, it expressly so provides as in the cases of income tax, estate and inheritance taxes, gift taxes, mining tax, amusement tax and the monthly percentage taxes. Accordingly, we hold that petitioner is not subject to the 50% surcharge despite the existence of fraud in the absence of legal basis to support the importation thereof. (p. 228 CTA rec.) We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by Engineering and We reproduce some of them hereunder for clarity.

As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz: Your invoices should be made in the name of Madrigal & Co., Inc., Manila, Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines forwarding all correspondence and shipping papers concerning this order to us only and not to the customer. When invoicing, your invoices should be exactly as detailed in the customer's Letter Order dated March 14th, 1953 attached. This is in accordance with the Philippine import licenses granted to Madrigal & Co., Inc. and such details must only be shown on all papers and shipping documents for this shipment. No mention of words air conditioning equipment should be made on any shipping documents as well as on the cases. Please give this matter your careful attention, otherwise great difficulties will be encountered with the Philippine Bureau of Customs when clearing the shipment on its arrival in Manila. All invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO." The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.) On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning or referring to the term 'air conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting insulation instead. Likewise on April 30, 1953, Engineering threatened to discontinue the forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.): It will be noted that the Universal Transcontinental Corporation is not following through on the instructions which have been covered by the above correspondence, and which indicates the necessity of discontinuing the use of the term "Air conditioning Machinery or Air Coolers". Our instructions concerning this general situation have been sent to you in ample time to have avoided this error in terminology, and we will ask that on receipt of this letter that you again write to Universal Transcontinental Corp. and inform them that, if in the future, they are unable to cooperate with us on this requirement, we will thereafter be unable to utilize their forwarding service. Please inform them that we will not tolerate another failure to follow our requirements. And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz: In the past, we have always paid the air conditioning tax on climate changers and that mark is recognized in the Philippines, as air conditioning equipment. This matter of avoiding any tie-in on air conditioning is very important to us, and we are asking that from hereon that whoever takes care of the processing of our orders be carefully instructed so as to avoid again using the term "Climate changers" or in any way referring to the equipment as "air conditioning." And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a solution, viz:

We feel that we can probably solve all the problems by following the procedure outlined in your letter of March 25, 1953 wherein you stated that in all future jobs you would enclose photostatic copies of your import license so that we might make up two sets of invoices: one set describing equipment ordered simply according to the way that they are listed on the import license and another according to our ordinary regular methods of order write-up. We would then include the set made up according to the import license in the shipping boxes themselves and use those items as our actual shipping documents and invoices, and we will send the other regular invoice to you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.) Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.) In the process of clearing the shipment from the piers, one of the Customs inspectors requested to see the packing list. Upon presenting the packing list, it was discovered that the same was prepared on a copy of your letterhead which indicated that the Trane Co. manufactured air conditioning, heating and heat transfer equipment. Accordingly, the inspectors insisted that this equipment was being imported for air conditioning purposes.To date, we have not been able to clear the shipment and it is possible that we will be required to pay heavy taxes on equipment. The purpose of this letter is to request that in the future, no documents of any kind should be sent with the order that indicate in any way that the equipment could possibly be used for air conditioning. It is realized that this a broad request and fairly difficult to accomplish and administer, but we believe with proper caution it can be executed. Your cooperation and close supervision concerning these matters will be appreciated. (Emphasis supplied) The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. And since the commission of fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in absolving Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly intolerable act of tax evasion. As aptly stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the 50% surcharge because in any case whether it is subject to advance sales tax or compensating tax, it is required by law to truly declare its importation in the import entries and internal revenue declarations before the importations maybe released from customs custody. The said entries are the very documents where the nature, quantity and value of the imported goods declared and where the customs duties, internal revenue taxes, and other fees or charges incident to the importation are computed. These entries, therefore, serve the same purpose as the returns required by Section 183(a) of the Code.' Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax Appeals and hold Engineering liable for the same. As held by the lower court: At first blush it would seem that the contention of petitioner that it is not subject to the delinquency, surcharge of 25% is sound, valid and tenable. However, a

serious study and critical analysis of the historical provisions of Section 190 of the Tax Code dealing on compensating tax in relation to Section 183(a) of the same Code, will show that the contention of petitioner is without merit. The original text of Section 190 of Commonwealth Act 466, otherwise known as the National Internal Revenue Code, as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not provide for the filing of a compensation tax return and payment of the 25 % surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code as amended by Commonwealth Act No. 503, the contention of the petitioner that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by the Republic Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June 16, 1956 and August 24, 1956 respectively, which invariably provides among others, the following: ... If any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes, corresponding entry should be made in the books of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax. Since the imported air conditioning units-and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. ... Consequently; as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.) III Lastly the question of prescription of the tax assessment has been put in issue. Engineering contends that it was not guilty of tax fraud in effecting the importations and, therefore, Section 332(a) prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is five years from the date the questioned importations were made. A review of the record however reveals that Engineering did file a tax return or declaration with the Bureau of Customs before it paid the advance sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its importations. Section 332 of the Tax Code which provides: Section 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission.

is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from Engineering. The, tax assessment was made within the period prescribed by law and prescription had not set in against the Government. WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is hereby also made liable to pay the 50% fraud surcharge. SO ORDERED. CIR vs. Engineering Equipment by Maki COMMISSIONER OF INTERNAL REVENUE vs. ENGINEERING EQUIPMENT G.R. No. L-27044 June 30, 1975

Facts:

Engineering Equipment and Supply Co., an engineering and machinery firm, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications.

CIR received an anonymous letter denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. So, NBI and Central Bank conducted a raid and search on which occasion voluminous records of the firm were seized and confiscated. CIR also reported about deficiency advance sales tax. CIR assessed against the Company payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of the Companys penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioners assessment.Engineering appealed the case to the Court of Tax Appeals. During the pendency of the case the investigating revenue examiners reduced the Companys deficiency tax. CTA declared that Engineering is a contractor and is exempt from deficiency manufacturers sales tax. The Commissioner, not satisfied with the decision of the CTA, appealed to the Supreme Court.

Issue:

1) WON Engineering Equipment is a manufacturer or contractor? CONTRACTOR.

2) Corrollarily WON the installation of a centralized air-conditioning system a contact of sale or a contract for piece of work? CONTRACT FOR PIECE OF WORK. 3) Is Celestino Co vs. CIR case applicable in this case? NO.

Held:

1)

The word contractor has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. The true test of a contractor is that when he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.

Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils) which were used in executing contracts entered into by it. Engineering undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type taking into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. Relative to the installation of air conditioning system, Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be engineered separately.

2)

NATURE OF OBJECT TEST:

The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one NOT in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps

on hand for sale to anyone, and no change or modification of it is made at defendants request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.

The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineerings customer, the said air conditioning units were not intended for sale to the general public. Hence, it is a contract for a piece of work.

3)

Celestino Co compared to Engineering Equipment:

Points of discussion: 1) 2) Advertisement as manufacturer/contractor Ready-made materials

In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print ORIENTAL SASH FACTORY. As a general rule, sash factories receive ord ers for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which sales were reflected in their books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum difficult to have been derived from its few customers who placed special orders for these items. In the present case, the company advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system. Similarly, it did not have ready-made air conditioning units for sale.

G.R. No. 153033

June 23, 2005

DEL MONTE vs. NAPOLEON N. ARAGONES, respondent. DECISION CARPIO-MORALES, J.:

PHILIPPINES,

INC., petitioner,

The decision in the present Petition for Review on Certiorari hinges on the nature of the contract denominated"Supply Agreement"1 which was forged between Dynablock Enterprises, represented by its Manager herein respondent Napoleon N. Aragones (Aragones) and Mega-Engineering Services in joint venture with WAFF Construction System Corporation (MEGA-WAFF) whether it was one of sale or for a piece of work. On September 18, 1988, herein petitioner Del Monte Philippines Inc. (DMPI) entered into an "Agreement"2 with MEGA-WAFF, represented by "Managing Principal" Edilberto Garcia (Garcia), whereby the latter undertook "the supply and installation of modular pavement" at DMPIs condiments warehouse at Cagayan de Oro City within 60 calendar days from signing of the agreement. To source its supply of concrete blocks to be installed on the pavement of the DMPI warehouse, MEGA-WAFF, as CONTRACTOR represented by Garcia, entered into a "Supply Agreement" with Dynablock Enterprises,represented by herein respondent Aragones, as SUPPLIER, under the following terms: 1. ITEMS TO BE SUPPLIED The SUPPLIER at its own expense shall provide the CONTRACTOR with labor and all materials, equipment, tools and supplies necessary and incident thereto, the required concrete blocks at the contractors specified casting site, all in accordance with the terms and conditions of this agreement, as well as therequirements of the project specifications and provisions with respect to the fabrication of concrete blocks. 2. PRICE The CONTRACTOR will pay the supplier in consideration for the full and total performance of the above undertaking, inclusive of all applicable taxes, the unit price of P7.00 per supplied and accepted piece. This price is based on the assumption that the cost per bag of premium cement is P54.00 and aggregate atP95.00 per cu. m. Any increase of the above raw materials shall be to the account of the contractor. All taxes shall be for the account of the contractor. 3. PLANT/EQUIPMENT 3.1 - The machines for the fabrication/casting of the concrete blocks, including all necessary equipment and accessories, shall be provided by the SUPPLIER. The machines and equipment shall be mobilized and made operational at the specified casting location/stockpiling yard designated and provided by the CONTRACTOR. 3.2 - The SUPPLIER shall ensure that all plant facilities/equipment must, at all times, be accessible for inspection by the representatives of the CONTRACTOR.

3.3 - The SUPPLIER shall ensure that the plant/casting machines actual operating capacities shall not be lower than 75,000 pieces every month. If at any time within the life of this agreement the plant/casting machines are proven to be operating below the required minimum capacity as aforesaid, the SUPPLIER shall be obliged to take the necessary actions to upgrade the plant/casting machines and/or make the necessary rehabilitation to increase the capacity to the required level. 4. QUALITY OF MATERIALS 4.1 The SUPPLIER guarantees that all materials supplied to the CONTRACTOR shall meet the approved specifications (Attached Annex "A") at 5,000 pci. In this connection, the CONTRACTOR shall assign an inspector at the casting site to ensure that all items supplied shall conform with the approved standards. 4.2 The CONTRACTOR may reject any finished product or materials which do not pass the approved standards. 4.3 There shall be a system of sampling the output of the plant and/or each casting machine for testing in accordance with the quality standards specified. Result of such sampling tests shall be the basis for acceptance or rejection of the finished materials. 4.4 Where the CONTRACTOR has provided materials to the SUPPLIER to be incorporated into the SUPPLIERs production, as in the case of cement and aggregates, the cost of such materials which becomes part of the rejected products due to faulty batching/mixing/curing shall be for the account of the SUPPLIER. 5. MATERIALS AND OTHER PROVISIONS SUPPLIED BY THE CONTRACTOR 5.1 - All the materials are for the account of the SUPPLIER. The CONTRACTOR shall, however, provide all the cement and aggregates requirement for the fabrication of the concrete blocks, in which the corresponding cost shall be deducted from the periodical proceeds due to the SUPPLIER. 5.2- The CONTRACTOR shall provide and make available to the SUPPLIER the following provisions/facilities free of charge: a) Casting/Fabrication Area b) Stockpile Area c) Warehouse for Cement d) An all-weather working shed for workers e) Night Watchers 5.3 The CONTRACTOR shall arrange for the installation of electrical and water facilities for the work in which the cost of electricity and water actually consumed shall be borne by the SUPPLIER.

5.4 The SUPPLIER shall be responsible for all materials already turned over by the CONTRACTOR at the casting area. The responsibility, however, of the SUPPLIER on the finished products ceases upon loading of the same to the CONTRACTORs truck on way to the project site. 6. OBLIGATIONS OF SUPPLIER 6.1 To fabricate and provide the required block machines in such number adequate to cope up with time schedule. 6.2 To provide concrete mixers: one (1) unit of two-bagger, and two (2) units of onebagger. 6.3 To provide drying racks, measuring boxes, wheel borrows and other necessary hand tools. 6.4 To supervise and provide the required manpower for the operation and production of concrete blocks. 6.5 To undertake the following: a) mixing and formulation of proper mix. b) to consolidate, form and compress the blocks. c) to unload the formed blocks into the drying racks. d) after initial setting of blocks, to unload and arrange them to wooden pallets. e) curing of blocks as per approved standards. 7. OTHER OBLIGATIONS OF CONTRACTOR 7.1 - To provide tarpaulin or canvas or plastic sheets to cover blocks during the seasoning stage. 7.2 - To provide forklift and wooden pallets. 8. EXCLUSIVITY OF PRODUCTION 8.1 - Effective upon the execution of this agreement, the SUPPLIER binds itself to devote the entire plant/casting machines and its accessories for the CONTRACTORs exclusive use and full operation and production of the required concrete blocks for the intended project. 8.2 The SUPPLIER or his agents or representatives shall not, directly or indirectly, enter into any contract, agreement, concessions or transactions of whatever nature or kind with the project owner or of its representative which will affect the rights, interest or participation of the CONTRACTOR in regard to the execution and accomplishment of the project.

8.3 In case of violation of this exclusivity clause, utmost fidelity and good faith being of the essence, the CONTRACTOR shall have the right to demand reasonable amount of damages or terminate this agreement upon due notice. 9. CONDITIONS OF PAYMENT 9.1 Upon mobilization of the casting machines, equipments accessories and making some operational at the casting area by the SUPPLIER, the CONTRACTOR shall advance to the supplier a downpayment or mobilization fund of TEN THOUSAND (P10,000.00) PESOS per machine. Said mobilization fee shall be deducted from the proceeds of the SUPPLIER at two (2) equal installments beginning at the first billing. 9.2 - The SUPPLIER shall present its billing every fifteen days based on the below indicated payment schedule: a) Billing from 1st/day/month to 15th day payable after fifteen days from the date the billing is submitted. b) Billing from the 16th day of the month to the 31st day of the month, payable after fifteen days from the date the billing is submitted. 10. EFFECTIVITY OF CONTRACT This agreement shall be co-terminus with the terms of the contract for the project and/or upon completion of all requirements therefor; PROVIDED, However, that if for some reason or another the production of the concrete blocks is temporarily suspended, this agreement shall remain in force and effective for a period of fifteen (15) days from the date of the cessation of production. In case the said grace period expires without the production having resumed, the CONTRACTOR shall be obliged to pay reasonable compensation for the period of suspension counted from the expiration of the said grace period. 11. PERFORMANCE BOND The SUPPLIER shall post a SURETY/PERFORMANCE BOND in such sums which may be deemed adequate to secure its faithful compliance of the terms and conditions of this agreement. 12. PENALTY CLAUSE In the event the SUPPLIER fails to meet the requirements demanded in this agreement or when the SUPPLIER is in delay in the performance of its obligation to the prejudice of the CONTRACTOR, the SUPPLIER shall answer for the corresponding damages equivalent to one-tenth (1/10) of the rated monthly production capacity. (Emphasis and underscoring supplied).3 Aragones thereupon started assembling the machines for the fabrication/casting of the concrete blocks which MEGA-WAFF specified to be hexagonal shaped. MEGA-WAFF, through Garcia, later directed Aragones to instead fabricate machines for S shaped blocks. As stated in the "Agreement" between DMPI and MEGA-WAFF, the deadline for the installation of the pavement of the warehouse was November 18, 1988, but it was not met. As extended, the

installation was finished on or about February 28, 1989, but MEGA-WAFF was, in accordance with its agreement with DMPI, penalized for the delay, albeit at a reduced amount. Aragones, having in the meantime gotten wind of MEGA-WAFF & DMPIs "Agreement," more particularly the imposition of a penalty by DMPI for the delay in the completion of the installation of the warehouse pavement, appealed to DMPI, by letter of March 4, 1989,4 for leniency in the imposition of the penalty which "would affect [him] also although [he] was not a direct party to the contract," he inviting attention to the "intricacy and enormity of the job involved." Aragones later failed to collect from MEGA-WAFF the full payment of the concrete blocks. He thus sent DMPI a letter dated March 10, 1989,5 received by the latter on March 13, 1989,6 advising it of MEGA-WAFFs unpaid obligation and requesting it to earmark and withhold the amount of P188,652.65 "from [MEGA-WAFFs] billing" to be paid directly to him "[l]est Garcia collects and fails to pay [him]." DMPI, in the meantime, verbally advised Aragones to secure a court order directing it to withhold payment of the amount due MEGA-WAFF for, in the absence of such court order, DMPI was under its agreement with MEGA-WAFF obliged to release full payment within 30 days from acceptance of the completed work. It appears that Aragones reiterated his request to DMPI for direct payment to him, by letter of March 28, 1989.7This was followed by another letter dated April 6, 19898 which was received on April 8, 19899 by DMPI, copy of which it referred to Garcia, by letter of April 27, 1989, 10 for his comment. By letter of May 3, 198911 addressed to DMPI, Garcia, commenting on Aragones April 6, 1989 letter, stated: xxx If there is somebody who have (sic) justifiable ground to complain, it is MEGA-WAFF against Atty. Aragones for all the miseries and embarrassment we had suffered due to the factors attributable to Atty. Aragones Dynablock Enterprises. For proper evaluation of things and to give both parties a fair chance, we enclosed ( sic) pertinent papers for your perusal. As contractor and businessman, it is our firm policy not to take advantage of other people and definitely not to renegade (sic) from commitments/obligations. We are willing to pay Atty. Aragones but based on the actual accomplishment and amount only due to him as per reconciliation furnished to him. (attached) We sincerely hope that the facts we had presented will suffice, and please accept our apology for whatever inconvenience it has caused you and we pray that this matter of payments be settled soon for the general benefit of all concerned. x x x (Underscoring supplied). It turned out that DMPI had, on or about April 6, 1989, released to MEGA-WAFF a check dated April 4, 1989 in the amount of P157,863.77 representing DMPIs balance of its obligation to MEGA -WAFF.

Aragones was thus prompted to file on May 25, 1989 a complaint 12 for sum of money (P188,652.65) with damages against Garcia and/or MEGA-WAFF and DMPI before the Regional Trial Court (RTC) of Lanao del Norte which was raffled to Branch 5 thereof. Aragones impleaded DMPI on the strength of Articles 1729 and 1467 of the Civil Code, he contending that it was liable to him who put labor upon or furnished materials for a piece of work. By his July 14, 1989 Answer,13 Garcia, without disputing the amount being collected by Aragones, justified his "refusal to satisfy [Aragones] demand" by claiming that Aragones defaulted in his obligation under the "Supply Agreement". DMPI, by its Answer14 of June 25, 1989, pleaded that Aragones had no cause of action against it as it had no privity of contract with him; that it had already paid MEGA-WAFF the full amount due it; and that it had not committed any actionable wrong against Aragones. Aragones later filed an Amended Complaint,15 with leave of court, "to cure certain formal defects in the original complaint as to the designation of parties . . ." DMPI also later filed a Motion for Leave to File an Amended Answer with Cross-Claim against Garcia and WAFF President Francisco Castro16 which the trial court granted. In the Amended Answer with Cross Claim,17 DMPI alleged, inter alia, that "[i]n the event [Aragones] succeeds in obtaining a judgment [against] DMPI, that said judgment should be charged to and paid by the cross-defendants who have collected the full contract price of the Agreement wherein [Aragones] claims the rights of a subcontractor, plus consequential damages" (underscoring in the original). The trial court, upon the following issues: a. Whether or not [Aragones] has still a collectible amount of P188,652.65 from defendants Garcia and Castro; b. Whether or not defendant DMPI may also be held accountable for this unpaid obligation of defendant Garcia/MEGA-WAFF; c. Whether or not the remaining balance of defendant DMPI account payable is P188,652.65 insisted by defendant Garcia/MEGA-WAFF or only P157,863.77 insisted by defendant DMPI; d. Whether or not the parties are entitled to damages pleaded; e. Whether or not there was delay in the performance of the respective obligations of either party or both; f. Assuming that defendant DMPI is liable to plaintiff, whether or not cross defendant Garcia/MEGA-WAFF shall be liable to DMPI for reimbursement.18, found for the plaintiff Aragones in light of the following considerations: Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials:

(1) Payments made by the owner of the contractor before they are due; (2) Renunciation by the contractor of any amount due him from the owner. This article is subject to the provisions of special laws (1597a) (Article 1729, New Civil Code, [emphasis supplied]). In interpreting the foregoing provision, the Supreme Court made the following pertinent pronouncement: "Article 1729 is promulgated to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors." (Velasco vs. C.A. 95 Phils. (sic) (616-641). "The legal issue that arises is whether or not GSIS is liable to the petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses now owned by the GSIS and for the construction of which no payment has been made on the balance due to petitioners. Our considered view is and we so hold that even in equity alone, GSIS should pay the petitioners, without prejudice to its securing indemnity from Laigo Realty Corp." (Velaso vs. C.A., 95 Phils. (sic) 616-641 [emphasis and underscoring supplied]). Moreover, anent this matter another decisional rule, says: "Although there was no privity of contract between plaintiff and defendant Joven, Inc., there is sufficient evidence showing that he had really supplied stones and sands to said defendant and also removed dirt and soil from its construction site. And it is this main point which calls for resolution in the light of the provisions of Art. 1729 of the New Civil Code, to determine whether or not defendant corporation is liable for materials supplied and services rendered by the plaintiff. It is quite clear that the owner of the building, Joven Inc. is liable for materials and labor furnished to the contractor "up to the amount owing from the latter to the contractor" and to enforce such liability, the law allows the person furnishing labor or materials to bring his right of action directly against the owner." (Flores vs. Ruelo, CA 52 OG 850, [emphasis and underscoring supplied]). Of course, while defendant DMPI is indeed directly liable to pay plaintiff the cost of the construction material (modular paving blocks) sought to be collected, this defendant has also a right of recourse against cross defendant Garcia/MEGA-WAFF for reimbursement of whatever amount it will be required here to pay plaintiff, otherwise it would result in making defendant Garcia/MEGA-WAFF enrich itself at the expense of defendant DMPI. Additionally since the evidence on record shows that plaintiff was compelled to litigate this matter if only to collect a just and demandable obligation, the refusal of these defendants to pay their obligation upon demand could not be justified in law, thus both defendants should be condemned to pay exemplary damages in the amount ofP20,000.00 each and attorneys fees in the amount of P10,000.00 each, including the cost of this suit. (Underscoring supplied)19 The trial court accordingly rendered judgment in favor of Aragones by decision 20 of September 11, 1992, the dispositive portion of which reads: WHEREFORE, the foregoing premises considered, the Court finds that there is ample reason in law and preponderant evidence on record to sustain the cause of action of plaintiff asserted against both defendants, thus judgment is now rendered granting the following relief:

a. That the defendants Garcia/MEGA-WAFF and DMPI shall be liable to jointly and severally pay plaintiff the unpaid cost of the modular paving blocks construction material which he delivered to defendant DMPI priced at P188,652.65 and in the event that defendant DMPI will be made to pay the full amount of this particular obligation, the defendant Garcia MEGA-WAFF must reimburse said defendant such amount; b. That this unpaid obligation sought to be collected must bear legal interest of 12% per annum from the time there was an extrajudicial demand made by plaintiff last March 01, 1989; and c. Lastly, these defendants are condemned that each pay plaintiff P20,000.00 for exemplary damages andP10,000.00 for attorneys fees, including the cost of this suit. SO ORDERED. (Emphasis and underscoring supplied).21 On appeal to the Court of Appeals (CA) by only DMPI, upon the following assigned errors: I THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID NOT INCUR DELAY AND VIOLATE ITS SUPPLY AGREEMENT WITH DEFENDANT MEGA-WAFF; II THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT MEGA-WAFFS LIABILITY TO PLAINTIFF IS P188,652.65 BECAUSE AS STIPULATED IN THE SUPPLY AGREEMENT, THE CEMENT AND AGGREGATES USED IN THE MANUFACTURE OF THE BLOCKS WERE ADVANCED BY MEGA-WAFF, THE COST OF WHICH WILL BE DEDUCED FROM PLAINTIFFS BILLINGS; III. THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT DMPI IS ALSO LIABLE TO PLAINTIFFFOR ANY LIABILITY OF MEGA-WAFF UNDER THE SUPPLY AGREEMENT; IV. ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO PLAINTIFF'S AID LIABILITY CANNOT EXCEED THE SUM OF P157,863.77 BALANCE OF THE CONTRACT PRICE BETWEEN DMPI AND MEGA-WAFF, LESS AGREED PENALTY FOR LATE DELIVERY AS LIQUIDATED DAMAGES; V. THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI LIABLE TO PLAINTIFF FOR ATTORNEYS FEES AND COSTS OF COLLECTION CONSIDERING THAT IT HAD THE RIGHT TO RESIST PAYMENT BECAUSE IT HAS NO PRIVITY OF CONTRACT BETWEEN PLAINTIFF AND DEFENDANT MEGA-WAFF, (Underscoring supplied),22 the CA, by decision of September 19, 200123 subject of the petition at bar, affirmed the trial courts decision in this wise:

At this juncture it is well to note that the Supply Agreement was in the nature of a contract for a piece of work. The distinction between a contract of sale and one for work, labor and materials is tested by inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed but has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchasers request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchasers order for it. [Commissioner of Internal Revenue vs. Engineering Equipment and Supply Company, G.R. No. L-27044, June 30, 1975] In the case at bench, the modular paving blocks are not exactly what the plaintiff-appellee makes and keeps on hand for sale to anyone, but with a modification that the same be "S" in shape. Hence, the agreement falls within the ambit of Article 1467 making Article 1729 likewise applicable in the instant case. As regard the issue of privity of contracts, We need to add only that Article 1311 of the New Civil Code which DMPI invokes is not applicable where the situation contemplated in Article 1729 obtains. The intention of the latter provision is to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other. [Velasco vs. Court of Appeals, G.R. No. L-47544, January 28, 1980] As a matter of fact, insofar as the laborers are concerned, by a special law, Act no. 3959, otherwise known as "An Act making it obligatory for any person, company, firm or corporation owning any work of any kind executed by contract to require the contractor to furnish a bond guaranteeing the payment of the laborers." they are given added protection by requiring contractors to file bonds guaranteeing payment to them. It is true that defendant-appellant had already fully paid its obligation to defendant Garcia however, the formers payment to the latter does not extinguish its legal obligation to p laintiff-appellee because such payment was irregular. The former should have taken care not to pay to such contractor the full amount which he is entitled to receive by virtue of the contract, until he shall have shown that he first paid the wages of the laborer employed in said work, by means of an affidavit made and subscribed by said contractor before a notary public or other officer authorized by law to administer oaths. There is no showing that defendant appellant DMPI, as owner of the building, complied with this requirement paid down in Act No. 3959. Hence, under Section 2 of said law, said defendant-appellant is responsible, jointly and severally with the general contractor, for the payment to plaintiff-appellee as sub-contractor. In this connection, while, indeed, Article 1729 refers to the laborers and materialmen themselves, under the peculiar circumstances of this case, it is but fair and just that plaintiff-appellee be deemed as suing for the reimbursement of what they have already paid the laborers and materialmen, as otherwise he would be unduly prejudiced while either defendant-appellant DMPI or defendant Garcia would enrich themselves at plaintiff-appellees expense. Be that as it may, We so hold that plaintiff-appellee has a lawful claim against defendant-appellant DMPI, owner of the constructed warehouse since it disregarded the notice of claim of plaintiffappellee, at a time when the amounts owing from defendant-appellant DMPI to defendant GARCIA were more than sufficient to pay for plaintiff-appellees claim. The least that defendant-appellant

should have done was to withhold payment of the balance still owing to defendant Garcia as until the claim of plaintiff-appellee was clarified. (Italics in the original; emphasis and underscoring supplied).24 Its Motion for Reconsideration having been denied by the CA, DMPI (hereinafter referred to as petitioner) lodged the present Petition for Review on Certiorari, faulting the CA: I. . . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT ARAGONES FOR THE UNPAID PRICE OF THE CONCRETE PAVING BLOCKS OWED BY MEGA-WAFF TO THE LATTER. A. IN FINDING THAT THE CONTRACT FOR THE SUPPLY OF THE CONCRETE PAVING BLOCKS WAS NOT A SALE BUT ONE FOR A PIECE OF WORK. B. IN HOLDING DMPI LIABLE BASED UPON THE PROVISIONS OF ARTICLE 1729 OF THE CIVIL CODE AND ACT 3959, WHICH ARE INAPPLICABLE. II. . . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEYS FEES, AND LITIGATION EXPENSES TO DMPI ON ITS COUNTERCLAIM.25 As reflected above, only petitioner appealed the trial courts decision. MEGA -WAFF did not appeal. The decision as to it then is final and executory. Petitioner, in the main, contends that while the CA correctly stated the test in determining whether a transfer is a sale or one for a piece of work, it failed to properly apply the same. Applying the "nature of the object" test, petitioner insists that the concrete block to be produced by Aragones under the "Supply Agreement" represented by Garcia clearly shows that the contract was one of sale, advancing the following reasons: 1.4.1 First, the concrete paving blocks were . . . capable of being mass-produced 1.4.2 Second, save for the shape, there was here no consideration of any special needs or requirements of DMPI taken into account in the design or manufacture of the concrete paving blocks.26 Petitioner cites the following ruling in Commissioner of Internal Revenue v. Arnoldus Carpentry Shop, Inc.:27 x x x As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been "manufactured specially for the customer and upon his special order." Thus, if the thing is specially done on the order of another, this is a contract for a piece of work. If, on the other hand,the thing is manufactured or procured for the general market in the ordinary course of ones business, it is a contract of sale." (Italics and emphasis in the original; underscoring supplied),28 and argues that "given habituality of business and the ability to mass-produce the article ordered, that customers requires (sic) certain specifications is of no moment, the transaction remains one of sale."

Petitioner further cites, among other authorities, the following ruling in Celestino Co. v. Collector of Internal Revenue:29 x x x The important thing to remember is that Celestino & Co. habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment of such materials-moulding, frames, panels as it ordinarily manufactured or was in a position habitually to manufacture. xxx That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by appellant special forms of sash, mouldings, panels it would not accept the order and no sale is made. If they do, the transaction would be no different from purchaser of manufactured goods held in stock for sale; they are bought because they meet specifications desired by the purchaser. Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer sizes not previously held in stock for sale to the public it thereby becomes an employee or servant of the customer, not the seller of lumber. The same consideration applies to this sash manufacturer. The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes sash, panels, mouldings, frames cutting them to such sizes and combining them in such forms as its customers may desire. xxx x x x Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). (Emphasis in the original; underscoring supplied). Petitioner concludes that as the "Supply Agreement" between Aragones and MEGA-WAFF was one of sale to which it (petitioner) was not privy, it cannot be held liable for any obligation arising therefrom. Dodging liability for the damages ("exemplary and . . . attorneys fees including the cost of this suit") awarded to Aragones, petitioner claims that it was in fact the one which was injured by Aragones filing in bad faith of a complaint bereft of cause of action and "at best, [one] barred by full payment of the amount due to MEGA-WAFF," on account of which it is entitled to moral damages in the amount of P50,000.00 pursuant to Article 2217 of the Civil Code, and to attorneys fees and expenses of litigation in the amount of at least P30,000.00 plus P2,500.00 per hearing pursuant to Article 2208 of the Civil Code. The petition fails. The authorities petitioner cited in fact show that the nature of the "Supply Agreement" between Aragones and MEGA-WAFF was one for a piece of work.

Contrary to petitioners claim that "save for the shape, there was no consideration of any special needs or requirements of DMPI taken into account in the design or manufacture of the concrete paving blocks," the"Supply Agreement" is replete with specifications, terms or conditions showing that it was one for a piece of work. As reflected in the highlighted and underscored above-quoted provisions of the "Supply Agreement," as well as other evidence on record, the machines Aragones was obliged to fabricate were those for casting the concrete blocks specified by Garcia. Aragones did not have those kind of machines in his usual business, hence, the special order. While initially Garcia specified that the machines to be fabricated should be for hexagon shaped blocks, he later asked Aragones to instead fabricate machines for casting S shaped blocks. In accordance with the "Supply Agreement," Garcia furnished the cement and aggregates for the fabrication of the blocks and Aragones fabricated three (3) machines for S shaped blocks which were delivered at the casting site on different dates. And the "entire plant/casting machines and . . . . accessories" were, as dictated under the "Supply Agreement," devoted by Aragones "for [MEGAWAFF]s exclusive use. There can be no gainsaying that the specifications/conditions in the " Supply Agreement" and the admitted subsequent directive of Garcia for Aragones to fabricate machines for casting S shaped, instead of hexagon shaped blocks, show that the concrete blocks were "manufactured specifically for, and upon the special order" of Garcia. That Garcia supplied the cement and aggregates and that the entire made-to-order casting machines and accessories used in the manufacture of those unusual shaped blocks were agreed upon to be devoted only "for the exclusive use" of MEGA-WAFF should belie petitioners contention that the concrete blocks were mass-produced and catered to the general market in the ordinary course of Aragones business. Under Art. 1467 then of the Civil Code which provides: ART. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. (Emphasis and underscoring supplied), the "Supply Agreement" was decidedly a contract for a piece of work. Following Art. 1729 of the Civil Code which provides: ART. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. x x x x x x (Underscoring supplied), Aragones having specially fabricated three casting machines and furnished some materials for the production of the concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were for the exclusive use of MEGA-WAFF, he has a cause of action upon petitioner up to the amount it owed MEGA-WAFF at the time Aragones made his claim to petitioner.

As Velasco v. CA30 explains, the intention of Art. 1729 is to protect the laborers and materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other. In fine, a constructive vinculum or contractual privity was created between petitioner and Aragones. Respecting petitioners disclaimer of liability for damages and its claim for moral damages, attorneys fees and expenses of litigation, the trial courts disposition thereof, to wit: . . . since the evidence on record shows that [Aragones] was compelled to litigate this matter if only to collect a just and demandable obligation, the refusal of [DMPI and MEGA-WAFF] to pay their obligation upon demand could not be justified by law, thus both should be condemned to pay exemplary damages in the amount of P20,000.00 each and attorneys fees in the amount of P10,000.00 each including costs of this suit" (underscoring supplied), merits this Courts approval. Why should not petitioner be liable for damages. Aragones request, based on a provision of law, to petitioner for it to pay directly to him his account receivable from MEGA-WAFF/Garcia out of petitioners account payable to MEGA-WAFF was made before petitioners obligation to it was due. Yet petitioner settled such obligation to MEGA-WAFF on or about April 6, 1989 when it released to it its check-payment. For petitioner to harp on its undertaking under its "Agreement" with MEGAWAFF to pay its full obligation thereunder within 30 days from complete installation of the pavement by MEGA-WAFF unless a court injunction could be produced by Aragones is too shallow, under the facts and circumstances surrounding the case, to merit consideration. Petitioners referral for comment of Garcia, by letter of April 27, 1989, on Aragones April 6, 1989 reiterative letter for the withholding of the release of so much amount to MEGA-WAFF even after it (petitioner) had already released on or about April 6, 1989 its check-full payment to MEGA-WAFF reflects a futile attempt to cover-up the apparent "connivance" between it and contractor MEGAWAFF to the prejudice of Aragones, leaving him no option but to litigate. As for the assailed citation by the appellate court of Act No. 3959 (which requires a person or firm owning any work of any kind executed by contract to put up a bond guaranteeing the payment of the laborers) as additionaljustification to hold petitioner liable to Aragones, indeed, said Act had been repealed in 1974 by P.D. No. 442 (The Labor Code of the Philippines). WHEREFORE, in light of the foregoing discussions, the petition is hereby DENIED. Costs against petitioner. SO ORDERED. Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur

Elements Of Contract of Sale G.R. No. 123891 February 28, 2001

PAZ S. LIM for herself and as an attorney-in-fact of ANTONIO S. LIM, JR., petitioner, vs. VICTORIA K. CHAN and CHRISTOPHER C. CHAN, respondents. PARDO, J.: The case before the Court is an appeal via certiorari from the decision1 of the Court of Appeals dismissing the appeal on the ground that the trial court did not commit any reversible error when the latter dismissed the complaint in the case2 below on the ground of prescription, estoppel and lack of earnest efforts toward a compromise.1wphi1.nt On October 1, 1973, petitioner Paz Lim and her husband Dr. Antonio T. Lim (now deceased) executed a special power of attorney before a notary public of Thurston County, Nebraska, U.S.A. They appointed petitioners brother Carlos Chan, as their attorney in fact, empowering him with full power and authority to transfer, convey or lease, pledge, mortgage or hypothecate, sell, assign and dispose of all the petitioners property, their fruits, any interest in or title thereon upon such terms and conditions as their attorney in fact shall deem fit and proper. 3 The property involved nine (9) lots belonging to petitioner including those covered by TCT No. T-11681 and TCT No. T-11150 of the Register of Deeds, Davao City. On October 3, 1973, petitioner and her husband also appointed Carlos K. Chan and Victor San as their attorneys-in-fact4 granting them the same powers as that given Carlos on October 1, 1973, over two (2) lots, including TCT No. 13007 of the Register of Deeds, Davao City. On the strength of the two powers of attorney, Carlos Chan and Victor San executed three (3) deeds of sale in favor of Victoria K. San, the first on November 18, 1975, and both second and third deeds on September 25, 1978.5 Consequently TCT No. 13007 was cancelled and TCT No. 70414 was issued on August 30, 1979; TCT No. 11681 was cancelled and TCT No. 70381 was issued on August 29, 1979; and TCT No. 11150 was cancelled and TCT No. 48802 was issued on January 5, 1976. On April 28, 1993, petitioner and her son, Antonio Lim, Jr. filed with the Regional Trial Court, Davao City an action to annul the sale and to reconvey the property transferred in respondents name. Petitioner claimed that she executed special powers of attorney designating Victoria K. San, Victor San and Carlos Chan to exercise control and supervision over the property. However, Victoria K. San registered in her name the three parcels of land entrusted to her, through the execution of deeds of

sale. Thereafter, Victoria sold one of the three lots to respondent Christopher C. Chan. Petitioner contended that Victoria employed fraud in executing the deeds of sale in her favor. As an agent, she was prohibited from acquiring the assets of her principal. And the right to recover the property held in trust is imprescriptible.6 After petitioner presented her evidence on the application of preliminary injunction on May 24, 1993, respondents filed a motion to dismiss the complaint based on prescription, laches, estoppel, and failure to comply with Rule 16 (j) of the Rules of Court. On June 17, 1993, the trial court dismissed the complaint, thus: "From the foregoing consideration, the court finds the motion to dismiss on the grounds of prescription, estoppel and lack of earnest efforts toward a compromise before the filing of this case to be well-grounded, the same is GRANTED. Herein complaint is ordered DISMISSED. "SO ORDERED. "Given this 17th day of June 1993, at Davao City, Philippines. "ROMEO "Judge"7 D. MARASIGAN

On July 2, 1993, petitioner appealed to the Court of Appeals.8 On May 10, 1996, the Court of Appeals promulgated its decision dismissing the appeal as follows: "Since there is no allegation that the signature of plaintiffs-appellants attorneys-in-fact in the deeds of sale were forged, or that the SPAs had been revoked at the time of the sale, the allegations in the complaint do not suffice to maintain the cause of action against Victoria and her successor-in-interest-co-defendant. xxx xxx xxx "WHEREFORE, the appeal is hereby DISMISSED. "SO ORDERED."9 On May 21, 1996, petitioner filed with the Court of Appeals a motion for reconsideration of the dismissal;10however, however, on October 30, 1996, the appellate Court denied the motion.11 Hence, this appeal.12 We have held repeatedly that judges and arbiters must draw up their decisions and resolutions with due care, and make certain that they truly and accurately reflect their conclusions and final dispositions.13 Decisions must faithfully comply with the Constitution. "No decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based."14 We have ruled that the factual findings of the trial court are given weight when supported by substantial evidence15 and carries more weight when affirmed by the Court of Appeals. 16 However, this rule admits of a few exceptions.17 Among the exceptions are "when the findings are grounded entirely on speculation, surmises or conjectures; when an inference made by the appellate court from

its factual findings is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the findings of the appellate court go beyond the issues of the case, run contrary to the admissions of the parties to the case or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; when there is a misappreciation of facts; when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence or are contradicted by evidence on record."18 The instant case falls within the exceptions. For one, conclusions made were not founded on substantial evidence. For another, the court may have arrived at a different outcome if certain facts were taken into consideration.1wphi1.nt The findings of the trial court were based on evidence presented during the hearing on the motion to dismiss. Had the court proceeded with the trial of the case, the parties would have the opportunity to present all their available evidence and the trial court the opportunity to carefully scrutinize them. Without conducting trial on the merits, the trial court cannot peremptorily find the existence of estoppel, laches, fraud or prescription of actions. These matters require presentation of evidence and determination of facts; they can be best resolved after trial on the merits.19 Sadly, what happened was a cursory termination of the case when the trial court dismissed Civil No. 22, 024-93 after a period of only a month and a half (1 ) from the date the case was actually filed in court. The trial court summarily ruled that petitioner was estopped from filing the case without considering all the antecedents. The trial court disregarded the law that if Victoria Chan was in fact the assignee, she was prohibited from acquiring the property of the principal20 and the action to recover the property is imprescriptible.21 It was, therefore, premature to dismiss the case in the absence of evidence showing the basis thereof that could be determined only after trial on the merits. WHEREFORE, we GRANT the petition and REVERSE the decision of the Court of Appeals in CA-G. R. CV No. 43302. Let the case be REMANDED to the court of origin for trial on the merits. No costs.

G.R. No. 128120

October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs.

COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA,respondents. DECISION TINGA, J.: Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned the trial courts Order4 dismissing the respondents complaint for specific performance and remanded the case to the trial court for further proceedings. Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc. Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latters worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging business. SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal (hereinafter, global deal). Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the management company of the Swedish Match group was commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco shares were for sale. Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS. In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum ofP750,000,000.00.5 Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.6

Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the same date was increased to US$36 million.7Litonjua stressed that the bid amount could be adjusted subject to availability of additional information and audit verification of the company finances. Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal" presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due diligence process.8 Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized SMABs decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a conditional sale at that time.9 Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts.10 Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11 In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate the transaction on or before 15 September1990.12 Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted the best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about by SMABs subsequent disclosures and validated accounts, such as the aspect that only ninety -six percent (96%) of Phimco shares was actually being sold and not one-hundred percent (100%).13 More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers did not

materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)day period, SMAB would enter into negotiations with other buyers. 14 Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein. 15 On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted transaction. Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit. 16 Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners. 17 Respondents added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs and public policy.18 Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts necessary to consummate the sales agreement in their favor. Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract, whether verbal or written, existed between them. Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to respondents. Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident. In its Order dated 17 April 1991, the RTC dismissed respondents complaint. 19 It ruled that there was no perfected contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry operations to enable them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMABthe acceptance that would eventually lead to the execution and

signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners. Respondents appealed to the Court of Appeals, assigning the following errors: A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS. B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL. C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION. D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.20 After assessing the respective arguments of the parties, the Court of Appeals reversed the trial courts decision. It ruled that the series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statutes requirements as to contents and signature would be sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed shares to respondents was reached. The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings. Hence, this petition. Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and, that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or even imply that an agreement had been reached for the sale of the shares to respondent. Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to further negotiations between him and the seller. They point out

that there was no meeting of the minds on the essential terms and conditions of the sale because SMAB did not accept respondents offer that consideration would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares. In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected. Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.21 The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial courts decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between petitioners and respondents with respect to the Phimco shares. The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code 22 requires certain contracts enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.23 Evidence of the agreement cannot be received without the writing or a secondary evidence of its contents. The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.24 Consequently, the effect of non-compliance with the requirement of the

Statute is simply that no action can be enforced unless the requirement is complied with. 25 Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding as if the Statute has been complied with. 26 The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.27 However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification.28 Such note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence.29 Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, i s not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was planned to be made.30 Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted.31 Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the operation of the Statute the action for specific performance would still fail. A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32 There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; (c) cause of the obligation which is established.33Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.34 Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (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.35 Such contract is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.36 In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract.

Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.37 A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a future contract. An imperfect promise ( policitacion), on the other hand, is a mere unaccepted offer.38 Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. 39 The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.40 An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be 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. A qualified acceptance constitutes a counter-offer.41 Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, "is understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves." 42 Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not. Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43With indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously wanting the price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the parties.44 There can be no sale without a price.45 Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. 46 Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer. 47 The acceptance of an offer must be unqualified and absolute to perfect the contract.48 In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. 49 Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the audit of the company finances. Respondents failure to submit their final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element which was the price certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible. Respondents plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents conducted the audit as part of the due diligence process to help them arrive at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners. The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby. 52 This rule, however, is predicated on the fact of ratification of the contract within the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that there was partial performance of the contract within the purview of the Statute. Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in dismissing the complaint altogether. They point out that the complaint presents several causes of action. A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance53 premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco management.54 With respect to the first cause of action for specific performance, apart from petitioners alleged refusal to honor the contract of salewhich has never been perfected in the first place respondents made a number of averments in their complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory estoppel, 55 warranty breaches56 and tortious conduct57 in refusing to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the complaint for specific performance. However, respondents second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents necessary for the completion of the audit on time, not being based on the existence of the contract of sale, could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the acts complained of. Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the latters alleged self -serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of action for damages as above specified. SO ORDERED. G.R. No. 166862 December 20, 2006 CORPORATION, petitioner, TOLENTINO, intervenor, BANK, respondent,

MANILA METAL CONTAINER REYNALDO C. vs. PHILIPPINE NATIONAL DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CAG.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC). The Antecedents Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.5 On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982, 6 plus interests and attorney's fees. After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of

Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property. 8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.9 In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment. 11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption."12 Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB. 13 Petitioner's offers had not yet been acted upon by respondent PNB. Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost. 14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15 In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.16 Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property forP1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.18 On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it. 20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.

Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22 On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for specific performance, it alleged the following: 34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal. 35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal. Petitioner later filed an amended complaint and supported its claim for damages with the following arguments: 36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal. 37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00. 38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.23 Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect. b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void. c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate

TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No.37025 described in paragraph 4 of this Complaint. d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025described in paragraph 4 of this Complaint to the plaintiff Manila Metal. e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit. Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24 In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties agreed to limit the issues to the following: 1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally enforceable. 2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985. 3. Whether or not there is a perfected contract of sale between the parties. 26 While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,27 but petitioners refused to do so. On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market value. 29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30The offer was again rejected by respondent PNB on September 13, 1993.31 On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money.

On appeal to the CA, petitioner made the following allegations: I THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE. II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE. III THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985. IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE. VI THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. VII THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFFAPPELLANT. VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33 Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors. 34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo

Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.36 The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale. The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind. According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989. Petitioner filed a motion for reconsideration, which the CA likewise denied. Thus, petitioner filed the instant petition for review on certiorari, alleging that: I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT. II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY. III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38

The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property forP1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code. Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although theP725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40 Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract. Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court. For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles governing "suspensive conditions." According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner. According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondent's Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority. Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited) within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return. The Ruling of the Court The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct. 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. 41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. 42 Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.43 By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its

equivalent.44 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45 A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.46 A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. 47 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.48 In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. A negotiation is formally initiated by an offer, which, however, must be certain. 50 At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the Court ruled that: x x x 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 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.52 A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. 53 Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties. 55 The request, which was made through a letter dated August 25, 1983, was referred to the respondent's main branch for appropriate action.56 Before respondent could act on the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00); 2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and 3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for. 57 When the petitioner was told that respondent did not allow " partial redemption,"58 it sent a letter to respondent's President reiterating its offer to purchase the property. 59 There was no response to petitioner's letters dated February 10 and 15, 1984. The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 wasP1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses. There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60 Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation. Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.61 It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent. We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads:

ART. 1482. 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. This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court: 8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property. 9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.62 Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63 It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions: 1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval; 2. 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 waive your right to warranty against eviction. 3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you; 4. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any; 5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties. 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.64

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit. In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation. SO ORDERED. TRADERS ROYAL BANK, Petitioner, G.R. No. 174286 Present: QUISUMBING, Chairperson, YNARES-SANTIAGO, VELASCO, JR., ** LEONARDO-DE CASTRO, and BRION, JJ.
*

- versus -

CUISON LUMBER CO., INC., Promulgated: and JOSEFA JERODIAS VDA. DE CUISON, June 5, 2009 Respondents. x ----------------------------------------------------------------------------------------x

DECISION BRION, J.: We review in this petition for review on certiorari[1] the decision[2] and resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the decision [4] of the Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. Cuison), collectively referred to as respondents, in the action they commenced for breach of contract, specific performance, damages, and attorneys fees, with prayer for the issuance of a writ of preliminary injunction against petitioner Traders Royal Bank (bank).

THE BACKGROUND FACTS

On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate

mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 ( subject property). CLCI failed to pay the loan, prompting the bank to extrajudicially foreclose the mortgage on the subject property. The bank was declared the highest bidder at the public auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the banks favor. In a series of written communications between CLCI and the bank, CLCI manifested its intention to restructure its loan obligations and to repurchase the subject property. On July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of repurchase. She stated: 1. That I will pay the interest of P115,538.66, plus the additional expenses of P17,293.69, the total amount of which is P132,832.35 on August 8, 1986; 2. That I will pay 20% of the bid price of P949,632.84, plus whatever interest accruing within sixty (60) days from August 8, 1986; That whatever remaining balance after the above two (2) payments shall be amortized for five (5) years on equal monthly installments including whatever interest accruing lease on diminishing balance.[5]

3.

CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on September 3, 1986). The bank received and regarded these amounts as earnest money for the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman Cuison, Jr. ( Atty. Cuison), as the president and general manager of CLCI, a letter infor ming CLCI of the banks board of directors resolution of October 10, 1986 (TRB Repurchase Agreement), laying down the conditions for the repurchase of the subject property: This is to formally inform you that our Board of Directors, in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank, subject to the following terms and conditions, viz: 1. That the repurchase price shall be at total banks claim as of the date of implementation; 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84, representing 20% of the bid price, to be remitted on or before October 31, 1986; 3. That the balance of P749,000.00 to be paid in three (3) years in twelve (12) quarterly amortizations, with interest rate at 26% computed on diminishing balance; 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53;

5. Possession of the property shall be deemed transferred after signing of the Contract to Sell. However, title to the property shall be delivered only upon full payment of the repurchase price via Deed of Absolute Sale; 6. Registration fees, documentary stamps, transfer taxes at the date of sale and other similar government impost shall be for the exclusive account of the buyer; 7. The improvement of the property shall at all times be covered by insurance against loss with a policy to be obtained from a reputable company which designates the bank as beneficiary but premiums shall be paid by the client; 8. That the sale is good for thirty (30) days from the buyers receipt of notice of approval of the offer; otherwise, sale is automatically cancelled; 9. Effective upon signing of the Contract to Sell, all realty taxes which will become due on the property shall be for the account of the buyer; 10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter; 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; and 12. Other terms and conditions that the bank may further impose to protect its interest. Should you agree with the above terms and conditions please sign under Conforme on the space provided below. We attach herewith your Statement of Account[6] as of October 31, 1986, for your reference. Thank you. Very truly yours, (Signed) Conforme: (Not signed)[7]

CLCI failed to comply with the above terms notwithstanding the extensions of time given by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57 to cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however, was returned for insufficiency of funds. On May 13, 1987, CLCI tendered an additional P50,000.00.[8] On May 29, 1987, the bank sent Atty. Cuison a letter informing him that the P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money under the TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCIs outstanding obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the amount of P221,075.61 be condoned by the bank.

To show its commitment to the request, CLCI paid the bankP100,000.00 and P200,000.00 on August 28, 1987. The bank credited both payments as earnest money. A year later, CLCI inquired about the status of its request. The bank responded that the request was still under consideration by the banks Ma nila office. On September 30, 1988, the bank informed CLCI that it would resell the subject property at an offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank would sell the subject property to third parties. On October 26, 1988, CLCI offered to repurchase the subject property for P1.5 million, given that it had already tendered the amount of P400,000.00 as earnest money. CLCI subsequently claimed that the bank breached the terms of repurchase, as it had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00 and P100,000.00) as earnest money, instead of applying them to the purchase price. Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to reflect the true consideration agreed upon for which the earnest money had been given. The bank did not act on the demand. Instead, it informed CLCI that the amounts it received were not earnest money, and that the bank was willing to return these sums, less the amounts forfeited to answer for the unremitted rentals on the subject property. In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a complaint for breach of contract, specific performance, damages, and attorneys fees ag ainst the bank. On April 20, 1989, the bank filed its Answer alleging that the TRB repurchase agreement was already cancelled given CLCIs failure to comply with its provisions; by way of counterclaim, the bank also demanded the payment of the accrued rentals in the subject property as of January 31, 1989, and the award of moral damages and exemplary damages as well as attorneys fees and litigation expenses for the unfounded suit instituted against the bank by CLCI. [9] After trial on the merits, the RTC ruled in respondents favor. The dispositive portion of its November 4, 1994 Decision states: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant bank, ordering said defendant bank to: 1. Execute and consummate a Contract to Sell which is reflective of the true consideration indicated in the Resolution of the Board of Directors of Traders Royal Bank held on October 10, 1986 (Exhibit F and Exhibit 13), duly accrediting the amount of P435,000 as earnest money to be part of the price, the mode of payment being on quarterly installment, but the period within which the first quarterly payment being on quarterly payment shall be made to commence upon the execution of said Contract to Sell; 2. Pay to plaintiffs the amounts of P50,000.00 in concept of moral damages, P20,000.00 as exemplary damages; 3. Pay attorneys fees of P20,000.00; and 4. Pay litigation expenses in the amount of P2,000.00. The counterclaim of defendant bank is hereby dismissed.

SO ORDERED.

On appeal to the CA, the bank pointed out the misappreciation of facts the RTC committed and argued that: first, the repurchase agreement did not ripen into a perfected contract; and second, even assuming that there was a perfected repurchase agreement, the bank had the right to revoke it and apply the payments already made to the rentals due for the use of the subject property, or as liquidated damages under paragraph 11 of the TRB Repurchase Agreement, since CLCI violated its terms and conditions. Further, the bank contended that CLCI had abandoned the TRB Repurchase Agreement in its letters dated August 28, 1987 and October 26, 1988 when it proposed to repurchase the subject property for P1 million and P1.5 million, respectively. Lastly, the bank objected to the award of damages in the plaintiffs favor. THE CA DECISION

On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs factual findings and legal conclusions. Although it deleted the awards of attorneys fees, moral and exemplary damages, the CA ruled that there was a perfected contract to repurchase the subject property given the banks acceptance (as stated in the letter dated October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31, 1986. The CA distinguished between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation, and declared that the conditions laid down in the letter dated October 20, 1986 merely relate to the manner the obligation is to be performed and implemented; failure to comply with the latter obligation does not result in the failure of the contract and only gives the other party the options and/or remedies to protect its interest. The CA held that the same conclusion obtains even if the letter of October 20, 1986 is considered a counter-offer by the bank; CLCIs payment of P135,000.00 operated as an implied acceptance of the banks counter -offer, notwithstanding CLCIs failure to expressly manifest its conforme. In light of these findings, the CA went on to acknowledge the validity of the terms of paragraph 11 of the TRB Repurchase Agreement, but nonetheless held that CLCI has not yet violated its terms given the banks previous acts (i.e., the grant of extensions to pay), which showed that it had waived the agreements original terms of payment. The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase Agreement and found no incompatibility between the agreement and the contents of the August 28, 1987 and October 26, 1988 letters which did not show an implied abandonment by CLCI, nor the latters expressed intent to cancel or abandon the perfected repurchase agreement. In the same manner, the CA struck down the banks position that CLCIs payments were deposits rather than earnest money. The appellate court reasoned that while the amounts tendered cannot be strictly considered as earnest money under Article 1482 of the New Civil Code, [10] they were nevertheless within the concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v. CA,[11] since they were paid as a guarantee so that the buyer would not back out of the contract.

The CA however ruled that the award of moral and exemplary damages, attorneys fees and litigation expenses lacked factual and legal support. The CA found that the bank acted in good faith and based its actions on the erroneous belief that CLCI had already abandoned the repurchase agreement. Likewise, the award of moral damages was not in order as there was no showing that CLCIs reputation was debased or besmirched by the banks action of applying the previous payments made to the interest and rentals due on the subject property; neither is Mrs. Cuison entitled to moral damages without any evidence to justify this award. The CA also ruled that there was nothing in the records to warrant the awards of exemplary damages and attorneys fees. The bank subsequently moved but failed to secure a reconsideration of the CA decision. The bank thus came to us with the following ISSUES I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM OFFER ON THE ONE HAND AND ACCEPTANCE ON THE OTHER HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A WRONG CONCLUSION OF LAW. II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE STIPULATIONS AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE THAT THERE WAS A PERFECTED REPURCHASE AGREEMENT BETWEEN RESPONDENTS AND PETITIONER AND WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH THE APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.

Reduced to the most basic, the main issue posed is whether or not a perfected contract of repurchase existed and can be enforced between the parties. THE COURTS RULING

We GRANT the petition.

The case presents to us as threshold issue the presence or absence of consent as a requisite for a perfected contract to repurchase the subject property. The RTC ruled that a perfected contract existed based mainly on the following facts: first, the existence of the TRB Repurchase Agreement which clearly depicts the repurchase agreement of the subject property under the terms therein embodied; and second, the payment of earnest money in the total amount of P435,000.00 which forms part of the price and, as initial payment, is proof of the perfection of the contract.[12] In concurring with the foregoing findings on appeal, the CA, in turn, declared that there was a meeting of

the minds between the parties on the offer and acceptance for the repurchase of the subject property under the following quoted facts: It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who proposed to repurchase the foreclosed property. She in fact had tendered right away an amount of P50,000.00 as partial payment of the P132,000.00 she had promised to pay as initial payment. In response, TRB sent a letter dated October 20, 1986 to Atty. Cuison informing him of the resolution passed by the Board of Directors of TRB acknowledging the proposal of Ms. Cuison to repurchase the property. Under the circumstance, the proposal made by Ms. Cuison constituted the offer contemplated by law, and the reply of TRB was the corresponding acceptance of the proposal-offer. x x x

Conceding arguendo that TRBs letter-response October 20, 1986 constituted a counter-offer or politacion, CLCIs ensuing remittance of P135,000.00 as initial payment of the price, operates effectively as an implied acceptance of TRBs counter -offer. The absence of a signature to signify plaintiffs conforme to the repurchase agreement is of no moment. While the conforme portion of the subject repurchase agreement indeed bears no signature at all, this fact, however, does not detract from the accomplished fact that plaintiffs had acquiesced or assented to the standing conditional counter -offer of TRB. Plaintiffs conforme would at best be a mere formality considering that the repurchase agreement had already been perfected, if impliedly.[13]

Based on these findings, the crucial points that the lower courts apparently considered were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of October 20, 1986 to CLCI; and the parties subsequent conduct showing their acknowledgement of the existence of their agreement, specifically, the respondents payments (designated as earnest money) and the banks acceptance of these payments. However, unlike the RTCs conclusion that relied on CLCIs payment and the banks acceptance of the payment as earnest money, the CA concluded tha t there was a perfected contract, either because of the banks acceptance of CLCIs offer (made through Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied acceptance indicated by its initial payments in compliance with the terms of the TRB Repurchase Agreement. The petitioner bank, of course, argues differently and concludes that the undisputed facts of the case show that there was no meeting of the minds between the parties given CLCIs failure to give its consent and conformity to the banks letter of October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied that CLCI consented to the agreements terms of implementation. Our task in this petition for review on certiorari is not to review the factual findings of the CA and the RTC, but to determine whether or not, on the basis of the said findings, the conclusions of law reached by the said courts are correct. Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer and the acceptance upon the thing and the cause that constitute the contract.[14] The law requires that the offer must be certain and the acceptance absolute and

unqualified.[15] An acceptance of an offer may be express and implied; a qualified offer constitutes a counter-offer.[16] Case law holds that an offer, to be considered certain, must be definite, [17] while an acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds. [18] We have also previously held that the ascertainment of whether there is a meeting of minds on the offer and acceptance depends on the circumstances surrounding the case.[19] In Villonco Realty Co. v. Bormacheco,[20] the Court found a perfected contract of sale between the parties after considering the parties written communications showing the offer (counter -offer) and acceptance by the seller who formally manifested his conformity with the offer in the buyers letter. We took note of the acts of the parties the payment of the buyer of an amount representing the partial payment under the contract; the acceptance of the partial payment by the seller; the allowance of the buyer for the seller to encash the check containing the partial payment; the subsequent return of the amount representing the partial payment by the buyer with the corresponding interest stated in the buyers letter (offer) and considered them evidence of the perfection of the sale. Under these circumstances, we also declared that a change in a phrase in the offer to purchase, that does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer. In Schuback & Sons Philippine Trading Corp. v. CA,[21] we declared a meeting of minds between the vendor and the vendee even though the quantity of goods purchased had not been fully determined. We noted that the vendee, after expressing his intention to purchase the merchandise, simultaneously enclosed a purchase order whose receipt prompted the vendor to immediately order the merchandise. We also took into account the act of the vendee in requesting for a discount as proof of his acceptance of the quoted price. Yuviengco v. Dacuycuy[22] yielded a different result, as we considered that the letter and telegrams sent by the parties to each other showed that there was no meeting of minds in the absence of an unconditional acceptance to the terms of the contract of sale; otherwise, the buyers would not have included the phrase to negotiate details when they agreed to the property that was subject of the proposed contract. Similarly, in Philippine National Bank v. CA,[23] we ruled that there was no perfected contract of sale because the specified terms and conditions imposed under the facts of the case constituted counter-offers against each other that were not accepted by either of the parties. This case involved a first contract, involving the same property, which the parties mutually cancelled; we said that the terms of this earlier contract cannot be considered in determining the acceptance and compliance with the terms of a proposed second contract a distinct and separate contract from the one earlier aborted. The incomplete details of the agreement led us to conclude in Insular Life Assurance Co. Ltd. v. Assets Builders Corp.[24] that no perfected contract existed; there were other matters or deta ils in addition to the subject matter and the consideration [that] would be stipulated and agreed. We likewise considered the subsequent acts between the parties and the existence of a second proposal which belied the perfection of any initial contract.

The recent Navarra v. Planters Development Bank[25] is another case where we saw no perfected contract, as the offer was incomplete for lack of agreed details on the manner of paying the purchase price; there was also no acceptance as the letter of Planters Development Bank indicated the need to discuss other details of the transaction. All these cases illustrate the rule that the concurrence of the offer and acceptance is vital to the birth and the perfection of a contract. The clear and neat principle is that the offer must be certain and definite with respect to the cause or consideration and object of the proposed contract, while the acceptance of this offer express or implied must be unmistakable, unqualified, and identical in all respects to the offer. The required concurrence, however, may not always be immediately clear and may have to be read from the attendant circumstances; in fact, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document.[26] The facts of the present case, although ambivalent in some respects, point on the whole to the conclusion that both parties agreed to the repurchase of the subject property. A reading of the petitioners letter of October 20, 1986 informing CLCI that the banks bo ard of directors passed a resolution for the repurchase of [your] property shows that the tenor of acceptance, except for the repurchase price, was subject to conditions not identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to have accepted absolutely and unqualifiedly in order to give birth to a perfected contract. Evidence exists showing that CLCI did not sign any document to show its conformity with the banks counter-offer. Testimony also exists explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not agree with the implementation of the repurchase transaction since the bank made a wrong computation. [27] These indicators notwithstanding, we find that CLCI accepted the terms of the TRC Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer under the TRB Repurchase Agreement and, in fact, partially executed the agreement, as shown from the following undisputed evidence: (a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president and general manager of CLCI, to the bank (in response to the banks demand letter dated November 27, 1986 to pay 20% of the bid price); CLCI requested an extension of time, until the end of December 1986, to pay its due obligation;[28] Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of January 13, 1987) showed that she acknowledged CLCIs failure to comply with its requested extension and proposed a new payment scheme that would be reasonable given CLCIs critical economic difficulties; Mrs. Cuizon tendered a check for P135,091.57, which represented 50% of the 20% bid price;[29] The CLCIs continuous payments of the repurchase price after their receipt of the banks letter of October 20, 1986;

(b)

(c)

(d)

CLCIs possession of the subject property pursuant to paragraph 5 of the TRB Repurchase Agreement, notwithstanding the absence of a signed contract to sell between the parties; x x x

We counted the following facts, too, as indicators leading to the conclusion that a perfected contract existed: CLCI did not raise any objection to the terms and conditions of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or objections [30]; CLCIs acknowledgment of their obligations under the TRB Repurchase Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons admission that the TRB Repurchase Agreement was already a negotiated agreement between CLCI and the bank, as shown by the following testimony: Q A When you received this document, this Exh. F from the defendant bank, did you already consider this as an agreement? We consider that as a negotiated agreement pending the documentation of the formal contract to sell which is stated under the repurchase agreement.

In other words, at the time you received this document Exh. F, which was on October 23, 1986 date of receipt, was there already a meeting of the minds between the parties? A That is precisely we put [sic] the earnest money because we were of the opinion that the bank is already agreeable to the implementation of the repurchase agreement. x x x COURT Q Q A Insofar as Exh. F is concerned? There was initially, that is precisely we [sic] deposited in consideration of the repurchase agreement.[31]

The bank, for its part, showed its recognition of the existence of a repurchase agreement between itself and CLCI by the following acts: (a) The letter dated November 27, 1986 of the bank, reminding CLCI that it was remiss in its commitments to pay 20% of the bid price under the terms of the TRB Repurchase Agreement; In the same letter, the bank gave CLCI an extension of time (until November 30, 1986) to comply with its past due obligations under the agreement; The banks acceptance of CLCIs payments as earnest money for the repurchase of the property; CLCIs continued possession of the subject property with the banks consent; The banks grant of extensions to CLCI for the payment of its obligations under the contract;

(b)

(c)

(d) (e)

(f)

The Statement of Account dated July 31, 1987 showing that the bank applied CLCIs payments according to the terms of the TRB Repurchase Agreement; The letter of January 26, 1989 of the banks c ounsel, Atty. Abarquez, addressed to CLCIs counsel, showing the banks recognition that there was an agreement between the bank and CLCI, which the latter failed to honor; and The testimonies of the banks witnesses Mr. Eulogio Giramis[32] and Ms. Arlene Aportadera,[33] the banks employees who handled the CLCI transactions who admitted the existence of the repurchase agreement with CLCI and the latters failure to comply with the agreements terms.

(g)

(h)

Admittedly, some evidence on record may be argued to point to the absence of a meeting of the minds (more particularly, the previous offers made by CLCI to change the payment scheme of the repurchase of the subject property which was not accepted; the banks expressed intent to offer the subject property for sale to third persons at a higher price; and the unaccepted counter-offer by the respondents after the bank increased the purchase price). [34] These incidents, however, were the results of CLCIs failure to comply with its obligations to pay the amounts due on the stipulated time and were made after the parties minds had met on the terms of the contract. The seemingly contrary indications, therefore, do not go into and affect the perfection of the contract; they came after the contract had been perfected and, as discussed below, were indicative of the banks cancellation of the repurchase agreement. In light of this conclusion, we now determine the consequential rights, obligations and liabilities of the parties. It is at this point that we diverge from the conclusions of the CA and the RTC, as we conclude that while there was a perfected contract between the parties, the bank effectively cancelled the contract when it communicated with CLCI that it would sell the subject property at a higher price to third parties, giving CLCI 15 days to make a formal offer, and disregarding CLCIs counter -offer to buy the subject property for P1.5 million. We arrive at this conclusion after considering the following reasons: First, the bank communicated its intent not to proceed with the repurchase as above outlined and formally cancelled the TRB Repurchase Agreement in its letters dated January 11 and 30, 1989 to CLCI.[35] Thus, CLCIs rights acquired under the TRB Repurchase Agreement to repurchase the subject property have been defeated by its own failure to comply with its obligations under the agreement. The right to cancel for breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows: 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract to sell where the title to the subject property remains in the banks name, as the vendor, and shall only pass to the respondents, as vendees, upon the full payment of the repurchase price. [36] The settled

rule for contracts to sell is that the full payment of the purchase price is a positive suspensive condition; the failure to pay in full is not to be considered a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring any obligatory force.[37] Viewed in this light, the bank cannot be compelled to perform its obligations under the TRB Repurchase Agreement that has been rendered ineffective by the respondents non-performance of their own obligations. Second, the respondents violated the terms and conditions of the TRB Repurchase Agreement when they failed to pay their obligations under the agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are clear on the respondents obligation to pay the bid price and the quarterly installments. Paragraphs 2 and 10 state: 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84 representing 20% of the bid price to be remitted on or before October 31, 1986; xxx

xxx

xxx

10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter;

The approval referred to under paragraph 10 is the approval by the bank of the repurchase of the subject property, as indicated in the banks letter of October 20, 1986 which states, This is to formally inform you that our Board of Directors in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank. It was on the basis of this approval and the quoted terms of the agreement that the bank issued its Statement of Account dated July 31, 1987 indicating that the respondents were already in default, not only with respect to the 20% of the bid price, but also with the three quarterly installments. Third, the respondents themselves claim that the bank violated the agreement when it applied the respondents payments to the interest and penalties due without the respondents consent, instead of applying these to the repurchase price for the subject property.[38] An examination of the provisions of the TRB Repurchase Agreement reveals that the bank is allowed to apply the respondents payments first to the amounts due as interests and other charges, before applying any payment to the repurchase price. Paragraph 4 of the agreement provides: 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53; Under these terms, the bank cannot be faulted for the application of payments it made. Likewise, the bank cannot be faulted for the application of other amounts paid as rentals as this is allowed under paragraph 11, quoted above, of the agreement.

Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the terms of the TRB Repurchase Agreement by extending the time to pay and subsequently accepting late payments. The CAs conclusion lacks factual and legal basis taking into account that the Statement of Account of July 31, 1987, heretofore cited, which shows that the bank considered the respondents already in default. At this point, Atty. Cuison, by letter, requested that part of its outstanding obligation be condoned by the bank, paying P300,000.00 as of August 31, 1987, which amount the bank accepted as earnest money. For one whole year thereafter, neither party moved. Significantly, the respondents, who had continuing payments to make and who had the burden of complying with the terms of the agreement, failed to act except to ask the bank for the status of its requested condonation. Under these facts, a continuing breach of the agreement took place, even granting that a waiver had intervened as of August 31, 1987. Thus, the bank was well within its right to consider the agreement cancelled when, in September 1988, it changed the repurchase terms to P3.0 million. We find it significant that the respondents, instead of asserting its rights under the TRB Repurchase Agreement, counter-offered P1.5 million with the P400,000.00 already paid as part of the purchase price. At that point, it was clear that even the respondents themselves considered the TRB Repurchase Agreement cancelled. Lastly, the perfected repurchase agreement itself provides for the respondents possession of the subject property; in fact, the respondents have been in continuous possession of the subject property since October 1986, despite the absence of a contract to sell apparently with the banks consent. The agreement also provides under its paragraph 11 that upon the respondents default and the cancellation of the agreement, all payments already made shall be treated as rentals or as liquidated damages. The undisputed facts show that the bank has been deprived of the use and benefit of its property that has been in the possession of the respondents for the latters use and benefi t without paying any rentals thereon. The records reveal that until now, the respondents are still in possession of the subject property.[39] We note that subsequent to the banks counterclaim for the payment of rentals due as of January 31, 1989, the bank also seeks to recover the rentals that accrued after January 31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by the evidence presented by the bank before the RTC and in the pleadings it had filed before the RTC, CA, and the Court. [40] Although this claim was not alleged in the banks Answer being an after-acquired claim which was only raised during the trial proper through the testimony dated August 17, 1993 of Ms. Arlene Aportadera, [41] the bank is not barred from recovering these rentals. As we explained in Banco de Oro Universal Bank v. CA,[42] a party is not barred from setting up a claim even after the filing of the answer if the claim did not exist or had not matured at the time said party filed its answer. Moreover, we note that the respondents did not object to the presentation of this evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried with the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil Procedure,[43] the issue should be treated in all respects as if it had been raised in the pleadings.[44] Given the implied consent, judgment may be validly rendered on this issue even if no motion had been filed and no amendment had been ordered. [45]

In National Power Corporation v. CA,[46] we held that where there is a variance in the defendants pleadings and the evidence adduced by it at the trial, the Court may treat the pleading as amended to conform to the evidence. Additionally, the respondents are also liable to pay interest by way of damages for their failure to pay the rentals due for the use of the subject property. In Eastern Shipping Lines v. CA,[47] we laid down the following guidelines with respect to the award and the computation of legal interest, as follows: II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169 Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. [Emphasis supplied] The records are unclear on when the bank made a demand outside of the judicial proceedings for the rentals on the subject property.[48] However, the records show that the bank made a counterclaim for the payments of the rentals due as of January 31, 1989 in its Answer and subsequently, a claim for the after-acquired rentals was made by the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of interest for the rentals shall be reckoned from the date the judicial demand was made by the bank or on April 20, 1989 when the bank set up its counterclaim for rentals in the subject property.

Under the circumstances, we can impose a 6% interest on the rentals from April 20, 1989 up to the finality of this decision. Thereafter, the interest shall be computed at 12% per annum from such finality up to full satisfaction. We find no basis for the award of exemplary damages. Article 2232 of the Civil Code declares: Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Considering the factual circumstances we have discussed above, we can hardly characterize respondents act of insisting on the enforcement of the repurchase agree ment as wanton, fraudulent, reckless, oppressive, or malevolent. As there is no basis for an award of exemplary damages, the awards of attorneys fees and litigation expenses to the bank are not justified under Article 2208 of the Civil Code. WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated March 31, 2006 and Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are herebyREVERSED and SET ASIDE. The complaint in Civil Case No. 19416-89 for breach of contract, specific performance, damages, and attorneys fees, with preliminary injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED. The respondents are ordered to vacate the subject property and to restore its possession to the petitioner bank. The respondents are further ordered to pay reasonable compensation, for the use and occupation of the subject property in the amount of P1,123,500.00, representing the accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing deposits paid by the respondents. In additiodn, respondents are also ordered to pay the amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they vacate the subject property. The rentals shall earn a corresponding legal interest of six percent (6%) per annum to be computed from April 20, 1989 until the finality of this decision. After this decision becomes final and executory, the rate of legal interest shall be computed at twelve percent (12%) per annum from such finality until its satisfaction. Costs against the respondents. SO ORDERED.

G.R. No. 155043

September 30, 2004 ABALOS, petitioner,

ARTURO R. vs. DR. GALICANO S. MACATANGAY, JR., respondent. DECISION TINGA, J.:

The instant petition seeks a reversal of the Decision of the Court of Appeals in CA-G.R. CV No. 48355 entitled "Dr. Galicano S. Macatangay, Jr. v. Arturo R. Abalos and Esther Palisoc-Abalos," promulgated on March 14, 2002. The appellate court reversed the trial courts decision which dismissed the action for specific performance filed by respondent, and ordered petitioner and his wife to execute in favor of herein respondent a deed of sale over the subject property. Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements located at Azucena St., Makati City consisting of about three hundred twenty-seven (327) square meters, covered by Transfer Certificate of Title (TCT) No. 145316 of the Registry of Deeds of Makati. Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by his wife, Arturo executed aReceipt and Memorandum of Agreement (RMOA) dated October 17, 1989, in favor of respondent, binding himself to sell to respondent the subject property and not to offer the same to any other party within thirty (30) days from date. Arturo acknowledged receipt of a check from respondent in the amount of Five Thousand Pesos (P5,000.00), representing earnest money for the subject property, the amount of which would be deducted from the purchase price of One Million Three Hundred Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated that full payment would be effected as soon as possession of the property shall have been turned over to respondent. Subsequently, Arturos wife, Esther, executed a Special Power of Attorney dated October 25, 1989, appointing her sister, Bernadette Ramos, to act for and in her behalf relative to the transfer of the property to respondent. Ostensibly, a marital squabble was brewing between Arturo and Esther at the time and to protect his interest, respondent caused the annotation of his adverse claim on the title of the spouses to the property on November 14, 1989. On November 16, 1989, respondent sent a letter to Arturo and Esther informing them of his readiness and willingness to pay the full amount of the purchase price. The letter contained a demand upon the spouses to comply with their obligation to turn over possession of the property to him. On the same date, Esther, through her attorney-in-fact, executed in favor of respondent, a Contract to Sell the property to the extent of her conjugal interest therein for the sum of six hundred fifty thousand pesos (P650,000.00) less the sum already received by her and Arturo. Esther agreed to surrender possession of the property to respondent within twenty (20) days from November 16, 1989, while the latter promised to pay the balance of the purchase price in the amount of one million two hundred ninety thousand pesos (P1,290,000.00) after being placed in possession of the property. Esther also obligated herself to execute and deliver to respondent a deed of absolute sale upon full payment. In a letter dated December 7, 1989, respondent informed the spouses that he had set aside the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the purchase price. He reiterated his demand upon them to comply with their obligation to turn over possession of the property. Arturo and Esther failed to deliver the property which prompted respondent to cause the annotation of another adverse claim on TCT No. 145316. On January 12, 1990, respondent filed a complaint for specific performance with damages against petitioners. Arturo filed his answer to the complaint while his wife was declared in default. The Regional Trial Court (RTC) dismissed the complaint for specific performance. It ruled that the Special Power of Attorney (SPA) ostensibly issued by Esther in favor of Arturo was void as it was falsified. Hence, the court concluded that the SPA could not have authorized Arturo to sell the property to respondent. The trial court also noted that the check issued by respondent to cover the earnest money was dishonored due to insufficiency of funds and while it was replaced with another

check by respondent, there is no showing that the second check was issued as payment for the earnest money on the property. On appeal taken by respondent, the Court of Appeals reversed the decision of the trial court. It ruled that the SPA in favor of Arturo, assuming that it was void, cannot affect the transaction between Esther and respondent. The appellate court ratiocinated that it was by virtue of the SPA executed by Esther, in favor of her sister, that the sale of the property to respondent was effected. On the other hand, the appellate court considered the RMOA executed by Arturo in favor of respondent valid to effect the sale of Arturos conjugal share in the property. Dissatisfied with the appellate courts disposition of the case, petitioner seeks a reversal of its decision alleging that: I. The Court of Appeals committed serious and manifest error when it decided on the appeal without affording petitioner his right to due process. II. The Court of Appeals committed serious and manifest error in reversing and setting aside the findings of fact by the trial court. III. The Court of Appeals erred in ruling that a contract to sell is a contract of sale, and in ordering petitioner to execute a registrable form of deed of sale over the property in favor of respondent.1 Petitioner contends that he was not personally served with copies of summons, pleadings, and processes in the appeal proceedings nor was he given an opportu nity to submit an appellees brief. He alleges that his counsel was in the United States from 1994 to June 2000, and he never received any news or communication from him after the proceedings in the trial court were terminated. Petitioner submits that he was denied due process because he was not informed of the appeal proceedings, nor given the chance to have legal representation before the appellate court. We are not convinced. The essence of due process is an opportunity to be heard. Petitioners failure to participate in the appeal proceedings is not due to a cause imputable to the appellate court but because of petitioners own neglect in ascertaining the status of his case. Petitioners counsel is equally negligent in failing to inform his client about the recent developments in the appeal proceedings. Settled is the rule that a party is bound by the conduct, negligence and mistakes of his counsel.2 Thus, petitioners plea of denial of due process is downright baseless. Petitioner also blames the appellate court for setting aside the factual findings of the trial court and argues that factual findings of the trial court are given much weight and respect when supported by substantial evidence. He asserts that the sale between him and respondent is void for lack of consent because the SPA purportedly executed by his wife Esther is a forgery and therefore, he could not have validly sold the subject property to respondent. Next, petitioner theorizes that the RMOA he executed in favor of respondent was not perfected because the check representing the earnest money was dishonored. He adds that there is no

evidence on record that the second check issued by respondent was intended to replace the first check representing payment of earnest money. Respondent admits that the subject property is co-owned by petitioner and his wife, but he objects to the allegations in the petition bearing a relation to the supposed date of the marriage of the vendors. He contends that the alleged date of marriage between petitioner and his wife is a new factual issue which was not raised nor established in the court a quo. Respondent claims that there is no basis to annul the sale freely and voluntarily entered into by the husband and the wife. The focal issue in the instant petition is whether petitioner may be compelled to convey the property to respondent under the terms of the RMOA and the Contract to Sell. At bottom, the resolution of the issue entails the ascertainment of the contractual nature of the two documents and the status of the contracts contained therein. Contracts, in general, require the presence of three essential elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.3 Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.4 In a contract of sale, the seller must consent to transfer ownership in exchange for the price, the subject matter must be determinate, and the price must be certain in money or its equivalent.5 Being essentially consensual, a contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. 6 However, ownership of the thing sold shall not be transferred to the vendee until actual or constructive delivery of the property.7 On the other hand, an accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. 8 An option merely grants a privilege to buy or sell within an agreed time and at a determined price. It is separate and distinct from that which the parties may enter into upon the consummation of the option. 9 A perfected contract of option does not result in the perfection or consummation of the sale; only when the option is exercised may a sale be perfected.10 The option must, however, be supported by a consideration distinct from the price. 11 Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to respondent for a price certain within a period of thirty days. The RMOA does not impose upon respondent an obligation to buy petitioners property, as in fact it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day period, without respondent having exercised his option, Arturo is free to sell the property to another. This shows that the intent of Arturo is merely to grant respondent the privilege to buy the property within the period therein stated. There is nothing in the RMOA which indicates that Arturo agreed therein to transfer ownership of the land which is an essential element in a contract of sale. Unfortunately, the option is not binding upon the promissory since it is not supported by a consideration distinct from the price.12 As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos13 we ruled that in an accepted unilateral promise to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no valid contract without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the nature of an offer to sell which, if acceded or consented to, results in a perfected contract of sale.

Even conceding for the nonce that respondent had accepted the offer within the period stated and, as a consequence, a bilateral contract of purchase and sale was perfected, the outcome would be the same. To benefit from such situation, respondent would have to pay or at least make a valid tender of payment of the price for only then could he exact compliance with the undertaking of the other party.14 This respondent failed to do. By his own admission, he merely informed respondent spouses of his readiness and willingness to pay. The fact that he had set aside a check in the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the balance of the purchase price could not help his cause. Settled is the rule that tender of payment must be made in legal tender. A check is not legal tender, and therefore cannot constitute a valid tender of payment.15 Not having made a valid tender of payment, respondents action for specific performance must fail. With regard to the payment of Five Thousand Pesos (P5,000.00), the Court is of the view that the amount is not earnest money as the term is understood in Article 1482 which signifies proof of the perfection of the contract of sale, but merely a guarantee that respondent is really interested to buy the property. It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. 16 No reservation of ownership on the part of Arturo is necessary since, as previously stated, he has never agreed to transfer ownership of the property to respondent. Granting for the sake of argument that the RMOA is a contract of sale, the same would still be void not only for want of consideration and absence of respondents sign ature thereon, but also for lack of Esthers conformity thereto. Quite glaring is the absence of the signature of Esther in the RMOA, which proves that she did not give her consent to the transaction initiated by Arturo. The husband cannot alienate any real property of the conjugal partnership without the wifes consent. 17 However, it was the Contract to Sell executed by Esther through her attorney-in-fact which the Court of Appeals made full use of. Holding that the contract is valid, the appellate court explained that while Esther did not authorize Arturo to sell the property, her execution of the SPA authorizing her sister to sell the land to respondent clearly shows her intention to convey her interest in favor of respondent. In effect, the court declared that the lack of Esthers consent to the sale made by Arturo was cured by her subsequent conveyance of her interest in the property through her attorney-in-fact. We do not share the ruling. The nullity of the RMOA as a contract of sale emanates not only from lack of Esthers consent thereto but also from want of consideration and absence of respondents signature thereon. Such nullity cannot be obliterated by Esthers subsequent confirmation of the putative transaction as expressed in the Contract to Sell. Under the law, a void contract cannot be ratified 18 and the action or defense for the declaration of the inexistence of a contract does not prescribe. 19 A void contract produces no effect either against or in favor of anyoneit cannot create, modify or extinguish the juridical relation to which it refers.20 True, in the Contract to Sell, Esther made reference to the earlier RMOA executed by Arturo in favor of respondent. However, the RMOA which Arturo signed is different from the deed which Esther executed through her attorney-in-fact. For one, the first is sought to be enforced as a contract of sale while the second is purportedly a contract to sell only. For another, the terms and conditions as to the issuance of title and delivery of possession are divergent. The congruence of the wills of the spouses is essential for the valid disposition of conjugal property. Where the conveyance is contained in the same document which bears the conformity of both husband and wife, there could be no question on the validity of the transaction. But when there are

two (2) documents on which the signatures of the spouses separately appear, textual concordance of the documents is indispensable. Hence, in this case where the wifes putative consent to the sale of conjugal property appears in a separate document which does not, however, contain the same terms and conditions as in the first document signed by the husband, a valid transaction could not have arisen. Quite a bit of elucidation on the conjugal partnership of gains is in order. Arturo and Esther appear to have been married before the effectivity of the Family Code. There being no indication that they have adopted a different property regime, their property relations would automatically be governed by the regime of conjugal partnership of gains.21 The subject land which had been admittedly acquired during the marriage of the spouses forms part of their conjugal partnership.22 Under the Civil Code, the husband is the administrator of the conjugal partnership. This right is clearly granted to him by law.23 More, the husband is the sole administrator. The wife is not entitled as of right to joint administration.24 The husband, even if he is statutorily designated as administrator of the conjugal partnership, cannot validly alienate or encumber any real property of the conjugal partnership without the wifes consent.25 Similarly, the wife cannot dispose of any property belonging to the conjugal partnership without the conformity of the husband. The law is explicit that the wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law. 26 More significantly, it has been held that prior to the liquidation of the conjugal partnership, the interest of each spouse in the conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement. The interest of each spouse is limited to the net remainder or "remanente liquido" (haber ganancial) resulting from the liquidation of the affairs of the partnership after its dissolution.27 Thus, the right of the husband or wife to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, there are net assets left which can be divided between the spouses or their respective heirs.28 In not a few cases, we ruled that the sale by the husband of property belonging to the conjugal partnership without the consent of the wife when there is no showing that the latter is incapacitated is void ab initio because it is in contravention of the mandatory requirements of Article 166 of the Civil Code.29 Since Article 166 of the Civil Code requires the consent of the wife before the husband may alienate or encumber any real property of the conjugal partnership, it follows that acts or transactions executed against this mandatory provision are void except when the law itself authorizes their validity.30 Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals ,31 we ruled that neither spouse could alienate in favor of another, his or her interest in the partnership or in any property belonging to it, or ask for partition of the properties before the partnership itself had been legally dissolved. Nonetheless, alienation of the share of each spouse in the conjugal partnership could be had after separation of property of the spouses during the marriage had been judicially decreed, upon their petition for any of the causes specified in Article 191 32 of the Civil Code in relation to Article 21433 thereof.

As an exception, the husband may dispose of conjugal property without the wifes consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code.34 In Tinitigan v. Tinitigan, Sr.,35 the Court ruled that the husband may sell property belonging to the conjugal partnership even without the consent of the wife if the sale is necessary to answer for a big conjugal liability which might endanger the familys economic standing. This is one instance where the wifes consent is not required and, impliedly, no judicial intervention is necessary. Significantly, the Family Code has introduced some changes particularly on the aspect of the administration of the conjugal partnership. The new law provides that the administration of the conjugal partnership is now a joint undertaking of the husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal partnership, the other spouse may assume sole powers of administration. However, the power of administration does not include the power to dispose or encumber property belonging to the conjugal partnership.36 In all instances, the present law specifically requires the written consent of the other spouse, or authority of the court for the disposition or encumbrance of conjugal partnership property without which, the disposition or encumbrance shall be void. 37 Inescapably, herein petitioners action for specific performance must fail. Even on the supposition t hat the parties only disposed of their respective shares in the property, the sale, assuming that it exists, is still void for as previously stated, the right of the husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the conjugal partnership. Nemo dat qui non habet. No one can give what he has not. WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 90-106 of the Regional Trial Court of Makati is ordered DISMISSED. No pronouncement as to costs. SO ORDERED.

G.R. No. 171968 XYST vs.

July 31, 2009 CORPORATION, Petitioner,

DMC URBAN PROPERTIES FE AURORA C. CASTRO, Intervenor. DECISION QUISUMBING, J.:

DEVELOPMENT

INC., Respondent,

Before us is a petition for review assailing the September 26, 2005 Decision 1 and the March 13, 2006 Order2 of the Regional Trial Court (RTC) of Makati City, Branch 64 in Civil Case No. 95-063. The facts are as follows: DMC Urban Properties Development, Inc. and Citibank N.A. entered into an agreement whereby they agreed to take part in the construction of the Citibank Tower, an office condominium building located at Villar corner Valero Streets, Makati City. In said agreement, DMC was allocated the 18th floor of the Citibank Tower subject to the condition that DMC shall not transfer any portion of its allocated floor or rights or interests thereto prior to the completion of the building without the written consent of Citibank N.A. Subsequently, DMC gave authority to sell to several brokers, one of which is herein intervenor, Fe Aurora Castro. Through her effort, Castro found a prospective buyer, Saint Agen Et Fils Limited (SAEFL for brevity), a foreign corporation represented by William Seitz. Notwithstanding the fact that the construction of the Citibank Tower was not yet completed, DMC negotiated with Seitz for the sale of its allocated floor to SAEFL. In a letter dated September 14, 1994,3 SAEFL accepted DMCs offer to sell. The terms of sai d letter are reproduced below: (1) Property Description Location : 18th Floor, Citibank Paseo de Roxas, Metro Manila18th Floor, : 2,034 sq m : 1,866 sq m : 1,678 sq m : P53,500/ - psm of saleable area : P99,831,000/-* : 22 Tower Makati

Gross Floor Area Net Saleable Area Net Usable Area Selling Price Total Price Parking Slots

* VAT tax for the account of the buyer, except that if payment of 26% of the total price is made before 30 September 1994, then VAT, if any, shall be for the account of the seller. The balance of P6,822,552.97 due to Citibank is included and, hence, is to be deducted from the amount due to DMC-UPDI. (2) Payment Terms

Reservation Fee

: P1,000,000/ good [until] 26 September 1994 Non-refundable but applicable to the down payment.

26% Upon signing of : P24,956,060/ agreement but not later than first banking hour of the 28th of September 1994. 24% Due on 31 October : P23,959,440/ 1994 (via post-dated check) 50% Due on 30 : P43,092,947.03 November 1994 (via post-dated check) * For the Account of the : Expanded Withholding Tax Seller with BIR clearance to the buyer stating that the seller has paid capital gains tax. For the Account of the : Doc stamps; registration; and Buyer notarial and all other [similar] fees. On September 16, 1994,4 SAEFL, knowing that the consent of Citibank N.A. must first be obtained, sent another letter obliging DMC to cause Citibank N.A. to enter into a Contract to Sell with SAEFL as an additional condition to the payment of the P1,000,000.00 reservation fee. Soon after, Seitz was informed that the 18th floor is not available for foreign acquisition, so Seitz told DMC that he would instead use XYST Corporation, a domestic corporation of which he is a director and shareholder, to purchase the subject property. XYST then paid the reservation fee. However, DMC advised XYST that the signing of the formal document will not take place since Citibank N.A. opted to exercise its right of first refusal. Hence, the parties agreed that should Citibank N.A. fail to purchase the 18th floor on the agreed date, the same should be sold to XYST. Eventually, Citibank N.A. did not exercise its right of first refusal, but it reminded DMC that should the sale of the floor to any party materialize, it should be consistent with the documents adopted by the co-founders of the project. Hence, a copy of a pro-forma Contract to Sell was given to DMC, a copy of which was then forwarded to XYST. DMC then undertook to obtain the conformity of Citibank N.A. to the intended sale but DMC encountered problems getting Citibank N.A. to accept the amendments that XYST wanted on the proforma contract.lawph!l For such failure, DMC allowed XYST and Citibank N.A. to negotiate directly with one another to facilitate the transaction, but to no avail. Citibank N.A. refused to concur with the

amendments imposed by XYST on the pro-forma contract. Hence, DMC decided to call off the deal and return the reservation fee of P1,000,000.00 to XYST. A complaint for specific performance with damages was then filed by XYST against DMC. Trial ensued and on September 26, 2005, the RTC dismissed XYSTs complaint. The dispositive portion of said decision reads: WHEREFORE, in view of the foregoing, judgment is rendered as follows: 1. The Complaint for Specific Performance and Damages filed by plaintiff XYST CORPORATION against defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC., is DISMISSED. Plaintiff XYST CORPORATION is hereby ordered to pay defendant DMCURBAN PROPERTIES DEVELOPMENT, INC. the amount ofP1,000,000.00 as attorneys fees; and 2. The counterclaim of defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC. against the Intervenor Fe Aurora Castro is DISMISSED. SO ORDERED.5 XYSTs motion for reconsideration was likewise denied. Hence, the instant petition where XYST raises the following issues: I. DID THE TRIAL COURT ERR IN FINDING THAT THERE WAS NO PERFECTED CONTRACT TO SELL BETWEEN XYST AND DEFENDANT DMC BASED ON THE SEPTEMBER 14 AND 16, 1994 LETTER AGREEMENTS, AND THAT DMC CANNOT BE COMPELLED TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT? II. DID THE TRIAL COURT ERR IN ORDERING XYST TO PAY DMC ATTORNEYS FEES? III. IS XYST ENTITLED TO ATTORNEYS FEES AND EXEMPLARY DAMAGES. 6 Simply stated, in our view, there is one major legal issue for our resolution: whether there is a perfected contract between DMC and XYST. This issue of a legal nature assumes primordial significance because it justified direct resort by petitioner to this Court in a petition for review. XYST argues that there exists a perfected contract of sale between the parties. This was perfected from the moment there was a meeting of the minds upon the thing which is object of the contract and upon the price as manifested by the September 14, 1994 letter. Hence, upon the perfection of the contract, the parties may reciprocally demand performance. Further, XYST avers that the P1,000,000.00 reservation fee it paid is actually in the nature of earnest money or down payment and shall be considered as part of the price and as proof of the perfection of the contract. Conversely, DMC insists that a contract to sell was entered into by the parties. It avers that in the contract to sell, the element of consent is lacking, and since the acceptance made by XYST is not

absolute, no contract of sale existed between the parties. It claims that the terms, conditions and amendments which XYST tried to impose upon DMC and Citibank N.A. were proof that indeed XYST had qualifiedly accepted DMCs offer. We find the petition of XYST Corporation bereft of merit. It is a fundamental rule that, being consensual, a contract is perfected by mere consent. 7 From the moment of a meeting of the offer and the acceptance upon the object and the cause that would constitute the contract, consent arises.8 The essence of consent is the conformity of the parties on the terms of the contract, that is, the acceptance by one of the offer made by the other. 9 However, the acceptance must be absolute; otherwise, the same constitutes a counter-offer10 and has the effect of rejecting the offer.11 Equally important are the three stages of a contract: (1) preparation or negotiation, (2) perfection, and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.12 XYST and DMC were still in the negotiation stage of the contract when the latter called off the deal. The facts show that DMC as agreed undertook to obtain the conformity of Citibank N.A. However, Citibank N.A.s consent to the intended sale cannot be obtained since it does not conform to the amendments made by XYST on the pro-forma Contract to Sell. By introducing amendments to the contract, XYST presented a counter-offer to which DMC did not agree. Clearly, there was only an offer and a counter-offer that did not sum up to any final arrangement containing the elements of a contract. No meeting of the minds was established. The rule on the concurrence of the offer and its acceptance did not apply because other matters or details in addition to the subject matter and the considerationwould still be stipulated and agreed upon by the parties.13 Therefore, since the element of consent is absent, there is no contract to speak of. Where the parties merely exchanged offers and counter-offers, no agreement or contract is perfected.lavvphil As to XYSTs claim that the P1,000,000.00 reservation fee it paid is earnest money, we hold that it is not. Earnest money applies to a perfected sale. Here, no contract whatsoever was perfected since the element of consent was lacking. Therefore, the reservation fee paid by XYST could not be earnest money. Coming now to the issue of whether DMC is entitled to attorneys fees, the Court finds that the award of attorneys fees to DMC is not proper. Article 2208 of the Civil Code states that in the absence of a stipulation, attorneys fees cannot be recovered, except in any of the following circumstances: (1) When exemplary damages are awarded; (2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmens compensation and employers liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In the instant case, none of the enumerated grounds for recovery of attorneys fees is present. WHEREFORE, this petition is DENIED. The September 26, 2005 Decision and March 13, 2006 Order of the Regional Trial Court of Makati City, Branch 64 in Civil Case No. 95-063 are hereby AFFIRMED with themodification that the award of attorneys fees in favor of DMC is deleted. Costs against petitioner. SO ORDERED. LEONARDO Associate Justice WE CONCUR: CONCHITA Associate Justice CARPIO MORALES A. QUISUMBING

G.R. No. L-2412

April 11, 1906 ROMAN, plaintiff-appellant,

PEDRO vs. ANDRES GRIMALT, defendant-appellee. Alberto Barretto, Chicote, Miranda and Sierra, for appellee. TORRES, J.: for

appellant.

On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt, praying that judgment be entered in his favor and against the defendant (1) for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in Philippine

currency, payable by installments in the manner stipulated; (2) for legal interest on the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy as might be considered just and equitable. On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the plaintiff duly excepted. Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the plan of payment suggested by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had notified the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that judgment be rendered in accordance with the prayer of his previous complaint. Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23 called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title, wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly inspected. Defendant also denied the other allegations of the complaint inconsistent with his own allegations and further denied the statement contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been made to deliver the same, but admitted, however, the allegations contained in the last part of the said paragraph. The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the evidence introduced at the trial. A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.)

Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the value and paid the price agreed upon, in which case the sale is considered perfected. When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.) Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the schooner Santa Marina from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written by the purchaser to the owner on the 23rd of June. The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had complied with the condition exacted by the proposed purchaser, to wit, the production of the proper papers showing that the plaintiff was in fact the owner of the vessel in question. The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties. It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been perfected and articles 1096 and 1182 of the same code relative to the obligation to deliver a specified thing and the extinction of such obligation when the thing is either lost or destroyed, are not applicable to the case at bar. The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of the thing or made the basis of an action in court through failure to conform to the requisites provided by law. The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance for proper action. So ordered.

CIRILO vs. JOSE L. ESPINO, defendant-appellee. Simeon Capule Iigo R. Pea for defendant-appellee. REYES, J.B.L., Actg. C.J.: for

PAREDES, plaintiff-appellant,

plaintiff-appellant.

Appeal from an order of the Court of First Instance of Palawan in its Civil Case No. 453, granting a motion to dismiss the complaint. Appellant Cirilo Parades had filed an action to compel defendant-appellee Jose L. Espino to execute a deed of sale and to pay damages. The complaint alleged that the defendant "had entered into the sale" to plaintiff of Lot No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that the deal had been "closed by letter and telegram" but the actual execution of the deed of sale and payment of the price were deferred to the arrival of defendant at Puerto Princesa; that defendant upon arrival had refused to execute the deed of sale altho plaintiff was able and willing to pay the price, and continued to refuse despite written demands of plaintiff; that as a result, plaintiff had lost expected profits from a resale of the property, and caused plaintiff mental anguish and suffering, for which reason the complaint prayed for specific performance and damages. Defendant filed a motion to dismiss upon the ground that the complaint stated no cause of action, and that the plaintiff's claim upon which the action was founded was unenforceable under the Statute of Frauds. Plaintiff opposed in writing the motion to dismiss and annexed to his opposition a copy of a letter purportedly signed by defendant (Annex "A"), wherein it was stated (Record on Appeal, pp. 1920) 106 Tuguegarao,Cagayan May18,1964 Mr.CiriloParedes Pto.Princesa,Palawan GonzagaSt.

Dear Mr. Paredes: So far I received two letters from you, one dated April 17 and the other April 29, both 1964. In reply thereto, please be informed that after consulting with my wife, we both decided to accept your last offer of Four (P4.00) pesos per square meter of the lot which contains 1826 square meters and on cash basis. In order that we can facilitate the transaction of the sale in question, we (Mrs. Espino and I), are going there (Puerto Princess, Pal.) to be there during the last week of the month, May. I will send you a telegram, as per your request, when I will reach Manila before taking the boat for Pto. Princess. As it is now, there is no schedule yet of the boats plying between Manila and Pto. Princess for next week.

Plaintiff also appended as Annex "A-1", a telegram apparently from defendant advising plaintiff of his arrival by boat about the last week of May 1964 (Annex "A-1" Record on Appeal, p. 21), as well as a previous letter of defendant (Appendix B, Record on Appeal, p. 35) referring to the lot as the one covered by Certificate of Title No. 62. These allegations and documents notwithstanding, the Court below dismissed the complaint on the ground that there being no written contract, under Article 1403 of the Civil Code of the Philippines Although the contract is valid in itself, the same can not be enforced by virtue of the Statute of Frauds. (Record on Appeal, p. 37).1wph1.t Plaintiff duly appealed to this Court. The sole issue here is whether enforcement of the contract pleaded in the complaint is barred by the Statute of Frauds; and the Court a quo plainly erred in holding that it was unenforceable. The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the contract itself be in writing. The plain text of Article 1403, paragraph (2) is clear that a written note or memorandum, embodying the essentials of the contract and signed by the party charged, or his agent, suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) . . . (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: xxx xxx xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein.1wph1.t xxx xxx xxx

In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram" (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as Exhibit A to plaintiff's opposition to the motion dismiss. This letter, transcribed above in part, together with that one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-appellee; refer to the property sold as a lot in Puerto Princesa, Palawan, covered, by TCT No. 62; give its area as 1826 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in them therefore, all the essential terms of the contract, and they satisfy the requirements of the Statute of Frauds. We have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a sufficient memorandum may be contained in two or more documents.

Defendant-appellee argues that the authenticity of the letters has not been established. That is not necessary for the purpose of showing prima facie that the contract is enforceable. For as ruled by us in Shaffer vs. Palma, L-24115, March 1, 1968, whether the agreement is in writing or not, is a question of evidence; and the authenticity of the writing need not be established until the trial is held. The plaintiff having alleged that the contract is backed by letter and telegram, and the same being a sufficient memorandum, his cause of action is thereby established, especially since the defendant has not denied the letters in question. At any rate, if the Court below entertained any doubts about the existence of the written memorandum, it should have called for a preliminary hearing on that point, and not dismissed the complaint. WHEREFORE, the appealed order is hereby set aside, and the case remanded to the Court of origin for trial and decision. Costs against defendant-appellee Jose L. Espino. So ordered. G.R. No. 122544 January 28, 1999 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents. G.R. No. 124741 January 28, 1999 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners, vs. COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES, INC., respondents.

MARTINEZ, J.: Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural intricacies which finally found its way to this Court. G.R. No. 122544: On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00. For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court rendered judgment 2 ordering private respondent to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in

the form of reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees. Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court. On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a decision 4stating that: . . ., the alleged question of whether petitioner was granted an extension of the option to buy the property; whether such option, if any, extended the lease or whether petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private respondents in consideration of the option and, whether petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely incidental and do not remove the unlawful detainer case from the jurisdiction or respondent court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the principle prohibiting multiplicity of suits. (Original Records, pp. 38-39). The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution dated September 9, 1985. 5 On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the then City Court for the ejectment of the private respondent, having been affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and executory. Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with injunction and damages. In its decision 6 dated May 12, 1986, the trial court dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case. The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied. On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of

sale between the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has fully paid the purchase price. Since private respondent did not consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads: WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor of the plaintiffappellant, and to deliver to the latter the said deed of sale, as well as the owner's duplicate of the certificate of title to said property upon payment of the balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the balance of the purchase price, as previously agreed upon by the parties. SO ORDERED. Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of Appeals, 10petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the propriety of private respondent's exercise of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract of sale. G.R. No. 124741: Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of the judgment 11 dated November 22, 1982 which was granted in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied. Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by this Court. On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered the immediate implementation of the third writ of execution without delay.

On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the order for its execution. On January 11, 1994, RTC of Quezon City, Branch 104 issued an order 12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an injunction bond of P50,000.00. Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a petition 13for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary injunction with the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition and ruled that: The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of the private respondent. To grant the petition would be to allow the ejectment of the private respondent. We cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private respondent has been demonstrated to be without basis in the said civil case. The petitioners have been shown, after all, to have no right to eject private respondents. WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED. SO ORDERED. 15 Petitioners' motion for reconsideration was denied in a resolution 16 by the Court of Appeals stating that: This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiffappellant (private respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of the private respondent to possess the subject premises. Considering said decision, we should not allow ejectment; to do so would disturb the status quo of the parties since the petitioners are not in possession of the subject property. It would be unfair and unjust to deprive the private respondent of its possession of the subject property after its rights have been established in a subsequent ruling. WHEREFORE, the motion for reconsideration is DENIED for lack of merit. SO ORDERED. 17 Hence, this instant petition. We find both petitions impressed with merit. First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 square meter. After the expiration thereof, the lease was for P3,000.00 per month.

Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month to month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial action after the expiration of every month. 20 When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court. Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New Civil Code. 21 In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that: This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. 24 Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of

petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy. Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof. 25 In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 26 As provided in Article 1868 of the New Civil Code, 27 there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency. In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent: Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case would really attain finality. WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE. Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court. However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.1wphi1.nt SO ORDERED.

G.R. No. L-116650 May 23, 1995 TOYOTA SHAW, vs. COURT OF APPEALS and LUNA L. SOSA, respondents. INC., petitioner,

DAVIDE, JR., J.: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

AGREEMENTS & POPONG SHAW, INC.

BETWEEN BERNARDO

MR. OF

SOSA TOYOTA

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June. 2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989. 3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

(Sgd.) POPONG BERNARDO. Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari. The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows: a) downpayment b) insurance c) BLT registration fee CHMO fee service fee accessories P 53,148.00 P 13,970.00 P 1,067.00 P 2,715.00 P 500.00 P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions: CONDITIONS OF SALES 1. This sale is subject to availability of unit. 2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . . Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that: 9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims. After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15 The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows: WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant: 1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages; 2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages; 3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case; 4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and 5. ordering the defendant to pay the cost of suit. SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages. We find merit in the petition. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates 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. A contract of sale may be absolute or conditional. and Article 1475 specifically provides when it is deemed perfected: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19 Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22 The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23 Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was " mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given ; . . . (Emphasis supplied). 25 The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its nondelivery did not cause any legally indemnifiable injury. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED. No pronouncement as to costs. SO ORDERED. Padilla, Bellosillo and Kapunan, JJ., concur. Quiason, J., is on leave.

G.R. No. L-109236 March 18, 1994

VIRGINIA D. PAGCO and GAUDENCIO PAGCO, petitioners, vs. THE HONORABLE COURT OF APPEALS and PETER NG QUIMSON, respondents. Candido P. Gutierrez for petitioners. Rosendo G. Tansinsin, Jr. for private respondent.

KAPUNAN, J.: Petitioners seek to review the decision of the Court of Appeals dismissing their petition to reverse the decision 1 of the Regional Trial Court of Manila, the dispositive portion of which reads: WHEREFORE, judgment is rendered: (a) Vacating and setting aside the appealed judgment of the lower court; (b) Ordering the defendants to vacate the premises under their respective occupation and surrender possession thereof to the plaintiff; (c) Ordering said defendants to pay to the plaintiff their rental in arrears computed from March 1987 and their current rentals until they vacate the premises leased to them at the following month rates: NAMES RENTAL (1) Francisco (2) Angelina (3) Luz A. (4) Ramon (5) Virginia (6) Asuncion (7) Apolonia Vda. (8) Angelina (9) Gaudencio (10) Benjamin (11) Victor Maguad 45.00 Merdeja Villarin Mondejar Mondejar Pagco Bandung de Glory Molina Pagco Aguilar P45.00 53.40 53.14 48.31 62.76 45.00 3.14 43.92 48.31 45.00

(d) Ordering the defendants to pay their proportionate shares in the costs. (e) Remand the records of this case to the court of origin for immediate execution. SO ORDERED. 2 Private respondent Peter Quimson is the owner of a parcel if land situated at San Isidro Street, Singalong, Manila, with an area of 1,000 square meters and covered by TCT No. 173114.

When private respondent acquired the property on March 17, 1987 through sale at public auction, eleven (11) occupants were in possession of the property with their respective residential houses built thereon, among whom are herein petitioners. Private respondent had earlier negotiated with petitioners for the latter to buy the portions they occupy but petitioners backed off. Private respondent subsequently informed the lessees to pay their back rentals and to remove their houses because he needed the property for his own use and that of the immediate member of his family. For failure of petitioners to heed private respondent's demand, a complaint for ejectment was filed against petitioners and the other occupants of the property in the Metropolitan Trial Court of Manila, Branch 6, docketed as Civil Case No. 125830. 3 Petitioners and the other defendants filed their answer denying that there were negotiations for them to buy the property and alleging as affirmative defense that private respondent has no cause of action as the property is within the area for priority development, hence, eviction of the occupant families is prohibited under P.D. 2016. During the trial of the case, only petitioners adduced their evidence. The other defendants waived their right to present evidence for failure to appear at the trial. After trial, the Metropolitan Trial Court rendered 4 judgment dismissing the complaint for ejectment on the ground that there was a perfected sale over the property between private respondent and its occupants and, consequently, said court had no jurisdiction over the case because the rights of the parties should be governed not by the law on lease but by the law on sales, more specifically Article 1475 of the Civil Code. Private respondent appealed the MTC's decision to the Regional Trial Court, Branch 35, where the case was docketed as Civil Case No. 91-58880. Thereafter, the RTC rendered its decision, reversing that of the Metropolitan Trial Court. Not satisfied with the RTC's decision, petitioners filed a petition for review with the Court of Appeals on the following grounds: I THE LOWER COURT ERRED WHEN IT DISREGARDED THE PERFECTED SALE BETWEEN THE PARTIES AND ORDERED THE EJECTMENT OF DEFENDANTS. II THE DECISION IS IN ERROR WHEN THE FATAL DEFECT OF MISJOINDER OF PARTIES WAS IGNORED. The Court of Appeals in dismissing the petition ratiocinated: A contract of sale is perfected from the time there exists and agreement upon the thing which is the object of the contract and upon the price (Article 1475, Civil Code). Here, the price fixed by respondent Quimson as alleged in paragraph 8 of the complaint is P970.00 per square meter, although respondent testified that the exact price is

P980.00 per square meter (page 6, RTC decision). According to petitioners, however, all the defendants agreed to pay the price of P850.00 only per square meter (page 5, RTC decision). Clearly, therefore, there was no agreement reached between the parties as to the price of the lot in question. Consequently, as no price was agreed upon, there can be no perfected contract of sale within the contemplation of Article 1475 of the Civil Code. That there indeed was no perfected contract of sale is further bolstered by the letter of petitioners' lawyer to respondent Quimson dated June 24, 1988 (Exhibit "C", also Exhibit "1", page 19, MRT record), the relevant portions of which state: Our clients revealed to us that they have not consented much less entered into any agreement on a direct purchase from you of their respective occupied lots especially on the price you mentioned. There is yet another factor that militates against petitioners' pretended perfected sale of the property. In their answer to the complaint, (page 45, MTC record), defendants (including the petitioners herein) never alleged that there was a perfected contract of sale of the portion they were occupying. Paragraphs 4 & 5 of defendants' answer aver: 4. The allegations contained in paragraphs 6, 7 and 8 are vehemently denied, the truth of the matter being, that plaintiff on several occasions demands exhorbitant rentals or payments for the property and harassed them with threats to eject them for their occupied spaces if they refuse to accept and oblige with his terms. 5. Paragraphs 9 and 10 of the complaint, are likewise denied on the ground that defendants never recognized plaintiff as the owner of the property in issue and most of all advised the latter that the same was covered by a proclamation placing it under Area priority development pursuant to the Urban Reform Law. All these established facts debunk petitioners' claim or a perfected contract of sale between them and respondent Peter Quimson. On the second ground, petitioners vehemently assail the RTC decision which allegedly ignored the misjoinder of parties. Citing the case of Flores vs. Mallare-Philipps, 144 SCRA 377, petitioners contend that there is misjoinder of parties because the claim against the defendants are separate and distinct. The Flores decision, supra, finds no application in this case. The Supreme Court dismissed the complaint because the claim against Ignacio Binongcal for P11,643.00 on the first cause of action and the claim against Fernando Calion for P10,212.00 on the second cause of action, are separate and distinct and neither of which falls within the original exclusive jurisdiction of the Regional Trial Court under Section 19(8) of B.P. 129 where the amount of the demand is more than P20,000.00. In the case at bar, the cause of action for the ejectment against all the defendants, including the petitioners, is for non-payment of rentals from 1987 to the present. The relief sought against all the defendants is the same, i.e., to vacate the premises and to pay the rentals in arrears. We thus agree with the trial court that

Arrears in payment of rentals for a total of three months is a ground for judicial ejectment (Sec. 5-b, Batas Pambansa Blg. 877, as amended and extended by Rep. Act. No. 6828). In this case, the defendants admitted among others, during the pre-trial, the respective rates of rental they have been paying to the previous owners; that the title to the land in question has been transferred to the plaintiff in March 1987; that they have not been paying their rentals since June 1985; and that they received the letters of demand of the plaintiff (Record, p. 178). However, the plaintiff is entitled to recover the unpaid rentals only from March 1987 when he became the owner-lessor of the land in question. This is a good example of how persons who have failed to adduce any legal grounds for their continued stay on property belonging to another have nonetheless managed to stave off eviction for more than four years although with respect to the other defendants in the case, writs of execution had already been issued against them. 5 In the instant recourse, petitioners assail the Court of Appeals' decision alleging as their lone assigned error that I THE LOWER COURT ERRED WHEN IT DID NOT CONSIDER AGAINST PLAINTIFF FATAL ALLEGATIONS IN THE COMPLAINT WHICH CLEARLY INDICATES LACK OF CAUSE OF ACTION BUT RATHER CURED THE SAME THROUGH DEFENDANTS ANSWER. The petition is devoid of merit. As correctly found by both the Court of Appeals and the Regional Trial Court on the basis of the evidence, there was no meeting of the minds between the parties regarding the offer by private respondent to sell his property to the occupants. Private respondent wanted P980.00 per square meter, but the occupants were willing to pay only P850.00. In arguing that there was a perfected contract of sale, petitioners wrongly capitalize on the allegations in the complaint, to wit: 8. That this time, upon receipt of Annex "D", defendants negotiated with the plaintiff's offer to buy the area actually occupied by their houses at P970.00 a square meter on easy monthly installment for five (5) years. 9. To consumate the agreement, plaintiff engaged the services of a Geodetic Engineer who prepared a subdivision plan delineating the boundaries of the area to be assigned to each of the defendants. 10. That however, after approving the proposed subdivision plan, the defendants suddenly and abruptly changed their minds and repudiated the agreement which is already a perfected contract, and deliberately and maliciously refused to continue negotiating with the plaintiff as expressed in the attached letter of their counsel marked as ANNEX "E" and made an integral part hereof. 6 However, as the Court of Appeals had appointed out in its decision, petitioners categorically denied in paragraphs 4 and 5 of their answer whatever imputations there are in paragraphs 8 to 10 of the

Complaint of the alleged existence of a perfected contract. In other words, petitioners in their answer never claimed ownership of the lot; they only put up the defense that the property is within one of the areas proclaimed for priority development and, therefore, their eviction is prohibited pursuant to P.D. 2016. The phrase "perfected contract" in paragraph 10 of the complaint is used in its loose sense and does not connote that there was a meeting of the minds between the parties. Observe that after the statement in said paragraph that "after approving the proposed subdivision plan, the defendants suddenly and abruptly changed their minds and repudiated the agreement which is already a perfected contract," there immediately follows the qualifying allegation that "[defendants] deliberately and maliciously refused to continue negotiating with the plaintiff as expressed in the attached letter of their counsel marked as Annex 'E' and made an integral part thereof. The words "refused to continue negotiating with the plaintiff" have no other meaning except that there was a negotiation regarding the offer to sell, but the negotiation fell through because of the refusal of petitioners and the other occupants to talk further as evidenced by the letter of their counsel, which is Annex "C" of the complaint. The letter referred to, which is dated June 24, 1988, states in part: Our client revealed to us that the have not consented much less entered into by agreement on a direct purchase from you of their respective occupied lots especially on the price you mentioned. 7 Finally, even granting that there was a perfected contract of sale, it can be implied that there was subsequently a mutual withdrawal or "mutual backing out" from the contract. 8 This conclusion may be drawn from the fact of the filing by private respondent of the complaint for ejectment, in which he alleged ownership of the property in question and from the averments in petitioners' answer wherein they never claimed ownership of the property by purchase from private respondent. In Aquino vs. Taedo, 9 involving a sale of land mutually cancelled by both contracting parties, this Court emphasized that the rescission of the contract between the plaintiff and the defendant was not originated by any of the causes specified in Arts. 1291 and 1292 (now Arts. 1381 and 1832 of the New Civil Code), nor is it a relief for the purposes sought by these articles; it is simply another contract for the dissolution of the previous one, and its effects, in relation to the contract so dissolved, should be determined by the agreement of the parties, or by the application of other legal provisions, not by Article 1295 (now Art. 1385 of the Civil Code). WHEREFORE, the petition is DENIED for lack of merit. No pronouncement as to costs. G.R. No. 128016 September 17, 1998 SPOUSES CESAR AND ELVIRA RAET AND SPOUSES REX AND EDNA MITRA, petitioners, vs. COURT OF APPEALS, PHIL-VILLE DEVELOPMENT & HOUSING CORPORATION, GERONIMA G. QUE AND CAROLINA Q. VILLONGCO, respondents.

MENDOZA, J.:

In 1984, petitioners Cesar and Elvira Raet (the spouses Raet) and petitioners Rex and Edna Mitra (the spouses Mitra) negotiated with Amparo Gatus concerning the possibility of buying the rights of the latter to certain units at the Las Villas de Sto. Nio Subdivision in Meycauayan, Bulacan. 1 This subdivision was developed by private respondent Phil-Ville Development and Housing Corporation (PVDHC) primarily for parties qualified to obtain loans from the Government Service Insurance System (GSIS). 2 The spouses Raet and the spouses Mitra paid Gatus the total amounts of P40,000.00 and P35,000.00, respectively, 3 for which they were issued receipts by Gatus in her own name. 4 In early 1985 the spouses Raet and the spouses Mitra applied directly with private respondent PVDHC for the purchase of units in the said subdivision. As they were not GSIS members, they looked for members who could act as accommodation parties by allowing them to use their policies. 5 Private respondent PVDHC would process the applications for the purchase of the units upon the approval by the GSIS of petitioners' loan applications. 6 The spouses Raet presented the GSIS policy of Ernesto Casidsid, while the spouses Mitra that of Edna Lim. 7 The spouses Raet paid P32,653.00, while the spouses Mitra paid P27,000.00, to private respondent PVDHC, 8 on the understanding that these amounts would be credited to the purchase prices of the units which will be determined after the approval of their loan applications with the GSIS. Meanwhile, the spouses Raet were allowed to occupy the unit built on Lot 4, Block 67, Phase 4A of the Las Villas de Sto. Nio Subdivision, 9 while the spouses Mitra were given the unit on Lot 7, Block 61, Phase 4A thereof. 10 It appears, however, that the GSIS disapproved the loan applications of petitioners. 11 For this reason, they were advised by private respondent PVDHC to seek other sources of financing. In the meantime, they were allowed to remain in the subject premises. Upon complaint of petitioner Elvira Raet, the Office of the Provincial Prosecutor, Bulacan, charged Amparo Gatus with estafa in the Regional Trial Court of Malolos, Bulacan. However, the case was dismissed. The Regional Trial Court found that Gatus never misrepresented herself as an agent of private respondent PVDHC and accordingly acquitted her in a decision dated August 25, 1989. Owing to the failure of petitioners to raise money, private respondent PVDHC asked them, in separate demand letters, dated November 10, 1988, to vacate the units they were occupying. As petitioners refused to do so, it filed ejectment cases against them before the Municipal Trial Court of Meycauayan, Bulacan, which eventually ordered them on May 24, 1991 to surrender the possession of the subject units and to pay the fees, litigation expenses, and costs of suit. The decision of the Municipal Trial Court of Meycauayan, Bulacan was affirmed, first by the Regional Trial Court of Malolos, Bulacan and then by the Court of Appeals. 12 Petitioners tried to appeal to this Court but their appeal was dismissed on December 2, 1992. On May 18, 1988 and November 24, 1988, respectively, the spouses Raet and the spouses Mitra had earlier filed complaints against private respondent PVDHC with the Regional Trial Court of Malolos, Bulacan for the recovery of the supplemental costs they had paid to private respondent PVDHC. However, the complaint of the spouses Raet was dismissed on the ground that the Regional Trial Court did not have jurisdiction over cases involving disputes between subdivision buyers and developers which fall within the exclusive competence of the Housing and Land Use Regulatory Board (HLURB). On the other hand, the complaint of the spouses Mitra was withdrawn by them on April 17, 1990. The spouses Raet and the spouses Mitra then filed on April 15, 1991 a complaint for specific performance and damages against Amparo Gatus and private respondent PVDHC with the HLURB

which gave judgment in petitioners' favor. In a decision, dated October 8, 1991, Housing and Land Use Arbiter Arturo M. Dublado ruled: Against this factual backdrop, . . . the following observations could be made, to wit: 1. Respondents Phil-Ville and Gatus transacted with complainant for the sale of the subject housing units despite knowing fully well that they are not qualified to buy under the GSIS financing scheme. This is a fact which respondents could have readily known even before proceeding to transact with complainants. Respondents even allowed complainants to use the GSIS policies of other persons in order that complainants can avail of the GSIS loan facility to pay respondent Phil-Ville which is irregular. 2. Respondent Phil-Ville accepted payments and allowed complainants to occupy the subject premises despite knowing that they are not qualified to buy under the GSIS financing scheme and without executing a written instrument modifying the terms and conditions agreed upon between complainants and respondent Gatus. 3. It was only after several years of occupation of the subject premises by complainants that respondent Phil-Ville informed complainants that they are not qualified to purchase the subject premises. 4. Respondent Gatus did not unequivocally inform complainants in her transactions with them that she was merely selling her interests over the subject properties to complainants. Respondent Phil-Ville could have made its relation with respondent Gatus a lot clearer by altogether ignoring the transaction entered into by respondent Gatus with complainants but it chose to transact with complainants and accept payments from the latter. From the foregoing, the conclusion that thus can be drawn is that respondent Gatus is an agent of respondent Phil-Ville with respect to the sale of the subject properties to complainants. Respondent Gatus is thus duty bound to remit to respondent Phil-Ville all payments made by complainants in connection with the purchase of the subject properties. Respondent Phil-Ville on the other hand is bound to respect the terms and conditions for the purchase of the subject premises as agreed upon by the respondent Gatus and complainants. Accordingly, he ordered Amparo Gatus and private respondent PVDHC as follows: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered directing respondent Amparo Gatus to remit to respondent Phil-Ville Development and Housing Corporation the amounts of P40,000.00 and P35,000.00 representing the amounts respectively paid by complainants spouses Raet and Mitra pursuant to the purchase of their respective housing units or in the alternative respondent Gatus is hereby directed to refund the said amounts of P40,000.00 and P35,000.00 to complainants at 12% interest per annum from the time of the filing of the complaint on April 15, 1991. Respondents are further directed to allow complainants reasonable time to look for sources of financing or to pay the balance on the purchase price of P171,994.50 for

complainants spouses Mitra and the purchase price of P213,998.00 for complainants spouses Raet. Finally, for compelling complainants to engage the services of counsel, respondents are jointly and severally directed to pay P5,000.00 as and by way of attorney's fees. 13 On appeal, the Board of Commissioners of the HLURB reversed on April 20, 1992 the Housing and Land Use Arbiter on the ground that the issues involved in the case had already been determined by the Municipal Trial Court of Meycauayan, Bulacan in the ejectment suit between the parties. Petitioners moved for a reconsideration, but their motion was denied on January 18, 1993. Petitioners elevated the case to the Office of the President which sustained the ruling of the Housing and Land Use Arbiter in a decision, dated June 29, 1995. The Office of the President held that the HLURB has jurisdiction over cases involving disputes between subdivision buyers and developers to the exclusion of the regular courts. Therefore, the decision in the ejectment case cannot be conclusive on the question whether there were perfected contracts of sale between the petitioners and private respondent PVDHC. Private respondent PVDHC filed a motion for reconsideration which the Office of the President denied in its resolution of December 20, 1995. The case was elevated to the Court of Appeals by private respondent PVDHC. In its decision, dated July 2, 1996, 14 the Court of Appeals set aside the decision of the Office of the President and dismissed the petitioners' action without prejudice to their right to proceed against Amparo Gatus. Petitioners' subsequent motion for reconsideration was denied by the appellate court on January 6, 1997. This is a petition for review on certiorari by the spouses Raet and the spouses Mitra. Petitioners first contend that RESPONDENT COURT COMMITTED A REVERSIBLE ERROR IN CONCLUDING THAT THE FACTS AND JUDGMENT RENDERED IN THE UNLAWFUL DETAINER CASE BY THE MUNICIPAL TRIAL COURT OF MEYCAUAYAN, BULACAN, AGAINST THE HEREIN PETITIONERS, WHICH WAS AFFIRMED BY THE APPELLATE COURTS, WAS A BAR TO THE ACTION OF PETITIONERS FOR SPECIFIC PERFORMANCE WHICH IS EXCLUSIVELY COGNIZABLE BY THE HOUSING AND LAND USE REGULATORY BOARD CONTRARY TO THE PROVISION OF SECTION 7, RULE 70, RULES OF COURT AND THE SETTLED JURISPRUDENCE THAT A JUDGMENT THEREIN IS CONCLUSIVE ONLY WITH RESPECT TO POSSESSION DE FACTO AND THE FACTS THEREIN FOUND ARE NOT CONCLUSIVE WITH RESPECT TO THE SAME PARTIES IN A DIFFERENT CAUSE OF ACTION NOT INVOLVING POSSESSION. The contention has merit. The decision in the ejectment suit is conclusive only on the question of possession of the subject premises. It does not settle the principal question involved in the present case, namely, whether there were perfected contracts of sale between petitioners and private respondent PVDHC involving the units in question. Under 8(11) of E.O. No. 648 dated February 7, 1981, as amended by E.O. No. 90 dated December 17, 1986, this question is for the HLURB to decide. The said provision of law gives that agency the power to Hear and decide cases of unsound real estate business practices; claims involving refund filed against project owners, developers, dealers, brokers, or salesmen; and cases of specific performance.

This jurisdiction of the HLURB is exclusive. It has been held to extend to the determination of the question whether there is a perfected contract of sale between a condominium buyer and developer. 15 As the Office of the President correctly pointed out in its decision, dated June 29, 1995: Unquestionably, the instant case stemmed from an action for specific performance regarding agreements or contracts to purchase houses and lots located in the subdivision owned, developed and/or marketed by respondent Phil-Ville Development Corporation. As such, it is within the exclusive province of the HLURB to take cognizance of the instant case, involving, as it does, a demand for specific performance of contractual and statutory obligations by buyers of subdivision lots against a developer, dealer, broker or salesman. As mentioned earlier, the principal question, however, is whether there were perfected contracts of sale between petitioners and private respondent PVDHC over the subject units. Petitioners also contend that RESPONDENT COURT COMMITTED A REVERSIBLE ERROR IN CONCLUDING THAT, UNDER THE UNDISPUTED FACTS OF THE CASE, THERE WERE NO PERFECTED CONTRACTS OF PURCHASE AND SALE BETWEEN PETITIONERS AND PRIVATE RESPONDENT WITH RESPECT TO THE LOTS AND HOUSES WHICH WERE THE SUBJECT MATTER OF THE COMPLAINT FOR SPECIFIC PERFORMANCE BEFORE THE HOUSING AND LAND USE REGULATORY BOARD. We agree with the conclusion of the Court of Appeals that the parties in this case had not reached any agreement with regard to the sale of the units in question. First, the records do not show the total costs of the units in question and the payment schemes therefor. In his decision of October 8, 1991, the Housing and Land Use Arbiter gave credence to the allegations of petitioners that there were agreements between them and private respondent PVDHC as to the prices of the disputed units. 16 However, as pointed out by private respondent PVDHC, the figures referred to by petitioners were mere estimates given to them by Amparo Gatus. 17The parties' transactions, therefore, lacked the requisites essential for the perfection of contracts. Second, petitioners dealt with Gatus. But Gatus was not the agent of private respondent PVDHC. Indeed, the criminal case for estafa against her was dismissed because it was found that she never represented herself to be an agent of private respondent PVDHC. Moreover, Art. 1874 of the Civil Code requires for the validity of a sale involving land that the agent should have an authorization in writing, which Gatus did not possess. Petitioners knew from the beginning that Gatus was negotiating with them in her own behalf, and not as an agent of private respondent PVDHC. There is, therefore, no basis in fact for the finding of the Housing and Land Use Arbiter that Gatus was the agent of private respondent PVDHC with respect to the transactions in question. 18 Third, since private respondent PVDHC had no knowledge of the figures Amparo Gatus gave to petitioners as estimates of the costs of the units in question, it could not have ratified the same at the time the latter applied for the purchase of the units. At any rate, private respondent PVDHC was to enter into agreements concerning the subject units with petitioners only upon the approval of the latter's loan applications with the GSIS which, as mentioned earlier, failed to materialize. Fourth, there are no written contracts to evidence the alleged sales. If petitioners and private respondent PVDHC had indeed entered into contracts involving the subject units, it is rather strange that contracts of such importance have not been reduced to writing.

As the Court ofAppeals correctly held: To our mind, the determinative issue in this case is whether or not petitioners and private respondents have a perfected and enforceable contract of sale or at least an agreement to sell over the disputed housing units. For, without a perfected contract as an independent source of obligation, the binding prestation to do or give and the corollary right to exact compliance do not arise. There can be no specific performance of a contractual obligation as yet non-existent. Without dispute, no written deed of conveyance has been executed by PHIL-VILLE in favor of private respondents involving the units in question. As this Court sees it, there was no contract of sale perfected between the private parties over the said property, there being no meeting of the minds as to terms, especially on the price thereof. At best, only a proposed contract to sell obtained which did not even ripen into a perfected contract due at the first instance to private respondents' inability to secure approval of their GSIS housing loans. As it were, petitioners and private respondents have not hurdled the negotiation phase of a contract, which is the period from the time the prospective contracting parties indicate interest on the contract to the time the contract comes into existence the perfection stage upon the concurrence of the essential elements 19 thereof. Finally, the occupation by petitioners of the units in question for more than three years prior to the ejectment case was merely by virtue of the forbearance of private respondent PVDHC. Since this pertains to the issue of possession of the subject premises, the ruling on this point of the Municipal Trial Court of Meycauayan, Bulacan in the ejectment case is conclusive. No presumption as to the existence of any right that may have been acquired by virtue of such occupation can arise from this circumstance. Petitioners finally contend that RESPONDENT COURT COMMTTED A REVERSIBLE ERROR IN NOT CONSIDERING THE FINDINGS OF FACTS OF THE OFFICE OF THE PRESIDENT WHICH WERE DULY SUPPORTED BY SUBSTANTIAL EVIDENCE AND NOT CONTRARY TO LAW AS FINAL AND BINDING UPON THE AFORESAID APPELLATE COURT. We generally accord great, respect to the factual findings of administrative agencies. However, as we have also held, this rule does not apply when the evidence on record calls for a reversal or a modification thereof. 20 As the evidence on record points to factual conclusions opposite those reached by the Office of the President, the Court of Appeals correctly refused to give conclusive effect to such administrative findings. WHEREFORE, the petition is DISMISSED. SO ORDERED.

G.R. No. L-29421 January 30, 1971 LINO ARTATES and MANUELA POJAS, plaintiffs-appellants, vs. DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian ' ad litem,' MARCELA B. SOLIVEN, REMEGIO BUTACAN and NEMESIO OATE, in their private capacities and/or as ExOficio Provincial Sheriff and Deputy Sheriff of Cagayan, respectively, and BIENVENIDO CACATIAN, as Deputy Register of Deeds of Cagayan, defendants-appellees. Bienvenido J. Jimenez for plaintiffs-appellants. Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven. Alfredo J. Donato for defendant-appellant Nemesio Oate. The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and Deputy Register of Deeds.

REYES, J.B.L., J.: This is an appeal from the decision of the Court of First Instance of Cagayan (Civil Case No. 116-T), involving the public sale of a homestead to satisfy a civil judgment against the grantee. The records show that in an action filed in the Court of First Instance of Cagayan, the spouses Lino Artates and Manuela Pojas sought annulment of the execution of a homestead 1 covered by Patent No. V-12775 issued to them by the proper land authorities on 23 September 1952, and duly registered in their names (OCT No. P-572). The public sale, conducted by the Provincial Sheriff of Cagayan on 2 June 1962, was made to satisfy a judgment against Lino Artates in the amount of P1,476.35, and awarded to Daniel Urbi by the Justice of the Peace Court of Camilaniugan, Cagayan, in its Civil Case No. 40, for physical injuries inflicted by Artates upon Urbi on 21 October 1955. In the execution sale, the property was sold to the judgment creditor, the only bidder, for P1,476.35. In their complaint, the plaintiffs spouses alleged that the sale of the homestead to satisfy an indebtedness of Lino Artates that accrued on 21 October 1955, violated the provision of the Public Land law exempting said property from execution for any debt contracted within five years from the date of the issuance of the patent; that defendant Urbi, with the intention of defrauding the plaintiffs, executed on 26 June 1961 a deed for the sale of the same parcel of land to defendant Crisanto Soliven, a minor, supposedly for the sum of P2,676.35; that as a result of the aforementioned transactions, defendants Urbi and Soliven entered into the possession of the land and deprived plaintiffs of the owners' share in the rice crops harvested during the agricultural year 1961-1962. Plaintiffs, therefore, prayed that the public sale of the land to defendant Urbi, as well as the deed of sale executed by the latter in favor of defendant Soliven, be declared null and void; that defendants be ordered to deliver to plaintiffs possession of the land; and to pay to plaintiffs compensatory damages at the rate of P1,000.00 per agricultural year until possession is finally restored to them, the sum of P2,000.00 as damages for maliciously casting cloud upon plaintiffs' title on the land, plus attorneys' fees and costs. The defendants2 filed separate answers disputing the averments of the complaint. On 29 March 1953, the court rendered judgment upholding the regularity and validity of the execution conducted by the defendant Provincial Sheriff, but finding that the sale of the lands by defendant Urbi to the minor Soliven was simulated, intended to place the property beyond the reach of the judgment debtor, and that plaintiffs had offered to redeem the land within the 5-year period allowed by Section 119 of the

Public Land law for reacquisition thereof by the grantee. Consequently, the court declared the sale of the land by defendant Daniel Urbi to defendant Crisanto Soliven null and void; and Daniel Urbi was ordered to reconvey the property to the plaintiffs upon the latter's payment (to Urbi) of the sum of P1,476.35 plus the sheriff's fee incident to the sale at public auction, with interest thereon at the rate of 12% per annum from 2 June 1961 until said amount shall have been fully paid, and the further sum of P783.45 representing the amount paid by defendant Daniel Urbi to the Philippine National Bank for the release of the real estate mortgage on the land, contracted by Lino Artates, with legal rate of interest thereon from 29 June 1961. From this decision, the plaintiffs interposed the present appeal assigning several errors allegedly committed by the court below, all hinged on the validity or invalidity of the public sale of the lot involved herein. Section 118 of the Public Land law (Commonwealth Act 141) provides as follows: SEC. 118. Except in favor of the Government or any of its branches, units, or institution, or legally constituted banking corporations, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations or corporations. xxx xxx xxx As thus prescribed by law, for a period of five years from the date of the government grant, lands acquired by free or homestead patent shall not only be incapable of being encumbered or alienated except in favor of the government itself or any of its institutions or of duly constituted banking corporations, but also, they shall not be liable to the satisfaction of any debt contracted within the said period,3 whether or not the indebtedness shall mature during or after the prohibited time. 4 This provision against the alienation or encumbrance of public lands granted within five years from the issuance of the patent, it has been held, is mandatory; 5 a sale made in violation thereof is null and void 6 and produces no effect whatsoever. Though it may be a limitation on the right of ownership of the grantee, the salutary purpose of the provision cannot be denied: it is to preserve and keep for the homesteader or his family the land given to him gratuitously by the State,7 so that being a property owner, he may become and remain a contented and useful member of our society. 8 In the case at bar, the homestead patent covering the land in question (No. V-12775) was issued to appellants on 23 September 1952, and it was sold at public auction to satisfy the civil liability of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March 1956 decision of the Justice of the Peace Court of Camalaniugan, Cagayan. lwph1.t There can be no doubt that the award of damages to Urbi created for Artates a civil obligation, an indebtedness, that commenced from the date such obligation was decreed on 14 March 1956. Consequently, it is evident that it can not be enforced against, or satisfied out of, the sale of the homestead lot acquired by appellants less than 5 years before the obligation accrued. And this is true even if the sale involved here is not voluntary. For purposes of complying with the law, it is immaterial that the satisfaction of the debt by the encumbrancing or alienation of the land grant made voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy on the property and consequent sale at public auction. In both instances, the spirit of the law would have been violated.9

Doubts have been expressed as to whether the words "debt contracted prior to the expiration of said period" (of 5 years from and after the grant) would include the civil liability arising from a crime committed by the homesteader. While there is no direct Philippine precedent on this point, there are various reasons why the non-liability of the homestead grant should be extended to extra-contractual obligations. First and foremost, whether it be viewed as an exemption or as a condition attached to the grant to encourage people to settle and cultivate public land, the immunity in question is in consonance with the definite public policy underlying these grants, which is to "preserve and keep in the family of the homesteader that portion of public land which the State has given to him" so he may have a place to live with his family and become a happy citizen and a useful member of society, 10 and the exemption should not be given restrictive application. 11 A levy and sale of the homestead on account of extra-contractual liability incurred would uproot the homesteader and his family and turn them into homeless waifs as effectively as a levy for non-payment of a contractual debt. Secondly, the word "debt" in exemption statutes, in its wider sense, (it) includes all that is due to a man under any form or obligation or promise, and covers not only obligations arising under contract, but also those imposed by law without contract. 12 Considering the protective policy of the law, it becomes apparent that "debt contracted" was used in it in the sense of "obligation incurred," since Webster gives the verb to "contract" the meaning of "to bring on; incur; acquire." Finally, our public land laws being copied from American legislation, 13 resort to American precedents reveals that, under the weight of authority, exemption from "debts contracted" by a homesteader has been held to include freedom from money liabilities, from torts or crimes committed by him, such as from bigamy (State vs. O'Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan, 44 Ill. 451, 452), breach of contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts (In Re Radway, 20 Fed. Cas. 154, 162). The execution sale in this case being null and void, the possession of the land should be returned to the owners, the herein appellants. There would even be no need to order appellee Urbi to execute a deed of reconveyance thereof to the owners. It appears that what was issued here to the judgment creditor/purchaser was only the sheriff's provisional certificate, under which he derived no definite title or right until the period for redemption has expired, without a redemption having been made, 14 or issuance of a final deed or certificate of sale. In other words, the purchaser herein has not acquired an absolute ownership or title in fee over the land that would necessitate a deed of reconveyance to revert ownership back to the appellant spouses. As things now stand, title to the property covered by OCT No. P-572 remains with the appellants, but Lino Artates shall continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35, with legal interest thereon accruing from the date the writ of execution was first returned unsatisfied. It appearing also that appellee Daniel Urbi paid to the Philippine National Bank the sum of P783.45 to release the mortgage on the land, appellants should reimburse him of said amount or of whatever amount appellants have actually been benefited by the said payment. FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby reversed, and appellants are declared entitled to the return and possession of the lot covered by Original Certificate of Title No. P-572, without prejudice to their continuing obligation to pay the judgment debt, and expenses connected therewith. No costs. Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.

G.R. No. 131679

February 1, 2000

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents. MENDOZA, J.: This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration. The following facts are not in dispute. Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB. 1wphi1.nt On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan, states in part: We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon City for P300,000.00 under the following terms and conditions: (1) 10% Option Money; (2) Balance payable in cash; (3) Provided that the property shall be cleared of illegal occupants or tenants. Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has since become final and executory. Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended by impleading the Register of Deeds of Quezon City as an additional defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility of performance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for damages for the prejudice caused against the Lims. 3 Based on the foregoing findings, the trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of the suit.4 Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend that 1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil Case No. Q-39732. 2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code. 3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages, attorney's fees and costs of suit. I. At the outset, it is necessary to determine the legal relation, if any, of the parties. Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was given as option money, not as earnest money.5 They thus conclude that the contract between CDB and Lim was merely an option contract, not a contract of sale. The contention has no merit. Contracts are not defined by the parries thereto but by principles of law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money or down payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the nature of an option contract, viz. An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the party who has given the option not to enter into the principal contract with any other person during the period; designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to

use the option. It is a separate agreement distinct from the contract to which the parties may enter upon the consummation of the option. An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected, does not result in the perfection or consummation of the sale. Only when the option is exercised may a sale be perfected. In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price. Moreover, the following findings of the trial court based on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase: It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and no longer subject to a final approval. In his testimony for the defendants on February 13, 1992, FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla, CDB's senior vice-president, with a recommendation that the necessary petition for writ of possession be filed in the proper court; that the recommendation was in accord with one of the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, in compliance with the request, a petition for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure, and neither did the banks return the amount of P30,000.00 to the plaintiffs. 9 Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected and, indeed, partially executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver and transfer ownership of the property. Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In applying this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation" stages of the contract. A 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. 10 It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod non habet applies. In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the subject land were no longer the owners of the same because of a prior sale. 13 Again, in Nool v. Court of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the property sold, is invalid:

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos v. Court of Appeals, where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract which is the direct result of a previous illegal contract, is also void and inexistent. We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be acquired . . . by the seller after the perfection of the contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible.15 In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which, the property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed. A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 2085 16 of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. 17 The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful

ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed investigation of the history of the title of the property given as security before accepting a mortgage. We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are real owners thereof, noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public interest. We held thus: We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title even as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of the certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of the original registered owner, as in the instant case, where it was by means of a self-executed deed of extra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be consistent with any pretense of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the reversal of the judgment rendered against it by the lower court.19 In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection report 20 by CDB's representative was never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo. 21 II. The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knew that it was no longer the owner of the said property, its title having been cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4) the final decision cancelling the mortgagor's title was not annotated in the latter's title.

As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of fact may be properly raised.23 Here, while petitioners raise these factual issues, they have not sufficiently shown that the instant case falls under any of the exceptions to the above rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of petitioners' negligence in approving the mortgage application of Rodolfo Guansing. III. We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civil Code provides: If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: xxx xxx xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. Private respondents are thus entitled to recover the P30,000,00 option money paid by them. Moreover, since the filing of the action for damages against petitioners amounted to a demand by respondents for the return of their money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling in Castillo v. Abalayan24 that in case of avoid sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has given" clearly implies that without such prior demand, the obligation to return what was given does not become legally demandable. Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be recovered even if a bank's negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to P50,000.00. Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of damages as above stated.1wphi1.nt SO ORDERED. Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

G.R. No. 116635 July 24, 1997 CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.

PANGANIBAN, J.: A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase. Statement of the Case This postulate is explained by this Court as it resolves this petition for review on certiorari assailing the January 20, 1993 Decision 1 of Respondent Court of Appeals 2 in CA-G.R. CV No. 36473, affirming the decision 3 of the trial court 4 which disposed as follows: 5 WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and hereby: 1. Declaring the private writing, Exhibit "C", to be an option to sell, not binding and considered validly withdrawn by the defendants for want of consideration; 2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants' counterclaim until the same is fully paid; 3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in paragraph 7 of the complaint and in paragraph 31 of defendants' answer (counterclaim); 4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial demand mentioned in paragraph 2 of the dispositive portion of this decision, until the said two hectares shall have been delivered to the defendants; and 5. To pay the costs. SO ORDERED. The Antecedent Facts The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows:

Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare. It was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the appellees. In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the Ilagan Branch of the Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino Nool and Francisco Nool, at the time, and for the failure of plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the two (2) parcels of land in question were transferred to Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which amounts defendants failed to pay, and the same day the said arrangement 6 was made; another covenant 7 was entered into by the parties, whereby defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for relief. In their Answer, defendants-appellees theorized that they acquired the lands in question from the Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties. The pivot of inquiry here, as aptly observed below, is the nature and significance of the private document, marked Exhibit "D" for plaintiffs, which document has not been denied by the defendants, as defendants even averred in their Answer that they gave an advance payment of P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to complete their payment. On this crucial issue, the lower court adjudged the said private writing (Exhibit "D") as an option to sell not binding upon and considered the same validly withdrawn by defendants for want of consideration; and decided the case in the manner above-mentioned. There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed and in the process, ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the absolute

owner of the two parcels of land, defendants negotiated with DBP and succeeded in buying the same. By virtue of such sale by DBP in favor of defendants, the titles of DBP were cancelled and the corresponding Transfer Certificates of Title (Annexes "C" and "D" to the Complaint) issued to the defendants. 8 It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the one-year redemption period was from March 16, 1982 up to March 15, 1983 and that the mortgagors' right of redemption was not exercised within this period. 9 Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela.10 About two years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale 11 involving the same parcels of land with Private Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on February 8, 1988. 12 The Court of Appeals ruled: 13 WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby AFFIRMED in toto. No pronouncement as to costs. The Issues Petitioners impute to Respondent Court the following alleged "errors": 1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of Exhibit "C" in a way contrary to law and existing jurisprudence in stating that it has no binding effect between the parties and considered validly withdrawn by defendants-appellees for want of consideration. 2. The Honorable Court of Appeals, Second Division has miserably failed to give legal significance to the actual possession and cultivation and appropriating exclusively the palay harvest of the two (2) hectares land pending the payment of the remaining balance of fourteen thousand pesos (P14,000.00) by defendants-appellees as indicated in Exhibit "C". 3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower court by awarding the payment of rents per annum and the return of P30,000.00 and not allowing the plaintiffs-appellants to re-acquire the four (4) hectares, more or less upon payment of one hundred thousand pesos (P100,000.00) as shown in Exhibit "D". 14 The Court's Ruling The petition is bereft of merit. First Issue: Are Exhibits "C" and "D" Valid and Enforceable? The petitioner-spouses plead for the enforcement of their agreement with private respondents as contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof. In Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to have "sold" to private respondents the parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled as Kasuratan, private

respondents agreed that Conchita Nool "can acquire back or repurchase later on said land when she has the money." 15 In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her copetitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." Hence, petitioners contend that the Court of Appeals erred in affirming the trial court's finding and conclusion that said Exhibits C and D were "not merely voidable but utterly void and inexistent." We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals, 16 where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 17 Verily, Article 1422 of the Civil Code provides that "(a) contract which is the direct result of a previous illegal contract, is also void and inexistent." We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. 18 Moreover, the Civil Code19 itself recognizes a sale where the goods are to be "acquired . . . by the seller after the perfection of the contract of sale," clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative 20 and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate an impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible. Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." 21 No one can give what he does not have nono dat quod non habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property that they "sold" to private respondents. As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative and by the same analogy, void.

Contract Dependent on Validity of Sale

of

Repurchase

As borne out by the evidence on record, the private respondents bought the two parcels of land directly from DBP on April 1, 1985 after discovering that petitioners did not own said property, the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim that they can exercise their alleged right to "repurchase" the property, after private respondents had acquired the same from DBP. 22 We cannot accede to this, for it clearly contravenes the intention of the parties and the nature of their agreement. Exhibit D reads: WRITING N o v . 3 0 , 1 9 8 4 That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares (4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our agreement as brother and sister that she can acquire back or repurchase later on said land when she has the money. [Emphasis supplied]. As proof of this agreement we sign as brother and sister this written document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela. S g d A N A C L E T O N O O L

Sgd Emilio Paron Witness S g d C o n c h i t a N o o l

One "repurchases" only what one has previously sold. In other words, the right to repurchase presupposes a valid contract of sale between the same parties. Undisputedly, private respondents acquired title to the property from DBP, and not from petitioners. Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not affected by the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property. In that scenario, Exhibit D ceases to be a "right to repurchase" ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that "an accepted unilateral promise to buy or 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 alleged written contract of repurchase contained in Exhibit D is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it cannot bind private respondents. The ruling in Diamante vs. CA 24 supports this. In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained: Article 1601 of the Civil Code provides: Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon. In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated its decisions in this case, this Court, interpreting the above Article, held: The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can not longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. . . . In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had already ruled that "an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor the right to purchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has nor reserved to himself the right to repurchase. In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the foregoing principle. Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows: 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. Right to Homestead or Trust Non-Existent Repurchase Based
25

on

Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act (2) an implied trust relation as "brother and sister." 26

and

The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that "(e)very conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of five years from the date of conveyance." Assuming the applicability of this statutory provision to the case at bar, it is indisputable that Private Respondent Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the homestead grantee and the rationale of the provision to keep homestead lands within the family of the grantee was thus fulfilled. 27 The claim of a trust relation is likewise without merit. The records show that private respondents did not purchase the contested properties from DBP in trust for petitioners. The former, as previously mentioned, in fact bought the land from DBP upon realization that the latter could not validly sell the same. Obviously, petitioners bought it for themselves. There is no evidence at all in the records that they bought the land in trust for private respondents. The fact that Anacleto Nool was the younger brother of Conchita Nool and that they signed a contract of repurchase, which as discussed earlier was void, does not prove the existence of an implied trust in favor of petitioners. Second Issue: Validity of Void Contracts No Estoppel in Impugning the

Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellant, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his actuation is within the ambit of estoppel . . . 28 We disagree. The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case where they acted in good faith, believing that indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code mandates that "(t)he action or defense for the declaration of the inexistence of a contract does not prescribe." It is a well-settled doctrine that "as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by law seeks to preserve." 29 Thus, it is immaterial that private respondents initially acted to implement the contract of sale, believing in good faith that the same was valid. We stress that a contract void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or enforceable against private respondents. 30 Third Issue: and Payment of Rent Return of P30,000.00 with Interest

Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to return the sum of P30,000.00 to private respondents when allegedly it was Private Respondent Anacleto Nool who

owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent when they "were allowed to cultivate the said two hectares." 31 We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot legally give title to what they "sold," they cannot keep the money paid for the object of the sale. It is basic that "(e)very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same." 32 Thus, if a void contract has already "been performed, the restoration of what has been given is in order." 33 Corollarily and as aptly ordered by respondent appellate court, interest thereon will run only from the time of private respondents' demand for the return of this amount in their counterclaim. 34 In the same vein, petitioners' possession and cultivation of the two hectares are anchored on private respondents' tolerance. Clearly, the latter's tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to possess and cultivate the land ipso facto ceased. WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming that of the trial court is hereby AFFIRMED. SO ORDERED.

G.R. No. 136054

September 5, 2001

HEIRS OF SEVERINA SAN MIGUEL, namely: MAGNO LAPINA, PACENCIA LAPINA, MARCELO LAPINA, SEVERINO LAPINA, ROSARIO LAPINA, FRANCISCO LAPINA, CELIA LAPINA assisted by husband RODOLFO TOLEDO, petitioners, vs. THE HONORABLE COURT OF APPEALS, DOMINADOR SAN MIGUEL, GUILLERMO F. SAN ARTEMIO F. SAN MIGUEL, PACIENCIA F. SAN MIGUEL, CELESTINO, assisted by husband, ANTERO CELESTINO, represented by their Attorney-in-Fact ENRICO CELESTINO, AUGUSTO SAN MIGUEL, ANTONIO SAN MIGUEL, RODOLFO SAN MIGUEL, CONRADO SAN MIGUEL and LUCITA SAN MIGUEL, respondents. PARDO, J.: The Case The case is a petition for review on certiorari1 of the decision of the Court of Appeals,2 affirming that of the Regional Trial Court, Cavite, Branch 19, Bacoor3 ordering petitioners, Heirs of Severina San Miguel (hereafter, "Severina's heirs") to surrender to respondents Dominador San Miguel, et al. (hereafter, "Dominador, et al."), Transfer Certificate of Title No. 223511 and further directing Severina's heirs to pay for the capital gains and related expenses for the transfer of the two (2) lots to Dominador, et al. The Facts

This case involves a parcel of land originally claimed by Severina San Miguel (petitioners' predecessor-in-interest, hereafter, "Severina"). The land is situated in Panapan, Bacoor, Cavite with an area of six hundred thirty two square meters (632 sq. m.), more or less. Without Severina's knowledge, Dominador managed to cause the subdivision of the land into three (3) lots, to wit:4 "LRC Psu-1312 - with an area of 108 square meters; "LRC Psu-1313 - Lot 1, with an area of 299 square meters; "LRC Psu-1313 - Lot 2, with an area of 225 square meters." On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance, Cavite, as a land registration court, to issue title over Lots 1 and 2 of LRC Psu-1313, in their names.5 On July 19, 1977, the Land Registration Commission (hereafter "LRC") rendered a decision directing the issuance of Original Certificate of Title No. 0-1816 in the names of Dominador, et al. On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a petition for review of the decision alleging that the land registration proceedings were fraudulently concealed by Dominador from her.6 On December 27, 1982, the court resolved to set aside the decision of July 19, 1977, and declared Original Certificate of Title No. 0-1816 as null and void. On July 13, 1987, the Register of Deeds of Cavite issued Transfer Certificate of Title No. T-223511 in the names of Severina and her heirs.7 On February 15, 1990, the trial court issued an order in favor of Severina's heirs, to wit: 8 "WHEREFORE, as prayed for, let the writ of possession previously issued in favor of petitioner Severina San Miguel be implemented." However, the writ was returned unsatisfied. On November 28, 1991, the trial court ordered:9 "WHEREFORE, as prayed for, let an alias writ of demolition be issued in favor of petitioners, Severina San Miguel." Again, the writ was not satisfied. On August 6, 1993, Severina's heirs, decided not to pursue the writs of possession and demolition and entered into a compromise with Dominador, et al. According to the compromise, Severina's heirs were to sell the subject lots10 to Dominador, et al. for one and a half million pesos (P1.5 M) with the delivery of Transfer Certificate of Title No. T-223511 (hereafter, "the certificate of title") conditioned upon the purchase of another lot 11 which was not yet titled at an additional sum of three hundred thousand pesos (P300,000.00). The salient features of the compromise (hereafter " kasunduan") are:12

"5. Na ang Lot 1 at Lot 2, plano LRC Psu-1313 na binabanggit sa itaas na ipinagkasundo ng mga tagapagmana ni Severina San Miguel na kilala sa kasulatang ito sa taguring LAPINA (representing Severina's heirs), na ilipat sa pangalan nina SAN MIGUEL (representing Dominador's heirs) alang alang sa halagang ISANG MILYON AT LIMANG DAANG LIBONG PISO (P1,500,000.00) na babayaran nina SAN MIGUEL kina LAPINA; "6. Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na sakop ng plano LRC-Psu1312, may sukat na 108 metro cuadrado ay ipagbibili na rin kina SAN MIGUEL sa halagang TATLONG DAANG LIBONG PISO (P300,000.00); "7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang tao; "8. Na ang nasabing halaga na TATLONG DAANG LIBONG PISO (P300,000.00) ay babayaran nina SAN MIGUEL kina LAPINA sa loob ng dalawang (2) buwan mula sa petsa ng kasulatang ito at kung hindi mabayaran nina SAN MIGUEL ang nasabing halaga sa takdang panahon ay mawawalan ng kabuluhan ang kasulatang ito; "9. Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang owner's copy ng Transfer Certificate of Title No. T-223511 na sumasakop sa Lots 1 at 2, plano LRC Psu-1313 ay ilalagay lamang nina LAPINA kina SAN MIGUEL pagkatapos mabayaran ang nabanggit na P300,000.00" On the same day, on August 6, 1993, pursuant to the kasunduan, Severina's heirs and Dominador, et al. executed a deed of sale designated as "kasulatan sa bilihan ng lupa."13 On November 16, 1993, Dominador, et al. filed with the trial court, 14 Branch 19, Bacoor, Cavite, a motion praying that Severina's heirs deliver the owner's copy of the certificate of title to them. 15 In time, Severina's heirs opposed the motion stressing that under the kasunduan, the certificate of title would only be surrendered upon Dominador, et al.'s payment of the amount of three hundred thousand pesos (P300,000.00) within two months from August 6, 1993, which was not complied with.16 Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00) for the reason that Severina's heirs have not presented any proof of ownership over the untitled parcel of land covered by LRC-Psu-1312. Apparently, the parcel of land is declared in the name of a third party, a certain Emiliano Eugenio.17 Dominador, et al. prayed that compliance with the kasunduan be deferred until such time that Severina's heirs could produce proof of ownership over the parcel of land. 18 Severina's heirs countered that the arguments of Dominador, et al. were untenable in light of the provision in thekasunduan where Dominador, et al. admitted their ownership over the parcel of land, hence dispensing with the requirement that they produce actual proof of title over it. 19 Specifically, they called the trial court's attention to the following statement in the kasunduan:20 "7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang tao;"

According to Severina's heirs, since Dominador, et al. have not paid the amount of three hundred thousand pesos (P300,000.00), then they were justified in withholding release of the certificate of title.21 The trial court conducted no hearing and then rendered judgment based on the pleadings and memoranda submitted by the parties. The Trial Court's Ruling On June 27, 1994, the trial court issued an order to wit:22 "WHEREFORE, finding the Motion to Order to be impressed with merit, the defendantsoppositors-vendors Heirs of Severina San Miguel are hereby ordered to surrender to the movant-plaintiffs-vendees-Heirs of Dominador San Miguel the Transfer Certificates of Title No. 223511 and for herein defendants-oppositors-vendors to pay for the capital gains and related expenses for the transfer of the two lots subject of the sale to herein movants-plaintiffsvendees-Heirs of Dominador San Miguel." "SO ORDERED." On July 25, 1994, Severina's heirs filed with the trial court a motion for reconsideration of the aforequoted order.23 On January 23, 1995, the trial court denied the motion for reconsideration for lack of merit and further ordered:24 "x x x . . . Considering that the Lots 1 and 2 covered by TCT No. T-223511 had already been paid since August 6, 1993 by the plaintiffs-vendees Dominador San Miguel, et al. (Vide, Kasulatan sa Bilihan ng Lupa, Rollo, pp. 174-176), herein defendants-vendors-Heirs of Severina San Miguel is hereby ordered (sic) to deliver the aforesaid title to the former (Dominador San Miguel, et al.) within thirty (30) days from receipt of this order. In case the defendants-vendors-Heirs of Severina San Miguel fail and refuse to do the same, then the Register of Deeds of Cavite is ordered to immediately cancel TCT No. T-223511 in the name of Severina San Miguel and issue another one in the name of plaintiffs Dominador San Miguel, et al. "Also send a copy of this Order to the Register of Deeds of the Province of Cavite, Trece Martires City, for her information and guidance. "SO ORDERED." On February 7, 1995, Severina's heirs appealed the orders to the Court of Appeals. 25 The Court of Appeals' Ruling On June 29, 1998, the Court of Appeals promulgated a decision denying the appeal, and affirming the decision of the trial court. The Court of Appeals added that the other matters raised in the petition were "extraneous" to thekasunduan.26 The Court of Appeals upheld the validity of the contract of sale and sustained the parties' freedom to contract. The Court of Appeals decided, thus: 27 "WHEREFORE, the decision appealed from is hereby AFFIRMED.

"SO ORDERED." On August 4, 1998, Severina's heirs filed with the Court of Appeals a motion for reconsideration of the above decision.28 On October 14, 1998, the Court of Appeals denied the motion for reconsideration for lack of merit.29 Hence, this appeal.30 The Issues Severina's heirs submit that the Court of Appeals erred and committed grave abuse of discretion: First, when it held that the kasunduan had no effect on the "kasulatan sa bilihan ng lupa." Second, when it ordered them to surrender the certificate of title to Dominador, et al., despite non-compliance with their prior obligations stipulated under the kasunduan. Third, when it did not find that the kasunduan was null and void for having been entered into by Dominador, et al. fraudulently and in bad faith.31 We find the above issues raised by Severina's heirs to be factual. The question whether the prerequisites to justify release of the certificate of title to Dominador, et al. have been complied with is a question of fact.32 However, we sift through the arguments and identify the main legal issue, which is whether Dominador, et al. may be compelled to pay the three hundred thousand pesos (P300,000.00) as agreed upon in the kasunduan (as a pre-requisite for the release of the certificate of title), despite Severina's heirs' lack of evidence of ownership over the parcel of land covered by LRC Psu-1312. The Court's Ruling We resolve the issue in the negative, and find the petition without merit. Severina's heirs anchor their claim on the kasunduan, stressing on their freedom to stipulate and the binding effect of contracts. This argument is misplaced.33 The Civil Code provides: ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy (italics ours). It is basic that the law is deemed written into every contract. 34 Although a contract is the law between the parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and govern the relations between the parties.35 The Civil Code provisions on "sales" state: ARTICLE 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 a price certain in money or its equivalent. . . . ARTICLE 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. ARTICLE 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of sale (emphasis ours).

True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the contract.36However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing sold.37 Under the facts of the case, Severina's heirs are not in a position to transfer title. Without passing on the question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in favor of Severina's heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said land in his name.38 Though tax declarations do not prove ownership of the property of the declarant, tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for prescription. 39 Severina's heirs have nothing to counter this document. Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severina's heirs' unjust enrichment.40 Basic is the principle in law, "Niguno non deue enriquecerse tortizamente condano de otro."41 The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised.42 In Nool v. Court of Appeals,43 we held that if the sellers cannot deliver the object of the sale to the buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article 1405, No. 5 of the Civil Code, to wit: ARTICLE 1405. The following contracts are inexistent and void from the beginning: . . . (5) Those which contemplate an impossible service. xxx xxx xxx

Severina's heirs insist that delivery of the certificate of title is predicated on a condition payment of three hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil Code provides that, "Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid, x x x" Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for refusal to deliver the certificate of title. Besides, we note that the certificate of title covers Lots 1 and 2 of LRC Psu-1313, which were fully paid for by Dominador, et al. Therefore, Severina's heirs are bound to deliver the certificate of title covering the lots. The Fallo WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 48430 is AFFIRMED in toto. No costs. SO ORDERED.

ANGEL CLEMENO, JR., MALYN vs. ROMEO R. LOBREGAT, respondent. DECISION CALLEJO, SR., J.:

CLEMENO,

and

NILUS

SACRAMENTO, petitioners,

This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 53655 reversing the decision of the Regional Trial Court of Quezon City, Branch 224, in Civil Case Nos. 9212620 and 93-17268. The Antecedents The Spouses Nilus and Teresita Sacramento were the owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. 158728 and the house constructed thereon located at No. 68 Madaling Araw Street, Teresa Heights Subdivision, Novaliches, Quezon City. The Spouses Sacramento mortgaged the property with the Social Security System (SSS) as security for their housing loan and, likewise, surrendered the owners and duplicate copies of the certificate of title. On September 2, 1980, the spouses executed a Deed of Sale with Assumption of Mortgage in favor of Maria Linda Clemeno and her husband Angel C. Clemeno, Jr., with the conformity of the SSS. 2 On March 6, 1981, the Register of Deeds issued TCT No. 277244 over the property in the name of the vendees,3 who, in turn, executed a Real Estate Mortgage Contract over the property in favor of the SSS to secure the payment of the amount of P22,900.00, the balance of the loan.4 The Spouses Clemeno also surrendered the owners duplicate copy of the said title to the SSS. However, per the records of the SSS Loans Department, the vendors (the Spouses Sacramento) remained to be the debtors. On July 1, 1992, respondent Romeo R. Lobregat, a lawyer and an Election Registrar in the Commission on Elections, filed a Complaint against the petitioners, the Spouses Clemeno, and Nilus Sacramento for breach of contract, specific performance with damages with the RTC of Quezon City. The case was docketed as Civil Case No. 92-12620 and raffled to Branch 100. On May 7, 1993, the trial court dismissed the case without prejudice for lack of interest on the part of the plaintiff to prosecute.5 The petitioners, for their part, filed a Complaint against the respondent for recovery of possession of property with damages, docketed as Civil Case No. 93-17268 and raffled to Branch 93 of the court. In the meantime, the RTC, Branch 100 set aside its Order in Civil Case No. 92-12620 and reinstated the case. The two (2) cases were then consolidated in the RTC, Branch 100. The Evidence of The Respondent On June 4, 1987, the respondent and petitioner Angel Clemeno, Jr., relatives by consanguinity, entered into a verbal contract of sale over the property covered by TCT No. 277244 under the following terms and conditions: (a) the respondent would pay the purchase price of the property in the amount of P270,000.00, inclusive of the balance of the loan of the petitioners, the Spouses Clemeno with the SSS6 within two years from June 4, 1987;7(b) the respondent would pay the monthly amortizations of the vendors loan with the SSS; and (c) upon the payment of the purchase price of the property, the Spouses Clemeno would execute a deed of sale in favor of the respondent. 8 The respondent made a down payment of P25,000.00 for which petitioner Clemeno, Jr. issued a receipt dated June 4, 1987.9 He then made a partial payment of P5,000.00 to petitioner Clemeno, Jr. on July

8, 1987,10 and another partial payment of P50,000.00 on February 9, 1988.11 The respondent paid the realty taxes due on the property for 1987 and 1988. 12 In the meantime, petitioner Clemeno, Jr. read a press release from the SSS in the newspapers allowing delinquent borrowers to restructure the balance of their loans as of March 31, 1988 with no arrearages on the balance of their account under certain terms and conditions. 13 On February 26, 1988, he paid the amount of P6,692.63 to the SSS, in partial payment of his loan account. 14 He also made a written request to the SSS for a restructuring of his loan. 15 Thereafter, the SSS Loans Collection Department issued on March 15, 1988, addressed to the borrower on record, that effective March 15, 1988, the monthly amortization on the loan was P841.84.16 Petitioner Clemeno, Jr., as mortgagor, affixed his conformity thereto.17 He then wrote a letter authorizing the respondent to pay the balance of his restructured loan with the SSS, which payments would be considered as partial payment of the house and lot.18 Conformably, the respondent remitted to the SSS the monthly amortization payments for the account of petitioner Clemeno, Jr. However, the receipts issued by the SSS were in the name of petitioners Nilus Sacramento or Clemeno, Jr.19 The respondent made additional partial payments for the sale of the property to petitioner Clemeno, Jr. on January 17, 1989, and, March 20, 1989, in the total amount of P10,000.00.20 He also continued remitting to the SSS the monthly amortizations due for the account of petitioner Clemeno, Jr. 21 The respondent was able to secure a loan of P160,000.00 on April 1, 1989, which was more than sufficient to cover his balance of the purchase of the property. He then offered to pay the said balance to petitioner Clemeno, Jr.,22 but the latter told him to keep the money because the owners duplicate copy of the title was still with the SSS and to instead continue paying the monthly amortizations due. The respondent did so and made payments until March 1990. 23 He no longer paid after this date because the SSS informed him that petitioner Clemeno, Jr. had already paid the balance of his account in full on March 23, 1990. Indeed, on May 9, 1990, the SSS had executed a Release of Real Estate Mortgage in favor of petitioner Clemeno, Jr. and released the owners duplicate of TCT No. 277244.24 The respondent offered to pay the balance of the purchase price of the property to petitioner Clemeno, Jr. and asked the latter to execute the deed of sale over the property and deliver the title over the property under his name, but petitioner Clemeno, Jr. refused to do so unless the respondent agreed to buy the property at the price prevailing in 1992. The respondent refused. On June 12, 1992, the respondents counsel wrote petitioner Clemeno, Jr., informing the latter that he (the respondent) had already paid P113,049.96 of the purchase price of the property and that he was ready to pay the balance thereof in the amount of P156,970.04. He demanded that petitioner Clemeno, Jr. execute a deed of absolute sale over the property and deliver the title thereto in his name upon his receipt of the amount ofP156,970.04.25 In his reply-letter, petitioner Clemeno, Jr. stated that he never sold the property to the respondent; that he merely tolerated the respondents possession of the property for one year or until 1987, after which the latter offered to buy the property, which offer was rejected; and that he instead consented to lease the property to the respondent. The petitioner also declared in the said letter that even if the respondent wanted to buy the property, the same was unenforceable as there was no document executed by them to evince the sale.26 In their Answer to the complaint, the petitioners alleged that they entered into a verbal lease-purchase agreement over the house and lot with the respondent under the following terms and conditions: (a) The purchase price will be P270,000.00 to be paid in full not later than June 1, 1988;

(b) The rental is P1,500.00 a month, for the whole period from June 1987 to June 1, 1988; (c) If the whole purchase price is not paid on the agreed date, the total amount equivalent to one-year rental shall be deducted from the amount already paid by the plaintiff, who shall peacefully vacate the premises and surrender possession of the house and lot to the defendants. (d) The purchase price of P270,000.00 shall be payable: P90,000.00 upon taking possession of the property, P90,000.00 payable within six (6) months thereafter, and P90,000.00 not later than June 1, 1988.27 The petitioners further alleged that despite the respondents failure to comply with the conditions of their agreement, the latter was still granted an extension of until September 1989 to pay the purchase price of the property, but managed to pay only P113,049.96, including the monthly amortizations of their loan account with the SSS and realty tax payments. The petitioners further alleged that the respondent even failed to pay any rental for the property from June 1987 to June 1, 1988. They posited that the contract between the parties was unenforceable under Article 1403(2) of the New Civil Code, and prayed that judgment be rendered in their favor as prayed for by them in their complaint in Civil Case No. 93-17268, thus: WHEREFORE, it is most respectfully prayed that after due hearing, a decision in favor of plaintiff be rendered, ordering Defendant (a) And all other persons claiming under him to vacate the premises located at 86 Madaling Araw St., Teresa Heights Subdivision, Novaliches, Quezon City; (b) To pay plaintiff a balance of P64,349.14 for the use and occupancy of the premises until May 31, 1993, and at the rate of P3,628.80 a month from June 1, 1993 until the premises shall have been finally vacated; (c) To pay P50,000.00 plus P2,000.00 per appearance as and for attorneys fees; and (d) To pay the costs of suit. Plaintiff further prays for such other relief reasonable and conscionable in the premises. 28 The Evidence for the Petitioners Petitioner Clemeno, Jr. and the respondent were townmates. Sometime in June 1987, petitioner Clemeno, Jr. agreed to sell the property for P270,000.00 payable in three (3) installments: (a) P90,000.00 upon the respondents taking possession of the property; (b) P90,000.00 payable within six (6) months thereafter; and (c)P90,000.00 not later than June 1, 1988. The respondent assured petitioner Clemeno, Jr. that there would be nothing to worry about the documentation of the sale; being a lawyer, he would take care of everything. However, the respondent failed to pay the balance of the purchase price of the property in the amount of P156,970.04 despite promises to do so. On September 16, 1989, petitioner Clemeno, Jr. went to the respondents hou se to talk to him anew, but the latter was nowhere to be found. He made a typewritten letter to the respondent, stating that the latter had been given more than enough time to exercise the option to buy the property but failed to do so; hence, the offer was deemed cancelled. The petitioner left the letter with the respondents daughter, Michelle Lobregat.

The trial court rendered judgment in favor of the petitioners, as follows: Accordingly, therefore, the Court hereby renders judgment in favor of Angel Clemeno, [Jr.] as against Romeo Lobregat and orders the latter and other persons claiming under him to: 1. Vacate the premises located at No. 86 Madaling Araw Street, Teresa Heights Subdivision, Novaliches, Quezon City; 2. Pay Angel Clemeno, Jr. the amount of P64,349.14 for the use and occupancy of the premises until May 31, 1993 and at the rate of P3,628.80 a month from June 1, 1993 until the premises have been finally vacated; 3. Pay the amount of P50,000.00 as attorneys fees and other legal expenses, and 4. To pay the costs of suit. IT IS SO ORDERED.29 The trial court ruled that since both the sale and lease agreements were not reduced to writing, both contracts were unenforceable under Article 1403(2) of the New Civil Code, and had decided the case based on justice and equity. The respondent appealed the decision to the Court of Appeals and raised the following assignment of errors: 1. THE LOWER COURT, AFTER THE COMPLETE, MERITORIOUS AND WRITTEN PIECES OF EVIDENCE SUBMITTED BY PLAINTIFF-APPELLANT LOBREGAT, FAILED/REFUSED TO CONSIDER THE SAME. INSTEAD, DECIDED ONLY THE CASE OF ACCION PUBLICIANA FILED BY DEFENDANT-APPELLEE A. CLEMENO, JR. 2. THE LOWER COURT FAILED TO CONSIDER THAT RECEIPTS ARE NOT CONTRACT OF SALE BUT EVIDENCE FOR CONTRACT OF SALE AS EVEN NOTED BY THE LOWER COURT. 3. THAT THE LOWER COURT FAILED TO CONSIDER THAT THE PIECES OF EVIDENCE OF LOBREGAT CLEARLY SHOW THAT [THE] SALE WAS THE TRANSACTION BETWEEN HEREIN PARTIES AS ADMITTED BY DEFENDANT-APPELLEE A. CLEMENO, JR. (T.S.N., p. 16, Nov. 20, 1995) (T.S.N., pp. 26 & 27, April 19, 1996) 3. THAT THE HONORABLE LOWER COURT DISREGARDED ITS OWN RULING AS TO THE APPELLEES INTENTIONAL FAILURE TO FOLLOW/COMPLY WITH ITS ORDER DATED MAY 31, 1996. 4. THAT THE LOWER COURT FAILED TO CONSIDER THE DELIBERATE OMISSION OF DEFENDANTS-APPELLEES TO OBSERVE THE NON-FORUM SHOPPING REQUIREMENT. 5. THAT THE LOWER COURT MISAPPLIED THE PRINCIPLE OF STATUTE OF FRAUDS.30 On February 23, 1999, the Court of Appeals rendered judgment reversing the decision of the trial court. The fallo of the decision reads:

WHEREFORE, the decision appealed from is REVERSED, and judgment is hereby rendered: 1. In Civil Case No. Q-92-12620 (a) Ordering defendants-appellees to accept the remaining balance of the purchase price of the house and lot subject of sale in the amount of P156,109.00 and, thereafter, execute in favor of plaintiff-appellant the corresponding deed of sale or proper mode of conveyance; and (b) Ordering defendants-appellees to pay, jointly and severally, plaintiffappellant P50,000.00 by way of moral damages, P25,000.00 by way of exemplary damages, and P15,000.00 as attorneys fees. 2. In Civil Case No. Q-93-17268 dismissing the complaint therein. Costs against defendants-appellees. SO ORDERED.31 The Court of Appeals ruled that the contract entered into between the parties was a contract of sale, not a contract to sell. The appellate court also ruled that Article 1403(2) was not applicable because the contract was already partly performed, since partial payments had been made by the respondent as evidenced by receipts signed by the petitioners. The petitioners now come to this Court, contending that: I The Honorable Court of Appeals grossly erred in holding that the contract entered by the parties is a contract of sale and not a contract to sell.32 II The Court of Appeals erred seriously when it held that "Under Article 1356 of the Civil Code, contract shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present and that the contract of sale of a piece of land may be proved orally, totally ignoring the positive mandate of Article 1358 of the Civil Code, "33 III The Honorable Court of Appeals erred in holding that the Statute of Frauds cannot be raised as a defense against specific performance, there being partial performance of the downpayment and subsequent installments, even if short of the full price and after the expiry of the agreed dates of payment.34 The Court shall resolve these issues simultaneously as they are interrelated. The petitioners posit that the respondent failed to prove the essential elements of a contract of sale over the subject property. They contend that the receipts wherein they acknowledged the receipt of the amounts therein specified do not conform to the legal requirements of a contract of sale, and cited

the ruling of this Court in Manotok Realty, Inc. vs. Court of Appeal.35 They also posit that even by his own admission, the respondent defaulted in the payment of the purchase price of the property; hence, they are not obliged to execute a deed of absolute sale over the property and deliver the title to him. The petitioners assert that even if they had entered into an agreement with the respondent, such agreement was a mere contract to sell, not a contract of sale. They further assert that even if, indeed, the parties had entered into a contract of sale, the same is unenforceable under paragraph 2, Article 1403 of the New Civil Code, which provides that such contract must be in writing; and Article 1358 of the New Civil Code which requires that such contract must appear in a public document. On the other hand, the appellate court held that the petitioners and the respondent entered into a verbal contract of sale and not a contract to sell over the subject property, thus: In the case at bench, Clemeno had agreed to sell his house and lot to Lobregat for a total consideration ofP270,000.00 payable in installments within a period of two (2) years. The receipt, Exhibit "A", is self-explanatory: it speaks of the receipt by Clemeno of the sum of P25,000.00 from Lobregat as advance payment of the subject house and lot, the total purchase price of which is P270,000.00. Significantly, upon his receipt of the advance payment, Clemeno delivered the possession of the premises to Lobregat who is now the present possessor thereof. Subsequent payments were made by Lobregat on the purchase price, all of which were duly receipted for by Clemeno. The receipts Exhibits "A-1", "A-2" and "A-3", for example, speak uniformly of "additional part payment" for the house and lot subject of this case. Moreover, as suggested by Clemeno himself, Lobregat had been religiously remitting the monthly payments on Clemenos loan obligation with the SSS. Note, for instance, Exhibit "A-4" one of the many receipts of payment to SSS where it is indicated that the real estate loan is in the name of Angel C. Clemeno, Jr., as borrower, but bears the name of Romeo Lobregat, as payor, on behalf of Clemeno. It is as clear as sunlight that the parties had entered into a contract of sale and not merely a contract to sell.36 The petition has no merit. We find and so hold that the contract between the parties was a perfected verbal contract of sale, not a contract to sell over the subject property, with the petitioner as vendor and the respondent as vendee. Sale is a consensual contract and is perfected by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance thereof on three elements: subject matter, price and terms of payment of the price.37 The petitioners sold their property to the respondent for P270,000.00, payable on installments, and upon the payment of the purchase price thereof, the petitioners were bound to execute a deed of sale in favor of the respondent and deliver to him the certificate of title over the property in his name. The parties later agreed for the respondent to assume the payment of the petitioners loan amortization to the SSS, which payments formed part of the purchase price of the property. The evidence shows that upon the payment made by the respondent of the amount ofP27,000.00 on June 4, 1987, the petitioners vacated their house and delivered possession thereof to the respondent. Conformably to Article 1477 of the New Civil Code, the ownership of the property was transferred to the respondent upon such delivery. The petitioners cannot re-acquire ownership and recover possession thereof unless the contract is rescinded in accordance with law.38 The failure of the respondent to complete the payment of the purchase price of the property within the stipulated period merely accorded the petitioners the option to rescind the contract of sale as provided for in Article 1592 of the New Civil Code. 39 The contract entered into by the parties was not a contract to sell because there was no agreement for the petitioners to retain ownership over the property until after the respondent shall have paid the purchase price in full, nor an agreement reserving to the petitioners the right to unilaterally resolve the contract upon the buyers failure to pay within a fixed period. 40 Unlike in a contract of sale, the

payment of the price is a positive suspensive condition in a contract to sell, failure of which is not a breach but an event that prevents the obligation of the vendor to convey the title from becoming effective.41 The fact that the receipts issued by the SSS evidencing the respondents remittances of the monthly amortization payments of the petitioners loan, and that the receipts issued to the respondent for the payment of realty taxes for 1987 and 1988 were in the name of Nilus Sacramento and/or the petitioner Clemeno, Jr., does not negate the fact of the transfer of the ownership over the property to the respondent on June 4, 1987. Moreover, the deed of sale over the property in favor of the respondent had not yet been executed by the petitioners. The Spouses Sacramento and later, the petitioners, were the borrowers, as per the records of the SSS. The contract of sale of the parties is enforceable notwithstanding the fact that it was an oral agreement and not reduced in writing as required by Article 1403(2) of the New Civil Code, which reads: Art. 1403. The following contracts are unenforceable, unless they are ratified: "(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases, an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the parties charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accepts and receives part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money: but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; " This is so because the provision applies only to executory, and not to completed, executed or partially executed contracts.42 In this case, the contract of sale had been partially executed by the parties, with the transfer of the possession of the property to the respondent and the partial payments made by the latter of the purchase price thereof. We agree with the petitioners contention that the respondent did not pay the total purchase price of the property within the stipulated period. Moreover, the respondent did not pay the balance of the purchase price of the property. However, such failure to pay on the part of the respondent was not because he could not pay, but because petitioner Angel Clemeno, Jr. told him not to do so. The latter instructed the respondent to continue paying the monthly amortizations due to the SSS on the loan. Unknown to the respondent, petitioner Angel Clemeno, Jr. wanted to increase the purchase price of the property at the prevailing market value in 1992, and not its value in 1987 when the contract of sale was perfected.

The petitioners failed to prove their claim that a lease purchase agreement over the property was entered into. Except for their bare claim, they failed to adduce a morsel of documentary evidence to prove the same. On the other hand, all the receipts issued by them on the partial payments made by the respondent were for the purchase price of the property, and not as rentals thereof. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED.

G.R. No. L-9871

January 31, 1958 and CO., INC., petitioner,

ATKINS, KROLL vs. B. CUA HIAN TEK, respondent. Ross Selph, Carrascoso Ponciano T. Castro for respondent. BENGZON, J.:

and

Janda

for

petitioner.

Review of a Court of Appeals' decision. For its failure to deliver one thousand cartons of sardines, which it had sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of first instance to Pay damages, which on appeal was reduced by the Court of Appeals to P3,240.15 representing unrealized profits. There was no such contract of sale, says petitioner, but only an option to buy, which was not enforceable for lack of consideration because in accordance with Art. 1479 of the New Civil Code "an accepted unilatateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter of the following tenor: Sir (s) /Madam: We are pleased to make you herewith the following firm offer, subject to reply by September 23, 1951: Quantity and Commodity: 400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn. 300 Ctns. Luntea brand Sardines Natural 48/15 oz. talls at $6.25 Ct. 300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ct.

Price(s): All prices C ad F Manila Cosular Fees of $6.00 to be added. Shipmet: Durig September/October from US Ports. Supplier: Atkins, Kroll & Co., Sa Frasisco, Cal. U.S.A. We are looking forward to receive your valued order and remain . Very truly yours, The Court of first instance and the Court of Appeals1 found that B. Cua Hian Tek accepted the offer unconditionally and delivered his letter of acceptance Exh. B on September 21, 1951. However, due to shortage of catch of sardines by the packers in California, Atkins Kroll & Co., failed to deliver the commodities it had offered for sale. There are other details to which reference shall not be made, as they touch the question whether the acceptance had been handed on time; and on that issue of Court of Appeals definitely found for plaintiff. Ayway, in presenting its case before this Court petitioner does not dispute such timely acceptance. It merely raises the point that the acceptance only created an option, which, lacking consideration, had no obligatory force. The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for a price certain. Upon its acceptance by respondent, the offer became an accepted unilateral promise to sell a determinate thing for price certain. Inasmuch as there was no consideration to support the promise to sell distinct from the price, it follows that under Art. 1479 aforequoted, the promise is not binding on the petitioner even if it was accepted by respondent." (p. 12 brief of petitioner.). The argument, maifestly assumes that only a unilateral promise arose when the offeree accepted. Such assumption is a mistake, because a bilateral cotract to sell and to buy was created upon acceptance. So much so that B. Cua Hian Tek could be sued, he had backed out after accepting, by refusing to get the sardines and/or to pay for their price. Indeed, the word "option" is found neither in the offer nor in the acceptance. On the copntrary Exh. B accepted "the firm offer for the sale" and adds, "the undersigned buyer has immediately filed an application for import license . . ." (Emphasis Ours.). Petitioner, however, insists the offer was a mere offer of option, because the "firm offer" Exh. A. was a continuing offer to sell until September 23, "an option is nothing more than a continuing offer" for a specified time. In our opinion implies more than that: it implies the legal obligation to keep open for the time specified.2 Yet the letter Exh. A did not by itself produce the legal obligation of keeping the offer open up ot Septmber 23. It could be withdrawn before acceptance, because it is admitted, there was no consideration for it. ART. 1324. When the offerer has showed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when

the option is founded upon a consideration, as somnething paid or promissed. (n) (New Civil Code.). Ordinarily an offer to buy or sell may be withdrawn or countermanded before accepatnce, even though the offer provides that it will not be withdrawn or countermanded, or allows the offeree a certain time within which to accept it, unless such provision or agreement is supported by an independent consideration. . . (77 Corpus Juris Secundum p. 636.). Furthermore, an option is unilateral: a promise to sell3 at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to later. In this case, however, upon accepeting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligations of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilalteral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that . If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.). It can be taken for granted, as contended by the defendants, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of this acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both actsthe offer and the acceptancecould at all events have generated a contract, if none there was before (atrs. 1254 and 1262 of the Civil Code). (Zayco vs. Serra, 44 Phil. 331.). One additional observation should be made before the closing this opinion. The defense in the court of first instance rested on the proposition or propositions that the offer had not been precedent had not been fulfilled. This option-without-consideration idea was never mentioned in the answer. A Change of theory in the appellate courts is not permitted. In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. (Rules of Court by Moran1957 Ed. Vol. I p.715 citing Agoncillo vs. Javier, 38 Phil. 424; American Express Company vs. Natividad, 46 Phil. 207; San Agustin vs. Barrios, 68 Phil. 465, 480; Toribio vs. Dacasa, 55 Phil. 461.) . We must therefore hold, as the lower courts have held that there was a contract of sale between the parties. And as no legal excuse has been proven, the seller's failure to comply therewith gave around to an award for damages, which has been fixed by the Court of Appeals at P3,240.15-amount which petitioner does not dispute in this final instance. Consequently, the decision under review should be, and it is hereby affirmed, with cost against petitioner.

Paras, C.J., Padilla, Montemayor, Reyes, A., Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur. Bautista Angelo, J., concurs in the result.

G.R. No. 106435 July 14, 1999 PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY R. PULIDO, petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

GONZAGA-REYES, J.: Before Us for review on certiorari is the decision of the respondent Court of Appeals in C.A. G.R. C.V. No. 27861, promulgated on April 23, 1992, 1 affirming in toto the decision of the Regional Trial Court of Makati 2 to a award respondent bank's deficiency claim, arising from a loan secured by chattel mortgage. The antecedents of the case are as follows: On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan, petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note for the said amount, promising to pay the loan by installment. As security for the said loan, a chattel mortgage was also executed over PAMECA's properties in Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole value of the loan. On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for the collection of the balance of P4,366,332.46 3 with Branch 132 of the Regional Trial Court of Makati City against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the promissory note. On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which we reproduce as follows: WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim of the latter as of March 31, 1984, plus 21% interest per annum and other charges from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit. SO ORDERED." 4 The Court of Appeals affirmed the RTC decision. Hence, this Petition. The petition raises the following grounds:

1. Respondent appellate court gravely erred in not reversing the decision of the trial court, and in not holding that the public auction sale of petitioner PAMECA's chattels were tainted with fraud, as the chattels of the said petitioner were bought by private respondent as sole bidder in only 1/6 of the market value of the property, hence unconscionable and inequitable, and therefore null and void. 2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the spirit of the law, and taking into consideration the fact that the contract of loan was a contract of adhesion. 3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood Treatment Plant, Inc. when the intention of the parties was that the loan is only for the corporation's benefit. Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent bank bid for and purchased the mortgaged properties was unconscionable and inequitable considering that, at the time of the public sale, the mortgaged properties had a total value of more than P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31, 1980 5, which valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage contract 6 between the parties that required that the inventories "be maintained at a level no less than P2 million". Petitioners argue that respondent bank's act of bidding and purchasing the mortgaged properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the annulment of the auction sale. To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were not in fact submitted as evidence before the RTC of Makati, and that these documents were first produced by petitioners only when the case was brought to the Court of Appeals. 7 The Court of Appeals, in turn, disregarded these documents for petitioners' failure to present them in evidence, or to even allude to them in their testimonies before the lower courtr. 8 Instead, respondent court declared that it is not at all unlikely for the chattels to have sufficiently deteriorated as to have fetched such a low price at the time of the auction sale. 9 Neither did respondent court find anything irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale, as all the legal procedures for the conduct of a foreclosure sale have been complied with, thus giving rise to the presumption of regularity in the performance of public duties. 10 Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners, officers and stockholders of petitioner PAMECA, liable with PAMECA for the obligation under the loan obtained from respondent bank, contrary to the doctrine of separate and distinct corporate personality. 11 Private petitioners contend that they became signatories to the promissory note "only as a matter of practice by the respondent bank", that the promissory note was in the nature of a contract of adhesion, and that the loan was for the benefit of the corporation, PAMECA, alone. 12 Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484 13 and 2115 14of the Civil Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim. 15 Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattel mortgage. In the leading case of Ablaza vs. Ignacio 16, the lower court dismissed the complaint for collection of deficiency judgment in view of Article 2141 of the Civil Code, which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as they are not in

conflict with the Chattel Mortgage Law. It was the lower court's opinion that, by virtue of Article 2141, the provisions of Article 2115 which deny the creditor-pledgee the right to recover deficiency in case the proceeds of the foreclosire sale are less than the amount of the principal obligation, will apply. This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of Article 2115, Article 2115, in relation to Article 2141, may not be applied to the case. Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, states: xxx xxx xxx The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of the Registry of Deeds where the mortgage is recorded, and the Register of Deeds shall record the same. The fees of the officer for selling the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety, and the amendments thereto, and the fees of the Register of Deeds for registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the Register of Deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the mortgage, shall be paid to the mortgagor or persons holding under him on demand. (Emphasis supplied). It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction. As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co. 17, cited inAblaza vs. Ignacio, supra: While it is true that section 3 of Act No. 1508 provides that "a chattel mortgage is a conditional sale", it further provides that it "is a conditional sale of personal property as security for the payment of a debt, or for the performance of some other obligation specified therein." The lower court overlooked the fact that the chattels included in the chattel mortgage are only given as security and not as a payment of the debt, in case of a failure of payment. The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage, given as security, should sell for more than the amount of the indebtedness secured, that the creditor would be entitled to the full amount for which it might be sold, even though that amount was greatly in excess of the indebtedness. Such a result certainly was not contemplated by the legislature when it adopted Act No. 1508. There seems to be no reason supporting that theory under the provision of the

law. The value of the chattels changes greatly from time to time, and sometimes very rapidly. If for example, the chattels should greatly increase in value and a sale under that condition should result in largely overpaying the indebtedness, and if the creditor is not permitted to retain the excess, then the same token would require the debtor to pay the deficiency in case of a reduction in the price of the chattels between the date of the contract and a breach of the condition. Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattel mortgages, have said, that "in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action for the deficiency, if any should occur." And the. fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of the debt, to any greater extent than the value of the property at the time of the sale. The amount received at the time of the sale, of course, always requiring good faith and honesty in the sale, is only a payment, pro tanto, and an action may be maintained for a deficiency in the debt. We find no reason to disturb the ruling in Ablaza vs Ignacio, and the cases reiterating it. 18 Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case. As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal property the price of which is payable in installments. Although Article 1484, paragraph (3) expressly bars any further action against the purchaser to recover an unpaid balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing sold, should the vendee's failure to pay cover two or more installments, this provision is specifically applicable to a sale on installments. To accommodate petitioners' prayer even on the basis of equity would be to expand the application of the provisions of Article 1484 to situations beyond its specific purview, and ignore the language and intent of the Chattel Mortgage Law. Equity, which has been aptly described as "justice outside legality", is applied only in the absence of, and never against, statutory law or judicial rules of procedure. 19 We are also unable to find merit in petitioners' submission that the public auction sale is void on grounds of fraud and inadequacy of price. Petitioners never assailed the validity of the sale in the RTC, and only in the Court of Appeals did they attempt to prove inadequacy of price through the documents, i.e., the "Open-End Mortgage on Inventory" and inventory dated March 31, 1980, likewise attached to their Petition before this Court. Basic is the rule that parties may not bring on appeal issues that were not raised on trial. Having nonetheless examined the inventory and chattel mortgage document as part of the records, We are not convinced that they effectively prove that the mortgaged properties had a market value of at least P2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel mortgage contract only indicates the obligation of the mortgagor to maintain the inventory at a value of at least P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, was as of March 31, 1980, or even prior to April 17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage, and is far from being an accurate estimate of the market value of the properties at the time of the foreclosure sale four years thereafter. Thus, even assuming that the inventory and chattel mortgage contract were duly submitted as evidence before the trial court, it is clear that they cannot suffice to substantiate petitioners' allegation of inadequacy of price.1wphi1.nt

Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in the public sale does not warrant the conclusion that the transaction was attended with fraud. Fraud is a serious allegation that requires full and convincing evidence, 20 and may not be inferred from the lone circumstance that it was only respondent bank that bid in the sale of the foreclosed properties. The sparseness of petitioners' evidence in this regard leaves Us no discretion but to uphold the presumption of regularity in the conduct of the public sale. We likewise affirm private petitioners' joint and several liability with petitioner corporation in the loan. As found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably set forth the solidary nature of private petitioners' commitment. Thus: On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, INC., a corporation organized and existing under the laws of the Philippines, with principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner Buendia and Makati Avenues, Makati, Metro Manila, the principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%) per annum over DBP's borrowing rate for these funds. Before the date of maturity, we hereby bind ourselves, jointly and severally, to make partial payments as follows: xxx xxx xxx In case of default in the payment of any installment above, we bind ourselves to pay DBP for advances . . . xxx xxx xxx We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows: xxx xxx xxx In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes . . . xxx xxx xxx We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings from where the loan shall be drawn . . . xxx xxx xxx In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its attorneys, we jointly and severally bind ourselves to pay for attorney's fees as provided for in the mortgage contract, in addition to the legal fees and other incidental expenses. In the event of foreclosure of the mortgage securing this note, we further bind ourselves jointly and severally to pay the deficiency, if any. (Emphasis supplied) 21

The promissory note was signed by private petitioners in the following manner: PAMECA WOOD TREATMENT PLANT, INC. By: (Sgd) HERMINIO G. TEVES (For himself & as President of above-named corporation) (Sgd) HIRAM DIDAY PULIDO (Sgd) VICTORIA V. TEVES 22 From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with petitioner PAMECA in the loan. As correctly submitted by respondent bank, private petitioners are not made to answer for the corporate act of petitioner PAMECA, but are made liable because they made themselves co-makers with PAMECA under the promissory note. IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April 23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners. SO ORDERED.

SALE BY AUCTION

G.R. No. 125838

June 10, 2003

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and EMERALD RESORT HOTEL CORPORATION, respondents. CARPIO, J.: The Case This petition for review on certiorari1 seeks to reverse the Joint Decision2 of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31 January 1996 and the Resolution dated 30 July 1996 denying the motion for reconsideration. The Court of Appeals affirmed the Decision 3 of the Regional Trial Court of Iriga City, Branch 36, declaring the foreclosure of the mortgaged properties void for failure to comply with the statutory requisites. The Facts Private respondent Emerald Resort Hotel Corporation ("ERHC") obtained a loan from petitioner Development Bank of the Philippines ("DBP"). DBP released the loan of P3,500,000.00 in three installments: P2,000,000.00 on 27 September 1975, P1,000,000.00 on 14 June 1976 and

P500,000.00 on 14 September 1976. To secure the loan, ERHC mortgaged its personal and real properties to DBP. On 18 March 1981, DBP approved a restructuring of ERHCs loan subject to certain conditions. 4 On 25 August 1981, DBP allegedly cancelled the restructuring agreement for ERHCs failure to comply with some of the material conditions5 of the agreement. Subsequently, ERHC delivered to DBP three stock certificates of ERHC aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC first delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering 1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock Certificate No. 31 covering 691,052 shares, and on 27 November 1981 Stock Certificate No. 32 covering 923,852 shares. On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the Office of the Sheriff, Regional Trial Court of Iriga City, an Application for Extra-judicial Foreclosure of Real Estate and Chattel Mortgages. Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the required notices of public auction sale of the personal and real properties. However, Sheriffs Ramos and Galeon failed to execute the corresponding certificates of posting of the notices. On 10 July 1986, the auction sale of the personal properties proceeded. The Office of the Sheriff scheduled on 12 August 1986 the public auction sale of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 1986 and 1 August 1986 the notice of auction sale of the real properties. However, the Office of the Sheriff postponed the auction sale on 12 August 1986 to 11 September 1986 at the request of ERHC. DBP did not republish the notice of the rescheduled auction sale because DBP and ERHC signed an agreement to postpone the 12 August 1986 auction sale.6 ERHC, however, disputes the authority of Jaime Nuevas who signed the agreement for ERHC. In a letter dated 24 November 1986, ERHC informed DBP of its intention to lease the foreclosed properties.7 On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a complaint for annulment of the foreclosure sale of the personal and real properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged that the foreclosure was void mainly because (1) DBP failed to comply with the procedural requirements prescribed by law; and (2) the foreclosure was premature. ERHC maintained that the loan was not yet due and demandable because the DBP had restructured the loan. DBP moved to dismiss the complaint because it stated no cause of action and ERHC had waived the alleged procedural defenses. The trial court denied the motion to dismiss. Consequently, DBP filed its answer, claiming that it complied with the legal requirements for a valid foreclosure. DBP further claimed that it cancelled the conditional restructuring of ERHCs loan because ERHC failed to comply with some material conditions of the restructuring agreement. Meanwhile, acting on ERHCs application for the issuance of a writ of preliminary injunction, the trial court granted the writ on 20 August 1990. Accordingly, the trial court enjoined DBP from enforcing the legal effects of the foreclosure of both the chattel and real estate mortgages. Thereafter, trial on the merits ensued. After the parties presented their evidence, the trial court rendered a Decision8 dated 28 January 1992, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff corporation and against the defendants: 1. Declaring as null and void the foreclosure and auction sale of the personal properties of plaintiff corporation held on July 10, 1986; 2. Declaring as null and void the foreclosure and auction sale of the real properties of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT No. RT-1076 (19981); TCT No. RT1077 (22367) and TCT No. 10244 of the Register of Deeds of Camarines Sur (now Iriga City) in the auction sale thereof held on September 11, 1986, and all the improvements therein; 3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel the annotations of the Sheriffs Certificate of Sale on the aforestated titles as null and void and without any legal effect; 4. Ordering the defendant Development Bank of the Philippines to comply with the restructuring of plaintiff corporations loans retroactively as though the foreclosure had not taken place in the interest of justice and equity; and 5. Ordering the defendant DBP to pay plaintiff corporation moral damages in the amount of P500,000.00 for initiating what was a clearly illegal foreclosure and causing the said plaintiff corporation to suffer needlessly anguish, opprobrium and disrepute as a consequence thereto. SO ORDERED. Both ERHC and DBP appealed the trial courts decision to the Court of Appeals. ERHC anchored its appeal on the insufficiency of the moral damages awarded by the trial court and the absence of any award of temperate, nominal or exemplary damages. DBPs appeal, on the other hand, assailed the decision as well as the order dismissing its petition for a writ of possession. The Court of Appeals, which consolidated the appeals, affirmed the decision of the trial court.9 DBP filed a Motion for Reconsideration which the Court of Appeals denied.10 Hence, this petition. The Ruling of the Court of Appeals The Court of Appeals sustained the trial courts ruling that the foreclosure was void. The Court of Appeals affirmed the trial courts finding that DBP failed to comply with the posting and publication requirements under the applicable laws. The Court of Appeals held that the non-execution of the certificate of posting of the notices of auction sale and the non-republication of the notice of the rescheduled 11 September 1986 auction sale invalidated the foreclosure. The Court of Appeals also found that the parties perfected the restructuring agreement and that ERHC substantially complied with its conditions based on the following "circumstances": (a) The transmittal letter dated October 20, 1981 which relates to the progress of the restructuring of the mortgage account of Emerald Resort Hotel Corporation and that the same has been approved by the SEC (Exh. "D") (b) The transfer of shares of stocks to appellant DBP, the value of which are broken as follows:

1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. "D" and "D1"); 2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F" and "F-1"); 3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. "M" and "M5"). (c) The acceptance of the foregoing by the DBP without raising the fact of delay as embodied in condition no. 7 of Exh. "B". (d) No rejection was made by the defendant-appellant DBP at the time the shares of stocks were being held by the latter. (e) The belated rejection of the shares of stocks was interposed only at the time the instant suit was filed which was long after the expiration of the 90-day period extended by DBP to Emerald. (f) No rejection was also made when plaintiff corporation did not avail of the additional loan which was allegedly part of the package accommodation.11 The Court of Appeals also affirmed the trial courts award of moral damages but denied ERHCs claim for temperate and exemplary damages. The Court of Appeals found that DBPs intrusion, assisted by sheriffs and several armed men, into Hotel Ibalon and the sheriffs inventory of the hotels fu rniture and fixtures caused fear and anxiety to the hotel owner, staff and guests. These acts, according to the Court of Appeals, debased the hotels goodwill and undermined its viability warranting the award of moral damages. Finding the foreclosure void, the Court of Appeals also denied DBPs petition for a deficiency claim and a writ of possession. The Issues DBP presents the following issues for resolution: 1. Whether DBP complied with the posting and publication requirements under applicable laws for a valid foreclosure. 2. Whether the restructuring agreement between DBP and ERHC was perfected and implemented by the parties before the foreclosure. 3. Whether ERHCs offer to lease the foreclosed properties constitutes a waiver of its right to question the validity of the foreclosure. 4. Whether the award of moral damages to ERHC, a juridical person, is proper. The Courts Ruling The petition is partly meritorious.

First Compliance with the posting and publication requirements under applicable laws Posting requirement under Acts Nos. 3135 and 1508

Issue:

In alleging that the foreclosure was valid, DBP maintains that it complied with the mandatory posting requirement under applicable laws.12 DBP insists that the non-execution of the certificate of posting of the auction sale notices did not invalidate the foreclosure. We agree. This Court ruled in Cristobal v. Court of Appeals13 that a certificate of posting is not required, much less considered indispensable for the validity of an extrajudicial foreclosure sale of real property under Act No. 3135. Cristobal merely reiterated the doctrine laid down in Bohanan v. Court of Appeals.14 In the present case, the foreclosing sheriffs failed to execute the certificate of posting of the auction sale notices. However, this fact alone does not prove that the sheriffs failed to post the required notices. As held in Bohanan, "the fact alone that there is no certificate of posting attached to the sheriff's records is not sufficient to prove the lack of posting." 15 Based on the records, DBP presented sufficient evidence to prove that the sheriffs posted the notices of the extrajudicial sale. The trial and appellate courts glaringly erred and gravely abused its discretion in disregarding the sheriffs partial report and the sheriffs certificate of sale executed after the auction sale. A careful examination of these two documents clearly shows that the foreclosing sheriffs posted the required notices of sale. The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and Deputy Sheriff Ruperto Galeon states in part: That on July 1, 1986, the undersigned sheriffs posted the notice of public auction sale of chattel mortgage in the conspicuous places, and at the Iriga City Hall Bulletin Board, including Ibalon Hotel, Iriga City xxx.16 (Emphasis supplied) Similarly, the certificate of sale of the real properties signed by both Sheriff Ramos and Deputy Sheriff Galeon on 11 September 1986 states in part: I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL TRIBUNE, a newspaper of general circulation in the province of Camarines Sur, for three (3) consecutive weeks and three (3) copies of the notices of sale were posted in three (3) public places of the City where the properties are located for no less than twenty (20) days before the sale. 17 (Emphasis supplied) Deputy Sheriff Galeon also testified that he, together with Sheriff Ramos, 18 actually posted the notices of sale.19Indisputably, there is clear and convincing evidence of the posting of the notices of sale. What the law requires is the posting of the notice of sale, which is present in this case, and not the execution of the certificate of posting. Moreover, ERHC bore the burden of presenting evidence that the sheriffs failed to post the notices of sale.20 In the absence of contrary evidence, as in this case, the presumption prevails that the sheriffs performed their official duty of posting the notices of sale. Consequently, we hold that the nonexecution of the certificate of posting cannot nullify the foreclosure of the chattel and real estate mortgages in the instant case.

Publication requirement under Act No. 3135 Having shown that there was posting of the notices of auction sale, we shall now resolve whether there waspublication of the notice of sale of the real properties in compliance with Act No. 3135.21 There is no question that DBP published the notice of auction sale scheduled on 12 August 1986. However, no auction sale took place on 12 August 1986 because DBP, at the instance of ERHC, agreed to postpone the same to 11 September 1986. DBP contends that the agreement to postpone dispensed with the need to publish again the notice of auction sale. Thus, DBP did not anymore publish the notice of the 11 September 1986 auction sale. DBP insists that the law does not require republication of the notice of a rescheduled auction sale. Consequently, DBP argues vigorously that the extrajudicial foreclosure of the real estate mortgage is valid. We do not agree. The Court held recently in Ouano v. Court of Appeals22 that republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The Court also ruled in Ouano that the parties have no right to waive the publication requirement in Act No. 3135. The Court declared thus: Petitioner further contends that republication may be waived voluntarily by the parties. This argument has no basis in law. The issue of whether republication may be waived is not novel, as we have passed upon the same query in Philippine National Bank v. Nepomuceno Productions Inc. Petitioner therein sought extrajudicial foreclosure of respondents mortgaged properties with the Sheriffs Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled several times without republication of the notice of sale, as stipulated in their Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20, 1976, with petitioner as the highest bidder. Aggrieved, respondents sued to nullify the foreclosure sale. The trial court declared the sale void for non-compliance with Act No. 3135. This decision was affirmed in toto by the Court of Appeals. Upholding the conclusions of the trial and appellate courts, we held: Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135. xxx Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity such that those interested might attend the public sale. To allow the parties to waive this jurisdictional requirement would result in converting into a private sale what ought to be a public auction. DBP further asserts that Section 24, Rule 39 of the Rules of Court, which allows adjournment of execution sales by agreement of the parties, applies to the present case. Section 24 of Rule 39 provides: Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the officer may adjourn any sale upon execution to any date agreed upon in writing by the parties. Without

such agreement, he may adjourn the sale from day to day, if it becomes necessary to do so for lack of time to complete the sale on the day fixed in the notice. The Court ruled in Ouano that Section 24 of Rule 39 does not apply to extrajudicial foreclosure sales, thus: Petitioner submits that the language of the abovecited provision23 implies that the written request of the parties suffices to authorize the sheriff to reset the sale without republication or reposting. At the outset, distinction should be made of the three different kinds of sales under the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale. An ordinary execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" applies in cases of extrajudicial foreclosure sale. A different set of law applies to each class of sale mentioned. The cited provision in the Rules of Court hence does not apply to an extrajudicial foreclosure sale. (Emphasis supplied) DBP also maintains that ERHCs act of requesting postponement of the 12 August 1986 auction sal e estops ERHC from challenging the absence of publication of the notice of the rescheduled auction sale. We do not agree. ERHC indeed requested postponement of the auction sale scheduled on 12 August 1986. 24 However, the records are bereft of any evidence that ERHC requested the postponement without need of republication of the notice of sale. In Philippine National Bank v. Nepomuceno Productions Inc.,25 the Court held that: x x x To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another. Respondents, therefore, did not commit any act that would have estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135. x x x The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-200226 issued by the Office of the Court Administrator on 22 January 2002. Section 4(a) of Circular No. 7-2002 provides that: Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall do the following: a. Prepare a Notice of Extra-judicial Sale using the following form: "NOTICE OF EXTRA-JUDICIAL SALE" "Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against (name and address of Mortgagor/s) to satisfy the mortgage indebtedness which as of ___________ amounts to P __________ excluding penalties, charges, attorneys fees and expenses of foreclosure, the undersigned or his duly authorized deputy will sell at public auction on (date of sale) ________ at 10:00 A.M. or soon thereafter at the main entrance of the ________ (place

of sale) to the highest bidder, for cash or managers check and in Philippine Currency, the following property with all its improvements, to wit: "(Description of Property") "All sealed bids must be submitted to the undersigned on the above stated time and date." "In the event the public auction should not take place on the said date, it shall be held on___________,______ without further notice." __________ (date) "SHERIFF" (Emphasis supplied) The last paragraph of the prescribed notice of sale allows the holding of a rescheduled auction sale without reposting or republication of the notice. However, the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified in the prior notice of sale. The absence of this information in the prior notice of sale will render the rescheduled auction sale void for lack of reposting or republication. If the notice of auction sale contains this particular information, whether or not the parties agreed to such rescheduled date, there is no more need for the reposting or republication of the notice of the rescheduled auction sale. The Office of the Court Administrator issued Circular No. 7-2002 pursuant to the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as amended by the Resolutions of 30 January 2001 and 7 August 2001. The Court issued these Resolutions for two reasons. First, the Court seeks to minimize the expenses which the mortgagee incurs in publishing the notice of extrajudicial sale. With the added information in the notice of sale, the mortgagee need not cause the reposting and republication of the notice of the rescheduled auction sale. There is no violation of the notice requirements under Acts Nos. 3135 and 1508 precisely because the interested parties as well as the public are informed of the schedule of the next auction sale, if the first auction sale does not proceed. Therefore, the purpose of a notice of sale, which is to notify the mortgagor and the public of the foreclosure sale, is satisfied. Second, the Court hopes to deter the practice of some mortgagors in requesting postponement of the auction sale of real properties, then later attacking the validity of the foreclosure for lack of republication. This practice will only force mortgagees to deny outright requests for postponement by mortgagors since it will only mean added publication expense on the part of mortgagees. Such development will eventually work against mortgagors because mortgagees will hesitate to grant postponements to mortgagors. In the instant case, there is no information in the notice of auction sale of any date of a rescheduled auction sale. Even if such information were stated in the notice of sale, the reposting and republication of the notice of sale would still be necessary because Circular No. 7-2002 took effect only on 22 April 2002. There were no such guidelines in effect during the questioned foreclosure. Clearly, DBP failed to comply with the publication requirement under Act No. 3135. There was no publication of the notice of the rescheduled auction sale of the real properties. Therefore, the extrajudicial foreclosure of the real estate mortgage is void. DBP, however, complied with the mandatory posting of the notices of the auction sale of the personal properties. Under the Chattel Mortgage Law, 27 the only requirement is posting of the notice

of auction sale. There was no postponement of the auction sale of the personal properties and the foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in the instant case suffers from no procedural infirmity. Second Issue: Perfection and implementation of the restructuring agreement between DBP and ERHC ERHC consistently argues that its restructuring agreement with DBP was perfected and even implemented by the parties. ERHC maintains that the delivery of its certificates of stocks to DBP was part of its compliance with the conditions of the restructuring agreement. We do not agree. Contrary to ERHCs allegations and the Court of Appeals findings, the restructuring agreement was never perfected. ERHC failed to comply with the material conditions for the perfection of the restructuring agreement. As specified in DBP Resolution No. 956 dated 19 March 1981 28 approving the restructuring agreement, the following are the conditions for the restructuring agreement: RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) Conversion Into Common and/or Preferred Shares of P2,786,000.00 Representing 40% of the Total Outstanding Obligations; a Third Additional Loan of P679,000.00 and Restructuring of the Account. xxx In view thereof and as favorably recommended by the Manager of the Industrial Projects Department III in her memorandum dated February 24, 1981, the Board, upon motion made and duly seconded, APPROVED in favor of Emerald Resort Hotel Corporation (Hotel Ibalon) the following: 1. Immediate conversion into common and/or preferred shares at borrowers option, of P2,786,000.00 representing 40% of the total outstanding obligation as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of outstanding principal balance of P3,500,000.00 and total arrearages on interest and other charges of P3,465,000.00, the conversion price to be equal to the par value of the shares; 2. A third additional loan of Six Hundred Seventy-Nine Thousand Pesos (P679,000.00), payable quarterly under the same restructured terms of the original and two (2) additional loans, at 18% interest per annum; and 3. Restructuring of the firms total outstanding principal obligation of P3,500,000.00 in the form of extension of grace period on principal repayment from two (2) years to nine (9) years to make a maximum loan term of nineteen (19) years, regular amortizations to commence three (3) months after the end of the extended grace period on October 31, 1985 and payable quarterly at the following interest rates: Original Loan - P1,425,800 at 16% interest per annum - 574,200 at 18% interest per annum

1st Additional Loan

- 1,000,000 at 18% interest per annum 500,000 at 18% interest per annum

Total

- P3,500,000

subject to the following terms and conditions: A. For the P679,000.00 Additional Loan a. That subject-firm shall first pay the amount of P473.00 to reduce its total arrearages on interest and other charges of P3,465,473.00 as of May 15, 1980 to P3,465,000.00; and b. That the proceeds of this additional loan shall be applied to subject-firms accrued interest and other charges due DBP as of May 15, 1980 not otherwise covered by the proposed equity conversion of P2,786,000.00. B. For Both Additional Loan and Restructuring a. That a quasi-reorganization shall first be undertaken for the purpose of eliminating existing deficits, which should be formally authorized by the stockholders of the corporation, should comply with legal requirements, and should be approved by the Securities and Exchange Commission which sees to it that the rights of creditors are not prejudiced. xxx e. That subject-firm shall apply with SEC for an amendment of its authorized capitalization to include preferred shares in case immediate conversion into equity of 40% of the total outstanding obligation as of May 15, 1980 will include preferred shares. xxx (Emphasis supplied) A careful review of the facts and the evidence presented by the parties discloses that ERHC failed to comply with the terms and conditions set forth in DBP Resolution No. 956. First, ERHC failed to comply with the important condition of converting into equity 40 percent of its outstanding debt to DBP. ERHC did not present any evidence to show that it complied with this particular requirement. While it is true that ERHC delivered to DBP certificates of stocks, it was to comply with ERHCs commitment under theoriginal mortgage contracts.29 ERHC committed to pledge or assign to DBP at least 67 percent of its outstanding shares to secure the original loan accommodation. The original mortgage contracts contain the following condition: xxx c. By an assignment to the Mortgagee of not less than 67% of the total subscribed and outstanding voting shares of the company. The said percentages of shares assigned shall be maintained at all times and the said assignment to subsist for as long as the Assignee may deem necessary during the existence of the Mortgagees approved accommodation. xxx 30

On 17 April 1985, DBP informed ERHC that it had not complied with the condition in the original mortgage contract on the assignment of 67 percent of its outstanding shares to DBP. The letter of DBP states in part: 2. The condition requiring ERHC to assign in favor of DBP at least 67% of the subscribed and outstanding voting shares of company has not been met. Of the 4,917,500 outstanding voting shares as of December 31, 1982, only 911,800 shares have been assigned instead of 3,294,725 (67% of 4,917,000), more of the outstanding voting shares have increased.31 The deficiency of 2,382,925 shares (3,294,725 - 911,800) may however be covered by the 2,786,000 shares you transferred in the name of DBP as an alternative compliance with 65% requirement. (Emphasis supplied) In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to assign 67 percent of its outstanding shares to DBP. Thus, ERHCs reply letter, signed by its President Atty. Jose C. Reyes, states in part: With reference to your letter dated 17 April 1985 which could not be seasonably acted upon on account of my absence from the country for medical reasons, I am pleased to inform your goodself of the action taken on the various items thereon enumerated, to wit: 1. x x x 2. Assignment of 67% of outstanding voting shares. We are ready to bring up the assigned shares in favor of DBP to 67% of the corporations outstanding voting shares of 4,917,500 as of December 31, 1982 or total of 3,294,725 shares. The corporation will maintain its previous assignment of 911,800 shares. Moreover, the corporation is agreeable that Stock Certificate No. 030 for 1,862,148 shares which had been transferred to DBP be considered as an alternative compliance to the raising of DBPs assigned shares to the full 67% or 3,294,725 shares. Your formal conformity to this arrangement is likewise requested. Finally, the corporation will further assign to DBP another 520,777 shares in exchange of Stock Certificate No. 032 for 923,852 shares which was transferred to DBP conditionally. This Stock Certificate has to be surrendered to the corporation for cancellation before we can issue by way of further assignment the 520,777 shares. In short, the 3 blocks of shares mentioned above would result as follows: 1. 2. 3. Total 911,800 shares 1,862,148 shares 520,777 shares 3,294,725 shares of 67% outstanding voting shares

x x x. 32

Clearly, when ERHC delivered the certificates of stocks, it was to comply with ERHCs commitment under theoriginal mortgage contracts, not the restructuring agreement. Besides, there is a vast difference between an assignment of shares to DBP by existing stockholders and conversion of DBPs loan into equity of ERHC. In the first, the paid -up capital of ERHC remains the same. In the latter, the paid-up capital of ERHC, as well as its liabilities, changes in that the liabilities are transferred to the capital account to the extent of the conversion. The latter case, which is the conversion of debt into equity required under the restructuring agreement, never happened. The delivery to DBP of stock certificates representing 3,294,725 ERHC shares did not reduce the liabilities of ERHC. The reason for the requirement to convert P2,786,000.00 in liabilities of ERHC into equity was to reduce ERHCs debt to equity ratio, which the assignment and delivery of the stock certificates did not and could not have achieved. Second, ERHC did not avail of the P679,000.00 additional loan, despite this being a material condition of the restructuring agreement. ERHC could not simply refuse to avail of the additional loan because the proceeds of this loan were to pay the balance of ERHCs accrued interest and other charges due DBP as of 15 May 1980. Clearly, ERHCs refusal to avail of the additional loan, intended to up-date ERHCs loan account, prevented the perfection of the restructuring agreement. Lastly, ERHC failed to comply with the quasi-reorganization requirement, as clearly admitted in ERHCs letter dated 3 November 1982 to DBP, thus: 3. On July 31, 1981, we once more communicated with your Naga Branch advising of the Emerald Resort Hotel Corporations Stockholders Resolution approving the quasi reorganization and the Petition filed with the Securities and Exchange Commission requesting approval of the corporations resolution on quasi-reorganization and the transfer of 1,862,148 shares in favor of the DBP, copy whereof is attached as Annex "C"; 4. On September 7, 1981, we received by personal delivery a letter from Manager Mario C. Leao, copy whereof is attached as Annex "D". In our conversation had on this occasion, I reiterated our request in our letter dated 19 June 1981 that in view of the circumstances affecting our papers in the Securities and Exchange Commission there was need to extend our period of compliance. xxx It will thus be noted from the foregoing communications that we have exerted our utmost best to comply with the conditions for the re-structuring of our loan accounts and all have been complied, with the exception of the quasi-reorganization, for reasons beyond our legal control since it is the SEC that passes upon the question as to whether or not we meet the SEC guidelines for a quasi-reorganization. Unfortunately, for the reasons stated in Annex "H" and the enclosures thereto, the SEC felt that ERHC was not within their guidelines for a quasi-reorganization.33 (Emphasis supplied) The quasi-reorganization is required specifically to eliminate ERHCs existing deficits. However, the SEC must first approve the quasi-reorganization which approval ERHC admittedly failed to secure. Through no fault of DBP, SEC disapproved ERHCs application for quasi-reorganization. Considering that ERHC failed to comply with the material conditions of the restructuring agreement, the agreement was never implemented or even perfected. The perfection and implementation of the restructuring agreement were expressly subject to the following conditions embodied in DBP Resolution No. 956 and in DBPs notice of approval to ERHC, respectively:

t. x x x Implementation of the restructuring scheme as approved shall take effect upon compliance with the terms and conditions and with all the legal and documentation requirements;34 xxx xxx xxx

7. All documents for this loan approval shall be executed and perfected within 90 days from the date of this notice; otherwise, this accommodation shall be automatically cancelled. 35 The trial and appellate courts gravely misapprehended the facts and made manifestly mistaken inferences in finding that the parties had perfected the restructuring agreement. Consequently, when DBP filed the application for extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was already in default in paying its debt to DBP. Third ERHCs offer to lease the foreclosed properties Issue:

ERHC offered to lease from DBP the foreclosed properties after the auction sale. DBP argues that when ERHC offered to lease from DBP the foreclosed properties, ERHC waived its right to question the validity of the foreclosure. We do not agree. To constitute a waiver, the intent to waive must be shown clearly and convincingly. 36 A mere offer to lease the foreclosed properties cannot constitute a waiver of ERHCs right to contest the validity of the foreclosure on the ground of non-compliance with the statutory requisites. ERHCs offer to lease does not relinquish ERHCs right to challenge the validity of the foreclosure. The offer to lease the foreclosed properties cannot validate or ratify a void foreclosure. ERHCs intention to lease the foreclosed properties cannot simply outweigh DBPs failure to comply with the statutory requisite for a valid extrajudicial foreclosure. As the Court of Appeals correctly ruled, "there can be no waiver of the posting and publication requirements in foreclosure proceedings because the same is contrary to law and public order." Fourth Award of moral damages Issue:

DBP maintains that ERHC, a juridical person, is not entitled to moral damages. ERHC counters that its reputation was debased when the sheriffs and several armed men intruded into Hotel Ibalons premises and inventoried the furniture and fixtures in the hotel. The Court of Appeals erred in awarding moral damages to ERHC. The Court of Appeals sole basis for its ruling is a quoted portion of the testimony of ERHCs President, Atty. Jose Reyes. The testimony was not even offered to prove the justification and amount of damages which ERHC claims against DBP. In other words, ERHC failed to present evidence to warrant the award of moral damages. In a long line of decisions, this Court has held that the claimant for moral damages must present concrete proof to justify its award, thus: xxx while no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court (Art. 2216), it is, nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the damage (Art. 2217) and its causal relation to defendants acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an

award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.37 (Emphasis supplied) In the body of its decision, the trial court gave no basis to justify the award of moral damages. The trial court simply awarded moral damages in the dispositive portion of its decision. 38 Moreover, as a general rule, moral damages are not awarded to a corporation, thus: The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only be one having a nervous system. The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation. 39 WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 is AFFIRMEDwith MODIFICATION. The extrajudicial foreclosure of the chattel mortgage is valid whereas the extrajudicial foreclosure of the real estate mortgage is void. The award of moral damages is deleted for lack of basis. No costs. SO ORDERED. Davide, Jr., C.J., Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

G.R. No. L-1720

March 4, 1950 and GAW CHIAO, petitioners,

SIA SUAN vs. RAMON ALCANTARA, respondent. Antonio Barredo Zosimo D. Tanalega for respondents. PARAS, J.:

for

petitioners.

On August 3, 1931, a deed of sale was executed by Rufino Alcantara and his sons Damaso Alcantara and Ramon Alcantara conveying to Sia Suan five parcels of land. Ramon Alcantara was then 17 years, 10 months and 22 days old. On August 27, 1931, Gaw Chiao (husband of Sia Suan) received a letter from Francisco Alfonso, attorney of Ramon Alcantara, informing Gaw Chiao that Ramon Alcantara was a minor and accordingly disavowing the contract. After being contacted by Gaw Chiao, however, Ramon Alcantara executed an affidavit in the office of Jose Gomez, attorney of Gaw Chiao, wherein Ramon Alcantara ratified the deed of sale. On said occasion Ramon Alcantara received from Gaw Chiao the sum of P500. In the meantime, Sia Suan sold one of the lots to Nicolas Azores from whom Antonio Azores inherited the same. On August 8, 1940, an action was instituted by Ramon Alcantara in the Court of First Instance of Laguna for the annulment of the deed of sale as regards his undivided share in the two parcels of land covered by certificates of title Nos. 751 and 752 of Laguna. Said action was against Sia Suan

and her husband Gaw Chiao, Antonio, Azores, Damaso Alcantara and Rufino Alcantara (the latter two being, respectively, the brother and father of Ramon Alcantara appealed to the Court of Appealed which reversed the decision of the trial court, on the ground that the deed of sale is not binding against Ramon Alcantara in view of his minority on the date of its execution, and accordingly sentenced Sia Suan to pay to Ramon Alcantara the sum of P1,750, with legal interest from December 17, 1931, in lieu of his share in the lot sold to Antonio Azores (who was absolved from the complaint), and to reconvey to Ramon Alcantara an undivided one-fourth interest in the lot originally covered by certificate of title NO. 752 of Laguna plus the cost of the suit. From this judgment Sia Suan and Gaw Chiao have come to us on appeal by certiorari. It is undeniable that the deed of sale signed by the appellee, Ramon Alcantara, On August 3, 1931, showed that he, like his co-signers (father and brother), was then of legal age. It is not pretend and there is nothing to indicate that the appellants did not believe and rely on such recital of fact. This conclusion is decisive and very obvious in the decision of the Court of Appeals It is true that in the resolution on the for reconsideration, the Court of Appeals remarked that "The fact that when informed of appellant's minority, the appellees too no steps for nine years to protect their interest beyond requiring the appellant to execute a ratification of the sale while still a minor, strongly indicates that the appellees knew of his minority when the deed of sale was executed." But the feeble insinuation is sufficiently negative by the following positive pronouncements of the Court of Appeals as well in said resolution as in the decision. As to the complaint that the defendant is guilty of laches, suffice it to say that the appellees were informed of his minority within one (1) month after the transaction was completed. (Resolution.) Finally, the appellees were equally negligent in not taking any action to protect their interest form and after August 27, 1931, when they were notified in writing of appellant's minority. (Resolution.) . . . The fact remains that the appellees were advised within the month that appellant was a minor, through the letter of Attorney Alfonso (Exhibit 1) informing appellees of his client's desire to disaffirm the contract . . . (Decision.) The purchaser having been apprised of incapacity of his vendor shortly after the contract was made, the delay in bringing the action of annulment will not serve to bar it unless the period fixed by the statute of limitations expired before the filing of the complaint. . . . (Decision.) In support of the contend that the deed of sale is binding on the appellee, counsel for the appellants invokes the decision in Mercado and Mercado vs. Espiritu (37 Phil., 215), wherein this court held: The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made by minors who pretend to be of legal age, when it fact they are not, is valid, and they will not be permitted to excuse themselves from the fulfillment of the obligations contracted by them, or to have them annulled in pursuance of the provisions of Law 6 title 19, of the 6th Partida; and the judgment that holds such a sale to valid and absolves the purchaser from the complaint filed against him does not violate the laws relative to the sale of minors' property, nor the juridical rules established in consonance therewith. (Decisions of the Supreme Court of Spain, of April 27, 1840, July 11, 1868, and March 1, 1875.) The Court of Appeals has refused to apply this doctrine on the ground that the appellants did not actually pay any amount in cash to the appellee and therefore did not suffer any detriment by reason of the deed of sale, it being stipulated that the consideration therefore was a pre-existing

indebtedness of appellee's father, Rufino Alcantara. We are of the opinion that the Court of Appeals erred. In the first place, in the case cited, the consideration for sale consisted in greater part of preexisting obligation. In the second place, under the doctrine, to bind a minor who represents himself to be of legal age, it is not necessary for his vendee to actually part with cash, as long as the contract is supported by a valid consideration. Since appellee's conveyance to the appellants was admittedly for and in virtue of a pre-existing indebtedness (unquestionably a valid consideration), it should produce its full force and effect in the absence of any other vice that may legally invalidate the same. It is not here claimed that the deed of sale is null and void on any ground other than the appellee's minority. Appellee's contract has become fully efficacious as a contract executed by parties with full legal capacity. The circumstance that, about one month after the date of the conveyance, the appellee informed the appellants of his minority, is of no moment, because appellee's previous misrepresentation had already estopped him from disavowing the contract. Said belated information merely leads to the inference that the appellants in fact did not know that the appellee was a minor on the date of the contract, and somewhat emphasizes appellee's had faith, when it is borne in mind that no sooner had he given said information than he ratified his deed of sale upon receiving from the appellants the sum of P500. Counsel for the appellees argues that the appellants could not have been misled as to the real age of the appellee because they were free to make the necessary investigation. The suggestion, while perhaps practicable, is conspicuously unbusinesslike and beside the point, because the findings of the Court of Appeals do not show that the appellants knew or could suspected appellee's minority. The Court of Appeals seems to be of the opinion that the letter written by the appellee informing the appellants of his minority constituted an effective disaffirmance of the sale, and that although the choice to disaffirm will not by itself avoid the contract until the courts adjudge the agreement to be invalid, said notice shielded the appellee from laches and consequent estoppel. This position is untenable since the effect of estoppel in proper cases is unaffected by the promptness with which a notice to disaffirm is made. The appealed decision of the Court of Appeals is hereby reversed and the appellants absolved from the complaint, with costs against the appellee, Ramon Alcantara. So ordered. Ozaeta, Tuason, Montemayor and Torres, JJ., concur.

Separate Opinions PADILLA, J., concurring: I concur in the result not upon the grounds stated in the majority opinion but for the following reasons: The deed of sale executed by Ramon Alcantara on 3 August 1931 conveying to Sia Suan five parcels of land is null and void insofar as the interest, share, or participation of Ramon Alcantara in two parcels of land is concerned, because on the date of sale he was 17 years, 10 months and 22 days old only. Consent being one of the essential requisites for the execution of a valid contract, a minor,

such as Ramon Alcantara was, could not give his consent thereof. The only misrepresentation as to his age, if any, was the statement appearing in the instrument that he was of age. On 27 August 1931, or 24 days after the deed was executed, Gaw Chiao, the husband of the vendee Sia Suan, was advised by Atty. Francisco Alfonso of the fact that his client Ramon Alcantara was a minor. The fact that the latter, for and in consideration of P500, executed an affidavit, whereby he ratified the deed of sale, is of no moment. He was still minor. The majority opinion invokes the rule laid down in the case of Mercado et al. vs. Espiritu, 37 Phil., 215. The rule laid down by this Court in that case is based on three judgments rendered by the Supreme Court of Spain on 27 April 1960, 11 July 1868, and 1 March 1875. In these decisions the Supreme Court of Spain applied Law 6, Title 19, of the 6th Partida which expressly provides: "Diziendo o ortogando el que fuese menor, que era mayor de XXV aos, si ouiesse persona que paresciesse de tal tiempo, si lo faze enganosamente, valdria el pleyto que assi fuere fecho con el e non deue ser desatado despues, como quier que non era de edad quando lo fizo: esto es, porque las leyes ayudan a los enganados, e non a los enganadores. . . ." (Alcubilla, Codigos Antigous de Espaa, p. 613.) The contract of sale involved in the case of Mercado vs. Espiritu, supra, was executed by the minors on 17 May 1910. The Law in force on this last-mentioned date was not Las Siete Partidas, 1 which was the in force at the time the cases decided by the Supreme Court of Spain referred to, but the Civil Code which took effect in the Philippines on 8 December 1889. As already stated, the Civil Code requires the consent of both parties for the valid execution of a contract (art. 1261, Civil Code). As a minor cannot give his consent, the contract made or executed by him has no validity and legal effect. There is no provision in the Civil Code similar to that of Law 6, Title 19, of the 6th Partida which is equivalent to the common law principle of estoppel. If there be an express provision in the Civil Code similar law 6, Title 19, of the 6th Partida, I would agree to the reasoning of the majority. The absence of such provision in the Civil Code is fatal to the validity of the contract executed by a minor. It would be illogical to uphold the validity of a contract on the ground of estoppel, because if the contract executed by a minor is null and void for lack of consent and produces no legal effect, how could such a minor be bound by misrepresentation about his age? If he could not be bound by a direct act, such as the execution of a deed of sale, how could he be bound by an indirect act, such as misrepresentation as to his age? The rule laid down in Young vs. Tecson, 39 O. G. 953, in my opinion, is the correct one. Nevertheless, as the action in this case was brought on 8 August 1940, the same was barred, because it was not brought within four (4) years after the minor had become of age, pursuant to article 1301 of the Civil Code. Ramon Alcantara became of age sometime in September 1934.

AUTHORITY a. effect of want of authority (art. 1403 in relation to arts. 1870 and 1898 of Civil Code and arts. 96 and 124 Family Code) Fuentes vs. Roca

FACTS: On, Oct 11, 1982, Tarciano Roca bought a 358-square meter lot in Zambales from his mother. Six years later in 1988, Tarciano offered to sell the lot to the petitioners Fuentes spouses through the help of Atty. Plagata who would prepare the documents and requirements to complete the sale. In the agreement between Tarciano and Fuentes spouses there will be a Php 60,000 down payment and Php 140,000 will be paid upon the removal of Tarciano of certain structures on the land and after the consent of the estranged wife of Tarciano, Rosario, would be attained. Atty. Plagata thus went about to complete such tasks and claimed that he went toManila to get the signature of Rosario but notarized the document atZamboanga . The deed of sale was executed January 11, 1989. As time passed, Tarciano and Rosario died while the Fuentes spouses and possession and control over the lot. Eight years later in 1997, the children of Tarciano and Rosario filed a case to annul the sale and reconvey the property on the ground that the sale was void since the consent of Rosario was not attained and that Rosarios signature was a mere forgery. The Fuentes spouses claim that the action has prescribed since an action to annul a sale on the ground of fraud is 4 years from discovery. The RTC ruled in favor of the Fuentes spouses ruling that there was no forgery, that the testimony of Atty. Plagata who witnessed the signing of Rosario must be given weight, and that the action has already prescribed. On the other hand, the CA reversed the ruling of the CA stating that the action has not prescribed since the applicable law is the 1950 Civil Code which provided that the sale of Conjugal Property without the consent of the other spouse is voidable and the action must be brought within 10 years. Given that the transaction was in 1989 and the action was brought in 1997 hence it was well within theprescriptive period. ISSUES: 1. Whether or not Rosarios signature on the document of consent to her husband Tarcianos sale of their conjugal land to the Fuentes spouses was forged; 2. Whether or not the Rocas action for the declaration of nullity of that sale to the spouses already prescribed; and 3. Whether or not only Rosario, the wife whose consent was not had, could bring the action to annul that sale. RULING: 1. The SC ruled that there was forgery due to the difference in the signatures of Rosario in the document giving consent and another document executed at the same time period. The SC noted that the CA was correct in ruling that the heavy handwriting in the document which stated consent was completely different from the sample signature. There was no evidence provided to explain why there was such difference in the handwriting. 2. Although Tarciano and Rosario was married during the 1950 civil code, the sale was done in 1989, after the effectivity of the Family Code. The Family Code applies to Conjugal Partnerships already established at the enactment of the Family Code. The sale of conjugal property done by Tarciano without the consent of Rosario is completely void under Art 124 of the family code. With that, it is a given fact that assailing a void contract never prescribes. On the argument that the action has already

prescribed based on the discovery of the fraud, that prescriptive period applied to the Fuentes spouses since it was them who should have assailed such contract due to the fraud but they failed to do so. On the other hand, the action to assail a sale based on no consent given by the other spouse does not prescribe since it is a void contract. 3. It is argued by the Spouses Fuentes that it is only the spouse, Rosario, who can file such a case to assail the validity of the sale but given that Rosario was already dead no one could bring the action anymore. The SC ruled that such position is wrong since as stated above, that sale was void from the beginning. Consequently, the land remained the property of Tarciano and Rosario despite that sale. When the two died, they passed on the ownership of the property to their heirs, namely, the Rocas. As lawful owners, the Rocas had the right, under Article 429 of the Civil Code, to exclude any person from its enjoyment and disposal.

TITAN CONSTRUCTION vs. MANUEL A. DAVID, SR. and MARTHA S. DAVID, Respondents. DECISION DEL CASTILLO, J.:

CORPORATION, Petitioner,

The review of factual matters is not the province of this Court. 1 The Supreme Court is not a trier of facts, and is not the proper forum for the ventilation and substantiation of factual issues.2 This Petition for Review assails the July 20, 2004 Decision 3 of the Court of Appeals (CA) in CA-G.R. CV No. 67090 which affirmed with modification the March 7, 2000 Decision 4 of the Regional Trial Court (RTC) of Quezon City, Branch 80. Also assailed is the August 31, 2005 Resolution 5 of the CA denying the motion for reconsideration. Factual Antecedents Manuel A. David, Sr. (Manuel) and Martha S. David (Martha) were married on March 25, 1957. In 1970, the spouses acquired a 602 square meter lot located at White Plains, Quezon City, which was registered in the name of "MARTHA S. DAVID, of legal age, Filipino, married to Manuel A. David" and covered by Transfer Certificate of Title (TCT) No. 156043 issued by the Register of Deeds of Quezon City.6 In 1976, the spouses separated de facto, and no longer communicated with each other. 7 Sometime in March 1995, Manuel discovered that Martha had previously sold the property to Titan Construction Corporation (Titan) for P1,500,000.00 through a Deed of Sale8 dated April 24, 1995, and that TCT No. 156043 had been cancelled and replaced by TCT No. 130129 in the name of Titan. Thus, on March 13, 1996, Manuel filed a Complaint 9 for Annulment of Contract and Recovenyance against Titan before the RTC of Quezon City. Manuel alleged that the sale executed by Martha in favor of Titan was without his knowledge and consent, and therefore void. He prayed that the Deed of Sale and TCT No. 130129 be invalidated, that the property be reconveyed to the spouses, and that a new title be issued in their names. In its Answer with Counterclaim,10 Titan claimed that it was a buyer in

good faith and for value because it relied on a Special Power of Attorney (SPA) 11 dated January 4, 1995 signed by Manuel which authorized Martha to dispose of the property on behalf of the spouses. Titan thus prayed for the dismissal of the complaint. In his unverified Reply,12 Manuel claimed that the SPA was spurious, and that the signature purporting to be his was a forgery; hence, Martha was wholly without authority to sell the property. Subsequently, Manuel filed a Motion for Leave to File Amended Complaint 13 which was granted by the trial court. Thus, on October 15, 1996, Manuel filed an Amended Complaint 14 impleading Martha as a co-defendant in the proceedings. However, despite personal service of summons15 upon Martha, she failed to file an Answer. Thus, she was declared in default. 16 Trial then ensued. Ruling of the Regional Trial Court On March 7, 2000, the RTC issued a Decision which (i) invalidated both the Deed of Sale and TCT No. 130129; (ii) ordered Titan to reconvey the property to Martha and Manuel; (iii) directed the Register of Deeds of Quezon City to issue a new title in the names of Manuel and Martha; and (iv) ordered Titan to pay P200,000.00 plusP1,000.00 per appearance as attorneys fees, and P50,000.00 as costs of suit. The RTC found that: 1) The property was conjugal in character since it was purchased by Manuel and Martha with conjugal funds during their marriage. The fact that TCT No. 156043 was registered in the name of "MARTHA S. DAVID x x x married to Manuel A. David" did not negate the propertys conjugal nature. 2) The SPA professing to authorize Martha to sell the property on behalf of the spouses was spurious, and did not bear Manuels genuine signature. This was the subject of expert testimony, which Titan failed to rebut. In addition, despite the fact that the SPA was notarized, the genuineness and due execution of the SPA was placed in doubt since it did not contain Manuels residence certificate, and was not presented for registration with the Quezon C ity Register of Deeds, in violation of Section 64 of Presidential Decree No. 1529. 17 3) The circumstances surrounding the transaction with Martha should have put Titan on notice of the SPAs dubious veracity. The RTC noted that aside from Marthas failure to register the SPA with the Register of Deeds, it was doubtful that an SPA would have even been necessary, since the SPA itself indicated that Martha and Manuel lived on the same street in Navotas. The dispositive portion of the trial courts Decision reads: Wherefore, judgment is hereby rendered: 1.) Declaring the Deed of Sale dated April 24, 1995 as void ab initio and without force and effect. 2.) Declaring null and void TCT No. 130129 issued by the Register of Deeds of Quezon City in the name of defendant Titan Construction Corporation.

3.) Ordering defendant Titan Construction Corporation to reconvey the subject property to plaintiff and his spouse. 4.) Ordering the Register of Deeds of Quezon City to make and issue a new title in the name of plaintiff Manuel David and his Spouse, Martha David. 5.) Ordering defendant to pay P200,000.00 plus P1,000.00 per appearance as attorneys fees andP50,000.00 as costs of suit. SO ORDERED.18 Ruling of the Court of Appeals In its Decision dated July 20, 2004, the CA affirmed the Decision of the trial court but deleted the award of attorneys fees and the amount of P50,000.00 as costs. The dispositive portion of the Decision reads: WHEREFORE, with the MODIFICATION by deleting the award of attorneys fees in favor of plaintiff appellee Manuel A. David, Sr. and the amount of P50,000.00 as costs, the Decision appealed from is AFFIRMED in all other respects, with costs against defendant-appellant Titan Construction Corporation.19 Titan moved for reconsideration but the motion was denied on August 31, 2005. Hence, this petition. Issues Titan raises the following assignment of errors: A. THE COURT OF APPEALS PATENTLY ERRED IN DECLARING THE SUBJECT DEED OF SALE NULL AND VOID AND FAILED TO APPLY TO THIS CASE THE PERTINENT LAW AND JURISPRUDENCE ON THE TORRENS SYSTEM OF LAND REGISTRATION. B. THE COURT OF APPEALS PATENTLY ERRED IN RULING THAT TITAN WAS NOT A BUYER IN GOOD FAITH CONTRARY TO THE STANDARDS APPLIED BY THIS HONORABLE COURT IN CASES INVOLVING SIMILAR FACTS. C. THE COURT OF APPEALS PATENTLY ERRED BY DISCARDING THE NATURE OF A NOTARIZED SPECIAL POWER OF ATTORNEY CONTRARY TO JURISPRUDENCE AND BY GIVING UNDUE WEIGHT TO THE ALLEGED EXPERT TESTIMONY VIS--VIS THE CONTESTED SIGNATURES AS THEY APPEAR TO THE NAKED EYE CONTRARY TO JURISPRUDENCE. D. THE COURT OF APPEALS PATENTLY ERRED BY FAILING TO DETECT BADGES OF CONNIVANCE BETWEEN RESPONDENTS. E. THE COURT OF APPEALS PATENTLY ERRED BY NOT RULING THAT ASSUMING THE SPA WAS NULL AND VOID, THE SAME IS IMMATERIAL SINCE THE RESPONDENTS SHOULD BE CONSIDERED ESTOPPED FROM DENYING THAT THE SUBJECT PROPERTY WAS SOLELY THAT OF RESPONDENT MARTHA S. DAVID.

F. THE COURT OF APPEALS PATENTLY ERRED BY NOT RULING THAT ASSUMING THE SALE WAS VOID, ON GROUNDS OF EQUITY MARTHA S. DAVID SHOULD REIMBURSE PETITIONER OF HIS PAYMENT WITH LEGAL INTEREST.20 Petitioners Arguments Titan is claiming that it was a buyer in good faith and fo r value, that the property was Marthas paraphernal property, that it properly relied on the SPA presented by Martha, and that the RTC erred in giving weight to the alleged expert testimony to the effect that Manuels signature on the SPA was spurious. Titan also argues, for the first time, that the CA should have ordered Martha to reimburse the purchase price paid by Titan. Our Ruling The petition is without merit. The property is part of the spouses conjugal partnership. The Civil Code of the Philippines,21 the law in force at the time of the celebration of the marriage between Martha and Manuel in 1957, provides: Article 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife. Article 153 of the Civil Code also provides: Article 153. The following are conjugal partnership property: (1) That which is acquired by onerous title during the marriage at the expense of the common fund, whether the acquisition be for the partnership, or for only one of the spouses; xxxx These provisions were carried over to the Family Code. In particular, Article 117 thereof provides: Art. 117. The following are conjugal partnership properties: (1) Those acquired by onerous title during the marriage at the expense of the common fund, whether the acquisition be for the partnership, or for only one of the spouses; xxxx Article 116 of the Family Code is even more unequivocal in that "[a]ll property acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved." We are not persuaded by Titans arguments that the property was Marthas exclusive property because Manuel failed to present before the RTC any proof of his income in 1970, hence he could not have had the financial capacity to contribute to the purchase of the property in 1970; and that Manuel admitted that it was Martha who concluded the original purchase of the property. In consonance with our ruling in Spouses Castro v. Miat,22Manuel was not required to prove that the

property was acquired with funds of the partnership. Rather, the presumption applies even when the manner in which the property was acquired does not appear.23 Here, we find that Titan failed to overturn the presumption that the property, purchased during the spouses marriage, was part of the conjugal partnership. In the absence of Manuels consent, the Deed of Sale is void. Since the property was undoubtedly part of the conjugal partnership, the sale to Titan required the consent of both spouses. Article 165 of the Civil Code expressly provides that "the husband is the administrator of the conjugal partnership". Likewise, Article 172 of the Civil Code ordains that "(t)he wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law". Similarly, Article 124 of the Family Code requires that any disposition or encumbrance of conjugal property must have the written consent of the other spouse, otherwise, such disposition is void. Thus: Art. 124. The administration and enjoyment of the conjugal partnership shall belong to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. The Special Power of Attorney purportedly signed by Manuel is spurious and void. The RTC found that the signature of Manuel appearing on the SPA was not his genuine signature. As to the issue of the validity or invalidity of the subject Special Power of Attorney x x x the Court rules that the same is invalid. As aptly demonstrated by plaintiffs evidence particularly the testimony of expert witness Atty. Desiderio Pagui, which the defense failed to rebut and impeach, the subject Special Power of Attorney does not bear the genuine signature of plaintiff Manuel David thus rendering the same as without legal effect. Moreover, the genuineness and the due execution of the Special Power of Attorney was placed in more serious doubt as the same does not contain the Residence Certificate of the plaintiff and most importantly, was not presented for registration with the Quezon City Register of Deeds which is a clear violation of Sec. 64 of P.D. No. 1529. As regards defendant Titan Construction Corporations assertion that plaintiffs failure to verify his Reply (wherein the validity of the Special Power of Attorney is put into question) is an implied admission of its genuineness and due execution, [this] appears at first blush a logical conclusion. However, the Court could not yield to such an argument considering that a rigid application of the pertinent provisions of the Rules of Court will not be given premium when it would obstruct rather than serve the broader interest of justice.24

Titan claims that the RTC gave undue weight to the testimony of Manuels witness, and that expert testimony on handwriting is not conclusive. The contention lacks merit. The RTCs ruling was based not only on the testimony of Manuels exp ert witness finding that there were significant differences between the standard handwriting of Manuel and the signature found on the SPA, but also on Manuels categorical denial that he ever signed any document authorizing or ratifying the Deed of Sale to Titan.25 We also note that on October 12, 2004, Titan filed before the CA a Manifestation with Motion for ReExamination of Another Document/ Handwriting Expert26 alleging that there is "an extreme necessity"27 for a conduct of another examination of the SPA by a handwriting expert "as it will materially affect and alter the final outcome" 28 of the case. Interestingly, however, Titan filed on January 6, 2005 a Manifestation/Motion to Withdraw Earlier Motion for Re-Examination of PNP Laboratory Expert29 this time praying that its motion for re-examination be withdrawn. Titan claimed that "after a circumspect evaluation, deemed it wise not to pursue anymore said request (reexamination) as there is a great possibility that the x x x [PNP and the NBI] might come out with two conflicting opinions and conclusions x x x that might cause some confusion to the minds of the Honorable Justices in resolving the issues x x x as well as the waste of material time and resources said motion may result".30 In any event, we reiterate the well-entrenched rule that the factual findings of trial courts, when adopted and confirmed by the CA, are binding and conclusive and will generally not be reviewed on appeal.31 We are mandated to accord great weight to the findings of the RTC, particularly as regards its assessment of the credibility of witnesses32 since it is the trial court judge who is in a position to observe and examine the witnesses first hand. 33 Even after a careful and independent scrutiny of the records, we find no cogent reason to depart from the rulings of the courts below. 34 Furthermore, settled is the rule that only errors of law and not of fact are reviewable by this Court in a petition for review on certiorari under Rule 45 of the Rules of Court. This applies with even greater force here, since the factual findings by the CA are in full agreement with those of the trial court. 35 Indeed, we cannot help but wonder why Martha was never subpoenaed by Titan as a witness to testify on the character of the property, or the circumstances surrounding the transaction with Titan. Petitioners claim that she could not be found is belied by the RTC records, which show tha t she personally received and signed for the summons at her address in Greenhills, San Juan. Titan neither filed a cross claim nor made any adverse allegation against Martha. On the Failure to Deny the Genuineness and Due Execution of the SPA Titan claimed that because Manuel failed to specifically deny the genuineness and due execution of the SPA in his Reply, he is deemed to have admitted the veracity of said document, in accordance with Rule 8, Sections 7 and 8,36 of the Rules of Court. On this point, we fully concur with the findings of the CA that: It is true that the reply filed by Manuel alleging that the special power of attorney is a forgery was not made under oath. However, the complaint, which was verified by Manuel under oath, alleged that the sale of the subject property executed by his wife, Martha, in favor of Titan was without his knowledge, consent, and approval, express or implied; and that there is nothing on the face of the deed of sale that would show that he gave his consent thereto. In Toribio v. Bidin, it was held that where the verified complaint alleged that the plaintiff never sold, transferred or disposed their share in the inheritance left by their mother to others, the defendants were placed on adequate notice that they

would be called upon during trial to prove the genuineness or due execution of the disputed deed of sale. While Section 8, Rule 8 is mandatory, it is a discovery procedure and must be reasonably construed to attain its purpose, and in a way as not to effect a denial of substantial justice. The interpretation should be one which assists the parties in obtaining a speedy, inexpensive, and most important, a just determination of the disputed issues.1avvphi1 Moreover, during the pre-trial, Titan requested for stipulation that the special power of attorney was signed by Manuel authorizing his wife to sell the subject property, but Manuel refused to admit the genuineness of said special power of attorney and stated that he is presenting an expert witness to prove that his signature in the special power of attorney is a forgery. However, Titan did not register any objection x x x. Furthermore, Titan did not object to the presentation of Atty. Desiderio Pagui, who testified as an expert witness, on his Report finding that the signature on the special power of attorney was not affixed by Manuel based on his analysis of the questioned and standard signatures of the latter, and even cross-examined said witness. Neither did Titan object to the admission of said Report when it was offered in evidence by Manuel on the ground that he is barred from denying his signature on the special power of attorney. In fact, Titan admitted the existence of said Report and objected only to the purpose for which it was offered. In Central Surety & Insurance Company v. C.N. Hodges, it was held that where a party acted in complete disregard of or wholly overlooked Section 8, Rule 8 and did not object to the introduction and admission of evidence questioning the genuineness and due execution of a document, he must be deemed to have waived the benefits of said Rule. Consequently, Titan is deemed to have waived the mantle of protection given [it] by Section 8, Rule 8.37 It is true that a notarial document is considered evidence of the facts expressed therein. 38 A notarized document enjoys a prima facie presumption of authenticity and due execution 39 and only clear and convincing evidence will overcome such legal presumption.40 However, such clear and convincing evidence is present here.1avvph!1 While it is true that the SPA was notarized, it is no less true that there were defects in the notarization which mitigate against a finding that the SPA was either genuine or duly executed. Curiously, the details of Manuels Community Tax Certificate are conspicuously absent, yet Marthas are complete. The absence of Manuels data supports his claim that he did not execute the same and that his signature thereon is a forgery. Moreover, we have Manuels positive testimony that he never signed the SPA, in addition to the expert testimony that the signature appearing on the SPA was not Manuels true signature. Moreover, there were circumstances which mitigate against a finding that Titan was a buyer in good faith. First, TCT No. 156043 was registered in the name of "MARTHA S. DAVID, of legal age, Filipino, married to Manuel A. David" but the Deed of Sale failed to include Marthas civil status, and only described the vendor as "MARTHA S. DAVID, of legal age, Filipino citizen, with postal address at 247 Governor Pascual, Navotas, Rizal." And it is quite peculiar that an SPA would have even been necessary, considering that the SPA itself indicated that Martha and Manuel lived on the same street (379 and 247 Governor Pascual Street, respectively). Second, Titans witness Valeriano Hernandez, the real estate a gent who brokered the sale between Martha and Titan, testified that Jerry Yao (Yao), Titans Vice President for Operations (and Titans signatory to the Deed of Sale), specifically inquired why the name of Manuel did not appear on the Deed of Sale.41 This indicates that Titan was aware that Manuels consent may be necessary. In addition, Titan purportedly sent their representative to the Register of Deeds of Quezon City to verify TCT No. 156043, so Titan would have been aware that the SPA was never registered before the Register of Deeds.

Third, Valeriano Hernandez also testified that during the first meeting between Martha and Yao, Martha informed Yao that the property was mortgaged to a casino for P500,000.00. Without even seeing the property, the original title, or the SPA, and without securing an acknowledgment receipt from Martha, Titan (through Yao) gave MarthaP500,000.00 so she could redeem the property from the casino.42 These are certainly not actions typical of a prudent buyer. Titan cannot belatedly claim that the RTC should have ordered Martha to reimburse the purchase price. Titan argues that the CA erred in not ruling that, even assuming the sale was void, on grounds of equity, Martha should reimburse petitioner its payment with legal interest. We note that this equity argument was raised for the first time before the CA, which disposed of it in this manner: Anent defendant-appellants claim that the court a quo and this Court never considered the substantial amount of money paid by it to Martha David as consideration for the sale of the subject property, suffice it to say that said matter is being raised for the first time in the instant motion for reconsideration. If well-recognized jurisprudence precludes raising an issue only for the first time on appeal proper, with more reason should such issue be disallowed or disregarded when initially raised only in a motion for reconsideration of the decision of the appellate court. Nonetheless, record shows that only defendant-appellant was initially sued by plaintiff-appellee in his complaint for annulment of contract and reconveyance upon the allegation that the sale executed by his wife, Martha David, of their conjugal property in favor of defendant-appellant was without his knowledge and consent and, therefore, null and void. In its answer, defendant-appellant claimed that it bought the property in good faith and for value from Martha David and prayed for the dismissal of the complaint and the payment of his counterclaim for attorneys fees, moral and exemplary damages. Subsequently, plaintiff-appellee filed a motion for leave to file amended complaint by impleading Martha David as a defendant, attaching the amended complaint thereto, copies of which were furnished defendant-appellant, through counsel. The amended complaint was admitted by the court a quo in an Order dated October 23, 1996. Martha David was declared in default for failure to file an answer. The record does not show [that] a cross-claim was filed by defendant-appellant against Martha David for the return of the amount of PhP1,500,000.00 it paid to the latter as consideration for the sale of the subject property. x x x Thus, to hold Martha David liable to defendant-appellant for the return of the consideration for the sale of the subject property, without any claim therefore being filed against her by the latter, would violate her right to due process.The essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of his defense. It is elementary that before a person can be deprived of his property, he should be first informed of the claim against him and the theory on which such claim is premised.43 (Emphasis supplied) While it is true that litigation is not a game of technicalities, 44 it is equally true that elementary considerations of due process require that a party be duly apprised of a claim against him before judgment may be rendered. Thus, we cannot, in these proceedings, order the return of the amounts paid by Titan to Martha. However, Titan is not precluded by this Decision from instituting the appropriate action against Martha before the proper court. WHEREFORE, the petition is DENIED. The July 20, 2004 Decision of the Court of Appeals in CAG.R. CV No. 67090 which affirmed with modifications the March 7, 2000 Decision of the Regional Trial Court of Quezon City, Branch 80, and its August 31, 2005 Resolution denying the motion for reconsideration, are AFFIRMED, without prejudice to the recovery by petitioner Titan Construction Corporation of the amounts it paid to Martha S. David in the appropriate action before the proper court.

SO ORDERED. MARIANO Associate Justice WE CONCUR: DEL CASTILLO

G.R. No. 165803

September 1, 2010 AGGABAO, Petitioners,

SPOUSES REX AND CONCEPCION vs. DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents. DECISION BERSAMIN, J.:

On July 26, 2000, the Regional Trial Court (RTC), Branch 136, in Makati City annulled the deed of absolute sale executed in favor of the petitioners covering two parcels of registered land the respondents owned for want of the written consent of respondent husband Dionisio Parulan, Jr. On July 2, 2004, in C.A.-G.R. CV No. 69044,1 the Court of Appeals (CA) affirmed the RTC decision. Hence, the petitioners appeal by petition for review on certiorari, seeking to reverse the decision of the CA. They present as the main issue whether the sale of conjugal property made by respondent wife by presenting a special power of attorney to sell (SPA) purportedly executed by respondent husband in her favor was validly made to the vendees, who allegedly acted in good faith and paid the full purchase price, despite the showing by the husband that his signature on the SPA had been forged and that the SPA had been executed during his absence from the country. We resolve the main issue against the vendees and sustain the CAs finding that the vendees were not buyers in good faith, because they did not exercise the necessary prudence to inquire into the wifes authority to sell. We hold that the sale of conjugal property without the consent of the husband was not merely voidable but void; hence, it could not be ratified. Antecedents Involved in this action are two parcels of land and their improvements (property) located at No. 49 Miguel Cuaderno Street, Executive Village, BF Homes, Paraaque City and registered under Transfer Certificate of Title (TCT) No. 633762 and TCT No. 633773 in the name of respondents Spouses Maria

Elena A. Parulan (Ma. Elena) and Dionisio Z. Parulan, Jr. (Dionisio), who have been estranged from one another. In January 1991, real estate broker Marta K. Atanacio (Atanacio) offered the property to the petitioners, who initially did not show interest due to the rundown condition of the improvements. But Atanacios persistence prevailed upon them, so that on F ebruary 2, 1991, they and Atanacio met with Ma. Elena at the site of the property. During their meeting, Ma. Elena showed to them the following documents, namely: (a) the owners original copy of TCT No. 63376; (b) a certified true copy of TCT No. 63377; (c) three tax declarations; and (d) a copy of the special power of attorney (SPA) dated January 7, 1991 executed by Dionisio authorizing Ma. Elena to sell the property. 4 Before the meeting ended, they paid P20,000.00 as earnest money, for which Ma. Elena executed a handwritten Receipt of Earnest Money, whereby the parties stipulated that: (a) they would pay an additional payment of P130,000.00 on February 4, 1991; (b) they would pay the balance of the bank loan of the respondents amounting to P650,000.00 on or before February 15, 1991; and (c) they would make the final payment of P700,000.00 once Ma. Elena turned over the property on March 31, 1991. 5 On February 4, 1991, the petitioners went to the Office of the Register of Deeds and the Assessors Office of Paraaque City to verify the TCTs shown by Ma. Elena in the company of Atanacio and her husband (also a licensed broker).6 There, they discovered that the lot under TCT No. 63376 had been encumbered to Banco Filipino in 1983 or 1984, but that the encumbrance had already been cancelled due to the full payment of the obligation. 7 They noticed that the Banco Filipino loan had been effected through an SPA executed by Dionisio in favor of Ma. Elena. 8 They found on TCT No. 63377 the annotation of an existing mortgage in favor of the Los Baos Rural Bank, also effected through an SPA executed by Dionisio in favor of Ma. Elena, coupled with a copy of a court order authorizing Ma. Elena to mortgage the lot to secure a loan of P500,000.00.9 The petitioners and Atanacio next inquired about the mortgage and the court order annotated on TCT No. 63377 at the Los Baos Rural Bank. There, they met with Atty. Noel Zarate, the banks legal counsel, who related that the bank had asked for the court order because the lot involved was conjugal property.10 Following their verification, the petitioners delivered P130,000.00 as additional down payment on February 4, 1991; and P650,000.00 to the Los Baos Rural Bank on February 12, 1991, which then released the owners duplicate copy of TCT No. 63377 to them. 11 On March 18, 1991, the petitioners delivered the final amount of P700,000.00 to Ma. Elena, who executed a deed of absolute sale in their favor. However, Ma. Elena did not turn over the owners duplicate copy of TCT No. 63376, claiming that said copy was in the possession of a relative who was then in Hongkong.12 She assured them that the owners duplicate copy of TCT No. 63376 w ould be turned over after a week. On March 19, 1991, TCT No. 63377 was cancelled and a new one was issued in the name of the petitioners. Ma. Elena did not turn over the duplicate owners copy of TCT No. 63376 as promised. In due time, the petitioners learned that the duplicate owners copy of TCT No. 63376 had been all along in the custody of Atty. Jeremy Z. Parulan, who appeared to hold an SPA executed by his brother Dionisio authorizing him to sell both lots.13 At Atanacios instance, the petitioners met on March 25, 1991 with Atty. Parulan at the Manila Peninsula.14 For that meeting, they were accompanied by one Atty. Olandesca. 15 They recalled that Atty. Parulan "smugly demanded P800,000.00" in exchange for the duplicate owners copy of TCT

No. 63376, because Atty. Parulan represented the current value of the property to be P1.5 million. As a counter-offer, however, they tenderedP250,000.00, which Atty. Parulan declined,16 giving them only until April 5, 1991 to decide. Hearing nothing more from the petitioners, Atty. Parulan decided to call them on April 5, 1991, but they informed him that they had already fully paid to Ma. Elena.17 Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an action (Civil Case No. 911005 entitledDionisio Z. Parulan, Jr., represented by Jeremy Z. Parulan, as attorney in fact, v. Ma. Elena Parulan, Sps. Rex and Coney Aggabao), praying for the declaration of the nullity of the deed of absolute sale executed by Ma. Elena, and the cancellation of the title issued to the petitioners by virtue thereof. In turn, the petitioners filed on July 12, 1991 their own action for specific performance with damages against the respondents. Both cases were consolidated for trial and judgment in the RTC.18 Ruling of the RTC After trial, the RTC rendered judgment, as follows: WHEREFORE, and in consideration of the foregoing, judgment is hereby rendered in favor of plaintiff Dionisio A. Parulan, Jr. and against defendants Ma. Elena Parulan and the Sps. Rex and Concepcion Aggabao, without prejudice to any action that may be filed by the Sps. Aggabao against co-defendant Ma. Elena Parulan for the amounts they paid her for the purchase of the subject lots, as follows: 1. The Deed of Absolute Sale dated March 18, 1991 covering the sale of the lot located at No. 49 M. Cuaderno St., Executive Village, BF Homes, Paraaque, Metro Manila, and covered by TCT Nos. 63376 and 63377 is declared null and void. 2. Defendant Mrs. Elena Parulan is directed to pay litigation expenses amounting to P50,000.00 and the costs of the suit. SO ORDERED.19 The RTC declared that the SPA in the hands of Ma. Elena was a forgery, based on its finding that Dionisio had been out of the country at the time of the execution of the SPA; 20 that NBI Sr. Document Examiner Rhoda B. Flores had certified that the signature appearing on the SPA purporting to be that of Dionisio and the set of standard sample signatures of Dionisio had not been written by one and the same person;21 and that Record Officer III Eliseo O. Terenco and Clerk of Court Jesus P. Maningas of the Manila RTC had issued a certification to the effect that Atty. Alfred Datingaling, the Notary Public who had notarized the SPA, had not been included in the list of Notaries Public in Manila for the year 1990-1991.22 The RTC rejected the petitioners defense of being buyers in good faith because of their failure to exercise ordinary prudence, including demanding from Ma. Elena a court order authorizing her to sell the properties similar to the order that the Los Baos Rural Bank had required before accepting the mortgage of the property.23 It observed that they had appeared to be in a hurry to consummate the transaction despite Atanacios advice that they first consult a lawyer before buying the property; that with ordinary prudence, they should first have obtained the owners duplicate copi es of the TCTs

before paying the full amount of the consideration; and that the sale was void pursuant to Article 124 of the Family Code.24 Ruling of the CA As stated, the CA affirmed the RTC, opining that Article 124 of the Family Code applied because Dionisio had not consented to the sale of the conjugal property by Ma. Elena; and that the RTC correctly found the SPA to be a forgery. The CA denied the petitioners motion for reconsideration.25 Issues The petitioners now make two arguments: (1) they were buyers in good faith; and (2) the CA erred in affirming the RTCs finding that the sale between Mrs. Elena and the petitioners had been a nullity under Article 124 of the Family Code. The petitioners impute error to the CA for not applying the "ordinary prudent mans standard" in determining their status as buyers in good faith. They contend that the more appropriate law to apply was Article 173 of the Civil Code, not Article 124 of the Family Code; and that even if the SPA held by Ma. Elena was a forgery, the ruling inVeloso v. Court of Appeals26 warranted a judgment in their favor. Restated, the issues for consideration and resolution are as follows: 1) Which between Article 173 of the Civil Code and Article 124 of the Family Code should apply to the sale of the conjugal property executed without the consent of Dionisio? 2) Might the petitioners be considered in good faith at the time of their purchase of the property? 3) Might the ruling in Veloso v. Court of Appeals be applied in favor of the petitioners despite the finding of forgery of the SPA? Ruling The petition has no merit. We sustain the CA. 1. Article 124, Family Code, applies properties made after the effectivity of the Family Code to sale of conjugal

The petitioners submit that Article 173 of the Civil Code, not Article 124 of the Family Code, governed the property relations of the respondents because they had been married prior to the effectivity of the Family Code; and that the second paragraph of Article 124 of the Family Code should not apply because the other spouse held the administration over the conjugal property. They argue that notwithstanding his absence from the country Dionisio still held the administration of the conjugal property by virtue of his execution of the SPA in favor of his brother; and that even assuming that Article 124 of the Family Code properly applied, Dionisio ratified the sale through Atty. Parulans counter-offer during the March 25, 1991 meeting.

We do not subscribe to the petitioners submissions. To start with, Article 25427 the Family Code has expressly repealed several titles under the Civil Code, among them the entire Title VI in which the provisions on the property relations between husband and wife, Article 173 included, are found. Secondly, the sale was made on March 18, 1991, or after August 3, 1988, the effectivity of the Family Code. The proper law to apply is, therefore, Article 124 of the Family Code, for it is settled that any alienation or encumbrance of conjugal property made during the effectivity of the Family Code is governed by Article 124 of the Family Code.28 Article 124 of the Family Code provides: Article 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husbands decision shall prevail , subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. Thirdly, according to Article 25629 of the Family Code, the provisions of the Family Code may apply retroactively provided no vested rights are impaired. In Tumlos v. Fernandez,30 the Court rejected the petitioners argument that the Family Code did not apply because the acquisition of the contested property had occurred prior to the effectivity of the Family Code, and pointed out that Article 256 provided that the Family Code could apply retroactively if the application would not prejudice vested or acquired rights existing before the effectivity of the Family Code. Herein, however, the petitioners did not show any vested right in the property acquired prior to August 3, 1988 that exempted their situation from the retroactive application of the Family Code. Fourthly, the petitioners failed to substantiate their contention that Dionisio, while holding the administration over the property, had delegated to his brother, Atty. Parulan, the administration of the property, considering that they did not present in court the SPA granting to Atty. Parulan the authority for the administration. Nonetheless, we stress that the power of administration does not include acts of disposition or encumbrance, which are acts of strict ownership. As such, an authority to dispose cannot proceed from an authority to administer, and vice versa, for the two powers may only be exercised by an agent by following the provisions on agency of the Civil Code (from Article 1876 to Article 1878). Specifically, the apparent authority of Atty. Parulan, being a special agency, was limited to the sale of the property in question, and did not include or extend to the power to administer the property. 31 Lastly, the petitioners insistence that Atty. Parulans making of a counter -offer during the March 25, 1991 meeting ratified the sale merits no consideration. Under Article 124 of the Family Code, the transaction executed sans the written consent of Dionisio or the proper court order was void; hence, ratification did not occur, for a void contract could not be ratified.32

On the other hand, we agree with Dionisio that the void sale was a continuing offer from the petitioners and Ma. Elena that Dionisio had the option of accepting or rejecting before the offer was withdrawn by either or both Ma. Elena and the petitioners. The last sentence of the second paragraph of Article 124 of the Family Code makes this clear, stating that in the absence of the other spouses consent, the transaction should be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or upon authorization by the court before the offer is withdrawn by either or both offerors. 2. Due diligence required in verifying but also agents authority to sell the property not only vendors title,

A purchaser in good faith is one who buys the property of another, without notice that some other person has a right to, or interest in, such property, and pays the full and fair price for it at the time of such purchase or before he has notice of the claim or interest of some other persons in the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. He cannot close his eyes to facts that should put a reasonable man on his guard and still claim he acted in good faith. 33 The status of a buyer in good faith is never presumed but must be proven by the person invoking it.34 Here, the petitioners disagree with the CA for not applying the "ordinary prudent mans standard" in determining their status as buyers in good faith. They insist that they exercised due diligence by verifying the status of the TCTs, as well as by inquiring about the details surrounding the mortgage extended by the Los Baos Rural Bank. They lament the holding of the CA that they should have been put on their guard when they learned that the Los Baos Rural Bank had first required a court order before granting the loan to the respondents secured by their mortgage of the property. The petitioners miss the whole point. Article 124 of the Family Code categorically requires the consent of both spouses before the conjugal property may be disposed of by sale, mortgage, or other modes of disposition. In Bautista v. Silva,35 the Court erected a standard to determine the good faith of the buyers dealing with a seller who had title to and possession of the land but whose capacity to sell was restricted, in that the consent of the other spouse was required before the conveyance, declaring that in order to prove good faith in such a situation, the buyers must show that they inquired not only into the title of the seller but also into the sellers capacity to sell.36 Thus, the buyers of conjugal property must observe two kinds of requisite diligence, namely: (a) the diligence in verifying the validity of the title covering the property; and (b) the diligence in inquiring into the authority of the transacting spouse to sell conjugal property in behalf of the other spouse. It is true that a buyer of registered land needs only to show that he has relied on the face of the certificate of title to the property, for he is not required to explore beyond what the certificate indicates on its face.37 In this respect, the petitioners sufficiently proved that they had checked on the authenticity of TCT No. 63376 and TCT No. 63377 with the Office of the Register of Deeds in Pasay City as the custodian of the land records; and that they had also gone to the Los Baos Rural Bank to inquire about the mortgage annotated on TCT No. 63377. Thereby, the petitioners observed the requisite diligence in examining the validity of the TCTs concerned.

Yet, it ought to be plain enough to the petitioners that the issue was whether or not they had diligently inquired into the authority of Ma. Elena to convey the property, not whether or not the TCT had been valid and authentic, as to which there was no doubt. Thus, we cannot side with them. Firstly, the petitioners knew fully well that the law demanded the written consent of Dionisio to the sale, but yet they did not present evidence to show that they had made inquiries into the circumstances behind the execution of the SPA purportedly executed by Dionisio in favor of Ma. Elena. Had they made the appropriate inquiries, and not simply accepted the SPA for what it represented on its face, they would have uncovered soon enough that the respondents had been estranged from each other and were under de facto separation, and that they probably held conflicting interests that would negate the existence of an agency between them. To lift this doubt, they must, of necessity, further inquire into the SPA of Ma. Elena. The omission to inquire indicated their not being buyers in good faith, for, as fittingly observed in Domingo v. Reed:381avvphi1 What was required of them by the appellate court, which we affirm, was merely to investigate as any prudent vendee should the authority of Lolita to sell the property and to bind the partnership. They had knowledge of facts that should have led them to inquire and to investigate, in order to acquaint themselves with possible defects in her title. The law requires them to act with the diligence of a prudent person; in this case, their only prudent course of action was to investigate whether respondent had indeed given his consent to the sale and authorized his wife to sell the property. 39 Indeed, an unquestioning reliance by the petitioners on Ma. Elenas SPA without first taking precautions to verify its authenticity was not a prudent buyers move. 40 They should have done everything within their means and power to ascertain whether the SPA had been genuine and authentic. If they did not investigate on the relations of the respondents vis--vis each other, they could have done other things towards the same end, like attempting to locate the notary public who had notarized the SPA, or checked with the RTC in Manila to confirm the authority of Notary Public Atty. Datingaling. It turned out that Atty. Datingaling was not authorized to act as a Notary Public for Manila during the period 1990-1991, which was a fact that they could easily discover with a modicum of zeal. Secondly, the final payment of P700,000.00 even without the owners duplicate copy of the TCT No. 63376 being handed to them by Ma. Elena indicated a revealing lack of precaution on the part of the petitioners. It is true that she promised to produce and deliver the owners copy within a week because her relative having custody of it had gone to Hongkong, but their passivity in such an essential matter was puzzling light of their earlier alacrity in immediately and diligently validating the TCTs to the extent of inquiring at the Los Baos Rural Bank about the annotated mortgage. Yet, they could have rightly withheld the final payment of the balance. That they did not do so reflected their lack of due care in dealing with Ma. Elena. Lastly, another reason rendered the petitioners good faith incredible. They did not take immediate action against Ma. Elena upon discovering that the owners original copy of TCT No. 63376 was in the possession of Atty. Parulan, contrary to Elenas representation. Human experience would have impelled them to exert every effort to proceed against Ma. Elena, including demanding the return of the substantial amounts paid to her. But they seemed not to mind her inability to produce the TCT, and, instead, they contented themselves with meeting with Atty. Parulan to negotiate for the possible turnover of the TCT to them. 3. Veloso v. Court of Appeals cannot help petitioners

The petitioners contend that the forgery of the SPA notwithstanding, the CA could still have decided in their favor conformably with Veloso v. Court of Appeals,41 a case where the petitioner husband claimed that his signature and that of the notary public who had notarized the SPA the petitioner supposedly executed to authorize his wife to sell the property had been forged. In denying relief, the Court upheld the right of the vendee as an innocent purchaser for value. Veloso is inapplicable, however, because the contested property therein was exclusively owned by the petitioner and did not belong to the conjugal regime. Veloso being upon conjugal property, Article 124 of the Family Code did not apply. In contrast, the property involved herein pertained to the conjugal regime, and, consequently, the lack of the written consent of the husband rendered the sale void pursuant to Article 124 of the Family Code. Moreover, evenassuming that the property involved in Veloso was conjugal, its sale was made on November 2, 1987, or prior to the effectivity of the Family Code; hence, the sale was still properly covered by Article 173 of the Civil Code, which provides that a sale effected without the consent of one of the spouses is only voidable, not void. However, the sale herein was made already during the effectivity of the Family Code, rendering the application of Article 124 of the Family Code clear and indubitable. The fault of the petitioner in Veloso was that he did not adduce sufficient evidence to prove that his signature and that of the notary public on the SPA had been forged. The Court pointed out that his mere allegation that the signatures had been forged could not be sustained without clear and convincing proof to substantiate the allegation. Herein, however, both the RTC and the CA found from the testimonies and evidence presented by Dionisio that his signature had been definitely forged, as borne out by the entries in his passport showing that he was out of the country at the time of the execution of the questioned SPA; and that the alleged notary public, Atty. Datingaling, had no authority to act as a Notary Public for Manila during the period of 1990-1991. WHEREFORE, we deny the petition for review on certiorari, and affirm the decision dated July 2, 2004 rendered by the Court of Appeals in C.A.-G.R. CV No. 69044 entitled "Dionisio Z. Parulan, Jr. vs. Ma. Elena Parulan and Sps. Rex and Concepcion Aggabao" and "Sps. Rex and Concepcion Aggabao vs. Dionisio Z. Parulan, Jr. and Ma. Elena Parulan." Costs of suit to be paid by the petitioners. SO ORDERED. LUCAS Associate Justice P. BERSAMIN

G.R. No. 152658. July 29, 2005 LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO,1 ROLAND P. BRAVO, JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVO-NIOR namely: GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B. NIOR, BRYAN B. NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR, represented by LILY ELIZABETH BRAVO-GUERRERO as their attorney-in-fact, and HONORABLE FLORENTINO A. TUASON, JR., Presiding Judge, Regional Trial Court, Branch 139, Makati City, Petitioners, vs.

EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C. BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent. DECISION CARPIO, J.: The Case Before the Court is a petition for review2 assailing the Decision3 of 21 December 2001 of the Court of Appeals in CA-G.R. CV No. 67794. The Court of Appeals reversed the Decision 4 of 11 May 2000 of the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-1379 denying respondents prayer to partition the subject properties. Antecedent Facts Spouses Mauricio Bravo ("Mauricio") and Simona 5 Andaya Bravo ("Simona") owned two parcels of land ("Properties") measuring 287 and 291 square meters and located along Evangelista Street, Makati City, Metro Manila. The Properties are registered under TCT Nos. 58999 and 59000 issued by the Register of Deeds of Rizal on 23 May 1958. The Properties contain a large residential dwelling, a smaller house and other improvements. Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed Bravo. Cesar died without issue. Lily Bravo married David Diaz, and had a son, David B. Diaz, Jr. ("David Jr."). Roland had six children, namely, Lily Elizabeth Bravo-Guerrero ("Elizabeth"), Edward Bravo ("Edward"), Roland Bravo, Jr. ("Roland Jr."), Senia Bravo, Benjamin Mauricio Bravo, and their half-sister, Ofelia Bravo ("Ofelia"). Simona executed a General Power of Attorney ("GPA") on 17 June 1966 appointing Mauricio as her attorney-in-fact. In the GPA, Simona authorized Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein xxx." 6 Mauricio subsequently mortgaged the Properties to the Philippine National Bank (PNB) and Development Bank of the Philippines (DBP) for P10,000 and P5,000, respectively.7 On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real Estate Mortgage ("Deed of Sale") conveying the Properties to "Roland A. Bravo, Ofelia A. Bravo and Elizabeth Bravo"8 ("vendees"). The sale was conditioned on the payment of P1,000 and on the assumption by the vendees of the PNB and DBP mortgages over the Properties. As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed of Sale was notarized by Atty. Victorio Q. Guzman on 28 October 1970 and entered in his Notarial Register.9 However, the Deed of Sale was not annotated on TCT Nos. 58999 and 59000. Neither was it presented to PNB and DBP. The mortage loans and the receipts for loan payments issued by PNB and DBP continued to be in Mauricios name even after his death on 20 November 1973. Simona died in 1977. On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action for the judicial partition of the Properties. Edward claimed that he and the other grandchildren of Mauricio and Simona are co-owners of the Properties by succession. Despite this, petitioners refused to share with him the possession and rental income of the Properties. Edward later amended his complaint to

include a prayer to annul the Deed of Sale, which he claimed was merely simulated to prejudice the other heirs. In 1999, David Jr., whose parents died in 1944 and who was subsequently raised by Simona, moved to intervene in the case. David Jr. filed a complaint-in-intervention impugning the validity of the Deed of Sale and praying for the partition of the Properties among the surviving heirs of Mauricio and Simona. The trial court allowed the intervention in its Order dated 5 May 1999.10 The Ruling of the Trial Court The trial court upheld Mauricios sale of the Properties to the vendees. The trial cou rt ruled that the sale did not prejudice the compulsory heirs, as the Properties were conveyed for valuable consideration. The trial court also noted that the Deed of Sale was duly notarized and was in existence for many years without question about its validity. The dispositive portion of the trial courts Decision of 11 May 2000 reads: WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL PARTITION of the properties covered by TCT Nos. 58999 and 59000 registered with the Office of the Register of Deeds of Rizal. SO ORDERED.11 Dissatisfied, Edward and David Jr. ("respondents") filed a joint appeal to the Court of Appeals. The Ruling of the Court of Appeals Citing Article 166 of the Civil Code ("Article 166"), the Court of Appeals declared the Deed of Sale void for lack of Simonas consent. The appellate court held that the GPA executed by Simona in 1966 was not sufficient to authorize Mauricio to sell the Properties because Article 1878 of the Civil Code ("Article 1878") requires a special power of attorney for such transactions. The appellate court reasoned that the GPA was executed merely to enable Mauricio to mortgage the Properties, not to sell them. The Court of Appeals also found that there was insufficient proof that the vendees made the mortgage payments on the Properties, since the PNB and DBP receipts were issued in Mauricios name. The appellate court opined that the rental income of the Properties, which the vendees never shared with respondents, was sufficient to cover the mortgage payments to PNB and DBP. The Court of Appeals declared the Deed of Sale void and ordered the partition of the Properties in its Decision of 21 December 2001 ("CA Decision"), as follows: WHEREFORE, the decision of the Regional Trial Court of Makati City, Metro-Manila, Branch 13[9] dated 11 May 2000[,] review of which is sought in these proceedings[,] is REVERSED. 1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28 October 1970 is hereby declared null and void; 2. Judicial Partition on the questioned properties is hereby GRANTED in the following manner:

A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties; B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely: LILY ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are entitled to one-sixth (1/6) representing the other half portion of the subject properties; C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA and ROLAND the sum of One Thousand (P1,000.00) PESOS representing the consideration paid on the questioned deed of sale with assumption of mortgage with interest of six (6) percent per annum effective 28 October 1970 until fully paid. SO ORDERED.12 The Issues Petitioners seek a reversal of the Decision of the Court of Appeals, raising these issues: 1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE. 2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF THE PROPERTY IN QUESTION.13 At the least, petitioners argue that the subject sale is valid as to Mauricios share in the Properties. On the other hand, respondents maintain that they are co-owners of the Properties by succession. Respondents argue that the sale of the conjugal Properties is void because: (1) Mauricio executed the Deed of Sale without Simonas consent; and (2) the sale was merely simulated, as shown by the grossly inadequate consideration Mauricio received for the Properties. While this case was pending, Leonida Andaya Lolong ("Leonida"), David Jr.s aunt, and Atty. Cendaa, respondents counsel, informed the Court that David Jr. died on 14 September 2004. Afterwards, Leonida and Elizabeth wrote separate letters asking for the resolution of this case. Atty. Cendaa later filed an urgent motion to annotate attorneys lien on TC T Nos. 58999 and 59000. In its Resolution dated 10 November 2004,14 the Court noted the notice of David Jr.s death, the letters written by Leonida and Elizabeth, and granted the motion to annotate attorneys lien on TCT Nos. 58999 and 59000. The Ruling of the Court The petition is partly meritorious. The questions of whether Simona consented to the Deed of Sale and whether the subject sale was simulated are factual in nature. The rule is factual findings of the Court of Appeals are binding on this Court. However, there are exceptions, such as when the factual findings of the Court of Appeals and the trial court are contradictory, or when the evidence on record does not support the factual findings.15 Because these exceptions obtain in the present case, the Court will consider these issues. On the Requirement of the Wifes Consent

We hold that the Court of Appeals erred when it declared the Deed of Sale void based on Article 166, which states: Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wifes consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same. This article shall not apply to property acquired by the conjugal partnerships before the effective date of this Code. Article 166 expressly applies only to properties acquired by the conjugal partnership after the effectivity of the Civil Code of the Philippines ("Civil Code"). The Civil Code came into force on 30 August 1950.16 Although there is no dispute that the Properties were conjugal properties of Mauricio and Simona, the records do not show, and the parties did not stipulate, when the Properties were acquired.17 Under Article 1413 of the old Spanish Civil Code, the husband could alienate conjugal partnership property for valuable consideration without the wifes consent. 18 Even under the present Civil Code, however, the Deed of Sale is not void. It is well-settled that contracts alienating conjugal real property without the wifes consent are merely voidable under the Civil Code that is, binding on the parties unless annulled by a competent court and not void ab initio.19 Article 166 must be read in conjunction with Article 173 of the Civil Code ("Article 173"). The latter prescribes certain conditions before a sale of conjugal property can be annulled for lack of the wifes consent, as follows: Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. (Emphasis supplied) Under the Civil Code, only the wife can ask to annul a contract that disposes of conjugal real property without her consent. The wife must file the action for annulment during the marriage and within ten years from the questioned transaction. Article 173 is explicit on the remedies available if the wife fails to exercise this right within the specified period. In such case, the wife or her heirs can only demand the value of the property provided they prove that the husband fraudulently alienated the property. Fraud is never presumed, but must be established by clear and convincing evidence. 20 Respondents action to annul the Deed of Sale based on Article 166 must fail for having been filed out of time. The marriage of Mauricio and Simona was dissolved when Mauricio died in 1973. More than ten years have passed since the execution of the Deed of Sale. Further, respondents, who are Simonas heirs, are not the parties who can invoke Article 166. Article 173 reserves that remedy to the wife alone. Only Simona had the right to have the sale of the Properties annulled on the ground that Mauricio sold the Properties without her consent. Simona, however, did not assail the Deed of Sale during her marriage or even after Mauricios death. The records are bereft of any indication that Simona questioned the sale of the Properties at any time. Simona did not even attempt to take possession of or reside on the Properties after Mauricios

death. David Jr., who was raised by Simona, testified that he and Simona continued to live in Pasay City after Mauricios death, while her children and other grandchildren resided on the Properties.21 We also agree with the trial court that Simona authorized Mauricio to dispose of the Properties when she executed the GPA. True, Article 1878 requires a special power of attorney for an agent to execute a contract that transfers the ownership of an immovable. However, the Court has clarified that Article 1878 refers to the nature of the authorization, not to its form. 22 Even if a document is titled as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act.23 In Veloso v. Court of Appeals,24 the Court explained that a general power of attorney could contain a special power to sell that satisfies the requirement of Article 1878, thus: An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit: "2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants as my said attorney shall deem fit and proper." Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required . (Emphasis supplied) In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein xxx" as well as to "act as my general representative and agent, with full authority to buy, sell, negotiate and contract for me and in my behalf." 25 Taken together, these provisions constitute a clear and specific mandate to Mauricio to sell the Properties. Even if it is called a "general power of attorney," the specific provisions in the GPA are sufficient for the purposes of Article 1878. These provisions in the GPA likewise indicate that Simona consented to the sale of the Properties. Whether the Sale of the Properties was Simulated or is Void for Gross Inadequacy of Price We point out that the law on legitime does not bar the disposition of property for valuable consideration to descendants or compulsory heirs. In a sale, cash of equivalent value replaces the property taken from the estate.26 There is no diminution of the estate but merely a substitution in values. Donations and other dispositions by gratuitous title, on the other hand, must be included in the computation of legitimes.27 Respondents, however, contend that the sale of the Properties was merely simulated. As proof, respondents point to the consideration of P1,000 in the Deed of Sale, which respondents claim is grossly inadequate compared to the actual value of the Properties.

Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects. When the parties to an alleged contract do not really intend to be bound by it, the contract is simulated and void.28 A simulated or fictitious contract has no legal effect whatsoever 29 because there is no real agreement between the parties. In contrast, a contract with inadequate consideration may nevertheless embody a true agreement between the parties. A contract of sale is a consensual contract, which becomes valid and binding upon the meeting of minds of the parties on the price and the object of the sale.30 The concept of a simulated sale is thus incompatible with inadequacy of price. When the parties agree on a price as the actual consideration, the sale is not simulated despite the inadequacy of the price. 31 Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract. 32 Inadequacy of cause will not invalidate a contract unless there has been fraud, mistake or undue influence. 33 In this case, respondents have not proved any of the instances that would invalidate the Deed of Sale. Respondents even failed to establish that the consideration paid by the vendees for the Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale stipulates that, in addition to the payment of P1,000, the vendees should assume the mortgage loans from PNB and DBP. The consideration for the sale of the Properties was thus P1,000 in cash and the assumption of the P15,000 mortgage. Respondents argue that P16,000 is still far below the actual value of the Properties. To bolster their claim, respondents presented the following: (1) Tax Declarations No. A-001-0090534 and A-0010090635 for the year 1979, which placed the assessed value of the Properties at P70,020 and their approximate market value atP244,290; and (2) a certified copy of the Department of Finances Department Order No. 62-9736 dated 6 June 1997 and attached guidelines37 which established the zonal value of the properties along Evangelista Street atP15,000 per square meter. The subject Deed of Sale, however, was executed in 1970. The valuation of the Properties in 1979 or 1997 is of little relevance to the issue of whether P16,000 was a grossly inadequate price to pay for the Properties in 1970. Certainly, there is nothing surprising in the sharp increase in the value of the Properties nine or twenty-seven years after the sale, particularly when we consider that the Properties are located in the City of Makati. More pertinent are Tax Declarations No. 1581238 and No. 15813,39 both issued in 1967, presented by petitioners. These tax declarations placed the assessed value of both Properties at P16,160. Compared to this, the price ofP16,000 cannot be considered grossly inadequate, much less so shocking to the conscience40 as to justify the setting aside of the Deed of Sale. Respondents next contend that the vendees did not make the mortgage payments on the Properties. Respondents allege that the rents paid by the tenants leasing portions of the Properties were sufficient to cover the mortgage payments to DBP and PNB. Again, this argument does not help respondents cause. Assuming that the vendees failed to pay the full price stated in the Deed of Sale, such partial failure would not render the sale void. In Buenaventura v. Court of Appeals,41 the Court held: xxx If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. xxx

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. (Emphasis supplied.) Neither was it shown that the rentals from tenants were sufficient to cover the mortgage payments. The parties to this case stipulated to only one tenant, a certain Federico M. Puno, who supposedly leased a room on the Properties for P300 per month from 1992 to 1994.42 This is hardly significant, when we consider that the mortgage was fully paid by 1974. Indeed, the fact that the Properties were mortgaged to DBP and PNB indicates that the conjugal partnership, or at least Mauricio, was short of funds. Petitioners point out that they were duly employed and had the financial capacity to buy the Properties in 1970. Respondents did not refute this. Petitioners presented 72 receipts 43 showing the mortgage payments made to PNB and DBP, and the Release of the Real Estate Mortgage44 ("Mortgage Release") dated 5 April 1974. True, these documents all bear Mauricios name. However, this tends to support, rather than detract from, petitioner-vendees explanation that they initially gave the mortgage payments directly to Mauricio, and then later directly to the banks, without formally advising the bank of the sale. The last 3 mortgage receipts and the Mortgage Release were all issued in Mauricios name even after his death in 1970. Obviously, Mauricio could not have secured the Mortgage Release and made these last payments. Presumption of Regularity and Burden of Proof The Deed of Sale was notarized and, as certified by the Regional Trial Court of Manila, entered in the notarial books submitted to that court. As a document acknowledged before a notary public, the Deed of Sale enjoys the presumption of regularity45 and due execution.46 Absent evidence that is clear, convincing and more than merely preponderant, the presumption must be upheld. 47 Respondents evidence in this case is not even preponderant. Respondents allegations, testimony and bare denials cannot prevail over the documentary evidence presented by petitioners. These documents the Deed of Sale and the GPA which are both notarized, the receipts, the Mortgage Release and the 1967 tax declarations over the Properties support petitioners account of the sale. As the parties challenging the regularity of the Deed of Sale and alleging its simulation, respondents had the burden of proving these charges.48 Respondents failed to discharge this burden. Consequentially, the Deed of Sale stands. On the Partition of the Property Nevertheless, this Court finds it proper to grant the partition of the Properties, subject to modification. Petitioners have consistently claimed that their father is one of the vendees who bought the Properties. Vendees Elizabeth and Ofelia both testified that the "Roland A. Bravo" in the Deed of Sale is their father,49 although their brother, Roland Bravo, Jr., made some of the mortgage payments. Petitioners counsel, Atty. Paggao, made the same clarification before the trial court.50 As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is thus a compulsory heir of Roland Bravo, and entitled to a share, along with his brothers and sisters, in his fathers portion of the Properties. In short, Edward and petitioners are co-owners of the Properties.

As such, Edward can rightfully ask for the partition of the Properties. Any co-owner may demand at any time the partition of the common property unless a co-owner has repudiated the coownership.51 This action for partition does not prescribe and is not subject to laches.52 WHEREFORE, we REVERSE the Decision of 21 December 2001 of the Court of Appeals in CA-G.R. CV No. 67794. We REINSTATE the Decision of 11 May 2000 of the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-137, declaring VALID the Deed of Sale with Assumption of Mortgage dated 28 October 1970, with the following MODIFICATIONS: 1. We GRANT judicial partition of the subject Properties in the following manner: a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of the Properties; b. Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the Properties; and c. The remaining one-third (1/3) portion of the Properties should be divided equally between the children of ROLAND BRAVO. 2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for whatever expenses the latter incurred in paying for and securing the release of the mortgage on the Properties. SO ORDERED.

G.R. No. 102737 August 21, 1996 FRANCISCO A. VELOSO, petitioner, vs. COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by her husband GREGORIO L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF MANILA, respondents.

TORRES, JR., J.:p This petition for review assails the decision of the Court of Appeals, dated July 29, 1991, the dispositive portion of which reads: WHEREFORE, the decision appealed from is hereby AFFIRMED IN TOTO. Costs against appellant. 1

The following are the antecedent facts: Petitioner Francisco Veloso was the owner of a parcel of land situated in the district of Tondo, Manila, with an area of one hundred seventy seven (177) square meters and covered by Transfer Certificate of Title No. 49138 issued by the Registry of Deeds of Manila. 2 The title was registered in the name of Francisco A. Veloso, single, 3 on October 4, 1957. 4 The said title was subsequently cancelled and a new one, Transfer Certificate of Title No. 180685, was issued in the name of Aglaloma B. Escario, married to Gregorio L. Escario, on May 24, 1988. 5 On August 24, 1988, petitioner Veloso filed an action for annulment of documents, reconveyance of property with damages and preliminary injunction and/or restraining order. The complaint, docketed as Civil Case No. 88-45926, was raffled to the Regional Trial Court, Branch 45, Manila. Petitioner alleged therein that he was the absolute owner of the subject property and he never authorized anybody, not even his wife, to sell it. He alleged that he was in possession of the title but when his wife, Irma, left for abroad, he found out that his copy was missing. He then verified with the Registry of Deeds of Manila and there he discovered that his title was already cancelled in favor of defendant Aglaloma Escario. The transfer of property was supported by a General Power of Attorney 6 dated November 29, 1985 and Deed of Absolute Sale, dated November 2, 1987, executed by Irma Veloso, wife of the petitioner and appearing as his attorney-in-fact, and defendant Aglaloma Escario. 7 Petitioner Veloso, however, denied having executed the power of attorney and alleged that his signature was falsified. He also denied having seen or even known Rosemarie Reyes and Imelda Santos, the supposed witnesses in the execution of the power of attorney. He vehemently denied having met or transacted with the defendant. Thus, he contended that the sale of the property, and the subsequent transfer thereof, were null and void. Petitioner Veloso, therefore, prayed that a temporary restraining order be issued to prevent the transfer of the subject property; that the General Power of Attorney, the Deed of Absolute Sale and the Transfer Certificate of Title No. 180685 be annulled; and the subject property be reconveyed to him. Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and denied any knowledge of the alleged irregularity. She allegedly relied on the general power of attorney of Irma Veloso which was sufficient in form and substance and was duly notarized. She contended that plaintiff (herein petitioner), had no cause of action against her. In seeking for the declaration of nullity of the documents, the real party in interest was Irma Veloso, the wife of the plaintiff. She should have been impleaded in the case. In fact, Plaintiff's cause of action should have been against his wife, Irma. Consequently, defendant Escario prayed for the dismissal of the complaint and the payment to her of damages. 8 Pre-trial was conducted. The sole issue to be resolved by the trial court was whether or not there was a valid sale of the subject property. 9 During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he acquired the subject property from the Philippine Building Corporation, as evidenced by a Deed of Sale dated October 1, 1957. 10 He married Irma Lazatin on January 20, 1962. 11 Hence, the property did not belong to their conjugal partnership. Plaintiff further asserted that he did not sign the power of attorney and as proof that his signature was falsified, he presented Allied Bank Checks Nos. 16634640, 16634641 and 16634643, which allegedly bore his genuine signature. Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the execution of the general power of attorney. He attested that he did not sign thereon, and the same was never entered in his Notarial Register on November 29, 1985.

In the decision of the trial court dated March 9, 1990, 12 defendant Aglaloma Escario was adjudged the lawful owner of the property as she was deemed an innocent purchaser for value. The assailed general power of attorney was held to be valid and sufficient for the purpose. The trial court ruled that there was no need for a special power of attorney when the special power was already mentioned in the general one. It also declared that plaintiff failed to substantiate his allegation of fraud. The court also stressed that plaintiff was not entirely blameless for although he admitted to be the only person who had access to the title and other important documents, his wife was still able to possess the copy. Citing Section 55 of Act 496, the court held that Irma's possession and production of the certificate of title was deemed a conclusive authority from the plaintiff to the Register of Deeds to enter a new certificate. Then applying the principle of equitable estoppel, plaintiff was held to bear the loss for it was he who made the wrong possible. Thus: WHEREFORE, the Court finds for the defendants and against plaintiff a. declaring that there was a valid sale of the subject property in favor of the defendant; b. denying all other claims of the parties for want of legal and factual basis. Without pronouncement as to costs. SO ORDERED. Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of Appeals. The respondent court affirmed in toto the findings of the trial court. Hence, this petition for review before Us. This petition for review was initially dismissed for failure to submit an affidavit of service of a copy of the petition on the counsel for private respondent. 13 A motion for reconsideration of the resolution was filed but it was denied in are resolution dated March 30, 1992. 14 A second motion for reconsideration was filed and in a resolution dated Aug. 3, 1992, the motion was granted and the petition for review was reinstated. 15 A supplemental petition was filed on October 9, 1992 with the following assignment of errors: I The Court of Appeals committed a grave error in not finding that the forgery of the power of attorney (Exh . "C") had been adequately proven, despite the preponderant evidence, and in doing so, it has so far departed from the applicable provisions of law and the decisions of this Honorable Court, as to warrant the grant of this petition for review on certiorari. II There are principles of justice and equity that warrant a review of the decision. III

The Court of Appeals erred in affirming the decision of the trial court which misapplied the principle of equitable estoppel since the petitioner did not fail in his duty of observing due diligence in the safekeeping of the title to the property. We find petitioner's contentions not meritorious. An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit: 2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants as my said attorney shall deem fit and proper. 16 Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required. The general power of attorney was accepted by the Register of Deeds when the title to the subject property was cancelled and transferred in the name of private respondent. In LRC Consulta No. 123, Register of Deeds of Albay, Nov. 10, 1956, it stated that: Whether the instrument be denominated as "general power of attorney" or "special power of attorney", what matters is the extent of the power or powers contemplated upon the agent or attorney in fact. If the power is couched in general terms, then such power cannot go beyond acts of administration. However, where the power to sell is specific, it not being merely implied, much less couched in general terms, there can not be any doubt that the attorney in fact may execute a valid sale. An instrument may be captioned as "special power of attorney" but if the powers granted are couched in general terms without mentioning any specific power to sell or mortgage or to do other specific acts of strict dominion, then in that case only acts of administration may be deemed conferred. Petitioner contends that his signature on the power of attorney was falsified. He also alleges that the same was not duly notarized for as testified by Atty. Tubig himself, he did not sign thereon nor was it ever recorded in his notarial register. To bolster his argument, petitioner had presented checks, marriage certificate and his residence certificate to prove his alleged genuine signature which when compared to the signature in the power of attorney, showed some difference. We found, however, that the basis presented by the petitioner was inadequate to sustain his allegation of forgery. Mere variance of the signatures cannot be considered as conclusive proof that the same were forged. Forgery cannot be presumed 17 Petitioner, however, failed to prove his allegation and simply relied on the apparent difference of the signatures. His denial had not established that the signature on the power of attorney was not his. We agree with the conclusion of the lower court that private respondent was an innocent purchaser for value. Respondent Aglaloma relied on the power of attorney presented by petitioner's wife, Irma. Being the wife of the owner and having with her the title of the property,

there was no reason for the private respondent not to believe in her authority. Moreover, the power of attorney was notarized and as such, carried with it the presumption of its due execution. Thus, having had no inkling on any irregularity and having no participation thereof, private respondent was a buyer in good faith. It has been consistently held that a purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other person in the property. 18 Documents acknowledged before a notary public have the evidentiary weight with respect to their due execution. The questioned power of attorney and deed of sale, were notarized and therefore, presumed to be valid and duly executed. Atty. Tubig denied having notarized the said documents and alleged that his signature had also been falsified. He presented samples of his signature to prove his contention. Forgery should be proved by clear and convincing evidence and whoever alleges it has the burden of proving the same. Just like the petitioner, witness Atty. Tubig merely pointed out that his signature was different from that in the power of attorney and deed of sale. There had never been an accurate examination of the signature, even that of the petitioner. To determine forgery, it was held in Cesar vs. Sandiganbayan 19(quoting Osborn, The Problem of Proof) that: The process of identification, therefore, must include the determination of the extent, kind, and significance of this resemblance as well as of the variation. It then becomes necessary to determine whether the variation is due to the operation of a different personality, or is only the expected and inevitable variation found in the genuine writing of the same writer. It is also necessary to decide whether the resemblance is the result of a more or less skillful imitation, or is the habitual and characteristic resemblance which naturally appears in a genuine writing. When these two questions are correctly answered the whole problem of identification is solved. Even granting for the sake of argument, that the petitioner's signature was falsified and consequently, the power of attorney and the deed of sale were null and void, such fact would not revoke the title subsequently issued in favor of private respondent Aglaloma. In TenioObsequio vs. Court of Appeals, 20 it was held, viz: The right of an innocent purchaser for value must be respected and protected, even if the seller obtained his title through fraud. The remedy of the person prejudiced is to bring an action for damages against those who caused or employed the fraud, and if the latter are insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund. Finally; the trial court did not err in applying equitable estoppel in this case. The principle of equitable estoppel states that where one or two innocent persons must suffer a loss, he who by his conduct made the loss possible must bear it. From the evidence adduced, it should be the petitioner who should bear the loss. As the court a quo found: Besides, the records of this case disclosed that the plaintiff is not entirely free from blame. He admitted that he is the sole person who has access to TCT No. 49138 and other documents appertaining thereto (TSN, May 23, 1989, pp. 7-12) However, the fact remains that the Certificate of Title, as well as other documents necessary for the transfer of title were in the possession of plaintiff's wife, Irma L. Veloso, consequently leaving no doubt or any suspicion on the part of the defendant as to her authority. Under Section 55 of Act 496, as amended, Irma's possession and production of the Certificate

of Title to defendant operated as "conclusive authority from the plaintiff to the Register of Deeds to enter a new certificate." 21 Considering the foregoing premises, we found no error in the appreciation of facts and application of law by the lower court which will warrant the reversal or modification of the appealed decision. ACCORDINGLY, the petition for review is hereby DENIED for lack of merit. SO ORDERED.

G.R. No. 108921

April 12, 2000

JOSEFINA VILLANUEVA-MIJARES, WALDETRUDES VILLANUEVA-NOLASCO, GODOFREDO VILLANUEVA, EDUARDO VILLANUEVA, GERMELINA VILLANUEVA-FULGENCIO, MILAGROS VILLANUEVA-ARQUISOLA, and CONCEPCION MACAHILAS VDA. DE VILLANUEVA, petitioners, vs. THE COURT OF APPEALS, PROCERFINA VILLANUEVA, PROSPERIDAD VILLANUEVA, RAMON VILLANUEVA, ROSA VILLANUEVA, VIRGINIA NEPOMUCENO, PAULA NEPOMUCENO, TARCELA NEPOMUCENO, MERCEDES VILLANUEVA, ADELAIDA VILLANUEVA, APARICION VILLANUEVA, JOSEFINA VILLANUEVA, BETTY VILLANUEVA, BOBBY VILLANUEVA, MERLINDA VILLANUEVA, MORBINA VILLANUEVA, FLORITA VILLANUEVA, DIONISION VILLANUEVA, and EDITHA VILLANUEVA, respondents.

QUISUMBING, J.: This petition for review seeks the reversal of the Decision 1 of the respondent Court of Appeals promulgated on September 28, 1992, in CA G.R. CV No. 27427, as well as of the Resolution promulgated on February 4, 1993, which denied the petitioners' Motion for Reconsideration. Petitioners Josefina Villanueva-Mijares, Waldetrudes Villanueva-Nolasco, Godofredo Villanueva, Eduardo Villanueva, Germelina Villanueva-Fulgencio, and Milagros Villanueva-Arquisola are the legitimate children of the late Leon Villanueva. Petitioner Concepcion Macahilas vda. de Villanueva is his widow. Leon was one of eight (8) children of Felipe Villanueva, predecessor-in-interest of the parties in the present case.

Private respondents were the plaintiffs-appellants in CA G.R. No. 27427, entitled "Procerfina Villanueva, et al., v. Josefina Villanueva-Nolasco, et al." They are related by blood to the petitioners as descendants of Felipe. The pertinent facts of the case are not in dispute. During his lifetime, Felipe, owned real property described as follows: A parcel of land, situated at Estancia, Kalibo, Capiz. Bounded on the N. by the Provincial Road to New Washington; on the S. by Nicanor Gonzales; on the E. by Nicanor Gonzales; and on the W. by Leon Barrientos and Mauricio Parojinog, containing an area of fifteen thousand three hundred thirty-six (15,336) square meters, more or less declared in the name of Felipe Villanueva under Tax Declaration No. 3888 and assessed at Three Hundred Ten (P310.00) Pesos.2 Felipe begot the following legitimate children: Simplicio, Benito, Leon, Nicolasa, Eustaqio, Camila, Fausta, and Pedro. Upon Felipe's death, ownership of the land was passed on to his children. In 1952, Pedro, one of the children of Felipe got his share equivalent to one-sixth (1/6) of the property with an area of one thousand nine hundred five (1,905) square meters and had it declared under his name pursuant to Tax Declaration No. 8085. The remaining undivided portion of the land is described as follows: A parcel of land situated at Estancia, Kalibo, Capiz, bounded on the N. by the National Road to New Washington; on the S. by Nicanor Gonzales; on the E. by Pedro Villanueva and on the W. by Leon Barrientos and Mauricio Parojinog, containing an area of eleven thousand nine hundred fifty-nine (11,959) square meters, more or less and declared under Tax Declaration No. 8086 and assessed at Three Hundred Thirty-Three Pesos and Forty Centavos (P333.40). 3 This was held in trust by Leon for his co-heirs. During Leon's lifetime, his co-heirs made several seasonable and lawful demands upon him to subdivide and partition the property, but for one reason or another, no subdivision took place. After the death of Leon in August 1972, private respondents discovered that the shares of four of the heirs of Felipe, namely, Simplicio, Nicolasa, Fausta and Maria Baltazar, spouse of Benito, was purchased by Leon as evidenced by a Deed of Sale executed on August 25, 1946 but registered only in 1971. It also came to light that Leon had, sometime in July 1970, executed a sale and partition of the property in favor of his own children, herein petitioners. By virtue of such Deed of Partition, private respondents had succeeded in obtaining Original Certificate of Title (OCT) No. C-256. On April 25, 1975, petitioners managed to secure separate and independent titles over their pro-indiviso shares in their respective names. Private respondents then filed a case for partition with annulment of documents and/or reconveyance and damages with the Regional Trial Court of Kalibo, Aklan, docketed as Civil Case No. 2389. Private respondents contended that the sale in favor of Leon was fraudulently obtained through machinations and false pretenses. Thus, the subsequent sale of the lot by Leon to his children was null and void despite the OCT in his favor.

Petitioners, for their part, claimed that the sale by Simplicio, Fausta, Nicolasa, and Maria Baltazar was a valid sale; that private respondent Procerfina even signed as an instrumental witness to the Deed of Sale; that Maria Baltazar, widow of Benito, as administrator of her husband's estate, had the right to sell the undivided share of Benito; that the basis for the issuance of the OCT in Land Registration Case No. K-231 was the sale by his co-heirs to Leon; that the order of default issued in Land Registration Case No. K-231 was against the whole world; that prescription had set in since they had been in possession of the property in the concept of owners thereof since August 29, 1946, up to the present; and that private respondents were estopped since no trust relationship existed between the litigants. After trial, the Regional Trial Court of Kalibo rendered its decision in Civil Case No. 2389, declaring "the defendants the legal owners of the property in question in accordance with the individual titles issued to them."4 The trial court also declared plaintiffs' action already barred by res judicata. Dissatisfied, herein private respondents elevated the case to the Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 27427. On appeal, the private respondents conceded the right of Simplicio, Nicolasa, and Fausta to sell their respective shares but disputed the authority of Maria Baltazar to convey any portion of her late husband's estate, since the latter was his capital and did not form part of the conjugal property. 5 On September 28, 1992, respondent appellate court rendered its decision, the dispositive portion of which reads: WHEREFORE, the appealed judgement is REVERSED. Appellants Procerfina Villanueva, Prosperidad Villanueva, Ramon Villanueva and Rosa Villanueva are hereby adjudged rightful co-owners pro indiviso of an undivided one-sixth (1/6) portion of the property litigated upon (Lot 3789, Psc-36), as heirs of their late father, Benito Villanueva; and the appellees are hereby ordered to execute a registerable document conveying to the said appellants their one-sixth (1/6) portion of subject property. Conformably, the parties concerned are required to agree on a project of partition, for the segregation of the one-sixth (1/6) portion adjudicated to said appellants; otherwise, should they fail to do so within a reasonable time, any interested party may seek relief from the trial court a quo, which is hereby directed, in that eventuality, to cause the partition of the subject property in accordance with pertinent rules, and this pronouncement. Costs against appellee. SO ORDERED.6 The Court of Appeals ruled that under the Old Civil Code and applicable jurisprudence, Maria Baltazar had no authority to sell the portion of her late husband's share inherited by her then minor children since she had not been appointed their guardian. Respondent court likewise declared that as far as private respondents Procerfina, Prosperidad, Ramon and Rosa, were concerned, the Deed of Sale of August 25, 1946 was "unenforceable."7 Respondent appellate court also ruled that the prescription period had not run in favor of Leon since private respondents had always known that Leon was the administrator of the estate. It was only in 1975 when their suspicion were aroused and they inquired about the status of the land.8

Dissatisfied with the ruling of the respondent appellate court, herein petitioners now come before this Court assigning the following errors: I IN NOT HOLDING THAT THE PRIVATE RESPONDENTS ARE NOT BARRED BY LACHES, ESTOPPEL IN PAIS, AND RES JUDICATA, THE RESPONDENT, THE COURT OF APPEALS, HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT, AMONG THEM, TIJAM V. SIBONGHANOY, NO. L-21450, APRIL 15, 1968, 23 SCRA 29. II IN HOLDING THAT THE DEED OF SALE DATED AUGUST 25, 1946, EXHIBIT "I", ALSO EXHIBIT "C", IS UNENFORCEABLE AGAINST THE PRIVATE RESPONDENTS FOR BEING AN UNAUTHORIZED CONTRACT, THE RESPONDENT, THE COURT OF APPEALS, HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT, THE WEIGHT OF THE EVIDENCE BEING THAT MARIA BALTAZAR, THE PRIVATE RESPONDENTS' MOTHER, HAD THE AUTHORITY TO CONVEY THE ONE-SIXTHS (1/6) SHARE OF THE LATE BENITO VILLANUEVA TO THE PETITIONERS, AND/OR THAT HER ACT WAS SUBSEQUENTLY RATIFIED BY THE PRIVATE RESPONDENTS. III IN GRANTING THE APPEAL AND CONSEQUENTLY, IN REVERSING THE COURT A QUO, THE RESPONDENT, THE COURT OF APPEALS, HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH THE LAW OR APPLICABLE DECISIONS OF THIS HONORABLE COURT.9 The grounds relied upon by the petitioners may be subsumed in two issues, to wit: (1) Whether or not the appellate court erred in failing to declare action by the private respondents to recover the property in question barred by laches, estoppel, prescription, and res judicata; and (2) Whether or not the appellate court erred in declaring the Deed of Sale of August 25, 1946 unenforceable against the private respondents for being an unauthorized contract. Petitioners citing Tijam v. Sibonghanoy, 23 SCRA 29 (1968), contend that the action of the private respondents was already barred by laches. 10 They argue that private respondents filed their action more than twenty-nine (29) years too late, counted from the date Maria Baltazar signed the questioned Deed of Sale of August 26, 1948. Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it has either abandoned or declined to assert it. 11 Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases

his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. 12 In Chavez v. Bonto-Perez, 242 SCRA 73, 80 (1995), we said there is no absolute rule on what constitutes laches. It is a creation of equity and applied not really to penalize neglect or sleeping upon one's rights but rather to avoid recognizing a right when to do so would result in a clearly inequitable situation. The question of laches, we said, is addressed to the sound discretion of the court and each case must be decided according to its particular circumstances. At the time of signing of the Deed of Sale of August 26, 1948, private respondents Procerfina, Prosperidad, Ramon and Rosa were minors. They could not be faulted for their failure to file a case to recover their inheritance from their uncle Leon, since up to the age of majority, they believed and considered Leon their co-heir and administrator. It was only in 1975, not in 1948, that they became aware of the actionable betrayal by their uncle. Upon learning of their uncle's actions, they filed an action for recovery. Hence, the doctrine of stale demands formulated in Tijam cannot be applied here. They did not sleep on their rights, contrary to petitioners' assertion. Under the circumstances of the instant case, we do not think that respondent appellate court erred in considering private respondents' action. The action was not too late. Furthermore, when Felipe Villanueva died, an implied trust was created by operation of law between Felipe's children and Leon, their uncle, as far as the 1/6 share of Felipe. Leon's fraudulent titling of Felipe's 1/6 share was a betrayal of that implied trust. Petitioners aver that the failure of Maria Baltazar's children to bringing their action in 1969 when they had reached the age of majority meant that they had impliedly ratified the Deed of Sale and are now estopped to assail the same. They erroneously relied on Asiatic Integrated Corporation v. Alikpala, 67 SCRA 60 (1975). In that case, payments made by Asiatic pursuant to the terms of the contract accrued to the benefit of the City without protest on the part of the municipal board, such that the Board already acquiesced to the validation of the contract. In the instant case, there is no implied ratification, no benefit accruing to the children of Maria Baltazar. Neither is the action barred by prescription In Vda. de Cabrera v. Court of Appeals, 267 SCRA 339, 353 (1997), and Sta. Ana, Jr. v. Court of Appeals, 281 SCRA 624, 629 (1997), we held that an action for reconveyance of a parcel of land based on implied or constructive trust prescribes in 10 years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title of the property. Here the questioned Deed of Sale was registered only in 1971. Private respondents filed their complaint in 1975, hence well within the prescriptive period.1wphi1 Petitioners assert that the disputed property is registered. Relying on Cachero v. Marzan, 196 SCRA 601, 610 (1991), and Cureg v. Intermediate Appellate Court, 177 SCRA 313, 320 (1989), where we held that a land registration case is an action in rem binding upon the whole world, and considering that the private respondents failed to object to the registration of the realty in question, then res judicata had set in. True, but notwithstanding the binding effect of the land registration case upon the private respondents, the latter are not deprived of a remedy. While a review of the decree of registration is no longer available after the expiration of the one-year period from entry thereof, an equitable remedy is still available. Those wrongfully deprived of their property may initiate an action for reconveyance of the properly. 13 As to the second issue, we find no reversible error committed by the respondent appellate court in declaring the Deed of Sale unenforceable on the children of Maria Baltazar. As correctly pointed out by the Court of Appeals, there was no question as to the sale of the shares of Simplicio, Nicolasa, and Fausta, to their brother Leon. But not so with Maria Baltazar concerning the share of her late

husband, Benito, to Leon. Under the law then prevailing at the time of the demise of her spouse, her husband's share in the common inheritance pertained to her minor children who were her late husband's heirs and successors-in-interest. As explained by the Court of Appeals: Since the late Benito Villanueva, son of Felipe Villanueva, died before the effectivity of Republic Act No. 386, otherwise known as the New Civil Code of the Philippines, the old Civil Code governs the distribution and disposition of his intestate estate. Thereunder, the legitime of the children and descendants consisted of two-thirds (2/3) of the hereditary estate of the father and of the mother (first paragraph, Article 808); and the widower or widow, as the case may be, who, at the time of death of his or her spouse, was not divorced or if divorced, due to the fault of the deceased spouse, was entitled to a portion in usufruct equal to that which pertains as legitime to each of the legitimate children or descendants not bettered (Article 834, 1st paragraph.) 14 In addition, under the jurisprudence prevailing at the time of Benito's death, the rule was that while parents may be the guardians of their minor children, such guardianship did not extend to the property of their minor children. 15Parents then had no power to dispose of the property of their minor children without court authorization. 16Without authority from a court, no person could make a valid contract for or on behalf of a minor or convey any interest of a minor in land. 17 Admittedly, Maria Baltazar showed no authorization from a court when she signed the Deed of Sale of August 26, 1948, allegedly conveying her children's realty to Leon. While it is true that the Court of Appeals upheld the validity of the Deed of Sale, it nevertheless correctly ruled that the sale by Maria Baltazar of her children's share was invalid. From its execution up to the time that an action for reconveyance was instituted below by the private respondents and to the present, the Deed of Sale of August 26, 1948, remained unenforceable as to private respondents Procerfina, Ramon, Prosperidad, and Rosa. Article 1529 of the old Civil Code, 18 which was the prevailing law in 1948 and thus governed the questioned Deed of Sale, clearly provided that a contract is unenforceable when there is an absence of authority on the part of one of the contracting parties. Interpreting Article 1529 of the old Civil Code, the Court has ruled that the nullity of the unenforceable contract is of a permanent nature and it will exist as long the unenforceable contract is not duly ratified. The mere lapse of time cannot give efficacy to such a contract. The defect is such that it cannot be cured except by the subsequent ratification of the unenforceable contract by the person in whose name the contract was executed. 19 In the instant case, there is no showing of any express or implied ratification of the assailed Deed of Sale by the private respondents Procerfina, Ramon, Prosperidad, and Rosa. Thus, the said Deed of Sale must remain unenforceable as to them.1wphi1.nt WHEREFORE, the petition is DENIED for lack of merit, and the assailed judgment of the Court of Appeals is AFFIRMED. Let the records of this case be remanded to the lower court for execution of the judgment. Costs against petitioners. SO ORDERED.

G.R. No. 194366

October 10, 2012

NAPOLEON D. NERI, ALICIA D. NERI-MONDEJAR, VISMINDA D. NERI-CHAMBERS, ROSA D. NERI-MILLAN, DOUGLAS D. NERI, EUTROPIA D. ILLUT-COCKINOS AND VICTORIA D. ILLUTPIALA, Petitioners, vs. HEIRS OF HADJI YUSOP UY AND JULPHA* IBRAHIM UY, Respondents. DECISION PERLAS-BERNABE, J.: In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, petitioners Napoleon D. Neri (Napoleon), Alicia D. Neri-Mondejar (Alicia), Visminda D. Neri-Chambers (Visminda), Rosa D. Neri-Millan (Rosa), Douglas D. Neri (Douglas), Eutropia D. Illut-Cockinos (Eutropia), and Victoria D. Illut-Piala (Victoria) seek to reverse and set aside the April 27, 2010 Decision2 and October 18, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 01031-MIN which annulled the October 25, 2004 Decision4 of the Regional Trial Court (RTC) of Panabo City, Davao del Norte and instead, entered a new one dismissing petitioners complaint for annulment of sale, damages and attorneys feesagainst herein respondents heirs of spouses Hadji Yusop Uy and Julpha Ibrahim Uy (heirs of Uy). The Facts During her lifetime, Anunciacion Neri (Anunciacion) had seven children, two (2) from her first marriage with Gonzalo Illut (Gonzalo), namely: Eutropia and Victoria, and five (5) from her second marriage with Enrique Neri (Enrique), namely: Napoleon, Alicia, Visminda, Douglas and Rosa. Throughout the marriage of spouses Enrique and Anunciacion, they acquired several homestead properties with a total area of 296,555 square meters located in Samal, Davao del Norte, embraced by Original Certificate of Title (OCT) Nos. (P-7998) P-21285, (P-14608) P-51536 and P-20551 (P8348)7issued on February 15, 1957, August 27, 1962 and July 7, 1967, respectively. On September 21, 1977, Anunciacion died intestate. Her husband, Enrique, in his personal capacity and as natural guardian of his minor children Rosa and Douglas, together with Napoleon, Alicia, and Vismindaexecuted an Extra-Judicial Settlement of the Estate with Absolute Deed of Sale8 on July 7, 1979, adjudicating among themselves the said homestead properties, and thereafter, conveying themto the late spouses Hadji Yusop Uy and Julpha Ibrahim Uy (spouses Uy)for a consideration of P 80,000.00. On June 11, 1996, the children of Enrique filed a complaint for annulment of saleof the said homestead properties against spouses Uy (later substituted by their heirs)before the RTC, docketed as Civil Case No.96-28, assailing the validity of the sale for having been sold within the prohibited period. Thecomplaint was later amended to include Eutropia and Victoriaas additional plaintiffs for having been excluded and deprived of their legitimes as childrenof Anunciacion from her first marriage. In their amended answer with counterclaim, the heirs of Uy countered that the sale took place beyond the 5-year prohibitory period from the issuance of the homestead patents. They also denied knowledge of Eutropia and Victorias exclusionfrom the extrajudicial settlement and sale of the subject properties, and interposed further the defenses of prescription and laches. The RTC Ruling On October 25, 2004, the RTC rendered a decision ordering, among others, the annulment of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale. It ruled that while the sale

occurred beyond the 5-year prohibitory period, the sale is still void because Eutropia and Victoria were deprived of their hereditary rights and that Enrique had no judicial authority to sell the shares of his minor children, Rosa and Douglas. Consequently, it rejected the defenses of laches and prescription raised by spouses Uy, who claimed possession of the subject properties for 17 years, holding that co-ownership rights are imprescriptible. The CA Ruling On appeal, the CAreversed and set aside the ruling of the RTC in its April 27, 2010 Decision and dismissed the complaint of the petitioners. It held that, while Eutropia and Victoria had no knowledge of the extrajudicial settlement and sale of the subject properties and as such, were not bound by it, the CA found it unconscionable to permit the annulment of the sale considering spouses Uys possession thereof for 17 years, and thatEutropia and Victoriabelatedlyfiled their actionin 1997, ormore than two years fromknowledge of their exclusion as heirs in 1994 when their stepfather died. It, however, did not preclude the excluded heirs from recovering their legitimes from their co-heirs. Similarly, the CA declared the extrajudicial settlement and the subsequent saleas valid and binding with respect to Enrique and hischildren, holding that as co-owners, they have the right to dispose of their respective shares as they consider necessary or fit.While recognizing Rosa and Douglas to be minors at that time, they were deemed to have ratified the sale whenthey failed to question it upon reaching the age of majority.Italso found laches to have set in because of their inaction for a long period of time. The Issues In this petition, petitioners imputeto the CA the following errors: I. WHEN IT UPHELDTHE VALIDITY OF THE "EXTRA JUDICIAL SETTLEMENT OF THE ESTATE WITH ABSOLUTE DEED OF SALE" AS FAR AS THE SHARES OF EUTROPIA AND VICTORIA WERE CONCERNED, THEREBY DEPRIVING THEM OF THEIR INHERITANCE; II. WHEN IT DID NOT NULLIFY OR ANNUL THE "EXTRA JUDICIAL SETTLEMENT OF THE ESTATE WITH ABSOLUTE DEED OF SALE" WITH RESPECT TO THE SHARESOF ROSA AND DOUGLAS, THEREBY DEPRIVING THEM OF THEIR INHERITANCE; and III. WHEN IT FOUND THAT LACHES OR PRESCRIPTION HAS SET IN. The Ruling of the Court The petitionis meritorious. It bears to stress that all the petitioners herein are indisputably legitimate children of Anunciacion from her first and second marriages with Gonzalo and Enrique, respectively, and consequently, are entitled to inherit from her in equal shares, pursuant to Articles 979 and 980 of the Civil Code which read: ART. 979. Legitimate children and their descendants succeed the parents and other ascendants, without distinction as to sex or age, and even if they should come from different marriages. xxx

ART. 980. The children of the deceased shall always inherit from him in their own right, dividing the inheritance in equal shares. As such, upon the death of Anunciacion on September 21, 1977, her children and Enrique acquired their respective inheritances,9 entitling them to their pro indiviso shares in her whole estate, as follows: Enrique Eutropia Victoria Alicia Rosa Douglas 9/16 (1/2 of the conjugal assets + 1/16) 1/16 1/16 1/16 1/16 1/16

Napoleon 1/16 Visminda 1/16

Hence, in the execution of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale in favor of spouses Uy, all the heirs of Anunciacionshould have participated. Considering that Eutropia and Victoria were admittedly excluded and that then minors Rosa and Douglas were not properly represented therein, the settlement was not valid and binding uponthem and consequently, a total nullity. Section 1, Rule 74 of the Rules of Court provides: SECTION 1. Extrajudicial settlement by agreement between heirs. x x x The fact of the extrajudicial settlement or administration shall be published in a newspaper of general circulation in the manner provided in the next succeeding section; but no extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof. (Underscoring added) The effect of excluding the heirs in the settlement of estate was further elucidated in Segura v. Segura,10 thus: It is clear that Section 1 of Rule 74 does not apply to the partition in question which was null and void as far as the plaintiffs were concerned. The rule covers only valid partitions. The partition in the present case was invalid because it excluded six of the nine heirs who were entitled to equal shares in the partitioned property. Under the rule "no extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof." As the partition was a total nullity and did not affect the excluded heirs, it was not correct for the trial court to hold that their right to challenge the partition had prescribed after two years from its exe cution However, while the settlement of the estate is null and void, the subsequent sale of the subject propertiesmade by Enrique and his children, Napoleon, Alicia and Visminda, in favor of the respondents isvalid but only with respect to their proportionate shares therein.It cannot be denied that these heirs have acquired their respective shares in the properties of Anunciacion from the moment of her death11and that, as owners thereof, they can very well sell their undivided share in the estate. 12

With respect to Rosa and Douglas who were minors at the time of the execution of the settlement and sale, their natural guardian and father, Enrique, represented them in the transaction. However, on the basis of the laws prevailing at that time, Enrique was merely clothed with powers of administration and bereft of any authority to dispose of their 2/16 shares in the estate of their mother, Anunciacion. Articles 320 and 326 of the Civil Code, the laws in force at the time of the execution of the settlement and sale, provide: ART. 320. The father, or in his absence the mother, is the legal administrator of the property pertaining to the child under parental authority. If the property is worth more than two thousand pesos, the father or mother shall give a bond subject to the approval of the Court of First Instance. ART. 326. When the property of the child is worth more than two thousand pesos, the father or mother shall be considered a guardian of the childs property, subject to the duties and obligations of guardians under the Rules of Court. Corollarily, Section 7, Rule 93 of the Rules of Court also provides: SEC. 7. Parents as Guardians. When the property of the child under parental authority is worth two thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be his legal guardian. When the property of the child is worth more than two thousand pesos, the father or the mother shall be considered guardian of the childs property, with the duties and obligations of guardians under these Rules, and shall file the petition required by Section 2 hereof. For good reasons, the court may, however, appoint another suitable persons. Administration includes all acts for the preservation of the property and the receipt of fruits according to the natural purpose of the thing. Any act of disposition or alienation, or any reduction in the substance of the patrimony of child, exceeds the limits of administration. 13 Thus, a father or mother, as the natural guardian of the minor under parental authority, does not have the power to dispose or encumber the property of the latter. Such power is granted by law only to a judicial guardian of the wards property and even then only with courts prior approval secur ed in accordance with the proceedings set forth by the Rules of Court.14 Consequently, the disputed sale entered into by Enrique in behalf of his minor children without the proper judicial authority, unless ratified by them upon reaching the age of majority, 15 is unenforceable in accordance with Articles 1317 and 1403(1) of the Civil Code which provide: ART. 1317. No one may contract in the name of another without being authorized by the latter or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. ART. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; xxx

Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without his sanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized, and becomes the authorized act of the party so making the ratification. 16 Once ratified, expressly or impliedly such as when the person knowingly received benefits from it, the contract is cleansed from all its defects from the moment it was constituted,17 as it has a retroactive effect. Records, however, show that Rosa had ratified the extrajudicial settlement of the estate with absolute deed of sale. In Napoleon and Rosas Manifestation 18 before the RTC dated July 11, 1997,they stated: "Concerning the sale of our parcel of land executed by our father, Enrique Neri concurred in and conformed to by us and our other two sisters and brother (the other plaintiffs), in favor of Hadji Yusop Uy and his spouse Hadja Julpa Uy on July 7, 1979, we both confirmed that the same was voluntary and freely made by all of us and therefore the sale was absolutely valid and enforceable as far as we all plaintiffs in this case are concerned;" (Underscoring supplied) In their June 30, 1997 Joint-Affidavit,19 Napoleon and Rosa also alleged: "That we are surprised that our names are included in this case since we do not have any intention to file a case against Hadji Yusop Uy and Julpha Ibrahim Uy and their family and we respect and acknowledge the validity of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale dated July 7, 1979;" (Underscoring supplied) Clearly, the foregoing statements constitutedratification of the settlement of the estate and the subsequent sale, thus, purging all the defects existing at the time of its execution and legitimizing the conveyance of Rosas 1/16 share in the estate of Anunciacion to spouses Uy. Th e same, however, is not true with respect to Douglas for lack of evidence showing ratification. Considering, thus, that the extrajudicial settlement with sale is invalid and therefore, not binding on Eutropia, Victoria and Douglas, only the shares ofEnrique, Napoleon, Alicia, Visminda and Rosa in the homestead properties have effectivelybeen disposed in favor of spouses Uy. "A person can only sell what he owns, or is authorized to sell and the buyer can as a consequence acquire no more than what the sellercan legally transfer."20 On this score, Article 493 of the Civil Codeis relevant, which provides: Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, 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 the co-ownership. Consequently, spouses Uy or their substituted heirs became pro indiviso co-owners of the homestead properties with Eutropia, Victoria and Douglas, who retained title to their respective 1/16 shares. They were deemed to be holding the 3/16 shares of Eutropia, Victoria and Douglas under an implied constructive trust for the latters benefit, conformably with Article 1456 of the Civil Code which states:"if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes." As such, it is only fair, just and equitable that the amount paid for their shares equivalent to P 5,000.0021 each or a total of P 15,000.00 be returned to spouses Uy with legal interest.

On the issue of prescription, the Court agrees with petitioners that the present action has not prescribed in so far as it seeks to annul the extrajudicial settlement of the estate. Contrary to the ruling of the CA, the prescriptive period of 2 years provided in Section 1 Rule 74 of the Rules of Court reckoned from the execution of the extrajudicial settlement finds no application to petitioners Eutropia, Victoria and Douglas, who were deprived of their lawful participation in the subject estate. Besides, an "action or defense for the declaration of the inexistence of a contract does not prescribe" in accordance with Article 1410 of the Civil Code. However, the action to recover property held in trust prescribes after 10 years from the time the cause of action accrues,22 which is from the time of actual notice in case of unregistered deed. 23 In this case, Eutropia, Victoria and Douglas claimed to have knowledge of the extrajudicial settlement with sale after the death of their father, Enrique, in 1994 which spouses Uy failed to refute. Hence, the complaint filed in 1997 was well within the prescriptive period of 10 years. WHEREFORE, the instant petition is GRANTED. The April 27, 2010 Decision and October 18, 2010 Resolution of the Court of Appeals are REVERSED and SET ASIDE and a new judgment is entered: 1. Declaring the Extra-Judicial Settlement of the Estate of Anunciacion Neri NULL and VOID; 2. Declaring the Absolute Deed of Sale in favor of the late spouses Hadji Yusop Uy and Julpha Ibrahim Uy as regards the 13/16 total shares of the late Enrique Neri, Napoleon Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-Millan VALID; 3. Declaring Eutropia D. Illut-Cockinos, Victoria D. Illut-Piala and Douglas D. Neri as the LAWFUL OWNERSof the 3/16 portions of the subject homestead properties, covered by Original Certificate of Title Nos. (P-7998) P-2128, (P-14608) P-5153 and P-20551 (P-8348); and 4. Ordering the estate of the late Enrique Neri, as well as Napoleon Neri, Alicia D. NeriMondejar, Visminda D. Neri-Chambers and Rosa D. Neri-Millan to return to the respondents jointly and solidarily the amount paid corresponding to the 3/16 shares of Eutropia, Victoria and Douglas in the total amount of P 15,000.00, with legal interest at 6% per annum computed from the time of payment until finality of this decision and 12% per annum thereafter until fully paid. No pronouncement as to costs. SO ORDERED. ESTELA Associate Justice M. PERLAS-BERNABE