G.R. No.

L-46658 May 13, 1991 the latter decided to foreclose the real estate mortgages executed
by the spouses Arroyo in its favor.
PHILIPPINE NATIONAL BANK, petitioner,
vs. On July 18, 1975, PNB filed with the City Sheriff of Quezon City a
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of petition for extra-judicial foreclosure under Act 3138, as amended
the Court of First Instance of Rizal, Branch XXI and TAYABAS by Act 4118 and under Presidential Decree No. 385 of the real estate
CEMENT COMPANY, INC., respondents. mortgage over the properties known as the La Vista property
covered by TCT No. 55323. 6 PNB likewise filed a similar petition with
The Chief Legal Counsel for petitioner. the City Sheriff of Bacolod, Negros Occidental with respect to the
Ortille Law Office for private respondent. mortgaged properties located at Isabela, Negros Occidental and
covered by OCT No. RT 1615.

FERNAN, C.J.: The foreclosure sale of the La Vista property was scheduled on
August 11, 1975. At the auction sale, PNB was the highest bidder
with a bid price of P1,000,001.00. However, when said property was
In this petition for certiorari, petitioner Philippine National Bank
about to be awarded to PNB, the representative of the mortgagor-
(PNB) seeks to annul and set aside the orders dated March 4, 1977
spouses objected and demanded from the PNB the difference
and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of
between the bid price of P1,000,001.00 and the indebtedness of
First Instance of Rizal, Branch XXI, respectively granting private
P499,060.25 of the Arroyo spouses on their personal account. It was
respondent Tayabas Cement Company, Inc.'s application for a writ of
the contention of the spouses Arroyo's representative that the
preliminary injunction to enjoin the foreclosure sale of certain
foreclosure proceedings referred only to the personal account of the
properties in Quezon City and Negros Occidental and denying
mortgagor spouses without reference to the account of TCC.
petitioner's motion for reconsideration thereof.

To remedy the situation, PNB filed a supplemental petition on

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the
August 13, 1975 requesting the Sheriff's Office to proceed with the
Arroyo Spouses), obtained a loan of P580,000.00 from petitioner
sale of the subject real properties to satisfy not only the amount of
bank to purchase 60% of the subscribed capital stock, and thereby
P499,060.25 owed by the spouses Arroyos on their personal account
acquire the controlling interest of private respondent Tayabas
but also the amount of P35,019,901.49 exclusive of interest,
Cement Company, Inc. (TCC). 2 As security for said loan, the spouses
commission charges and other expenses owed by said spouses as
Arroyo executed a real estate mortgage over a parcel of land
sureties of TCC. 7 Said petition was opposed by the spouses Arroyo
covered by Transfer Certificate of Title No. 55323 of the Register of
and the other bidder, Jose L. Araneta.
Deeds of Quezon City known as the La Vista property.

On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff

Thereafter, TCC filed with petitioner bank an application and
Diana L. Dungca issued a resolution finding that the questions raised
agreement for the establishment of an eight (8) year deferred letter
by the parties required the reception and evaluation of evidence,
of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd.
hence, proper for adjudication by the courts of law. Since said
of Tokyo, Japan, to cover the importation of a cement plant
questions were prejudicial to the holding of the foreclosure sale, she
machinery and equipment.
ruled that her "Office, therefore, cannot properly proceed with the
foreclosure sale unless and until there be a court ruling on the
Upon approval of said application and opening of an L/C by PNB in aforementioned issues." 8
favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo
spouses executed the following documents to secure this loan
Thus, in May, 1976, PNB filed with the Court of First Instance of
accommodation: Surety Agreement dated August 5, 1964 3 and
Quezon City, Branch V a petition for mandamus 9against said Diana
Covenant dated August 6, 1964. 4
Dungca in her capacity as City Sheriff of Quezon City to compel her
to proceed with the foreclosure sale of the mortgaged properties
The imported cement plant machinery and equipment arrived from covered by TCT No. 55323 in order to satisfy both the personal
Japan and were released to TCC under a trust receipt agreement. obligation of the spouses Arroyo as well as their liabilities as sureties
Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding of TCC. 10
drawings against the L/C as scheduled. TCC, however, failed to remit
and/or pay the corresponding amount covered by the drawings.
On September 6, 1976, the petition was granted and Dungca was
Thus, on May 19, 1968, pursuant to the trust receipt agreement,
directed to proceed with the foreclosure sale of the mortgaged
PNB notified TCC of its intention to repossess, as it later did, the
properties covered by TCT No. 55323 pursuant to Act No. 3135 and
imported machinery and equipment for failure of TCC to settle its
to issue the corresponding Sheriff's Certificate of Sale. 11
obligations under the L/C. 5

Before the decision could attain finality, TCC filed on September 14,
In the meantime, the personal accounts of the spouses Arroyo,
1976 before the Court of First Instance of Rizal, Pasig, Branch XXI a
which included another loan of P160,000.00 secured by a real estate
complaint 12 against PNB, Dungca, and the Provincial Sheriff of
mortgage over parcels of agricultural land known as Hacienda Bacon
Negros Occidental and Ex-Officio Sheriff of Bacolod City
located in Isabela, Negros Occidental, had likewise become due. The
seeking, inter alia, the issuance of a writ of preliminary injunction to
spouses Arroyo having failed to satisfy their obligations with PNB,
restrain the foreclosure of the mortgages over the La Vista property
and Hacienda Bacon as well as a declaration that its obligation with
1
PNB had been fully paid by reason of the latter's repossession of the
imported machinery and equipment. 13
On October 5, 1976, the CFI, thru respondent Judge Gregorio
Pineda, issued a restraining order 14 and on March 4, 1977, granted a
writ of preliminary injunction. 15 PNB's motion for reconsideration
was denied, hence this petition.
Petitioner PNB advances four grounds for the setting aside of the
writ of preliminary injunction, namely: a) that it contravenes P.D.
No. 385 which prohibits the issuance of a restraining order against a
government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided
in Section 1 thereof; b) that the writ countermands a final decision
of a co-equal and coordinate court; c) that the writ seeks to prohibit
the performance of acts beyond the court's territorial jurisdiction;
and, d) private respondent TCC has not shown any clear legal right
or necessity to the relief of preliminary injunction.
Private respondent TCC counters with the argument that P.D. No.
385 does not apply to the case at bar, firstly because no foreclosure
proceedings have been instituted against it by PNB and secondly,
because its account under the L/C has been fully satisfied with the
repossession of the imported machinery and equipment by PNB.
The resolution of the instant controversy lies primarily on the
question of whether or not TCC's liability has been extinguished by
the repossession of PNB of the imported cement plant machinery
and equipment.
We rule for the petitioner PNB. It must be remembered that PNB
took possession of the imported cement plant machinery and
equipment pursuant to the trust receipt agreement executed by and
between PNB and TCC giving the former the unqualified right to the
possession and disposal of all property shipped under the Letter of
Credit until such time as all the liabilities and obligations under said
letter had been discharged. 16 In the case of Vintola vs. Insular Bank
of Asia and America 17 wherein the same argument was advanced by
the Vintolas as entrustees of imported seashells under a trust
receipt transaction, we said:
Further, the VINTOLAS take the position that their
obligation to IBAA has been extinguished inasmuch as,
through no fault of their own, they were unable to dispose
of the seashells, and that they have relinquished
possession thereof to the IBAA, as owner of the goods, by
depositing them with the Court.
The foregoing submission overlooks the nature and
mercantile usage of the transaction involved. A letter of
credit-trust receipt arrangement is endowed with its own
distinctive features and characteristics. Under that set-up,
a bank extends a loan covered by the Letter of Credit, with
the trust receipt as a security for the loan. In other words,
the transaction involves a loan feature represented by the
letter of credit, and a security feature which is in the
covering trust receipt.
xxx xxx xxx
A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a "security interest" in
the goods.1wphi1 It secures an indebtedness and there
can be no such thing as security interest that secures no
obligation. As defined in our laws:
(h) "Security interest" means a property interest
in goods, documents or instruments to secure
performance of some obligations of the
entrustee or of some third persons to the
entruster and includes title, whether or not
expressed to be absolute, whenever such title is
in substance taken or retained for security only.
xxx xxx xxx
Contrary to the allegation of the VINTOLAS, IBAA did not
become the real owner of the goods. It was merely the
holder of a security title for the advances it had made to
the VINTOLAS. The goods the VINTOLAS had purchased
through IBAA financing remain their own property and
they hold it at their own risk. The trust receipt
arrangement did not convert the IBAA into an investor; the
latter remained a lender and creditor.
xxx xxx xxx
Since the IBAA is not the factual owner of the goods, the
VINTOLAS cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently
deposited them in the custody of the court, they are
absolutely relieved of their obligation to pay their loan
because of their inability to dispose of the goods. The fact
that they were unable to sell the seashells in question
does not affect IBAA's right to recover the advances it had
made under the Letter of Credit.
PNB's possession of the subject machinery and equipment being
precisely as a form of security for the advances given to TCC under
the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby. Payment would legally result
only after PNB had foreclosed on said securities, sold the same and
applied the proceeds thereof to TCC's loan obligation. Mere
possession does not amount to foreclosure for foreclosure denotes
the procedure adopted by the mortgagee to terminate the rights of
the mortgagor on the property and includes the sale itself. 18
Neither can said repossession amount to dacion en pago. Dation in
payment takes place when property is alienated to the creditor in
satisfaction of a debt in money and the same is governed by
sales. 19 Dation in payment is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. 20 As aforesaid, the
repossession of the machinery and equipment in question was
merely to secure the payment of TCC's loan obligation and not for
the purpose of transferring ownership thereof to PNB in satisfaction
of said loan. Thus, no dacion en pago was ever accomplished.
Proceeding from this finding, PNB has the right to foreclose the
mortgages executed by the spouses Arroyo as sureties of TCC. A
2
surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the
latter, and their liabilities are interwoven as to be inseparable. 21 As
sureties, the Arroyo spouses are primarily liable as original
promissors and are bound immediately to pay the creditor the
amount outstanding. 22
Under Presidential Decree No. 385 which took effect on January 31,
1974, government financial institutions like herein petitioner PNB
are required to foreclose on the collaterals and/or securities for any
loan, credit or accommodation whenever the arrearages on such
account amount to at least twenty percent (20%) of the total
outstanding obligations, including interests and charges, as
appearing in the books of account of the financial institution
concerned. 23 It is further provided therein that "no restraining
order, temporary or permanent injunction shall be issued by the
court against any government financial institution in any action
taken by such institution in compliance with the mandatory
foreclosure provided in Section 1 hereof, whether such restraining
order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties . . ." 24
It is not disputed that the foreclosure proceedings instituted by PNB
against the Arroyo spouses were in compliance with the mandate of
P.D. 385. This being the case, the respondent judge acted in excess
of his jurisdiction in issuing the injunction specifically proscribed
under said decree.
Another reason for striking down the writ of preliminary injunction
complained of is that it interfered with the order of a co-equal and
coordinate court. Since Branch V of the CFI of Rizal had already
acquired jurisdiction over the question of foreclosure of mortgage
over the La Vista property and rendered judgment in relation
thereto, then it retained jurisdiction to the exclusion of all other
coordinate courts over its judgment, including all incidents relative
to the control and conduct of its ministerial officers, namely the
sheriff thereof. 25 The foreclosure sale having been ordered by
Branch V of the CFI of Rizal, TCC should not have filed injunction
proceedings with Branch XXI of the same CFI, but instead should
have first sought relief by proper motion and application from the
former court which had exclusive jurisdiction over the foreclosure
proceeding. 26
This doctrine of non-interference is premised on the principle that a
judgment of a court of competent jurisdiction may not be opened,
modified or vacated by any court of concurrent jurisdiction. 27
Furthermore, we find the issuance of the preliminary injunction
directed against the Provincial Sheriff of Negros Occidental and ex-
officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts
of First Instance, now Regional Trial Courts, can only enforce their
writs of injunction within their respective designated territories. 28
WHEREFORE, the instant petition is hereby granted. The assailed
orders are hereby set aside. Costs against private respondent.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
[G.R. No. 149420. October 8, 2003]
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL.,
INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a
corporation engaged in the sale of steel scaffoldings, while
petitioner Sonny L. Lo, doing business under the name and style
Sans Enterprises, is a building contractor. On February 22, 1990,
petitioner ordered scaffolding equipments from respondent worth
P540,425.80.[1] He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly
installments.
Respondent delivered the scaffoldings to
petitioner.[2] Petitioner was able to pay the first two monthly
installments. His business, however, encountered financial
difficulties and he was unable to settle his obligation to respondent
despite oral and written demands made against him.[3]
On October 11, 1990, petitioner and respondent executed a
Deed of Assignment,[4] whereby petitioner assigned to respondent
his receivables in the amount of P335,462.14 from Jomero Realty
Corporation. Pertinent portions of the Deed provide:
WHEREAS, the ASSIGNOR is the contractor for the construction of a
residential house located at Greenmeadow Avenue, Quezon
City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential
house, the ASSIGNOR purchased on account scaffolding equipments
from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the
ASSIGNEE for the purchase of the aforementioned scaffoldings now
in the amount of Three Hundred Thirty Five Thousand Four Hundred
Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three
Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100
Pesos (P335,462.14), Philippine Currency which represents part of
the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR
hereby assigns, transfers and sets over unto the ASSIGNEE all
collectibles amounting to the said amount of P335, 462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors
and assigns, the full power and authority to demand, collect,
receive, compound, compromise and give acquittance for the same
or any part thereof, and in the name and stead of the said
ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said
ASSIGNEE, its successors and assigns that said debt is justly owing
3
and due to the ASSIGNOR for Jomero Realty Corporation and that
said ASSIGNOR has not done and will not cause anything to be done
to diminish or discharge said debt, or delay or to prevent the
ASSIGNEE, its successors or assigns, from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that
the said ASSIGNOR, his heirs, executors, administrators, or assigns,
shall and will at times hereafter, at the request of said ASSIGNEE, its
successors or assigns, at his cost and expense, execute and do all
such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles
said ASSIGNOR has in accordance with the true intent and meaning
of these presents. xxx[5] (Italics supplied)
However, when respondent tried to collect the said credit
from Jomero Realty Corporation, the latter refused to honor the
Deed of Assignment because it claimed that petitioner was also
indebted to it.[6]On November 26, 1990, respondent sent a
letter[7] to petitioner demanding payment of his obligation, but
petitioner refused to pay claiming that his obligation had been
extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action
for recovery of a sum of money against the petitioner before the
Regional Trial Court of Makati, Branch 147, which was docketed as
Civil Case No. 91-074.[8]
During the trial, petitioner argued that his obligation was
extinguished with the execution of the Deed of Assignment of
credit. Respondent, for its part, presented the testimony of its
employee, AlmedaBaaga, who testified that Jomero Realty refused
to honor the assignment of credit because it claimed that petitioner
had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a
decision[9] dismissing the complaint on the ground that the
assignment of credit extinguished the obligation. The decretal
portion thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the defendant and against the plaintiff,
dismissing the complaint and ordering the plaintiff to pay the
defendant attorneys fees in the amount of P25,000.00.
Respondent appealed the decision to the Court of
Appeals. On April 19, 2001, the appellate court rendered a
decision,[10] the dispositive portion of which reads:
WHEREFORE, finding merit in this appeal, the court REVERSES the
appealed Decision and enters judgment ordering defendant-
appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-
FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five
Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with
legal interest of 6% per annum from January 10, 1991 (filing of the
Complaint) until fully paid and attorneys fees equivalent to 10% of
the amount due and costs of the suit.
SO ORDERED.[11]
In finding that the Deed of Assignment did not extinguish the
obligation of the petitioner to the respondent, the Court of Appeals
held that (1) petitioner failed to comply with his warranty under the
Deed; (2) the object of the Deed did not exist at the time of the
transaction, rendering it void pursuant to Article 1409 of the Civil
Code; and (3) petitioner violated the terms of the Deed of
Assignment when he failed to execute and do all acts and deeds as
shall be necessary to effectually enable the respondent to recover
the collectibles.[12]
Petitioner filed a motion for reconsideration of the said
decision, which was denied by the Court of Appeals.[13]
In this petition for review, petitioner assigns the following
errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE
ERROR IN DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS
NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE
HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE DEED OF ASSIGNMENT (EXH. 4) DID NOT
EXTINGUISH PETITIONERS OBLIGATION ON THE WRONG
NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS
WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN
REVERSING THE DECISION OF THE TRIAL COURT AND IN
ORDERING PAYMENT OF INTERESTS AND ATTORNEYS
FEES.[14]
The petition is without merit.
An assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause, such as
sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce
it to the same extent as the assignor could enforce it against the
debtor.[15]
Corollary thereto, in dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding debt.[16] In
order that there be a valid dation in payment, the following are the
requisites: (1) There must be the performance of the prestation in
lieu of payment (animo solvendi) which may consist in the delivery
of a corporeal thing or a real right or a credit against the third
person; (2) There must be some difference between
the prestation due and that which is given in substitution
(aliud pro alio); (3) There must be an agreement between the
creditor and debtor that the obligation is immediately extinguished
by reason of the performance of a prestation different from that
due.[17] The undertaking really partakes in one sense of the nature of
sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtors
debt. As such, the vendor in good faith shall be responsible, for the
existence and legality of the credit at the time of the sale but not for
the solvency of the debtor, in specified circumstances.[18]
4
 Hence, it may well be that the assignment of credit, which is in
the nature of a sale of personal property,[19] produced the effects of
a dation in payment which may extinguish the
obligation.[20] However, as in any other contract of sale, the vendor
or assignor is bound by certain warranties. More specifically, the
first paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have
been sold as doubtful; but not for the solvency of the debtor, unless
it has been so expressly stipulated or unless the insolvency was prior
to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is
bound to warrant the existence and legality of the credit at the time
of the sale or assignment. When Jomero claimed that it was no
longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner
has been extinguished by compensation.[21] In other words,
respondent alleged the non-existence of the credit and asserted its
claim to petitioners warranty under the assignment. Therefore, it
behooved on petitioner to make good its warranty and paid the
obligation.
Furthermore, we find that petitioner breached his obligation
under the Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that
the said ASSIGNOR, his heirs, executors, administrators, or assigns,
shall and will at times hereafter, at the request of said ASSIGNEE, its
successors or assigns, at his cost and expense, execute and do all
such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles
said ASSIGNOR has in accordance with the true intent and meaning
of these presents.[22] (underscoring ours)
Indeed, by warranting the existence of the credit, petitioner
should be deemed to have ensured the performance thereof in case
the same is later found to be inexistent. He should be held liable to
pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering
petitioner to pay respondent the sum of P335,462.14 with legal
interest thereon. However, we find that the award by the Court of
Appeals of attorneys fees is without factual basis. No evidence or
testimony was presented to substantiate this claim. Attorneys fees,
being in the nature of actual damages, must be duly substantiated
by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the
Court of Appeals dated April 19, 2001 in CA-G.R. CV No. 47713,
ordering petitioner to pay respondent the sum of P335,462.14 with
legal interest of 6% per annum from January 10, 1991 until fully paid
is AFFIRMED with MODIFICATION. Upon finality of this Decision, the
rate of legal interest shall be 12% per annum, inasmuch as the
obligation shall thereafter become equivalent to a forbearance of
credit.[23] The award of attorneys fees is DELETED for lack of
evidentiary basis.
SO ORDERED.
G.R. No. 166704 December 20, 2006
AGRIFINA AQUINTEY, petitioner,
vs.
SPOUSES FELICIDAD AND RICO TIBONG, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review under Rule 45 of the Revised Rules
on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R.
CV No. 78075, which affirmed with modification the Decision2 of the
Regional Trial Court (RTC), Branch 61, Baguio City, and the
Resolution3 of the appellate court denying reconsideration thereof.
The Antecedents
On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of
Baguio City, a complaint for sum of money and damages against the
respondents, spouses Felicidad and Rico Tibong. Agrifina alleged
that Felicidad had secured loans from her on several occasions, at
monthly interest rates of 6% to 7%. Despite demands, the spouses
Tibong failed to pay their outstanding loan, amounting
to P773,000.00 exclusive of interests. The complaint contained the
following prayer:
WHEREFORE, premises considered, it is most respectfully
prayed of this Honorable Court, after due notice and
hearing, to render judgment ordering defendants to pay
plaintiff the following:
a). SEVEN HUNDRED SEVENTY-THREE
THOUSAND PESOS (P773,000.00) representing
the principal obligation of the defendants with
the stipulated interests of six (6%) percent per
month from May 11, 1999 to date and or those
that are stipulated on the contracts as
mentioned from paragraph two (2) of the
complaint.
b). FIFTEEN PERCENT (15%) of the total
accumulated obligations as attorney's fees.
c). Actual expenses representing the filing fee
and other charges and expenses to be incurred
during the prosecution of this case.
Further prays for such other relief and remedies just and
equitable under the premises.4
Agrifina appended a copy of the Counter-Affidavit executed by
Felicidad in I.S. No. 93-334, as well as copies of the promissory notes
and acknowledgment receipts executed by Felicidad covering the
loaned amounts.5
In their Answer with Counterclaim,6 spouses Tibong admitted that
they had secured loans from Agrifina. The proceeds of the loan were
then re-lent to other borrowers at higher interest rates. They,
likewise, alleged that they had executed deeds of assignment in
favor of Agrifina, and that their debtors had executed promissory
5
notes in Agrifina's favor. According to the spouses Tibong, this
resulted in a novation of the original obligation to Agrifina. They
insisted that by virtue of these documents, Agrifina became the new
collector of their debtors; and the obligation to pay the balance of
their loans had been extinguished.
The spouses Tibong specifically denied the material averments in
paragraphs 2 and 2.1 of the complaint. While they did not state the
total amount of their loans, they declared that they did not receive
anything from Agrifina without any written receipt.7 They prayed for
that the complaint be dismissed.
In their Pre-Trial Brief, the spouses Tibong maintained that they
have never obtained any loan from Agrifina without the benefit of a
written document.8
On August 17, 2000, the trial court issued a Pre-Trial Order where
the following issues of the case were defined:
Whether or not plaintiff is entitled to her claim
of P773,000.00;
Whether or not plaintiff is entitled to stipulated interests
in the promissory notes; and
Whether or not the parties are entitled to their claim for
damages.9
The Case for Petitioner
Agrifina and Felicidad were classmates at the University of
Pangasinan. Felicidad's husband, Rico, also happened to be a distant
relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to
lend money to Felicidad. According to Felicidad, Agrifina would be
earning interests higher than those given by the bank for her money.
Felicidad told Agrifina that since she (Felicidad) was engaged in the
sale of dry goods at the GP Shopping Arcade, she would use the
money to buy bonnels and thread.10 Thus, Agrifina lent a total sum
of P773,000.00 to Felicidad, and each loan transaction was covered
by either a promissory note or an acknowledgment receipt. 11Agrifina
stated that she had lost the receipts signed by Felicidad for the
following amounts: P100,000.00, P34,000.00 and P2,000.00.12 The
particulars of the transactions are as follows:
According to Agrifina, Felicidad was able to pay only her loans
amounting to P122,600.00.14
In July 1990, Felicidad gave to Agrifina City Trust Bank Check No.
126804 dated August 25, 1990 in the amount of P50,000.00 as
partial payment.15 However, the check was dishonored for having
been drawn against insufficient funds.16 Agrifina then filed a criminal
case against Felicidad in the Office of the City Prosecutor. An
Information for violation of Batas Pambansa Bilang 22 was filed
against Felicidad, docketed as Criminal Case No. 11181-R. After trial,
the court ordered Felicidad to pay P50,000.00. Felicidad complied
and paid the face value of the check.17
In the meantime, Agrifina learned that Felicidad had re-loaned the
amounts to other borrowers.18 Agrifina sought the assistance of
Atty. Torres G. A-ayo who advised her to require Felicidad to
execute deeds of assignment over Felicidad's debtors. The lawyer
also suggested that Felicidad's debtors execute promissory notes in
Agrifina's favor, to "turn over" their loans from Felicidad. This
arrangement would facilitate collection of Felicidad's account.
Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's
debtors had a conference20 where Atty. A-ayo explained that
Agrifina could apply her collections as payments of Felicidad's
account.21
From August 7, 1990 to October, 1990, Felicidad executed deeds of
assignment of credits (obligations)22 duly notarized by Atty. A-ayo, in
which Felicidad transferred and assigned to Agrifina the total
amount of P546,459.00 due from her debtors.23 In the said deeds,
Felicidad confirmed that her debtors were no longer indebted to her
for their respective loans. For her part, Agrifina conformed to the
deeds of assignment relative to the loans of Virginia Morada and
Corazon Dalisay.24 She was furnished copies of the deeds as well as
the promissory notes.25
The following debtors of Felicidad executed promissory notes where
they obliged themselves to pay directly to Agrifina:
Agrifina narrated that Felicidad showed to her the way to the
debtors' houses to enable her to collect from them. One of the
debtors, Helen Cabang, did not execute any promissory note but
conformed to the Deed of Assignment of Credit which Felicidad
executed in favor of Agrifina.27 Eliza Abance conformed to the deed
of assignment for and in behalf of her sister, Fely Cirilo.28 Edna
Papat-iw was not able to affix her signature on the deed of
assignment nor sign the promissory note because she was in Taipei,
Taiwan.29
Following the execution of the deeds of assignment and promissory
notes, Agrifina was able to collect the total amount of P301,000.00
from Felicidad's debtors.30 In April 1990, she tried to collect the
balance of Felicidad's account, but the latter told her to wait until
her debtors had money.31 When Felicidad reneged on her promise,
Agrifina filed a complaint in the Office of the Barangay Captain for
the collection of P773,000.00. However, no settlement was arrived
at.32
The Case for Respondents
Felicidad testified that she and her friend Agrifina had been engaged
in the money-lending business.33 Agrifina would lend her money
with monthly interest,34 and she, in turn, would re-lend the money
to borrowers at a higher interest rate. Their business relationship
turned sour when Agrifina started complaining that she (Felicidad)
was actually earning more than Agrifina.35 Before the respective
maturity dates of her debtors' loans, Agrifina asked her to pay her
account since Agrifina needed money to buy a house and lot in
Manila. However, she told Agrifina that she could not pay yet, as her
debtors' loan payments were not yet due.36 Agrifina then came to
her store every afternoon to collect from her, and persuaded her to
go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested
that she indorse the accounts of her debtors to Agrifina so that the
latter would be the one to collect from her debtors and she would
no longer have any obligation to Agrifina.38 She then executed deeds
of assignment in favor of Agrifina covering the sums of money due
from her debtors. She signed the deeds prepared by Atty. A-ayo in
the presence of Agrifina.39 Some of the debtors signed the
6
promissory notes which were likewise prepared by the lawyer.
Thereafter, Agrifina personally collected from Felicidad's
debtors.40 Felicidad further narrated that she received P250,000.00
from one of her debtors, Rey Rivera, and remitted the payment to
Agrifina.41
Agrifina testified, on rebuttal, that she did not enter into a re-
lending business with Felicidad. When she asked Felicidad to
consolidate her loans in one document, the latter told her to seek
the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad
assign her credits in order to help her collect her loans.43 She agreed
to the deeds of assignment to help Felicidad collect from the
debtors.44
On January 20, 2003, the trial court rendered its Decision45 in favor
of Agrifina. The fallo of the decision reads:
WHEREFORE, judgment is rendered in favor of the plaintiff
and against the defendants ordering the latter to pay the
plaintiffs (sic) the following amounts:
1. P472,000 as actual obligation with the stipulated
interest of 6% per month from May 11, 1999 until the said
obligation is fully paid. However, the amount of P50,000
shall be deducted from the total accumulated interest for
the same was already paid by the defendant as admitted
by the plaintiff in her complaint,
2. P25,000 as attorney's fees,
3. [T]o pay the costs.
SO ORDERED.46
The trial court ruled that Felicidad's obligation had not been novated
by the deeds of assignment and the promissory notes executed by
Felicidad's borrowers. It explained that the documents did not
contain any express agreement to novate and extinguish Felicidad's
obligation. It declared that the deeds and notes were separate
contracts which could stand alone from the original indebtedness of
Felicidad. Considering, however, Agrifina's admission that she was
able to collect from Felicidad's debtors the total amount
of P301,000.00, this should be deducted from the latter's
accountability.47 Hence, the balance, exclusive of interests,
amounted to P472,000.00.
On appeal, the CA affirmed with modification the decision of the
RTC and stated that, based on the promissory notes and
acknowledgment receipts signed by Felicidad, the appellants
secured loans from the appellee in the total principal amount of
only P637,000.00, not P773,000.00 as declared by the trial court.
The CA found that, other than Agrifina's bare testimony that she had
lost the promissory notes and acknowledgment receipts, she failed
to present competent documentary evidence to substantiate her
claim that Felicidad had, likewise, borrowed the amounts
of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total
account, P585,659.00 was covered by the deeds of assignment and
promissory notes; hence, the balance of Felicidad's account
amounted to only P51,341.00. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the decision dated
January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil
Case No. 4370-R is hereby MODIFIED. Defendants-
appellants are hereby ordered to pay the balance of the
total indebtedness in the amount of P51,341.00 plus the
stipulated interest of 6% per month from May 11, 1999
until the finality of this decision.
SO ORDERED.48
The appellate court sustained the trial court's ruling that Felicidad's
obligation to Agrifina had not been novated by the deeds of
assignment and promissory notes executed in the latter's favor.
Although Agrifina was subrogated as a new creditor in lieu of
Felicidad, Felicidad's obligation to Agrifina under the loan
transaction remained; there was no intention on their part to novate
the original obligation. Nonetheless, the appellate court held that
the legal effects of the deeds of assignment could not be totally
disregarded. The assignments of credits were onerous, hence, had
the effect of payment, pro tanto, of the outstanding obligation. The
fact that Agrifina never repudiated or rescinded such assignments
only shows that she had accepted and conformed to it.
Consequently, she cannot collect both from Felicidad and her
individual debtors without running afoul to the principle of unjust
enrichment. Agrifina's primary recourse then is against Felicidad's
individual debtors on the basis of the deeds of assignment and
promissory notes.
The CA further declared that the deeds of assignment executed by
Felicidad had the effect of payment of her outstanding obligation to
Agrifina in the amount of P585,659.00. It ruled that, since an
assignment of credit is in the nature of a sale, the assignors
remained liable for the warranties as they are responsible for the
existence and legality of the credit at the time of the assignment.
Both parties moved to have the decision reconsidered,49 but the
appellate court denied both motions on December 21, 2004.50
Agrifina, now petitioner, filed the instant petition, contending that
1. The Honorable Court of Appeals erred in ruling that the
deeds of assignment in favor of petitioner has the effect of
payment of the original obligation even as it ruled out that
the original obligation and the assigned credit are distinct
and separate and can stand independently from each
other;
2. The Honorable Court of Appeals erred in passing upon
issues raised for the first time on appeal; and
3. The Honorable Court of Appeals erred in resolving fact
not in issue.51
Petitioner avers that the appellate court erred in ruling that
respondents' original obligation amounted to only P637,000.00
(instead of P773,000.00) simply because she lost the promissory
notes/receipts which evidenced the loans executed by respondent
Felicidad Tibong. She insists that the issue of whether Felicidad
owed her less than P773,000.00 was not raised by respondents
7
during pre-trial and in their appellate brief; the appellate court was
thus proscribed from taking cognizance of the issue.
Petitioner avers that respondents failed to deny, in their verified
answer, that they had secured the P773,000.00 loan; hence,
respondents are deemed to have admitted the allegation in the
complaint that the loans secured by respondent from her amounted
to P773,000.00. As gleaned from the trial court's pre-trial order, the
main issue is whether or not she should be made to pay this
amount.
Petitioner further maintains that the CA erred in deducting the total
amount of P585,659.00 covered by the deeds of assignment
executed by Felicidad and the promissory notes executed by the
latter's debtors, and that the balance of respondents' account was
only P51,341.00. Moreover, the appellate court's ruling that there
was no novation runs counter to its holding that the primary
recourse was against Felicidad's debtors. Petitioner avers that of the
11 deeds of assignment and promissory notes, only two bore her
signature.52 She insists that she is not bound by the deeds which she
did not sign. By assigning the obligation to pay petitioner their loan
accounts, Felicidad's debtors merely assumed the latter's obligation
and became co-debtors to petitioner. Respondents were not
released from their obligation under their loan transactions, and she
had the option to demand payment from them or their debtors.
Citing the ruling of this Court in Magdalena Estates, Inc. v.
Rodriguez,53 petitioner insists that the first debtor is not released
from responsibility upon reaching an agreement with the creditor.
The payment by a third person of the first debtor's obligation does
not constitute novation, and the creditor can still enforce the
obligation against the original debtor. Petitioner also cites the ruling
of this Court in Guerrero v. Court of Appeals.54
In their Comment on the petition, respondents aver that by virtue of
respondent Felicidad's execution of the deeds of assignment, and
the original debtors' execution of the promissory notes (along with
their conformity to the deeds of assignment with petitioner's
consent), their loan accounts with petitioner amounting
to P585,659.00 had been effectively extinguished. Respondents
point out that this is in accordance with Article 1291, paragraph 2, of
the Civil Code. Thus, the original debtors of respondents had been
substituted as petitioner's new debtors.
Respondents counter that petitioner had been subrogated to their
right to collect the loan accounts of their debtors. In fact, petitioner,
as the new creditor of respondents' former debtors had been able to
collect the latter's loan accounts which amounted to P301,000.00.
The sums received by respondents' debtors were the same loans
which they obliged to pay to petitioner under the promissory notes
executed in petitioner's favor.
Respondents aver that their obligation to petitioner cannot stand or
exist separately from the original debtors' obligation to petitioner as
the new creditor. If allowed to collect from them as well as from
their original debtors, petitioner would be enriching herself at the
expense of respondents. Thus, despite the fact that petitioner had
collected P172,600.00 from respondents and P301,000.00 from the
original debtors, petitioner still sought to collect P773,000.00 from
them in the RTC. Under the deeds of assignment executed by
Felicidad and the original debtors' promissory notes, the original
debtors' accounts were assigned to petitioner who would be the
new creditor. In fine, respondents are no longer liable to petitioner
for the balance of their loan account inclusive of interests.
Respondents also insist that petitioner failed to prove that she
(petitioner) was merely authorized to collect the accounts of the
original debtors so as to to facilitate the payment of respondents'
loan obligation.
The Issues
The threshold issues are: (1) whether respondent Felicidad Tibong
borrowed P773,000.00 from petitioner; and (2) whether the
obligation of respondents to pay the balance of their loans, including
interest, was partially extinguished by the execution of the deeds of
assignment in favor of petitioner, relative to the loans of Edna
Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the
total amount of P371,000.00.
The Ruling of the Court
We have carefully reviewed the brief of respondents as appellants in
the CA, and find that, indeed, they had raised the issue of whether
they received P773,000.00 by way of loans from petitioner. They
averred that, as gleaned from the documentary evidence of
petitioner in the RTC, the total amount they borrowed was
only P673,000.00. They asserted that petitioner failed to adduce
concrete evidence that they received P773,000.00 from her.55
We agree, however, with petitioner that the appellate court erred in
reversing the finding of the RTC simply because petitioner failed to
present any document or receipt signed by Felicidad.
Section 10, Rule 8 of the Rules of Civil Procedure requires a
defendant to "specify each material allegation of fact the truth of
which he does not admit and, whenever practicable, x x x set forth
the substance of the matters upon which he relies to support his
denial.56
Section 11, Rule 8 of the same Rules provides that allegations of the
complaint not specifically denied are deemed admitted.57
The purpose of requiring the defendant to make a specific denial is
to make him disclose the matters alleged in the complaint which he
succinctly intends to disprove at the trial, together with the matter
which he relied upon to support the denial. The parties are
compelled to lay their cards on the table.58
A denial is not made specific simply because it is so qualified by the
defendant. A general denial does not become specific by the use of
the word "specifically." When matters of whether the defendant
alleges having no knowledge or information sufficient to form a
belief are plainly and necessarily within the defendant's knowledge,
an alleged "ignorance or lack of information" will not be considered
as a specific denial. Section 11, Rule 8 of the Rules also provides that
material averments in the complaint other than those as to the
amount of unliquidated damages shall be deemed admitted when
not specifically denied.59 Thus, the answer should be so definite and
certain in its allegations that the pleader's adversary should not be
left in doubt as to what is admitted, what is denied, and what is
covered by denials of knowledge as sufficient to form a belief.60
8
In the present case, petitioner alleged the following in her
complaint:
2. That defendants are indebted to the plaintiff in the
principal amount of SEVEN HUNDRED SEVENTY-THREE
THOUSAND PESOS (P773,000.00) Philippine Currency with
a stipulated interest which are broken down as follows.
The said principal amounts was admitted by the
defendants in their counter-affidavit submitted before the
court. Such affidavit is hereby attached as Annex "A;"61
xxxx
H) The sum of THIRTY FOUR THOUSAND PESOS
(P34,000.00) with interest at six (6%) per cent per month
and payable on October 19, 1989, however[,] the receipt
for the meantime cannot be recovered as it was misplaced
by the plaintiff but the letter of defendant FELICIDAD
TIBONG is hereby attached as Annex "H" for the
appreciation of the Honorable court;
I) The sum of ONE HUNDRED THOUSAND PESOS
(P100,000.00) with interest at five (5%) percent per
month, obtained on July 14, 1989 and payable on October
14, 1989. Such receipt was lost but admitted by the
defendants in their counter-affidavit as attached [to] this
complaint and marked as Annex "A" mentioned in
paragraph one (1); x x x62
In their Answer, respondents admitted that they had secured loans
from petitioner. While the allegations in paragraph 2 of the
complaint were specifically denied, respondents merely averred that
petitioner and respondent Felicidad entered into an agreement for
the lending of money to interested borrowers at a higher interest
rate. Respondents failed to declare the exact amount of the loans
they had secured from petitioner. They also failed to deny the
allegation in paragraph 2 of the complaint that respondent Felicidad
signed and submitted a counter-affidavit in I.S. No. 93-334 where
she admitted having secured loans from petitioner in the amount
of P773,000.00. Respondents, likewise, failed to deny the allegation
in paragraph 2(h) of the complaint that respondents had secured
a P34,000.00 loan payable on October 19, 1989, evidenced by a
receipt which petitioner had misplaced. Although respondents
specifically denied in paragraph 2.11 of their Answer the allegations
in paragraph 2(I) of the complaint, they merely alleged that "they
have not received sums of money from the plaintiff without any
receipt therefor."
Respondents, likewise, failed to specifically deny another allegation
in the complaint that they had secured a P100,000.00 loan from
petitioner on July 14, 1989; that the loan was payable on October
14, 1989; and evidenced by a receipt which petitioner claimed to
have lost. Neither did respondents deny the allegation that
respondents admitted their loan of P100,000.00 in the counter-
affidavit of respondent Felicidad, which was appended to the
complaint as Annex "A." In fine, respondents had admitted the
existence of their P773,000.00 loan from petitioner.
We agree with the finding of the CA that petitioner had no right to
collect from respondents the total amount of P301,000.00, which
includes more than P178,980.00 which respondent Felicidad
collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga,
Gelacio, and Manuel. Petitioner cannot again collect the same
amount from respondents; otherwise, she would be enriching
herself at their expense. Neither can petitioner collect from
respondents more than P103,500.00 which she had already
collected from Nimo, Cantas, Rivera, Donguis, Fernandez and
Ramirez.
There is no longer a need for the Court to still resolve the issue of
whether respondents' obligation to pay the balance of their loan
account to petitioner was partially extinguished by the promissory
notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog,
Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because,
as admitted by petitioner, she was able to collect the amounts under
the notes from said debtors and applied them to respondents'
accounts.
Under Article 1231(b) of the New Civil Code, novation is enumerated
as one of the ways by which obligations are extinguished.
Obligations may be modified by changing their object or principal
creditor or by substituting the person of the debtor.63 The burden to
prove the defense that an obligation has been extinguished by
novation falls on the debtor.64 The nature of novation was
extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps.
Oscar Soriano, Jr.,65 as follows:
Novation may either be extinctive or modificatory, much
being dependent on the nature of the change and the
intention of the parties. Extinctive novation is never
presumed; there must be an express intention to novate;
in cases where it is implied, the acts of the parties must
clearly demonstrate their intent to dissolve the old
obligation as the moving consideration for the emergence
of the new one. Implied novation necessitates that the
incompatibility between the old and new obligation be
total on every point such that the old obligation is
completely superseded by the new one. The test of
incompatibility is whether they can stand together, each
one having an independent existence; if they cannot and
are irreconciliable, the subsequent obligation would also
extinguish the first.
An extinctive novation would thus have the twin effects of,
first, extinguishing an existing obligation and, second,
creating a new one in its stead. This kind of novation
presupposes a confluence of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new
obligation. Novation is merely modificatory where the
change brought about by any subsequent agreement is
merely incidental to the main obligation (e.g., a change in
interest rates or an extension of time to pay); in this
instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or
supplant some but not all of its provisions.66 (Citations
Omitted)
Novation which consists in substituting a new debtor (delegado) in
the place of the original one (delegante) may be made even without
the knowledge or against the will of the latter but not without the
9
consent of the creditor. Substitution of the person of the debtor
may be effected by delegacion, meaning, the debtor offers, and the
creditor (delegatario), accepts a third person who consents to the
substitution and assumes the obligation. Thus, the consent of those
three persons is necessary.67 In this kind of novation, it is not enough
to extend the juridical relation to a third person; it is necessary that
the old debtor be released from the obligation, and the third person
or new debtor take his place in the relation.68 Without such release,
there is no novation; the third person who has assumed the
obligation of the debtor merely becomes a co-debtor or a surety. If
there is no agreement as to solidarity, the first and the new debtor
are considered obligated jointly.69
In Di Franco v. Steinbaum,70 the appellate court ruled that as to the
consideration necessary to support a contract of novation, the rule
is the same as in other contracts. The consideration need not be
pecuniary or even beneficial to the person promising. It is sufficient
if it be a loss of an inconvenience, such as the relinquishment of a
right or the discharge of a debt, the postponement of a remedy, the
discontinuance of a suit, or forbearance to sue.
In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of
Appeals ruled that the theory of novation is that the new debtor
contracts with the old debtor that he will pay the debt, and also to
the same effect with the creditor, while the latter agrees to accept
the new debtor for the old. A novation is not made by showing that
the substituted debtor agreed to pay the debt; it must appear that
he agreed with the creditor to do so. Moreover, the agreement
must be based on the consideration of the creditor's agreement to
look to the new debtor instead of the old. It is not essential that
acceptance of the terms of the novation and release of the debtor
be shown by express agreement. Facts and circumstances
surrounding the transaction and the subsequent conduct of the
parties may show acceptance as clearly as an express agreement,
albeit implied.72
We find in this case that the CA correctly found that respondents'
obligation to pay the balance of their account with petitioner was
extinguished, pro tanto, by the deeds of assignment of credit
executed by respondent Felicidad in favor of petitioner.
An assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause, such as
sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce
it to the same extent as the assignor could enforce it against the
debtor.73 It may be in the form of sale, but at times it may constitute
a dation in payment, such as when a debtor, in order to obtain a
release from his debt, assigns to his creditor a credit he has against a
third person.74
In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en
pago is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance
of the obligation. It is a special mode of payment where the debtor
offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be
charged against the debtor's obligation. As such, the essential
elements of a contract of sale, namely, consent, object certain, and
cause or consideration must be present. In its modern concept, what
actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the
contract of sale, while the debt is considered as the purchase price.
In any case, common consent is an essential prerequisite, be it sale
or novation, to have the effect of totally extinguishing the debt or
obligation.76
The requisites for dacion en pago are: (1) there must be a
performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right
or a credit against the third person; (2) there must be some
difference between the prestation due and that which is given in
substitution (aliud pro alio); and (3) there must be an agreement
between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different
from that due.77
All the requisites for a valid dation in payment are present in this
case. As gleaned from the deeds, respondent Felicidad assigned to
petitioner her credits "to make good" the balance of her obligation.
Felicidad testified that she executed the deeds to enable her to
make partial payments of her account, since she could not comply
with petitioner's frenetic demands to pay the account in cash.
Petitioner and respondent Felicidad agreed to relieve the latter of
her obligation to pay the balance of her account, and for petitioner
to collect the same from respondent's debtors.
Admittedly, some of respondents' debtors, like Edna Papat-iw, were
not able to affix their conformity to the deeds. In an assignment of
credit, however, the consent of the debtor is not essential for its
perfection; the knowledge thereof or lack of it affecting only the
efficaciousness or inefficaciousness of any payment that might have
been made. The assignment binds the debtor upon acquiring
knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the
assignor78 necessary in order that assignment may fully produce
legal effects. Thus, the duty to pay does not depend on the consent
of the debtor. The purpose of the notice is only to inform that
debtor from the date of the assignment. Payment should be made
to the assignee and not to the original creditor.
The transfer of rights takes place upon perfection of the contract,
and ownership of the right, including all appurtenant accessory
rights, is acquired by the assignee79 who steps into the shoes of the
original creditor as subrogee of the latter80 from that amount, the
ownership of the right is acquired by the assignee. The law does not
require any formal notice to bind the debtor to the assignee, all that
the law requires is knowledge of the assignment. Even if the debtor
had not been notified, but came to know of the assignment by
whatever means, the debtor is bound by it. If the document of
assignment is public, it is evidence even against a third person of the
facts which gave rise to its execution and of the date of the latter.
The transfer of the credit must therefore be held valid and effective
from the moment it is made to appear in such instrument, and third
persons must recognize it as such, in view of the authenticity of the
document, which precludes all suspicion of fraud with respect to the
date of the transfer or assignment of the credit.81
10
As gleaned from the deeds executed by respondent Felicidad
relative to the accounts of her other debtors, petitioner was
authorized to collect the amounts of P6,000.00 from Cabang,
and P63,600.00 from Cirilo. They obliged themselves to pay
petitioner. Respondent Felicidad, likewise, unequivocably declared
that Cabang and Cirilo no longer had any obligation to her.
Equally significant is the fact that, since 1990, when respondent
Felicidad executed the deeds, petitioner no longer attempted to
collect from respondents the balance of their accounts. It was only
in 1999, or after nine (9) years had elapsed that petitioner
attempted to collect from respondents. In the meantime, petitioner
had collected from respondents' debtors the amount
of P301,000.00.
While it is true that respondent Felicidad likewise authorized
petitioner in the deeds to collect the debtors' accounts, and for the
latter to pay the same directly, it cannot thereby be considered that
respondent merely authorized petitioner to collect the accounts of
respondents' debtors and for her to apply her collections in partial
payments of their accounts. It bears stressing that petitioner, as
assignee, acquired all the rights and remedies passed by Felicidad, as
assignee, at the time of the assignment.82 Such rights and remedies
include the right to collect her debtors' obligations to her.
Petitioner cannot find solace in the Court's ruling in Magdalena
Estates. In that case, the Court ruled that the mere fact that
novation does not follow as a matter of course when the creditor
receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation when there is no agreement
that the first debtor would be released from responsibility. Thus, the
creditor can still enforce the obligation against the original debtor.
hence, if the assignment was prepared by the assignee, it will be
construed most strictly against him or her.85 One who chooses the
words by which a right is given ought to be held to the strict
interpretation of them, rather than the other who only accepts
them.86
Considering all the foregoing, we find that respondents still have a
balance on their account to petitioner in the principal amount
of P33,841.00, the difference between their loan of P773,000.00
less P585,659.00, the payment of respondents' other debtors
amounting to P103,500.00, and the P50,000.00 payment made by
respondents.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the balance of the
principal account of the respondents to the petitioner is P33,841.00.
No costs.
SO ORDERED.
SOCIAL SECURITY SYSTEM
,
- versus -
.
ATLANTIC GULF AND PACIFIC
COMPANY OF MANILA, INC. and
SEMIRARA COAL CORPORATION

In the present case, petitioner and respondent Felicidad agreed that

the amounts due from respondents' debtors were intended to In this Petition for Review on Certiorari[1] under Rule 45 of the 1997
"make good in part" the account of respondents. Case law is that, an Rules of Civil Procedure, petitioner Republic of
assignment will, ordinarily, be interpreted or construed in
accordance with the rules of construction governing contracts the Philippines represented by the Social Security System (SSS)
generally, the primary object being always to ascertain and carry out assails the Decision[2]dated 31 August 2006 of the Eleventh Division
the intention of the parties. This intention is to be derived from a
consideration of the whole instrument, all parts of which should be of the Court of Appeals and its Resolution[3] dated 19 December
given effect, and is to be sought in the words and language
2006 denying petitioners Motion for Reconsideration.
employed.83

Indeed, the Court must not go beyond the rational scope of the Following are the antecedents culled from the decision of the Court
words used in construing an assignment, words should be construed
of Appeals:
according to their ordinary meaning, unless something in the
assignment indicates that they are being used in a special sense. So,
if the words are free from ambiguity and expressed plainly the On 13 February 2004, Atlantic Gulf and Pacific Company of Manila,
purpose of the instrument, there is no occasion for interpretation;
but where necessary, words must be interpreted in the light of the Inc. (AG & P) and Semirara Coal Corporation (SEMIRARA)
particular subject matter.84 And surrounding circumstances may be (collectively referred to as private respondents) filed a complaint for
considered in order to understand more perfectly the intention of
the parties. Thus, the object to be accomplished through the specific performance and damages against SSS before
assignment, and the relations and conduct of the parties may be
the Regional Trial Court of Batangas City, Branch 3, docketed as Civil
considered in construing the document.
Case No. 7441. The complaint alleged that:
Although it has been said that an ambiguous or uncertain xxx
assignment should be construed most strictly against the assignor,
the general rule is that any ambiguity or uncertainty in the meaning 3. Sometime in 2000, plaintiff informed the SSS in writing
of an assignment will be resolved against the party who prepared it; of its premiums and loan amortization delinquencies

11
covering the period from January 2000 to May 2000
amounting to P7.3 Million. AG&P proposed to pay its said
arrears by end of 2000, but requested for the
condonation of all penalties;
4. In turn, the defendant suggested two (2) options to
AG&P, either to pay by installment or through dacion en
pago;
5. AG&P chose to settle its obligation with the SSS
under the second option, that is through dacion en
pago of its 5,999 sq. m. property situated
in Baguio City covered by TCT No. 3941 with an appraised
value of about P80.0 Million. SSS proposes to carve-out
from the said property an area sufficient to cover
plaintiffs delinquencies. AG&P, however, is not amenable
to subdivide its Baguio property;
6. AG&P then made another proposal to SSS. This
time, offering as payment a portion of its 58,153 square
meter-lot, situated in F.S. Sebastian, Sto. Nio, San Pascual,
Batangas. In addition, SSS informed AG&P of its decision
to include other companies within the umbrella of DMCI
group with arrearages with the SSS. In the process of
elimination of the companies belonging to the DMCI
group with possible outstanding obligation with the SSS, it
was only SEMIRARA which was left with outstanding
delinquencies with the SSS. Thus, SEMIRARAs inclusion in
the proposed settlement through dacion en pago;
7. AG&P was, thereafter, directed by the defendant to
submit certain documents, such as Transfer Certificate of
Title, Tax Declaration covering the subject lot, and the
proposed subdivision plan, which requirements AG&P
immediately complied;
8. On April 4, 2001, SSS, in its Resolution No. 270,
finally approved AG&Ps proposal to settle its and
SEMIRARAs delinquencies through dacion en pago, which
as of March 31, 2001 amounted
to P29,261,902.45. Approval of AG&Ps proposal was
communicated to it by Ms. Aurora E.L. Ortega, Vice-
President, NCR-Group of the SSS in a letter dated April 23,
2001. ;
9. As a result of the approval of the dacion en pago,
posting of contributions and loan amortization to
individual member accounts, both for AG&P and
SEMIRARA employees, was effected immediately
thereafter. Thus, the benefits of the member-employees
of both companies were restored;
10. From the time of the approval of AG&Ps proposal up
to the present, AG&P is (sic) religiously remitting the
premium contributions and loan amortization of its
member-employees to the defendant;
11. To effect the property transfer, a Deed of Assignment
has to be executed between the plaintiffs and the
defendant. Because of SSS failure to come up with the
required Deed of Assignment to effect said transfer,
AG&P prepared the draft and submitted it to the Office of
the Vice-President NCR thru SSS Baclaran Branch in July
2001. Unfortunately, the defendant failed to take any
action on said Deed of Assignment causing AG&P to re-
submit it to the same office of the Vice-President NCR in
December 2001. From its original submission of the Deed
of Assignment in July 2001 to its re-submission in
December 2001, and SSS returning of the revised draft in
February 28, 2003 AG&P was consistent in its regular
follow ups with SSS as to the status of its submitted Deed
of Assignment;
12. On February 28, 2003, or more than a year after the
approval of AG&Ps proposal, defendant sent the revised
copy of the Deed of Assignment to AG&P. However, the
amount of the plaintiffs obligation appearing in the
approved Deed of Assignment has
ballooned from P29,261,902.45
to P40,846,610.64 allegedly because of the additional
interests and penalty charges assessed on plaintiffs
outstanding obligation from April 2001, the date of
approval of the proposal, up to January 2003;
13. AG&P demanded for the waiver and deletion of the
additional interests on the ground that delay in the
approval of the deed and the subsequent delay in
conveyance of the property in defendants name was
solely attributable to the defendant; hence, to charge
plaintiffs with additional interests and penalties
amounting to more than P10,000,000.00, would be
unreasonable.;
14. AG&P and SEMIRARA maintain their willingness to
settle their alleged obligation of P29,261,902.45 to SSS.
Defendant, however, refused to accept the payment
through dacion en pago, unless plaintiffs also pay the
additional interests and penalties being charged;
xxx
Instead of filing an answer, SSS moved for the dismissal of the
complaint for lack of jurisdiction and non-exhaustion of
administrative remedies. In an order dated 28 July 2004, the trial
court granted SSSs motion and dismissed private respondents
complaint. The pertinent portions of the assailed order are as
follows:
Clearly, the motion is triggered on the issue of the courts
jurisdiction over the subject matter and the nature of the
instant complaint. The length and breadth of the
complaint as perused, boils down to the questions of
premium and loan amortization delinquencies of the
plaintiff, the option taken for the payment of the same in
favor of the defendant and the disagreement between the
parties as to the amount of the unpaid contributions and
salary loan repayments. In other words, said questions are
directly related to the collection of contributions due the
defendant. Republic Act No. 1161 as amended by R.A. No.
8282, specifically provides that any dispute arising under
the said Act shall be cognizable by the Commission and
any case filed with respect thereto shall be heard by the
Commission. Hence, a procedural process mandated by a
special law.
Observingly, the running dispute between plaintiffs and
defendant originated from the disagreement as to the
amount of unpaid contributions and the amount of the
penalties imposed appurtenant thereto. The
alleged dacion en pago is crystal clear manifestation of
12
offering a special form of payment which to the mind of
the court will produce effect only upon acceptance by the
offeree and the observance and compliance of the
required formalities by the parties. No matter in what
form it may be, still the court believes that the subject
matter is the payment of contributions and the
corresponding penalties which are within the ambit of Sec.
5 (a) of R.A. No. 1161, as amended by R.A. No. 8282.
WHEREFORE, the Court having no jurisdiction over the
subject matter of the instant complaint, the motion is
granted and this case is hereby ordered DISMISSED.
SO ORDERED.[4]
Private respondents moved for the reconsideration of the order but
the same was denied in an Order dated 15 September 2004.
Consequently, private respondents filed an appeal before the Court
of Appeals alleging that the trial court erred in its pronouncement
that it had no jurisdiction over the subject matter of the complaint
and in granting the motion to dismiss.
The Court of Appeals reversed and set aside the trial courts
challenged order, granted private respondents appeal and ordered
the trial court to proceed with the civil case with dispatch. From the
averments in their complaint, the appellate court observed that
private respondents are seeking to implement the Deed of
Assignment which they had drafted and submitted to SSS sometime
in July 2001, pursuant to SSSs letter addressed to AG& P dated 23
April 2001 approving AG&P and SEMIRARAS delinquencies
through dacion en pago, which as of 31 March 2001, amounted
to P29,261,902.45. The appellate court thus held that the subject of
the complaint is no longer the payment of the premium and loan
amortization delinquencies, as well as the penalties appurtenant
thereto, but the enforcement of the dacion en pago pursuant to SSS
Resolution No. 270. The action then is one for specific performance
which case law holds is an action incapable of pecuniary estimation
falling under the jurisdiction of the Regional Trial Court.[5]
SSS filed a motion for reconsideration of the appellate courts
decision but the same was denied in a Resolution dated 19
December 2006.
Now before the Court, SSS insists on the Social Security Commissions
(the Commission) jurisdiction over the complaint pursuant to
Section 5 (a) of Republic Act (R.A.) No. 8282. SSS maintains the
Commissions jurisdiction over all disputes arising from the
provisions of R.A. No. 1161, amended by R.A. No. 8282 to the
exclusion of trial courts.[6]
The main issue in this case pertains to which body has jurisdiction to
entertain a controversy arising from the non-implementation of
a dacion en pago agreed upon by the parties as a means of
settlement of private respondents liabilities.
At the outset, it is well to restate the rule that what determines the
nature of the action as well as the tribunal or body which has
jurisdiction over the case are the allegations in the complaint. [7]
The pertinent provision of law detailing the jurisdiction of the
Commission is Section 5(a) of R.A. No. 1161, as amended by R.A. No.
8282, otherwise known as the Social Security Act of 1997, to wit:
SEC. 5. Settlement of Disputes. (a) Any dispute
arising under this Act with respect to coverage,
benefits, contributions and penalties thereon or
any other matter related thereto, shall be
cognizable by the Commission, and any case filed
with respect thereto shall be heard by the
Commission, or any of its members, or by
hearing officers duly authorized by the
Commission and decided within the mandatory
period of twenty (20) days after the submission
of the evidence. The filing, determination and
settlement of disputes shall be governed by the
rules and regulations promulgated by the
Commission.
The law clearly vests upon the Commission jurisdiction
over disputes arising under this Act with respect to coverage,
benefits, contributions and penalties thereon or any matter related
thereto... Dispute is defined as a conflict or controversy.[8]
From the allegations of respondents complaint, it readily
appears that there is no longer any dispute with respect to
respondents accountability to the SSS. Respondents had, in
fact, admitted their delinquency and offered to settle them by way
of dacion en pago subsequently approved by the SSS in Resolution
No. 270-s. 2001. SSS stated in said resolution that the dacion en
13
 jurisdiction in the municipal courts or in the
pago proposal of AG&P Co. of Manila and Semirara Coals courts of first instance would depend on the
Corporation to pay their liabilities in the total amount amount of the claim. However, where the basic
issue is something other than the right to
of P30,652,710.71 as of 31 March 2001 by offering their 5.8 ha. recover a sum of money, where the money claim
property located in San Pascual, Batangas, be, as it is hereby, is purely incidental to, or a consequence of, the
principal relief sought, this Court has considered
approved..[9] This statement unequivocally evinces its consent to such actions as cases where the subject of the
litigation may not be estimated in terms of
the dacion en pago. In Vda. de Jayme v. Court of Appeals,[10] the
money, and are cognizable exclusively by courts
Court ruled significantly as follows: of first instance (now Regional Trial Courts).[14]

In fine, the Court finds the decision of the Court of Appeals

Dacion en pago is the delivery and
transmission of ownership of a thing by the in accord with law and jurisprudence.
debtor to the creditor as an accepted
equivalent of the performance of the
obligation. It is a special mode of payment WHEREFORE, the petition is DENIED. The Decision dated 31 August
where the debtor offers another thing to the 2006 of the Court of Appeals Eleventh Division in CA-G.R. CV No.
creditor who accepts it as equivalent of
payment of an outstanding debt. The 83775 AFFIRMED.
undertaking really partakes in one sense of
the nature of sale, that is the creditor is Let the case be remanded to the trial court for further proceedings.
really buying the thing or property of the
debtor, payment for which is to be charged SO ORDERED.
against the debtors debt. As such, the
essential elements of a contract of sale,
namely, consent, object certain, and cause
or consideration must be present. In its Yuson vs. Vitain
modern concept, what actually takes place
in dacion en pago is an objective novation of
the obligation where the thing offered as an
accepted equivalent of the performance of The Case
an obligation is considered as the object of
the contract of sale, while the debt is Before us is a Letter-Complaint[1] for the disbarment of
considered as the purchase price. In any
Atty. Jeremias R. Vitan, filed by Mar Yuson with the Commission on
case, common consent is an essential
prerequisite, be it sale or novation, to have Bar Discipline (CBD) of the Integrated Bar of the Philippines (IBP).
the effect of totally extinguishing the debt or
obligation.[11] Respondent was accused of taking advantage of complainants

generosity and credulity.

The controversy, instead, lies in the non-implementation
of the approved and agreed dacion en pago on the part of the SSS. On August 5, 2004, IBP-CBD directed Atty. Vitan to submit

As such, respondents filed a suit to obtain its enforcement which is, his Answer within 15 days from receipt of the Order;[2] otherwise, he
doubtless, a suit for specific performance and one incapable of would be considered in default and the case heard ex parte.
pecuniary estimation beyond the competence of the
Commission.[12] Pertinently, the Court ruled in Singson v. Isabela Because respondent failed to submit his Answer within

Sawmill,[13] as follows: the given period, the CBD considered his failure and non-appearance

as a waiver of his right to participate in the proceedings. [3] Thus, the

In determining whether an action is
one the subject matter of which is not capable of hearing scheduled for August 11, 2005, pushed through, with the
pecuniary estimation this Court has adopted the
criterion of first ascertaining the nature of the original copies of the checks he had issued presented by
principal action or remedy sought. If it is
primarily for the recovery of a sum of money, complainant as evidence. Afterwards, the CBD issued an Order
the claim is considered capable of pecuniary
estimation, and whether submitting the case for Resolution.[4] On August 23, 2005,

14
Commissioner Milagros V. San Juan rendered her Report and Commerce in Escolta, Manila. The six dishonored checks

Recommendation.[5] were presented during the hearing before the IBP commissioner.[10]

Respondent denied having received a copy of the Complainant maintained that he had repeatedly tried to

Complaint against him and alleged that it was only on August 24, recover the debt, only to be turned away empty-handed each

2005, that he received the Order submitting the case for time. He conceded, though, that respondent had given an

resolution. Thus, he filed an Urgent Motion to Revive/Re-open and undisclosed amount covered by the checks dated January and

with Leave to Admit Attached Answer.[6] February 2003.[11] The amounts covered by the dishonored checks

remained unpaid.
In its Resolution No. XVII-2005-101 dated October 22,

2005, the IBP Board of Directors adopted and approved, with This development prompted complainant to seek the aid

modification, the investigating commissioners Report and of the IBP National Committee on Legal Aid (NCLA) in obtaining

Recommendation. Upon respondent was imposed the penalty of payment. On November 14, 2003, the IBP-NCLA, through Deputy

suspension from the practice of law for two years, after the board Director Rosalie J. de la Cruz, sent him a letter.[12] It informed him of

found that he had taken advantage of complainant through deceit the impending administrative case and advised him to confer with

and dishonesty. The lawyer was further ordered to give back the complainant, presumably to settle the matter. Upon receipt[13] of

money he had received from complainant. the letter, he again gave assurances that he would pay the loan in

time for the debut.[14]

The Facts

When the date passed without any payment, complainant

Complainant Mar Yuson was a taxi driver with eight
demanded a collateral to secure the loan. Thus, in his favor,
children. In October 2002, he received a sum of money by way of
Atty. Vitan executed a document denominated as a Deed of
inheritance. According to him, he and his wife intended to use the
Absolute Sale, covering the latters parcel of land located in Sta. Maria,
money to purchase a taxi, repair their dilapidated house, and hold a
Bulacan. According to complainant, their intention was to transfer
debut party for their daughter.[7]
the title of the property to him temporarily, so that he could either

They were able to purchase a secondhand taxi, and Atty. sell or mortgage[15] it. It was further agreed that, if it was mortgaged,

Vitan helped him with all the legal matters concerning this respondent would redeem it as partial or full payment of the

purchase. Regrettably, their other plans were put on hold, because loan.[16]

the lawyer borrowed P100,000 from them in December 2002. It was

Curiously, however, the parties executed a second Deed of
agreed that the loan would be repaid before the end of the
Absolute Sale,[17] this time in favor of Atty. Vitan, with complainant
following year,[8] in time for the debut on November 24, 2003.[9]
as vendor. The purpose of this particular document was not

To guarantee payment, respondent executed in favor of explained by either party.

complainant several postdated checks to cover the loaned amount.

On April 12, 2004, complainant was able to
Those checks, however, turned out to be worthless, because they
mortgage[18] the property for P30,000.[19] Contrary to their earlier
had been drawn against the lawyers closed account in the Bank of
agreement, respondent did not redeem it from the mortgagee and,
15
instead, simply sent complainant a letter[20] dated July 7, 2004, Report of the Investigating Commissioner

promising to pay on or before July 12, 2004. As this promise was not
In her Report and Recommendation, Commissioner San
fulfilled, the mortgagee demanded payment from complainant and
Juan recommended that Atty. Vitan be suspended until his
thereby allegedly exposed the latter to shame and ridicule.[21]
restitution of the amount he had borrowed. She held that

On July 19, 2004, IBP-NCLA sent another letter[22] on respondent, having taken advantage of complainant and thus shown

behalf of complainant. Respondent was informed that an dishonesty and untrustworthiness, did not deserve to retain his

administrative case would be filed against him, unless he settled his membership in the bar.

obligations by July 30, 2004, the date given by complainant.

On November 24, 2005, the Supreme Court received the

On August 30, 2004, the IBP-NCLA received the IBP Resolution adopting, with modification, the Report and

reply[23] dated July 30, 2004, submitted by Atty. Vitan who explained Recommendation of the investigating commissioner.

that he had already settled his obligation. He maintained that he had The Courts Ruling

in fact executed, in complainants favor, a Deed of Absolute Sale over

We agree with the findings of the IBP Board of Governors,
his 203-square-meter residential property in Sta. Maria, Bulacan. He
but reduce the period of suspension to six months.
clarified that [their] understanding was that [complainant] ha[d] the

option to use, mortgage or sell [the property] and return to me the Respondents Administrative Liability
excess of the proceeds after obtaining his money represented by my
Lawyers are instruments for the administration of justice.
six (6) dishonored checks.[24] Interestingly, respondent attached the
They are expected to maintain not only legal proficiency but also a
Deed of Absolute Sale in which he was the vendee and complainant
high standard of ethics, honesty, integrity and fair dealing. In this
the vendor.[25] It appears that this was the second Deed of Absolute
way, the peoples faith and confidence in the judicial system is
Sale, also referred to in the Complaint.[26]
ensured.[32]
Only after the IBP investigating commissioner had
In the present case, Atty. Vitan undoubtedly owed money
rendered her Report and Recommendation[27] did Atty. Vitan submit
to complainant. In a letter[33] to IBP Deputy Director de la Cruz,
his Answer to the Letter-Complaint. He called the second document
respondent admitted having incurred the P100,000 loan. It was only
a Counter Deed of Sale, executed as a sort of collateral/security for
in his Answer[34] that the lawyer suddenly denied that he had
the account of [his] liaison officer [Evelyn Estur].[28] He admitted
personally incurred this obligation. This time, he pointed to his
having given several postdated checks amounting to P100,000,
employee, Estur, as the true debtor. We find his version of the facts
supposedly to guarantee the indebtedness of Estur to
implausible.
complainant. Atty. Vitan argued for the first time that it was she who

had incurred the debts, and that he had acted only as a character
reference and/or guarantor.[29] He maintained that he had given in
to the one-sided transactions, because he was completely
spellbound by complainants seeming sincerity and kindness.[30] To
corroborate his statements, he attached Esturs Affidavit.[31]
First, the story involving a certain Evelyn Estur was clearly
a mere afterthought, conjured simply to escape his liability. If it were
true that it was she who owed the money, he should have
mentioned this alleged fact in his letter to the IBP NCLA deputy
16
director. Instead, respondent was completely silent about Estur and comport themselves in a manner that will secure and preserve the

merely asserted that he had already settled his debt with respect and confidence of the public for the legal profession.[40]

complainant.
Atty. Vitan contends that his obligation was already

Second, the promise of Atty. Vitan to settle his obligations extinguished, because he had allegedly sold his Bulacan property to

on particular dates is contained in two handwritten notes signed by complainant.[41] Basically, respondent is asserting that what had

him and worded as follows: transpired was a dation in payment. Governed by the law on sales, it

I undertake to settle the financial is a transaction that takes place when a piece of property is
obligations of P100,000 plus before the end of
alienated to the creditor in satisfaction of a debt in money. [42] It
the year.[35]
involves delivery and transmission of ownership of a thing -- by the
Mar:
debtor to the creditor -- as an accepted equivalent of the
We will settle on July 12, 2004, on or
before said date.[36] performance of the obligation.[43]

Going over the records of this case, we find the contention

The wordings of these promissory notes disclose that he
of Atty. Vitan undeserving of credence. The records reveal that he
had a personal obligation to complainant, without any mention
did not really intend to sell and relinquish ownership over his
of Estur at all. If it were true that Atty. Vitan had executed those
property in Sta. Maria, Bulacan, notwithstanding the execution of a
notes for the account of his liaison officer, he should have used
Deed of Absolute Sale in favor of complainant. The second Deed of
words to that effect. As a lawyer, he was aware that the preparation
Absolute Sale, which reconveyed the property to respondent, is
of promissory notes was not a mere formality; it had legal
proof that he had no such intention. This second Deed, which he
consequences. It is quite far-fetched for a lawyer to assume the role
referred to as his safety net,[44] betrays his intention to counteract
of guarantor, without saying so in the notes.
the effects of the first one .
A lawyer may be disciplined for evading the payment of a
In a manner of speaking, Atty. Vitan was taking back with
debt validly incurred.[37] In this case, the failure of Atty. Vitan to pay
his right hand what he had given with his left. The second Deed of
his debt for over three years despite repeated demands puts in
Absolute Sale returned the parties right back where they started, as
question his standing as a member of the bar. Worse, he made
if there were no sale in favor of complainant to begin with. In effect,
several promises to pay his debt promptly, but reneged on all of
on the basis of the second Deed of Sale, respondent took back and
them. He even started to hide from complainant according to the
asserted his ownership over the property despite having allegedly
latter .[38]
sold it. Thus, he fails to convince us that there was a bona
Failure to honor just debts, particularly from clients, fide dation in payment or sale that took place between the parties;
constitutes dishonest conduct that does not speak well of a member that is, that there was an extinguishment of obligation.
of the bar.[39] It is vital that a lawyers conduct be kept beyond
It appears that the true intention of the parties was to use
reproach and above suspicion at all times. Rule 1.01 of the Code of
the Bulacan property to facilitate payment. They only made it
Professional Responsibility clearly provides that lawyers must not
appear that the title had been transferred to complainant to
engage in unlawful, immoral or deceitful conduct. They must

17
 Rule 1.01 A lawyer shall not engage in
authorize him to sell or mortgage the unlawful, dishonest, immoral or deceitful
property.[45] Atty. Vitan himself admitted in his letter dated July 30, conduct.

2004, that their intention was to convert the property into cash, so
Any wrongdoing, whether professional or nonprofessional,
that payment could be obtained by complainant and the excess
indicating unfitness for the profession justifies disciplinary action.[48]
returned to respondent.[46] The records, however, do not show that

the proceeds derived were sufficient to discharge the obligation of There is yet another reason to find

the lawyer fully; thus, he is still liable to the extent of the deficiency. Atty. Vitan administratively liable. In his letter of July 30, 2004, was

an admission that the personal checks he issued in favor of

We hasten to add, however, that this administrative case
complainant had all been dishonored.[49] Whether those checks
is not the proper venue for us to determine the extent of the
were issued for the account of respondent or of Estur is not
remaining liability. This Court will not act as a collection agency from
important. The fact remains that the lawyer knowingly issued
faltering debtors, when the amount of the indebtedness is indefinite
worthless checks and thus revealed his disposition to defraud
and disputed.[47]
complainant.

Nevertheless, the records satisfactorily reveal the failure

The act of a lawyer in issuing a check without sufficient
of respondent to live up to his duties as a lawyer in consonance with
funds to cover them -- or, worse, drawn against a closed account --
the strictures of the Lawyers Oath, the Code of Professional
constitutes such willful dishonesty and unethical conduct as to
Responsibility, and the Canons of Professional Ethics, thereby
undermine the public confidence in the law and in lawyers.[50] The
degrading not only his person but his profession as well. So far, we
act also manifests a low regard for the Oath taken by the lawyer
find that his lack of sincerity in fulfilling his obligations is revealed by
upon joining the profession, whose image should be held in high
his acts of issuing promissory notes and reneging on them; executing
esteem, not seriously and irreparably tarnished.[51]
a simulated Deed of Absolute Sale; and breaking his promise to

redeem the property from the mortgagee. Moreover, the inimical effect of the issuance of worthless

checks has been recognized by this Court in an earlier case, from

The repeated failure of Atty. Vitan to fulfill his promise
which we quote:
puts in question his integrity and character. Indeed, not only his
[T]he effect [of issuance of worthless
integrity as an individual but, more important, his stature as a checks] transcends the private interests of the
parties directly involved in the transaction and
member of the bar is affected by his acts of welching on his
touches the interests of the community at
promises and misleading complainant. Canon 1 and Rule 1.01 of the large. The mischief it creates is not only a
wrong to the payee or holder, but also an injury
Code of Professional Responsibility explicitly state thus: to the public since the circulation of valueless
commercial papers can very well pollute the
channels of trade and commerce, injure the
CANON 1 A lawyer shall uphold the banking system and eventually hurt the welfare
constitution, obey the laws of the land and of society and the public interest.[52]
promote respect for law and legal processes.

18

We have also held that the deliberate failure to pay just
debts and the issuance of worthless checks constitute gross
misconduct,[53] for which a lawyer may be sanctioned with one years
suspension from the practice of law,[54] or a suspension of six
months upon partial payment of the obligation.[55]
In the instant case, complainant himself admits that
respondent had already paid the amounts covered by the January
and February checks.[56] Thus, there has been a partial payment that
justifies a modification of IBPs recommended penalty.
WHEREFOR Atty. Jeremias R. Vitan is hereby found guilty
of gross misconduct and SUSPENDED from the practice of law for six
(6) months, effective upon his receipt of this Decision, with the
warning that a repetition of the same or any other misconduct will
be dealt with more severely.
Let a copy of this Decision be entered in respondents
record as a member of the Bar, and notice served on the Integrated
Bar of the Philippines and on the Office of the Court Administrator
for circulation to all courts in the country. SO ORDERED.
G.R. No. 82508 September 29, 1989
FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY
BANG,*respondents.
Labaquis, Loyola, Angara and Associates for petitioner.
Alfredo 1. Raya for private respondents.
SARMIENTO, J.:
This is a petition for review on certiorari of the decision, 1 dated
March 17, 1988, of the Court of Appeals which affirmed with
modification the decision 2 of the Regional Trial Court of Quezon,
Branch LIX, Lucena City. The controversy stemmed from the
following facts: The private respondents, the spouses Jose Sy Bang
and Iluminada Tan, were engaged in the sale of gravel produced
from crushed rocks and used for construction purposes. In order to
increase their production, they engaged the services of Mr. Ruben
Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to
look for a rock crusher which they could buy. Mr. Mercurio referred
the private respondents to the Rizal Consolidated Corporation which
then had for sale one such machinery described as:
ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT
(RECONDITIONED) [sic]
JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16
3 UNITS PRODUCT CONVEYOR
75 HP ELECTRIC MOTOR
8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD
RUNNING CONDITION 3
Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went
to inspect the machine at the Rizal Consolidated's plant site.
Apparently satisfied with the machine, the private respondents
signified their intent to purchase the same. They were however
confronted with a problem-the rock crusher carried a cash price tag
of P 550,000.00. Bent on acquiring the machinery, the private
respondents applied for financial assistance from the petitioner,
Filinvest Credit Corporation. The petitioner agreed to extend to the
private respondents financial aid on the following conditions: that
the machinery be purchased in the petitioner's name; that it be
leased (with option to purchase upon the termination of the lease
period) to the private respondents; and that the private respondents
execute a real estate mortgage in favor of the petitioner as security
for the amount advanced by the latter. Accordingly, on May
18,1981, a contract of lease of machinery (with option to purchase)
was entered into by the parties whereby the private respondents
agreed to lease from the petitioner the rock crusher for two years
starting from July 5, 1 981 payable as follows:
P10,000.00 - first 3 months
23,000.00 - next 6 months
24,800.00 - next 15 months
The contract likewise stipulated that at the end of the two-year
period, the machine would be owned by the private respondents.
Thus, the private respondents issued in favor of the petitioner a
check for P150,550.00, as initial rental (or guaranty deposit), and
twenty-four (24) postdated checks corresponding to the 24 monthly
rentals. In addition, to guarantee their compliance with the lease
contract, the private respondents executed a real estate mortgage
over two parcels of land in favor of the petitioner. The rock crusher
was delivered to the private respondents on June 9, 1981. Three
months from the date of delivery, or on September 7, 1981,
however, the private respondents, claiming that they had only
tested the machine that month, sent a letter-complaint to the
petitioner, alleging that contrary to the 20 to 40 tons per hour
capacity of the machine as stated in the lease contract, the machine
could only process 5 tons of rocks and stones per hour. They then
demanded that the petitioner make good the stipulation in the lease
contract. They followed that up with similar written complaints to
the petitioner, but the latter did not, however, act on them.
19
Subsequently, the private respondents stopped payment on the
remaining checks they had issued to the petitioner. 5
As a consequence of the non-payment by the private respondents of
the rentals on the rock crusher as they fell due despite the repeated
written demands, the petitioner extrajudicially foreclosed the real
estate mortgage. 6 On April 18, 1983, the private respondents
received a Sheriff s Notice of Auction Sale informing them that their
mortgaged properties were going to be sold at a public auction on
May 25, 1983 at 10:00 o'clock in the morning at the Office of the
Provincial Sheriff in Lucena City to satisfy their indebtedness to the
petitioner. 7 To thwart the impending auction of their properties, the
private respondents filed before the Regional Trial Court of Quezon,
on May 4, 1983, 8 a complaint against the petitioner, for the
rescission of the contract of lease, annullment of the real estate
mortgage, and for injunction and damages, with prayer for the
issuance of a writ of preliminary injunction. 9 On May 23, 1983, three
days before the scheduled auction sale, the trial court issued a
temporary restraining order commanding the Provincial Sheriff of
Quezon, and the petitioner, to refrain and desist from proceeding
with the public auction. 10 Two years later, on September 4, 1985,
the trial court rendered a decision in favor of the private
respondents, the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. making the injunction permanent;
2. rescinding the contract of lease of the machinery and equipment
and ordering the plaintiffs to return to the defendant corporation
the machinery subject of the lease contract, and the defendant
corporation to return to plaintiffs the sum of P470,950.00 it received
from the latter as guaranty deposit and rentals with legal interest
thereon until the amount is fully restituted;
3. annulling the real estate mortgage constituted over the properties
of the plaintiffs covered by Transfer Certificate of Title Nos. T32480
and T-5779 of the Registry of Deeds of Lucena City;
4. ordering the defendant corporation to pay plaintiffs P30,000.00 as
attorney's fees and the costs of the suit.
SO ORDERED. 11
Dissatisfied with the trial court's decision, the petitioner elevated
the case to the respondent Court of Appeals.
On March 17, 1988, the appellate court, finding no error in the
appealed judgment, affirmed the same in toto. 12Hence, this
petition.
Before us, the petitioner reasserts that the private respondents'
cause of action is not against it (the petitioner), but against either
the Rizal Consolidated Corporation, the original owner-seller of the
subject rock crusher, or Gemini Motors Sales which served as a
conduit facilitator of the purchase of the said machine. The
petitioner argues that it is a financing institution engaged in quasi-
banking activities, primarily the lending of money to entrepreneurs
such as the private respondents and the general public, but certainly
not the leasing or selling of heavy machineries like the subject rock
crusher. The petitioner denies being the seller of the rock crusher
and only admits having financed its acquisition by the private
respondents. Further, the petitioner absolves itself of any liability
arising out of the lease contract it signed with the private
respondents due to the waiver of warranty made by the latter. The
petitioner likewise maintains that the private respondents being
presumed to be knowledgeable about machineries, should be held
responsible for the detection of defects in the machine they had
acquired, and on account of that, they are estopped from claiming
any breach of warranty. Finally, the petitioner interposed the
defense of prescription, invoking Article 1571 of the Civil Code,
which provides:
Art. 1571. Actions arising from the provisions of the preceding ten
articles shall be barred after six months, from the delivery of the
thing sold.
We find the petitioner's first contention untenable. While it is
accepted that the petitioner is a financing institution, it is not,
however, immune from any recourse by the private respondents.
Notwithstanding the testimony of private respondent Jose Sy Bang
that he did not purchase the rock crusher from the petitioner, the
fact that the rock crusher was purchased from Rizal Consolidated
Corporation in the name and with the funds of the petitioner proves
beyond doubt that the ownership thereof was effectively
transferred to it. It is precisely this ownership which enabled the
petitioner to enter into the "Contract of Lease of Machinery and
Equipment" with the private respondents.
Be that as it may, the real intention of the parties should prevail. The
nomenclature of the agreement cannot change its true essence, i.e.,
a sale on installments. It is basic that a contract is what the law
defines it and the parties intend it to be, not what it is called by the
parties. 13 It is apparent here thatthe intent of the parties to the
subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock
crusher, subject matter of the contract, would become the property
of the private respondents. This form of agreement has been
criticized as a lease only in name. Thus in Vda. de Jose v.
Barrueco 14 we stated:
Sellers desirous of making conditional sales of their goods, but who
do not wish openly to make a bargain in that form, for one reason or
another, have frequently resorted to the device of making contracts
in the form of leases either with options to the buyer to purchase for
a small consideration at the end of term, provided the so-called rent
has been duly paid, or with stipulations that if the rent throughout
the term is paid, title shall thereupon vest in the lessee. It is obvious
that such transactions are leases only in name. The so-called rent
must necessarily be regarded as payment of the price in installments
since the due payment of the agreed amount results, by the terms
of bargain, in the transfer of title to the lessee. 15
The importance of the criticism is heightened in the light of Article
1484 of the new Civil Code which provides for the remedies of an
unpaid seller of movables on installment basis.
Article 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:
20
 (1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage or the thing sold, if one
has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the
contrary shall be void.
Under the aforequoted provision, the seller of movables in
installments, in case the buyer fails to pay two or more installments
may elect to pursue either of the following remedies: (1) exact
fulfillment by the purchaser of the obligation; (2) cancel the sale; or
(3) foreclose the mortgage on the purchased property if one was
constituted thereon. It is now settled that the said remedies are
alternative and not cumulative and therefore, the exercise of one
bars the exercise of the others.
Indubitably, the device contract of lease with option to buy is at
times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains,
likewise, the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in
the payment of the installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold. More
important, the vendor, after repossessing the property and, in
effect, canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid. It is thus for these reasons
that Article 1485 of the new Civil Code provides that:
Article 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of
possession or enjoyment of the thing. (Emphasis ours.)
Unfortunately, even with the foregoing findings, we however fail to
find any reason to hold the petitioner liable for the rock crusher's
failure to produce in accordance with its described capacity.
According to the petitioner, it was the private respondents who
chose, inspected, and tested the subject machinery. It was only after
they had inspected and tested the machine, and found it to their
satisfaction, that the private respondents sought financial aid from
the petitioner. These allegations of the petitioner had never been
rebutted by the private respondents. In fact, they were even
admitted by the private respondents in the contract they signed.
Thus:
LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE
hereby confirms and acknowledges that he has independently
inspected and verified the leased property and has selected and
received the same from the Dealer of his own choosing in good
order and excellent running and operating condition and on the
basis of such verification, etc. the LESSEE has agreed to enter into
this Contract." 16
Moreover, considering that between the parties, it is the private
respondents, by reason of their business, who are presumed to be
more knowledgeable, if not experts, on the machinery subject of the
contract, they should not therefore be heard now to complain of any
alleged deficiency of the said machinery. It is their failure or neglect
to exercise the caution and prudence of an expert, or, at least, of a
prudent man, in the selection, testing, and inspection of the rock
crusher that gave rise to their difficulty and to this conflict. A well-
established principle in law is that between two parties, he, who by
his negligence caused the loss, shall bear the same.
At any rate, even if the private respondents could not be adjudged
as negligent, they still are precluded from imputing any liability on
the petitioner. One of the stipulations in the contract they entered
into with the petitioner is an express waiver of warranties in favor of
the latter. By so signing the agreement, the private respondents
absolved the petitioner from any liability arising from any defect or
deficiency of the machinery they bought. The stipulation on the
machine's production capacity being "typewritten" and that of the
waiver being "printed" does not militate against the latter's
effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is
a condition or a description is of no moment. What stands is that the
private respondents had expressly exempted the petitioner from
any warranty whatsoever. Their Contract of Lease Of Machinery And
Equipment states:
WARRANTY-LESSEE absolutely releases the lessor from any liability
whatsoever as to any and all matters in relation to warranty in
accordance with the provisions hereinafter stipulated. 17
Taking into account that due to the nature of its business and its
mode of providing financial assistance to clients, the petitioner deals
in goods over which it has no sufficient know-how or expertise, and
the selection of a particular item is left to the client concerned, the
latter, therefore, shoulders the responsibility of protecting himself
against product defects. This is where the waiver of warranties is of
paramount importance. Common sense dictates that a buyer
inspects a product before purchasing it (under the principle of
caveat emptor or "buyer beware") and does not return it for defects
discovered later on, particularly if the return of the product is not
covered by or stipulated in a contract or warranty. In the case at bar,
to declare the waiver as non-effective, as the lower courts did,
would impair the obligation of contracts. Certainly, the waiver in
question could not be considered a mere surplusage in the contract
between the parties. Moreover, nowhere is it shown in the records
of the case that the private respondent has argued for its nullity or
illegality. In any event, we find no ambiguity in the language of the
waiver or the release of warranty. There is therefore no room for
any interpretation as to its effect or applicability vis-a- vis the
deficient output of the rock crusher. Suffice it to say that the private
respondents have validly excused the petitioner from any warranty
on the rock crusher. Hence, they should bear the loss for any defect
found therein.
WHEREFORE, the Petition is GRANTED; the Decision of the Court of
Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE,
and another one rendered DISMISSING the complaint. Costs against
the private respondents.
SO ORDERED.
21
[G.R. No. 115966. March 20, 2003]
JUANA ALMIRA, RENATO GARCIA, ROGELIO GARCIA, RODOLFO
GARCIA, ROSITA GARCIA, RHODORA GARCIA, ROSALINDA
GARCIA, ROLANDO GARCIA and RAFAEL GARCIA
Represented in this suit by EDGARDO
ALVAREZ, petitioners, vs. COURT OF APPEALS AND
FEDERICO BRIONES, respondents.
DECISION
AZCUNA, J.:
Before us is a petition for review on certiorari assailing the
decision rendered by the Court of Appeals in C.A. G.R. CV No.
40954[1] which reversed the decision of the Regional Trial Court,
Branch 32, of San Pedro, Laguna that rescinded the Kasunduan ng
Pagbibilihan[2] entered into between petitioners and private
respondent over a portion of a parcel of land situated in Sta. Rosa,
Laguna.
The facts of the case are as follows:
Petitioners are the wife and the children of the late Julio
Garcia who inherited from his mother, Maria Alibudbud, a portion of
a 90,655 square-meter property denominated as Lot 1642 of the Sta.
Rosa Estate in Barangay Caingin, Sta. Rosa, Laguna and covered by
TCT No. RT-1076. Lot 1642 was co-owned and registered in the
names of three persons with the following shares: Vicente de
Guzman (), Enrique Hemedes (1/4), and Francisco Alibudbud, the
father of Maria Alibudbud (). Although there was no separate title in
the name of Julio Garcia, there were tax declarations in his name to
the extent of his grandfathers share covering an area of 21,460
square meters. On July 5, 1984, petitioners, as heirs of Julio Garcia,
and respondent Federico Briones entered into a Kasunduan ng
Pagbibilihan (Kasunduan for brevity) over the 21,460 square-meter
portion for the sum of P150,000.00. Respondent paid P65,000.00
upon execution of the contract while the balance of P85,000.00 was
made payable within six (6) months from the date of the execution
of the instrument. At the time of the execution of
the Kasunduan, petitioners allegedly informed respondent that TCT
No. RT-1076 was in the possession of their cousin, Conchalina
Alibudbud who having bought Vicente de Guzmans share, owned
the bigger portion of Lot 1642. This notwithstanding, respondent
willingly entered into the Kasunduan provided that the full payment
of the purchase price will be made upon delivery to him of the
title.[3]
The Kasunduan provides:
Na ang UNANG BAHAGI ay siyang magkakamayari (co-owners),
bilang tagapagmana ng yumaong Julio Garcia sa isang lagay na
lupang taniman ng palay, matatagpuan sa nayon ng Caingin, Santa
Rosa, Laguna, may buong lawak na 21,460 metrong parisukat,
humigit kumulang, na lalong makikilala sa mga katangiang
inilalahad sa pahayag ng Buwis Bilang 3472 na ganito ang
natutunguhan: Mga kahanggan: Hilaga-1641-Nazario Lauriles;
Timog-Barique Hemedez; Silangan- Vicente de Guzman; at Kanluran-
Francisco Alibudbod; hinalagahan para sa pagbabayad ng buwis
pampamahalaan ng P12,720.00; at kasalukuyang may nabibinbing
kahilingan sa hukuman upang magkaroon ng sariling titulo; nalilibot
ng batong mohon na nagsisilbing hanganan sa bawat sulok.
Na ang UNANG BAHAGI ay inialok sa IKALAWANG BAHAGI upang
bilihin ang lupang nabanggit sa kabuuang halagang ISANG DAAN AT
LIMAMPUNG LIBONG (P150,000.00) PISO, Salaping Pilipino, at ang
IKALAWANG BAHAGI ay sumangayon na bilhin ang naulit na lupa
batay sa sumusunod na mga pasubali at Kasunduan:
(1) Na pinatutunayan ng UNANG BAHAGI na tinanggap
nila sa buong kasiyahan ng kalooban buhat sa
IKALAWANG BAHAGI ang halagang ANIMNAPU AT
LIMANG LIBONG (P65,000.00) PISO, salaping Pilipino,
bilang paunang bayad, at ang nalalabing WALUMPU
AT LIMANG LIBONG (85,000.00) PISO, ay babayaran
ng IKALAWANG BAHAGI sa UNANG BAHAGI sa loob
ng anim na buwan simula sa takda ng kasulatang
ito, sa pasubali na ang kaukulang titulo sa lupang
nabanggit ay maipagkakaloob ng UNANG BAHAGI;
(2) Na ang UNANG BAHAGI ang siyang mananagot
tungkol sa anumang kasulatang inihanda ukol sa
pagbibilihang ito, gayundin sa gastos sa notaryo
publiko, capital gains tax at pagpapatala ng
kasulatan sa lalawigan ng Laguna;
(3) Na ang UNANG BAHAGI ay lalagda sa isang
Kasulatan ng Bilihang Tuluyan matapos na
mabayarang lahat ng IKALAWANG BAHAGI ang
kaukulang kabuuang halaga ng lupang nabanggit.
Respondent took possession of the property subject of
the Kasunduan and made various payments to petitioners
amounting to P58,500.00. However, upon failure of petitioners to
deliver to him a separate title to the property in the name of Julio
Garcia, he refused to make further payments, prompting petitioners
to file a civil action before the Regional Trial Court of San Pedro,
Laguna, Branch 32, on May 13, 1991 for (a) rescission of
the Kasunduan; (b) return by respondent to petitioners of the
possession of the subject parcel of land; and (c) payment by
respondent of damages in favor of petitioners.
Petitioners alleged that respondent was bound to pay the
balance of the purchase price within six (6) months from the date of
the execution of the Kasunduan and upon delivery to him of TCT No.
RT-1076. Petitioners claimed that they approached respondent
several times to deliver TCT No. RT-1076 but respondent told them
that he did not have money to pay the balance of the purchase
price.[4]Respondent, on the other hand, filed a counterclaim for
damages and averred that he refused to make further payments
because of petitioners failure to deliver to him a separate title in the
name of Julio Garcia.
On November 26, 1992, the trial court rendered a decision,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendant decreeing the rescission of the Kasunduan
ng Pagbibilihan dated July 5, 1984 and ordering the defendant to
return and restore possession of the property subject of the
Kasunduan ng Pagbibilihan to the plaintiffs. For paucity of evidence,
no judgment can be rendered on the other reliefs prayed for in the
complaint.
22
On the other hand, plaintiffs are hereby ordered to refund to the
defendant the downpayment of P65,000.00 and the partial payment
of the balance totaling to P58,500.00 plus legal interest. Defendants
counterclaim is hereby dismissed for lack of merit. Costs against
defendant.[5]
In its decision, the trial court noted that proceedings for the
issuance of a separate title covering the property subject of sale
entail time and the parties could not have intended delivery by
petitioners to respondent of a separate title in the name of Julio
Garcia as a condition for respondents payment of the full purchase
price within six months from the time of the execution of
the Kasunduan. Said court observed that even if petitioners were
obliged to deliver a separate title in the name of Julio Garcia to
respondent, the latter appeared to have insufficient funds to settle
his obligation as indicated by the fact that his payments amounting
to P58,500.00 were made in trickles, having been given on thirty-
nine occasions within a span of two years from the time of the
execution of the Kasunduan. It concluded that respondent refused
to complete payment of the full purchase price not because of the
failure of petitioners to deliver a separate title in the name of Julio
Garcia but because respondent simply did not have sufficient funds
at hand.
The Court of Appeals, however, noting that
the Kasunduan made no reference to TCT No. RT-1076, reversed the
decision of the trial court, and dismissed the complaint. The
appellate court opined that the parties intended to refer to a
separate title over the 21,460 square meter lot when
the Kasunduan mentioned a kaukulang titulo ng lupang
nabanggit since it was the portion which was covered by a separate
tax declaration in the name of Julio Garcia and it was the portion
that petitioners could sell. The appellate court noted that the
actuations of the parties subsequent to the execution of
the Kasunduan confirmed respondents claim that a separate title to
the property subject of the Kasunduan should be delivered to him.
Nevertheless, respondents counterclaim for damages was dismissed
on the ground that the filing of the complaint for rescission was not
attended by malice, there being an honest difference of opinion
between the parties as to the interpretation of the Kasunduan.
Feeling aggrieved by the aforesaid decision, petitioners filed
before us the instant petition for certiorari, raising issues which may
essentially be summarized as follows: (1) whether payment of the
balance of the purchase price is conditioned upon delivery of a
separate title in the name of Julio Garcia; (2) whether petitioners are
entitled to rescind the Kasunduan for failure of respondent to
complete payment of the purchase price; and (3) whether the Court
of Appeals should have dismissed respondents appeal for failure to
comply with Circular 28-91.
Petitioners contend that the Kasunduan never made a
reference to a title in the name of Julio Garcia and that there was
nothing in the actuations of the parties which would indicate that
full payment of the purchase price is conditioned upon the delivery
to respondent of said title. Petitioners allege that respondent
refused to give further payments not because of their failure to
deliver a separate title in the name of Julio Garcia but because he
simply did not have sufficient funds to complete payment of the
purchase price. Petitioners ask for rescission of
the Kasunduan pursuant to Article 1191 of the Civil Code on the
ground that respondent failed to complete payment of the purchase
price. They further aver that the appellate court should have
dismissed respondents appeal in the first place for failure of
respondent to comply with Circular No. 28-91[6] requiring parties to
submit a certification of non-forum shopping in petitions filed before
the Supreme Court and the Court of Appeals. Petitioners lament that
although they raised the issue regarding respondents procedural
lapse early on at the appellate court, the latter still entertained
respondents appeal.
As a rule, our jurisdiction in cases brought before us from the
Court of Appeals under Rule 45 of the Rules of Court is limited to
reviewing errors of law. Factual findings of the appellate court are
generally binding on us.[7] However, this principle is subject to
certain exceptions such as the situation in this case where the trial
court and the appellate court arrived at diverse factual findings.[8]
The subject of conflicting interpretations between the parties
pertains to the provision in the Kasunduan which states:
(1) Na pinatutunayan ng UNANG BAHAGI na tinanggap nila sa
buong kasiyahan ng kalooban buhat sa IKALAWANG BAHAGI ang
halagang ANIMNAPU AT LIMANG LIBO (P65,000.00) PISO, Salaping
Pilipino, bilang paunang bayad, at ang nalalabing WALUMPU AT
LIMANG LIBONG (85,000.00) PISO ay babayaran ng IKALAWANG
BAHAGI sa UNANG BAHAGI sa loob ng anim na buwan simula sa
takda ng kasulatang ito, sa pasubali na ang kaukulang titulo ng
lupang nabanggit ay maipagkakaloob ng UNANG BAHAGI sa
IKALAWANG BAHAGI
Petitioners allege that the kaukulang titulo ng lupang
nabanggit refers to TCT No. RT-1076 and not to a separate title in
the name of Julio Garcia. Petitioners stress the implausibility of
delivering the separate title to respondent within six (6) months
from the time of the execution of the Kasunduan considering that
issuance of the title required prior settlement of the estates of
Francisco Alibudbud, Vicente de Guzman and Enrique Hemedes;
partition of Lot 1642; and segregation of the portion pertaining to
the share acquired by Julio Garcia. Respondent, for his part, insists
that the kaukulang titulo ng lupang nabanggit refers to a separate
title in the name of Julio Garcia. He argues that he only acceded to
the Kasunduan upon having been assured by petitioners that they
would be able to deliver to him a separate title in the name of Julio
Garcia. Petitioners allegedly told respondent that there was a
pending petition in the court of Bian for the issuance of a separate
title to the subject property.[9]
It is basic in the interpretation and construction of contracts
that the literal meaning of the stipulations shall control if the terms
of the contract are clear and leave no doubt on the intention of the
contracting parties. However, if the terms of the agreement are
ambiguous, resort is made to contract interpretation which is the
determination of the meaning attached to written or spoken words
that make the contract.[10] To ascertain the true intention of the
parties, their subsequent or contemporaneous actions must be
principally considered.
The tenor of the correspondence between petitioners and
respondent shows that the parties intended that a separate title to
the property in the name of Julio Garcia shall be delivered to
respondent as a condition for the latters payment of the balance of
the purchase price. Thus, petitioner Juana Almiras letter dated July
24, 1986 to respondent reads:
23
Ang totoo po ngayon ay kailangan naming ang halagang LABING
LIMANG LIBO (P15,000.00) PISO, yan po ang dahilan kung bakit kami
ay sumulat sa inyo, sapagkat sa mga unang naghawak at nag-ayos
ng papeles ng lupang ito ay hindi nila naayos at hindi nila natapos,
kaya po kami ay nakakita at malaki po ang nagastos naming sa una
na walang nangyari, kaya nga itong huli ay lalong lumaki
Unawain po naman ninyo kami sa halagang kailangan naming para
sa huling gumagawa ng Titulo ng lupa para naman po maayos na
ito.[11]
Respondent signified his willingness to pay the balance of the
purchase price but reminded petitioners of their obligation to
deliver title to the property in the following reply:
Hindi lingid sa inyong kaalaman na sa ilalim ng naubit na Kasunduan
ng Pagbibilihan ay maliwanag ang inyong tungkulin na ipagkaboob
sa amin ang kaukulang titulo ng lupa sa boob ng anim (6) na buwan
simula sa takda ng nasabing kasulatan at kami naman ay
nahahandang magbayad ng lahat ng nalababing kabayaran x x x at
tuwing kayo ay kukuha ng pera ang lagi niyong idinadahilan ay ang
diumano ay paglalakad tungkol sa titulo. x x x[12]
Had the parties intended that petitioners deliver TCT No. RT-
1076 instead of a separate title in the name of Julio Garcia to
respondent, then there would have been no need for petitioners to
ask for partial sums on the ground that this would be used to pay for
the processing of the title to the property. Petitioners had only to
present the existing title, TCT No. RT-1076, to respondent and
demand the balance of the purchase price. This, petitioners did not
do. Instead, they were content to ask small sums from respondent
on thirty-nine occasions for two years before filing an action in court
for rescission of the Kasunduan another five years later. It is readily
discernible from the tenor of various receipts[13] issued by
petitioners that the sums given by respondent on these thirty-nine
occasions were made upon request of petitioners seeking
respondents indulgence. A letter[14] dated October 11, 1984 and
addressed to respondents father, Tata Omy, whom respondent
authorized to give payments during the time he was working abroad
reads:
Tata Omy,
Ako si Rogelio A. Garcia ang sumulat nito at ang maydala ay si
Rolando Garcia na kapatid kong bunso at ito ay pinagawa ng aking
ina si Juana Garcia. Ang dahilan ay mayroon silang nabiling t.v. 17
inches at ngayon ay naririto sa amin. Kaya ako ay labis na nahihiya
sa inyo ni Viring ngunit ano ang magagawa ko para diyan kaya kayo
na ang bahalang magpasensiya sa amin. Ang kailangan nila ay
halagang P800.00 at para mabili nila ang T. V. + P200.00
Ang gumagalang,
(Sgd.) Rogelio Garcia
Received: P1,000.00
By( Sgd). Rosita Garcia
There is thus no basis to conclude that insufficiency of funds
rather than failure of petitioners to deliver a separate title in the
name of Julio Garcia prevented respondent from completing
payment of the purchase price.
That the parties agreed on delivery of a separate title in the
name of Julio Garcia as a condition for respondents payment of the
balance of the purchase price is bolstered by the fact that there was
already an approved subdivision plan of the 21,460 square-meter lot
years before petitioners filed an action in court for rescission.[15] The
parties evidently assumed petitioners would be able to deliver a
separate title in the name of Julio Garcia to respondent within six (6)
months from the time of the execution of the Kasunduan since there
was already a pending petition in court for the issuance of a
separate title to 21,460 square-meter lot at that time.
Unfortunately, the petitioners were not able to secure a separate
title in the name of Julio Garcia within the stipulated period.
Finally, we note that, as quoted earlier, the Kasunduan itself in
its opening paragraph refers to the subject property being sold
as buong lawak na 21,640 metrong parisukat, x x x at sa
kasalukuyan may nabibinbing kahilingan sa hukuman upang
magkaroon ng sariling titulo; x x x. The next paragraph of
the Kasunduan, therefore, which speaks of ang kaukulang titulo sa
lupang nabanggit, clearly refers to the separate title being applied
for, even without resort to extraneous evidence.
Petitioners, however, insist that it was respondents counsel
who prepared the Kasunduan and any ambiguity therein should be
construed against respondent pursuant to Article 1377 of the Civil
Code which states that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the
obscurity.
We find no reason to apply Article 1377 of the Civil Code in
this case where the evident intention of the parties can be readily
discerned by their subsequent and contemporaneous acts. While it
is true that the Kasunduan was prepared by the counsel of
respondent, there is no indication that respondent took unfair
advantage of petitioners when he had the terms of
the Kasunduan drawn by his counsel. Petitioners freely assented to
the Kasunduan which is written entirely in a language spoken and
understood by both parties. That petitioners were fully aware of the
terms of the Kasunduan is evidenced by their attempts to comply
with their obligation by securing a subdivision plan and technical
description[16] of the property subject of sale.
Having ruled that the kaukulang titulo ng lupang
nabanggit refers to a separate title in the name of Julio Garcia, we
proceed to the issue as to whether petitioners may rescind
the Kasunduan pursuant to Article 1191 of the Civil Code for failure
of respondent to give full payment of the balance of the purchase
price.
The rights of the parties are governed by the terms and the
nature of the contract they enter into. Hence, although the nature
of the Kasunduan was never placed in dispute by both parties, it is
necessary to ascertain whether the Kasunduan is a contract to sell or
a contract of sale before the issue as to whether petitioners may ask
for rescission of the contract may be resolved. In a contract to sell,
ownership is, by agreement, reserved to the vendor and is not to
pass until full payment of the purchase price; whereas, in contract of
sale, title to the property passes to the vendee upon delivery of the
thing sold.[17]Non-payment by the vendee in a contract of sale
entitles the vendor to demand specific performance or rescission of
the contract, with damages, under Article 1191 of the Civil Code.
24
 Although both parties have consistently referred to
the Kasunduan as a contract to sell, a careful reading of the
provisions of the Kasunduan reveals that it is a contract of sale. A
deed of sale is absolute in nature in the absence of any stipulation
reserving title to the vendor until full payment of the purchase price.
In such cases ownership of the thing sold passes to the vendee upon
actual or constructive delivery thereof.[18] There is nothing in
the Kasunduan which expressly provides that petitioners retain title
or ownership of the property, until full payment of the purchase
price. The absence of such stipulation in the Kasunduan coupled
with the fact that respondent took possession of the property upon
the execution of the Kasunduan indicate that the parties have
contemplated a contract of absolute sale.
Stated otherwise, there was a perfected contract of sale. The
parties agreed on the sale of a determinate object, i.e., 21, 460
square meters of Lot 1642, covered by a tax declaration in the name
of Julio Garcia, and the price certain therefor, without any
reservation of title on the part of petitioners. Ownership was
effectively conveyed by petitioners to respondent, who was given
possession of the property. The delivery of a separate title in the
name of Julio Garcia was a condition imposed on respondents
obligation to pay the balance of the purchase price. It was not a
condition imposed on the perfection of the contract of sale.
In Laforteza v. Machuca,[19] we stated that the fact that the
obligation to pay the balance of the purchase price was made
subject to the condition that the seller first deliver the reconstituted
title of the property does not make the agreement a contract to sell
for such condition is not inconsistent with a contract of sale.
Addressing now the issue as to whether rescission of
the Kasunduan by petitioners may prosper, we rule in the negative.
The power to rescind is only given to the injured party. The injured
party is the party who has faithfully fulfilled his obligation or is ready
and willing to perform with his obligation. In the case at bar,
petitioners were not ready, willing and able to comply with their
obligation to deliver a separate title in the name of Julio Garcia to
respondent. Therefore, they are not in a position to ask for
rescission of the Kasunduan. Moreover, respondents obligation to
pay the balance of the purchase price was made subject to delivery
by petitioners of a separate title in the name of Julio Garcia within
six (6) months from the time of the execution of the Kasunduan, a
condition with which petitioners failed to comply. Failure to comply
with a condition imposed on the performance of an obligation gives
the other party the option either to refuse to proceed with the sale
or to waive that condition under Article 1545 of the Civil
Code.[20] Hence, it is the respondent who has the option either to
refuse to proceed with the sale or to waive the performance of the
condition imposed on his obligation to pay the balance of the
purchase price.
It follows that, not having established that they were ready,
able and willing to comply with their obligation to deliver to
respondent a separate title in the name of Julio Garcia, petitioners
may not ask for rescission of the Kasunduan nor recover damages.
As regards the issue that the appellate court should have
dismissed respondents appeal for failure of respondent to comply
with Circular No. 28-91 requiring the submission of a certificate of
non-forum shopping in petitions filed before us and the Court of
Appeals, suffice it to say that when technicality deserts its function
of being an aid to justice, the courts are justified in exempting from
its operations a particular case.[21] Procedural rules are intended to
insure the orderly conduct of litigation, because of the higher
objective they seek, which is to protect the parties substantive
rights.[22]
WHEREFORE, the petition is DENIED and the decision
rendered by the Court of Appeals in CA G.R. No. 40954 entitled,
Juana Almira, et al., plaintiffs-appellees v. Federico
Briones, defendant-appellant is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 165168 July 9, 2010
SPS. NONILON (MANOY) and IRENE MONTECALVO, Petitioners,
vs.
HEIRS (Substitutes) OF EUGENIA T. PRIMERO, represented by their
Attorney-in-Fact, ALFREDO T. PRIMERO, JR., Respondents.
DECISION
DEL CASTILLO, J.:
Jurisprudence is replete with rulings that in civil cases, the party who
alleges a fact has the burden of proving it. Burden of proof is the
duty of a party to present evidence on the facts in issue necessary to
prove the truth of his claim or defense by the amount of evidence
required by law.11 In this case, the petitioners awfully failed to
discharge their burden to prove by preponderance of evidence that
the Agreement they entered into with respondents' predecessor-in-
interest is a contract of sale and not a mere contract to sell, or that
said Agreement was novated after the latter subsequently entered
into an oral contract of sale with them over a determinate portion of
the subject property more than a decade ago.
Petitioners filed this appeal from the Decision of the Court of
Appeals (CA) affirming the Regional Trial Court's (RTC's) dismissal of
their action for specific performance where they sought to compel
the respondents to convey the property subject of their purported
oral contract of sale.
Factual Antecedents
The property involved in this case is a portion of a parcel of land
known as Lot No. 263 located at Sabayle Street, Iligan City. Lot No.
263 has an area of 860 square meters covered by Original Certificate
of Title (OCT) No. 0-2712registered in the name of Eugenia Primero
(Eugenia), married to Alfredo Primero, Sr. (Alfredo).
In the early 1980s, Eugenia leased the lot to petitioner Irene
Montecalvo (Irene) for a monthly rental of P500.00. On January 13,
1985, Eugenia entered into an un-notarized Agreement3 with Irene,
where the former offered to sell the property to the latter
for P1,000.00 per square meter. They agreed that Irene would
deposit the amount of P40,000.00 which shall form part of the down
payment equivalent to 50% of the purchase price. They also
stipulated that during the term of negotiation of 30 to 45 days from
receipt of said deposit, Irene would pay the balance of P410,000.00
on the down payment. In case Irene defaulted in the payment of the
down payment, the deposit would be returned within 10 days from
the lapse of said negotiation period and the Agreement deemed
25
terminated. However, if the negotiations pushed through, the
balance of the full value of P860,000.00 or the net amount
of P410,000.00 would be paid in 10 equal monthly installments from
receipt of the down payment, with interest at the prevailing rate.
Irene failed to pay the full down payment within the stipulated 30-
45-day negotiation period. Nonetheless, she continued to stay on
the disputed property, and still made several payments with an
aggregate amount of P293,000.00. On the other hand, Eugenia did
not return the P40,000.00 deposit to Irene, and refused to accept
further payments only in 1992.
Thereafter, Irene caused a survey of Lot No. 263 and the segregation
of a portion equivalent to 293 square meters in her favor. However,
Eugenia opposed her claim and asked her to vacate the property.
Then on May 13, 1996, Eugenia and the heirs of her deceased
husband Alfredo filed a complaint for unlawful detainer against
Irene and her husband, herein petitioner Nonilon Montecalvo
(Nonilon) before the Municipal Trial Court (MTC) of Iligan City.
During the preliminary conference, the parties stipulated that the
issue to be resolved was whether their Agreement had been
rescinded and novated. Hence, the MTC dismissed the case for lack
of jurisdiction since the issue is not susceptible of pecuniary
estimation. The MTC's Decision dismissing the ejectment case
became final as Eugenia and her children did not appeal therefrom.4
On June 18, 1996, Irene and Nonilon retaliated by instituting Civil
Case No. II-3588 with the RTC of Lanao del Norte for specific
performance, to compel Eugenia to convey the 293-square meter
portion of Lot No. 263.5
Proceedings before the Regional Trial Court
Trial on the merits ensued and the contending parties adduced their
respective testimonial and documentary evidence before the trial
court.
Irene testified that after their Agreement for the purpose of
negotiating the sale of Lot No. 263 failed to materialize, she and
Eugenia entered into an oral contract of sale and agreed that the
amount of P40,000.00 she earlier paid shall be considered as down
payment. Irene claimed that she made several payments amounting
to P293,000.00 which prompted Eugenia's daughters Corazon
Calacat (Corazon) and Sylvia Primero (Sylvia) to ask Engr. Antonio
Ravacio (Engr. Ravacio) to conduct a segregation survey on the
subject property. Thereafter, Irene requested Eugenia to execute
the deed of sale, but the latter refused to do so because her son,
Atty. Alfredo Primero, Jr. (Atty. Primero), would not agree.
On March 22, 1999, herein respondents filed with the court a quo a
"Notice of Death of the Defendant"6manifesting that Eugenia passed
away on February 28, 1999 and that the decedent's surviving legal
heirs agreed to appoint their co-heir Atty. Primero, to act as their
representative in said case. In an Order7 dated April 8, 1999, the trial
court substituted the deceased defendant with Atty. Primero.
Respondents, on the other hand, presented the testimony of Atty.
Primero to establish that Eugenia could not have sold the disputed
portion of Lot No. 263 to the petitioners. According to Atty. Primero,
at the time of the signing of the Agreement on January 13, 1985,
Eugenia's husband, Alfredo, was already dead. Eugenia merely
managed or administered the subject property and had no authority
to dispose of the same since it was a conjugal property. In addition,
respondents asserted that the deposit of P40,000.00 was retained as
rental for the subject property.
Respondents likewise presented Sylvia, who testified that the
receipts issued to petitioners were for the lot rentals.8 Another sister
of Atty. Primero, Corazon, testified that petitioners were their
tenants in subject land, which she co-owns with her mother
Eugenia.9 She denied having sold the purported 293-square meter
portion of Lot No. 263 to the petitioners.10
As rebuttal witness, petitioners presented Engr. Ravacio, a surveyor
who undertook the segregation of the 293-square meter portion out
of the subject property.11
On October 22, 2001, the RTC rendered a Decision: 12 (1) dismissing
the complaint and the counterclaim for lack of legal and factual
bases; (2) ordering petitioners to pay respondents P2,500.00
representing rentals due, applying therefrom the amount deposited
and paid; and (3) ordering petitioner to pay 12% legal interest from
finality of decision until full payment of the amount due.13
Aggrieved, petitioners appealed the Decision of the trial court to the
CA.
Proceedings before the Court of Appeals
Both parties filed their respective briefs before the appellate
court.14 Thereafter, on November 28, 2003, the CA rendered a
Decision15 affirming the RTC Decision.16
Petitioners timely filed a Motion for Reconsideration.17 However, in
a Resolution18 dated June 27, 2004, the CA resolved to deny the
same for lack of merit.19
Issues
Petitioners thus filed this Petition for Review on Certiorari anchored
on the following grounds.
1. WHETHER AN ORAL CONTRACT OF SALE OF A PORTION
OF [A] LOT IS BINDING [UPON] THE SELLER.
2. WHETHER A SELLER IN AN ORAL CONTRACT OF SALE OF
A PORTION OF [A] LOT CAN BE COMPELLED TO EXECUTE
THE REQUIRED DEED OF SALE AFTER THE AGREED
CONSIDERATION WAS PAID AND POSSESSION THEREOF
DELIVERED TO AND ENJOYED BY THE BUYER.
3. WHETHER THE BUYER HAS A RIGHT TO ENFORCE AN
ORAL CONTRACT OF SALE AFTER THE PORTION SOLD IS
SEGREGATED BY AGREEMENT OF THE PARTIES.
4. WHETHER THE SELLER IS BOUND BY THE HANDWRITTEN
RECEIPTS PREPARED AND SIGNED BY HER EXPRESSLY
INDICATING PAYMENTS OF LOTS.
26
 5. WHETHER THE TRIAL COURT COULD RENDER A
JUDGMENT ON ISSUES NOT DEFINED IN THE PRE-TRIAL
ORDER.
Our Ruling
The petition lacks merit.
The Agreement dated January 13, 1985 is a contract to sell. Hence,
with petitioners' non-compliance with its terms and conditions, the
obligation of the respondents to deliver and execute the
corresponding deed of sale never arose.
The CA found that the Agreement dated January 13, 1985 is not a
contract of sale but a mere contract to sell, the efficacy of which is
dependent upon the resolutory condition that Irene pay at least 50%
of the purchase price as down payment within 30-45 days from the
day Eugenia received the P40,000.00
deposit.20 Said court further found that such condition was
admittedly not met.21
Petitioners admit that the Agreement dated January 13, 1985 is at
most, "a preliminary agreement for an eventual
contract."22 However, they argue that contrary to the findings of the
appellate court, it was not only the buyer, Irene, who failed to meet
the condition of paying the balance of the 50% down
payment.23 They assert that the Agreement explicitly required
Eugenia to return the deposit of P40,000.00 within 10 days, in case
Irene failed to pay the balance of the 50% down payment within the
stipulated period.24 Thus, petitioners posit that for the cancellation
clause to operate, two conditions must concur, namely, (1) buyer
fails to pay the balance of the 50% down payment within the agreed
period and (2) seller should return the deposit of P40,000.00 within
10 days if the first condition was not complied with. Petitioners
conclude that since both seller and buyer failed to discharge their
reciprocal obligations, being in pari delictu, the seller could not
repudiate their agreement to sell.
The petitioners' contention is without merit.
There is no dispute as to the due execution and existence of the
Agreement. The issue thus presented is whether the said Agreement
is a contract of sale or a contract to sell. For a better understanding
and resolution of the issue at hand, it is apropos to reproduce herein
the Agreement in haec verba:
Agreement
This Agreement, made and executed by and between:
EUGENIA T. PRIMERO, a Filipino of legal age and residing in
Camague, Iligan City (hereinafter called the OWNER)
- and -
IRENE P. MONTECALVO, Filipino of legal age and presently residing
at Sabayle St., Iligan City (hereinafter [called] the INTERESTED
PARTY);
WITNESSETH:
1. That the OWNER is the true and absolute owner of a
parcel of land located at Sabayle St. immediately fronting
the St. Peter's College which is presently leased to the
INTERESTED PARTY;
2. That the property referred to contains an area of EIGHT
HUNDRED SIXTY SQUARE METERS at the value of One
Thousand Pesos (P1,000.00) per square meters;
3. That this agreement is entered into for the purpose of
negotiating the sale of the above referred property
between the same parties herein under the following
terms and conditions, to wit:
a) That the term of this negotiation is for a
period of Thirty to Forty Five (30-45) days from
receipt of a deposit;
b) That Forty Thousand Pesos (P40,000.00) shall
be deposited to demonstrate the interest of the
Interested Party to acquire the property referred
to above, which deposit shall not earn any
interest;
c) That should the contract or agreement push
through the deposit shall form part of the down
payment of Fifty percent (50%) of the total or
full value. Otherwise the deposit shall be
returned within TEN (10) days from the lapse of
the period of negotiation;
4. That should this push through, the balance of Four
Hundred Ten Thousand on the down payment shall be
made upon execution of the Agreement to Sell and the
balance of the full value of Eight Hundred Sixty Thousand
or Four Hundred Ten Thousand Pesos shall be paid in
equal monthly installment within Ten (10) months from
receipt of the down payment with [sic] according to
prevailing interest.
IN WITNESS WHEREOF, the parties have signed these presents in the
City of Iligan this 13th day of January 1985.
(Signed) (Signed)
IRENE PEPITO MONTECALVO EUGENIA TORRES PRIMERO
SIGNED IN THE PRESENCE OF:
(Signed) (Signed)
In Salazar v. Court of Appeals,25 we distinguished a contract of sale
from a contract to sell in that in a contract of sale the title to the
property passes to the buyer upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement, reserved in the seller
and is not to pass to the buyer until full payment of the purchase
27
price. Otherwise stated, in a contract of sale, the seller loses
ownership over the property and cannot recover it until and unless
the contract is resolved or rescinded; whereas, in a contract to sell,
title is retained by the seller until full payment of the price.26 In the
latter contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming
effective.27
In the Agreement, Eugenia, as owner, did not convey her title to the
disputed property to Irene since the Agreement was made for the
purpose of negotiating the sale of the 860-square meter property.28
On this basis, we are more inclined to characterize the agreement as
a contract to sell rather than a contract of sale. Although not by
itself controlling, the absence of a provision in the Agreement
transferring title from the owner to the buyer is taken as a strong
indication that the Agreement is a contract to sell.29
In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment
of the purchase price.30 What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when the
entire amount of the purchase price is delivered to him.31 In other
words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective
buyer.32 A contract to sell is commonly entered into in order to
protect the seller against a buyer who intends to buy the property in
installment by withholding ownership over the property until the
buyer effects full payment therefor.33
In this case, the Agreement expressly provided that it was "entered
into for the purpose of negotiating the sale of the above referred
property between the same parties herein x x x." The term of the
negotiation shall be for a period of 30-45 days from receipt of
the P40,000.00 deposit and the buyer has to pay the balance of the
50% down payment amounting to P410,000.00 within the said
period of negotiation. Thereafter, an Agreement to Sell shall be
executed by the parties and the remainder of the purchase price
amounting to another P410,000.00 shall be paid in 10 equal monthly
installments from receipt of the down payment. The assumption of
both parties that the purpose of the Agreement was for negotiating
the sale of Lot No. 263, in its entirety, for a definite price, with a
specific period for payment of a specified down payment, and the
execution of a subsequent contract for the sale of the same on
installment payments leads to no other conclusion than that the
predecessor-in-interest of the herein respondents and the herein
petitioner Irene entered into a contract to sell.
As stated in the Agreement, the payment of the purchase price, in
installments within the period stipulated, constituted a positive
suspensive condition, the failure of which is not really a breach but
an event that prevents the obligation of the seller to convey title in
accordance with Article 1184 of the Civil Code.34 Hence, for
petitioners' failure to comply with the terms and conditions laid
down in the Agreement, the obligation of the predecessor-in-
interest of the respondents to deliver and execute the
corresponding deed of sale never arose.
The fact that the predecessor-in-interest of the respondents failed
to return the P40,000.00 deposit subsequent to the expiration of the
period of negotiation did not prevent the respondents from
repudiating the Agreement. The obligation of the respondent to
convey the property never came to pass as the petitioners did not
comply with the positive suspensive condition of full payment of the
purchase price within the period as stipulated.
The alleged oral contract of sale for the 293-square meter portion of
the property was not proved by preponderant evidence. Hence,
petitioners cannot compel the successors-in-interest of the
deceased Eugenia to execute a deed of absolute sale in their favor.
Petitioners alleged in their Complaint that in 1992, Eugenia refused
to accept further payments and suggested that she will convey to
petitioners 293 square meters of her 860-square meter property, in
proportion to payments already made. Thus, Eugenia caused the
segregation of the area where the petitioners' building now stands,
consisting of 293 square meters.1avvphi1
In support of their contention, petitioners presented the testimony
of Irene, who testified that Eugenia segregated for them an area of
293 square meters for the agreed price of P1,000.00 per square
meter.35 The total purchase price allegedly agreed upon by the
parties, amounting to P293,000.00, corresponded to the amount of
payments already made by Irene.36 They likewise presented (1) 82
receipts covering the period October 13, 1986 to July 10, 1994;37 (2)
the testimony of the surveyor, Engr. Ravacio, to show that the
segregation survey of the 293-square meter portion of the property
was made with the knowledge and consent of Eugenia; and (3) the
resulting subdivision plan.
On the other hand, respondents counter that the alleged contract of
sale is contradicted by petitioners' own evidence.
We cannot sustain the contention of the petitioners. The primal
issue to be resolved is whether the parties subsequently entered
into a contract of sale over the segregated 293-square meter portion
of Lot No. 263. It is a fundamental principle that for a contract of
sale to be valid, the following elements must be present: (a) consent
or meeting of the minds; (b) determinate subject matter; and (3)
price certain in money or its equivalent.38 Until the contract of sale is
perfected, it cannot, as an independent source of obligation, serve
as a binding juridical relation between the parties.39
Contrary to petitioners' allegations that the 82 receipts indicated
that they were issued "for payment of lot (at Sabayle)",40 a cursory
examination thereof shows that the receipts from 1986 to 1992 do
not consistently indicate "Sabayle Lot" or "Sabayle Lot Deposit".
More than half of the receipts presented merely indicated receipt of
differing sums of money from the petitioners. In addition, the
receipts for the years 1993 to 1994 do not establish installment
payments for the purchase of the disputed portion of Lot No. 263.
Rather, the receipts indicate that the same were issued as proof of
"cash advance",41 "cash for groceries, electric bill, water bill,
telephone/long distance",42 "cash",43 "cash for mktg"44 and "x x x
cash to be paid a month after".45 These are not consistent with the
allegation of the petitioners that they have paid the full amount of
28
the purchase price for the 293-square meter portion of the lot by
1992.
Moreover, the testimony of petitioners' witness, surveyor Engr.
Ravacio, shows that Eugenia was neither around when the survey
was conducted nor gave her express consent to the conduct of the
same.46 On the other hand, respondents' witness, Sylvia, testified
that the receipts issued to the petitioners were for the lot
rentals.47 In addition, respondents' third witness, Corazon, testified
that petitioners were their tenants in subject land, which she co-
owns with her mother Eugenia, and disclaimed any sale of any
portion of their lot to the petitioners.48
Thirdly, since the surveyor himself, Engr. Ravacio, admitted that
Eugenia did not give her express consent to the conduct of the
segregation plan, the resulting subdivision plan, submitted by the
petitioners to the trial court to prove that Eugenia caused the
segregation of the 293-square meter area, cannot be appreciated.
Section 1 of Rule 133 of the Rules of Court provides that in civil
cases, the party having the burden of proof must establish his case
by a preponderance of evidence. However, the evidence presented
by the petitioners, as considered above, fails to convince this Court
that Eugenia gave her consent to the purported oral deed of sale for
the 293-square meter portion of her property. We are hence in
agreement with the finding of the CA that there was no contract of
sale between the parties. As a consequence, petitioners cannot
rightfully compel the successors-in-interest of Eugenia to execute a
deed of absolute sale in their favor.
The courts below correctly modified the rental award to P2,500.00
per month.
Lastly, petitioners argue that the courts below erred in imposing
a P2,500.00 monthly rental from 1985 onwards, since said amount is
far greater than the last agreed monthly rental (December 1984)
of P500.00.
In its Decision, the CA affirmed the ruling of the RTC "that the trial
court had authority to fix a reasonable value for the continued use
and occupancy of the leased premises after the termination of the
lease contract, and that it was not bound by the stipulated rental in
the contract of lease since it is equally settled that upon termination
or expiration of the contract of lease, the rental stipulated therein
may no longer be the reasonable value for the use and occupation of
the premises as a result of the change or rise in values. Moreover,
the trial court can take judicial notice of the general increase in
rentals of real estate especially of business establishments".49 The
appellate court likewise held that the petitioners failed to discharge
their burden to show that the said price was exorbitant or
unconscionable.50 Hence, the CA found no reason to disturb the trial
court's decision ordering the petitioners to pay P2,500.00 as
monthly rentals.51 The appellate court further held that "to deprive
Eugenia of the rentals due her as the owner-lessor of the subject
property would result to unjust enrichment on the part of Irene."52
The courts below correctly took judicial notice of the nature of the
leased property subject of the case at bench based on its location
and commercial viability. As described in the Agreement, the
property is immediately in front of St. Peter's College.53 More
significantly, it is stated in the Declaration of Real Property
submitted by the petitioners as evidence in the trial court, that the
property is used predominantly for commercial purposes.54 The
assessment by the trial court of the area where the property is
located is therefore fairly grounded.
Furthermore, the trial court also had factual basis in arriving at the
said conclusion, the same being based on the un-rebutted testimony
of a witness who is a real estate broker. With respect to the
prevailing valuation of the property in litigation, witness Atty.
Primero, a licensed real estate broker testified that:
x x x There is no fixed pricing for each year because it always
depends on the environment so that if the price in 1986, as you
were referring to 1986, it would have risen or increased
from P1,000.00, then it would increase to P3,000.00, then it would
increase to P7,000.00 and again increase to P15,000.00 and right
now the current price of property in that area is P25,000.00 per
square meter.55
The RTC rightly modified the rental award to P2,500.00 per month,
considering that it is settled jurisprudence that courts may take
judicial notice of the general increase in rentals, particularly in
business establishments.
WHEREFORE, the petition is DENIED. The November 28, 2003
Decision of the Court of Appeals affirming the October 22, 2001
Decision of the Regional Trial Court of Lanao del Norte, Branch 2, is
hereby AFFIRMED.
SO ORDERED.
Mila Reyes vs. Tuparan
Subject of this petition for review is the February 13,
2009 Decision[1] of the Court of Appeals (CA) which affirmed with
modification the February 22, 2006 Decision[2] of the Regional Trial
Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-
92, an action for Rescission of Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a
complaint for Rescission of Contract with Damages against Victoria
T. Tuparan (respondent) before the RTC. In her Complaint, petitioner
alleged, among others, that she was the registered owner of a 1,274
square meter residential and commercial lot located in
Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on
that property, she put up a three-storey commercial building known
as RBJ Building and a residential apartment building; that since 1990,
she had been operating a drugstore and cosmetics store on the
ground floor of RBJ Building where she also had been residing while
the other areas of the buildings including the sidewalks were being
leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a
space on the ground floor of the RBJ Building for her pawnshop
29
business for a monthly rental of 4,000.00. A close friendship
developed between the two which led to the respondent investing
thousands of pesos in petitioners financing/lending business
from February 7, 1990 to May 27, 1990, with interest at the rate of
6% a month.
On June 20, 1988, petitioner mortgaged the subject real
properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL
Bank) to secure a loan of 2,000,000.00 payable in installments.
On November 15, 1990, petitioners outstanding account on the
mortgage reached 2,278,078.13. Petitioner then decided to sell her
real properties for at least 6,500,000.00 so she could liquidate her
bank loan and finance her businesses. As a gesture of friendship,
respondent verbally offered to conditionally buy petitioners real
properties for 4,200,000.00 payable on installment basis without
interest and to assume the bank loan. To induce the petitioner to
accept her offer, respondent offered the following
conditions/concessions:
1. That the conditional sale will be
cancelled if the plaintiff (petitioner) can find a
buyer of said properties for the amount of
6,500,000.00 within the next three (3) months
provided all amounts received by the plaintiff
from the defendant (respondent) including
payments actually made by defendant to
Farmers Savings and Loan Bank would be
refunded to the defendant with additional
interest of six (6%) monthly;
2. That the plaintiff would continue
using the space occupied by her and drugstore
and cosmetics store without any rentals for the
duration of the installment payments;
3. That there will be a lease for fifteen
(15) years in favor of the plaintiff over the space
for drugstore and cosmetics store at a monthly
rental of only 8,000.00 after full payment of the
stipulated installment payments are made by the
defendant;
4. That the defendant will undertake
the renewal and payment of the fire insurance
policies on the two (2) subject buildings
following the expiration of the then existing fire
insurance policy of the plaintiff up to the time
that plaintiff is fully paid of the total purchase
price of 4,200,000.00.[3]
After petitioners verbal acceptance of all the
conditions/concessions, both parties worked together to obtain FSL
Banks approval for respondent to assume her (petitioners)
outstanding bank account. The assumption would be part of
respondents purchase price for petitioners mortgaged real
properties. FSL Bank approved their proposal on the condition that
petitioner would sign or remain as co-maker for the mortgage
obligation assumed by respondent.
On November 26, 1990, the parties and FSL Bank
executed the corresponding Deed of Conditional Sale of Real
Properties with Assumption of Mortgage. Due to their close personal
friendship and business relationship, both parties chose not to
reduce into writing the other terms of their agreement mentioned in
paragraph 11 of the complaint. Besides, FSL Bank did not want to
incorporate in the Deed of Conditional Sale of Real Properties with
Assumption of Mortgage any other side agreement between
petitioner and respondent.
Under the Deed of Conditional Sale of Real Properties
with Assumption of Mortgage, respondent was bound to pay the
petitioner a lump sum of 1.2 million pesos without interest as part
of the purchase price in three (3) fixed installments as follows:
a) 200,000.00 due January 31, 1991
b) 200,000.00 due June 30, 1991
c) 800,000.00 due December 31, 1991
Respondent, however, defaulted in the payment of her
obligations on their due dates. Instead of paying the amounts due in
lump sum on their respective maturity dates, respondent paid
petitioner in small amounts from time to time. To compensate for
her delayed payments, respondent agreed to pay petitioner an
interest of 6% a month. As of August 31, 1992, respondent had only
paid 395,000.00, leaving a balance of 805,000.00 as principal on
the unpaid installments and 466,893.25 as unpaid accumulated
interest.
Petitioner further averred that despite her success in
finding a prospective buyer for the subject real properties within the
3-month period agreed upon, respondent reneged on her promise
to allow the cancellation of their deed of conditional sale. Instead,
respondent became interested in owning the subject real properties
and even wanted to convert the entire property into a modern
30
commercial complex. Nonetheless, she consented because thereon worth more than 4,800,000.00. As the parties could no
respondent repeatedly professed friendship and assured her that all longer be restored to their original positions, rescission could not be
their verbal side agreement would be honored as shown by the fact resorted to.
that since December 1990, she (respondent) had not collected any
rentals from the petitioner for the space occupied by her drugstore
and cosmetics store.
Respondent added that as a result of their business
On March 19, 1992, the residential building was gutted by relationship, petitioner was able to obtain from her a loan in the
fire which caused the petitioner to lose rental income in the amount amount of 400,000.00 with interest and took several pieces of
of 8,000.00 a month since April 1992. Respondent neglected to jewelry worth 120,000.00. Petitioner also failed and refused to pay
renew the fire insurance policy on the subject buildings.
the monthly rental of 20,000.00 since November 16, 1990 up to
the present for the use and occupancy of the ground floor of the
Since December 1990, respondent had taken possession
building on the subject real property, thus, accumulating arrearages
of the subject real properties and had been continuously collecting
in the amount of 470,000.00 as of October 1992.
and receiving monthly rental income from the tenants of the
buildings and vendors of the sidewalk fronting the RBJ building
without sharing it with petitioner.
Ruling of the RTC
On September 2, 1992, respondent offered the amount of
751,000.00 only payable on September 7, 1992, as full payment of
the purchase price of the subject real properties and demanded the
On February 22, 2006, the RTC handed down its decision finding that
simultaneous execution of the corresponding deed of absolute sale.
respondent failed to pay in full the 4.2 million total purchase price
Respondents Answer of the subject real properties leaving a balance of 805,000.00. It
stated that the checks and receipts presented by respondent refer
Respondent countered, among others, that the tripartite
to her payments of the mortgage obligation with FSL Bank and not
agreement erroneously designated by the petitioner as a Deed of
the payment of the balance of 1,200,000.00. The RTC also
Conditional Sale of Real Property with Assumption of Mortgage was
considered the Deed of Conditional Sale of Real Property with
actually a pure and absolute contract of sale with a term period. It
Assumption of Mortgage executed by and among the two parties
could not be considered a conditional sale because the acquisition of
and FSL Bank a contract to sell, and not a contract of sale. It was of
contractual rights and the performance of the obligation therein did
the opinion that although the petitioner was entitled to a rescission
not depend upon a future and uncertain event. Moreover, the
of the contract, it could not be permitted because her non-payment
capital gains and documentary stamps and other miscellaneous
in full of the purchase price may not be considered as substantial
expenses and real estate taxes up to 1990 were supposed to be paid
and fundamental breach of the contract as to defeat the object of
by petitioner but she failed to do so.
the parties in entering into the contract.[4] The RTC believed that the
respondents offer stated in her counsels letter dated September 2,
Respondent further averred that she successfully rescued
1992 to settle what she thought was her unpaid balance of
the properties from a definite foreclosure by paying the assumed
751,000.00 showed her sincerity and willingness to settle her
mortgage in the amount of 2,278,078.13 plus interest and other
obligation. Hence, it would be more equitable to give respondent a
finance charges. Because of her payment, she was able to obtain a
chance to pay the balance plus interest within a given period of
deed of cancellation of mortgage and secure a release of mortgage
time.
on the subject real properties including petitioners ancestral
residential property in Sta. Maria, Bulacan.

Petitioners claim for the balance of the purchase price of

Finally, the RTC stated that there was no factual or legal basis to
the subject real properties was baseless and unwarranted because
award damages and attorneys fees because there was no proof that
the full amount of the purchase price had already been paid, as she
either party acted fraudulently or in bad faith.
did pay more than 4,200,000.00, the agreed purchase price of the
subject real properties, and she had even introduced improvements
31
 Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as
follows:
1. Allowing the defendant to pay the plaintiff
within thirty (30) days from the finality hereof the amount
of 805,000.00, representing the unpaid purchase price of
the subject property, with interest thereon at 2% a month
from January 1, 1992 until fully paid. Failure of the
defendant to pay said amount within the said period shall
cause the automatic rescission of the contract (Deed of
Conditional Sale of Real Property with Assumption of
Mortgage) and the plaintiff and the defendant shall be
restored to their former positions relative to the subject
property with each returning to the other whatever
benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff
to continue using the space occupied by her for drugstore
and cosmetic store without any rental pending payment of
the aforesaid balance of the purchase price.
3. Ordering the defendant, upon her full
payment of the purchase price together with interest, to
execute a contract of lease for fifteen (15) years in favor of
the plaintiff over the space for the drugstore and cosmetic
store at a fixed monthly rental of 8,000.00; and
4. Directing the plaintiff, upon full payment to
her by the defendant of the purchase price together with
interest, to execute the necessary deed of sale, as well as
to pay the Capital Gains Tax, documentary stamps and
other miscellaneous expenses necessary for securing the
BIR Clearance, and to pay the real estate taxes due on the
subject property up to 1990, all necessary to transfer
ownership of the subject property to the defendant.
No pronouncement as to damages, attorneys
fees and costs.
SO ORDERED.[5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with
modification the RTC Decision. The CA agreed with the RTC that the
contract entered into by the parties is a contract to sell but ruled
that the remedy of rescission could not apply because the
respondents failure to pay the petitioner the balance of the
purchase price in the total amount of 805,000.00 was not a breach
of contract, but merely an event that prevented the seller
(petitioner) from conveying title to the purchaser (respondent). It
reasoned that out of the total purchase price of the subject property
in the amount of 4,200,000.00, respondents remaining unpaid
balance was only 805,000.00. Since respondent had already paid a
substantial amount of the purchase price, it was but right and just to
allow her to pay the unpaid balance of the purchase price plus
interest. Thus, the decretal portion of the CA Decision reads:
WHEREFORE, premises considered, the
Decision dated 22 February 2006 and Order
dated 22 December 2006 of the Regional Trial
Court of Valenzuela City, Branch 172 in Civil Case
No. 3945-V-92 are AFFIRMED with
MODIFICATION in that defendant-appellant
Victoria T. Tuparan is hereby ORDERED to pay
plaintiff-appellee/appellant Mila A. Reyes, within
30 days from finality of this Decision, the amount
of 805,000.00 representing the unpaid balance
of the purchase price of the subject property,
plus interest thereon at the rate of 6% per
annum from 11 September 1992 up to finality of
this Decision and, thereafter, at the rate of 12%
per annum until full payment. The ruling of the
trial court on the automatic rescission of the
Deed of Conditional Sale with Assumption of
Mortgage is hereby DELETED. Subject to the
foregoing, the dispositive portion of the trial
courts decision is AFFIRMED in all other respects.
SO ORDERED.[6]
After the denial of petitioners motion for reconsideration
and respondents motion for partial reconsideration, petitioner filed
the subject petition for review praying for the reversal and setting
aside of the CA Decision anchored on the following
32
 ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DISALLOWING THE OUTRIGHT RESCISSION OF
THE SUBJECT DEED OF CONDITIONAL SALE OF
REAL PROPERTIES WITH ASSUMPTION OF
MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARANS FAILURE TO PAY
PETITIONER REYES THE BALANCE OF THE
PURCHASE PRICE OF 805,000.00 IS NOT A
BREACH OF CONTRACT DESPITE ITS OWN
FINDINGS THAT PETITIONER STILL RETAINS
OWNERSHIP AND TITLE OVER THE SUBJECT
REAL PROPERTIES DUE TO RESPONDENTS
REFUSAL TO PAY THE BALANCE OF THE TOTAL
PURCHASE PRICE OF 805,000.00 WHICH IS
EQUAL TO 20% OF THE TOTAL PURCHASE PRICE
OF 4,200,000.00 OR 66% OF THE STIPULATED
LAST INSTALLMENT OF 1,200,000.00 PLUS THE
INTEREST THEREON. IN EFFECT, THE COURT OF
APPEALS AFFIRMED AND ADOPTED THE TRIAL
COURTS CONCLUSION THAT THE RESPONDENTS
NON-PAYMENT OF THE 805,000.00 IS ONLY A
SLIGHT OR CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DISREGARDING AS GROUND FOR THE
RESCISSION OF THE SUBJECT CONTRACT THE
OTHER FRAUDULENT AND MALICIOUS ACTS
COMMITTED BY THE RESPONDENT AGAINST
THE PETITIONER WHICH BY THEMSELVES
SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE
PERIOD OF THIRTY (30) DAYS TO THE
RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER THE 805,000.00 PLUS INTEREST
THEREON.
C. EVEN ASSUMING ARGUENDO THAT
PETITIONER IS NOT ENTITLED TO THE
RESCISSION OF THE SUBJECT CONTRACT, THE
COURT OF APPEALS STILL SERIOUSLY ERRED
AND ABUSED ITS DISCRETION IN REDUCING THE
INTEREST ON THE 805,000.00 TO ONLY 6% PER
ANNUM STARTING FROM THE DATE OF FILING
OF THE COMPLAINT ON SEPTEMBER 11, 1992
DESPITE THE PERSONAL COMMITMENT OF THE
RESPONDENT AND AGREEMENT BETWEEN THE
PARTIES THAT RESPONDENT WILL PAY
INTEREST ON THE 805,000.00 AT THE RATE OF
6% MONTHLY STARTING THE DATE OF
DELINQUENCY ON DECEMBER 31, 1991
D. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF
FACTS RESULTING INTO THE DENIAL OF THE
CLAIM OF PETITIONER REYES FOR ACTUAL
DAMAGES WHICH CORRESPOND TO THE
MILLIONS OF PESOS OF RENTALS/FRUITS OF
THE SUBJECT REAL PROPERTIES WHICH
RESPONDENT TUPARAN COLLECTED
CONTINUOUSLY SINCE DECEMBER 1990, EVEN
WITH THE UNPAID BALANCE OF 805,000.00
AND DESPITE THE FACT THAT RESPONDENT DID
NOT CONTROVERT SUCH CLAIM OF THE
PETITIONER AS CONTAINED IN HER AMENDED
COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION OF FACTS RESULTING INTO THE
DENIAL OF THE CLAIM OF PETITIONER REYES
FOR THE 29,609.00 BACK RENTALS THAT WERE
COLLECTED BY RESPONDENT TUPARAN FROM
THE OLD TENANTS OF THE PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS EARLIER URGENT
MOTION FOR ISSUANCE OF A PRELIMINARY
MANDATORY AND PROHIBITORY INJUNCTION
DATED JULY 7, 2008 AND THE SUPPLEMENT
THERETO DATED AUGUST 4, 2008 THEREBY
CONDONING THE UNJUSTIFIABLE
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO
RESOLVE WITHIN ELEVEN (11) YEARS THE
PETITIONERS THREE (3) SEPARATE MOTIONS
FOR PRELIMINARY INJUNCTION/ TEMPORARY
RESTRAINING ORDER, ACCOUNTING AND
DEPOSIT OF RENTAL INCOME DATED MARCH
17, 1995, AUGUST 19, 1996 AND JANUARY 7,
2006 THEREBY PERMITTING THE RESPONDENT
TO UNJUSTLY ENRICH HERSELF BY
CONTINUOUSLY COLLECTING ALL THE
RENTALS/FRUITS OF THE SUBJECT REAL
PROPERTIES WITHOUT ANY ACCOUNTING AND
COURT DEPOSIT OF THE COLLECTED
RENTALS/FRUITS AND THE PETITIONERS
URGENT MOTION TO DIRECT DEFENDANT
VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL ESTATE TAXES
AND SEF TAXES ON THE SUBJECT REAL
PROPERTIES DATED JANUARY 13,
2007 THEREBY EXPOSING THE SUBJECT REAL
PROPERTIES TO IMMINENT AUCTION SALE BY
THE CITY TREASURER OF VALENZUELA CITY.
33
 G. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS CLAIM FOR MORAL
AND EXEMPLARY DAMAGES AND ATTORNEYS
FEES AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is
whether or not the CA was correct in ruling that there was no legal
basis for the rescission of the Deed of Conditional Sale with
Assumption of Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the
rescission of the subject Deed of Conditional Sale of Real Properties
with Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale
is a reciprocal obligation whose outstanding
characteristic is reciprocity arising from identity
of cause by virtue of which one obligation is
correlative of the other.
2. The petitioner was rescinding not
enforcing the subject Deed of Conditional Sale
pursuant to Article 1191 of the Civil Code
because of the respondents failure/refusal to
pay the 805,000.00 balance of the total
purchase price of the petitioners properties
within the stipulated period ending December
31, 1991.
3. There was no slight or casual breach
on the part of the respondent because she
(respondent) deliberately failed to comply with
her contractual obligations with the petitioner
by violating the terms or manner of payment of
the 1,200,000.00 balance and unjustly enriched
herself at the expense of the petitioner by
collecting all rental payments for her personal
benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is
liable to pay interest at the rate of 6% per month on her unpaid
installment of 805,000.00 from the date of the
delinquency, December 31, 1991, because she obligated herself to
do so.
Finally, the petitioner asserts that her claim for damages
or lost income as well as for the back rentals in the amount of
29,609.00 has been fully substantiated and, therefore, should have
been granted by the CA. Her claim for moral and exemplary
damages and attorneys fees has been likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale
with Assumption of Mortgage entered into between the parties is a
contract to sell and not a contract of sale because the title of the
subject properties still remains with the petitioner as she failed to
pay the installment payments in accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full
balance on the purchase price may not be considered as a
substantial and fundamental breach of the subject contract and it
would be more equitable if she would be allowed to pay the balance
including interest within a certain period of time. She claims that as
early as 1992, she has shown her sincerity by offering to pay a
certain amount which was, however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale
explicitly provides that the installment payments shall not bear any
interest. Moreover, petitioner failed to prove that she was entitled
to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that
the subject Deed of Conditional Sale with Assumption of Mortgage
entered into by and among the two parties and FSL Bank
on November 26, 1990 is a contract to sell and not a contract of
sale. The subject contract was correctly classified as a contract to
sell based on the following pertinent stipulations:
8. That the title and ownership of the
subject real properties shall remain with the First
Party until the full payment of the Second Party
of the balance of the purchase price and
liquidation of the mortgage obligation
of 2,000,000.00. Pending payment of the
balance of the purchase price and liquidation of
the mortgage obligation that was assumed by
34
 the Second Party, the Second Party shall not sell,
transfer and convey and otherwise encumber
the subject real properties without the written
consent of the First and Third Party.
9. That upon full payment by the
Second Party of the full balance of the purchase
price and the assumed mortgage obligation
herein mentioned the Third Party shall issue the
corresponding Deed of Cancellation of Mortgage
and the First Party shall execute the
corresponding Deed of Absolute Sale in favor of
the Second Party.[7]
Based on the above provisions, the title and ownership of
the subject properties remains with the petitioner until the
respondent fully pays the balance of the purchase price and the
assumed mortgage obligation. Thereafter, FSL Bank shall then issue
the corresponding deed of cancellation of mortgage and the
petitioner shall execute the corresponding deed of absolute sale in
favor of the respondent.
Accordingly, the petitioners obligation to sell the subject
properties becomes demandable only upon the happening of the
positive suspensive condition, which is the respondents full payment
of the purchase price. Without respondents full payment, there can
be no breach of contract to speak of because petitioner has no
obligation yet to turn over the title. Respondents failure to pay in full
the purchase price is not the breach of contract contemplated under
Article 1191 of the New Civil Code but rather just an event that
prevents the petitioner from being bound to convey title to the
respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is
enlightening:
The Court holds that the contract entered into
by the Spouses Nabus and respondents was a contract to
sell, not a contract of sale.
A contract of sale is defined in Article 1458 of
the Civil Code, thus:
Art. 1458. By the contract of sale, one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its
equivalent.
xxx
Sale, by its very nature, is a consensual contract
because it is perfected by mere consent. The essential
elements of a contract of sale are the following:
a) Consent or meeting of the minds,
that is, consent to transfer
ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its
equivalent.
Under this definition, a Contract to Sell may not
be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the
prospective seller explicitly reserves the transfer of title to
the prospective buyer, meaning, the prospective seller
does not as yet agree or consent to transfer ownership of
the property subject of the contract to sell until the
happening of an event, which for present purposes we
shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his
promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other
words, the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and, thus,
ownership is retained by the prospective seller without
further remedies by the prospective buyer.
xxx xxx xxx
Stated positively, upon the fulfillment of the
suspensive condition which is the full payment of the
purchase price, the prospective sellers obligation to sell
the subject property by entering into a contract of sale
with the prospective buyer becomes demandable as
provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is reciprocally
demandable.
35
 An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a
bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed
upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may
not even be considered as a conditional contract of sale
where the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive
condition, because in a conditional contract of sale, the
first element of consent is present, although it is
conditioned upon the happening of a contingent event
which may or may not occur. If the suspensive condition is
not fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such
that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation
of law without any further act having to be performed by
the seller.
In a contract to sell, upon the fulfillment of the
suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer
to the buyer although the property may have been
previously delivered to him. The prospective seller still has
to convey title to the prospective buyer by entering into a
contract of absolute sale.
Further, Chua v. Court of Appeals, cited this
distinction between a contract of sale and a contract to
sell:
In a contract of sale, the title to the
property passes to the vendee upon the delivery
of the thing sold; in a contract to sell, ownership
is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of
the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership
over the property and cannot recover it until and
unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by
the vendor until full payment of the price. In the
latter contract, payment of the price is a positive
suspensive condition, failure of which is not a
breach but an event that prevents the obligation
of the vendor to convey title from becoming
effective.
It is not the title of the contract, but its express
terms or stipulations that determine the kind of contract
entered into by the parties. In this case, the contract
entitled Deed of Conditional Sale is actually a contract to
sell. The contract stipulated that as soon as the full
consideration of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by
the vendor to the vendee for the portion sold. Where the
vendor promises to execute a deed of absolute sale upon
the completion by the vendee of the payment of the price,
the contract is only a contract to sell. The aforecited
stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson, since the
Deed of Conditional Sale executed in their favor was
merely a contract to sell, the obligation of the seller to sell
becomes demandable only upon the happening of the
suspensive condition. The full payment of the purchase
price is the positive suspensive condition, the failure of
which is not a breach of contract, but simply an event that
prevented the obligation of the vendor to convey title
from acquiring binding force. Thus, for its non-fulfilment,
there is no contract to speak of, the obligor having failed
to perform the suspensive condition which enforces a
juridical relation. With this circumstance, there can be no
rescission or fulfillment of an obligation that is still non-
existent, the suspensive condition not having occurred as
yet. Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the
obligors failure to comply with an obligation already
extant, not a failure of a condition to render binding that
obligation. [Emphases and underscoring supplied]
Consistently, the Court handed down a similar ruling in the
2010 case of Heirs of Atienza v. Espidol, [9] where it was written:
36
 Regarding the right to cancel the contract for Unless the parties stipulated it, rescission is allowed only
non-payment of an installment, there is need to initially
when the breach of the contract is substantial and fundamental to
determine if what the parties had was a contract of sale
or a contract to sell. In a contract of sale, the title to the the fulfillment of the obligation. Whether the breach is slight or
property passes to the buyer upon the delivery of the substantial is largely determined by the attendant
thing sold. In a contract to sell, on the other hand, the circumstances.[11] In the case at bench, the subject contract
ownership is, by agreement, retained by the seller and is stipulated the following important provisions:
not to pass to the vendee until full payment of the
purchase price. In the contract of sale, the buyers non-
payment of the price is a negative resolutory condition; in
the contract to sell, the buyers full payment of the price is 2. That the purchase price of
a positive suspensive condition to the coming into effect of 4,200,000.00 shall be paid as follows:
the agreement. In the first case, the seller has lost and
cannot recover the ownership of the property unless he
takes action to set aside the contract of sale. In the second a) 278,078.13 received in cash by the
case, the title simply remains in the seller if the buyer does First Party but directly paid to the Third Party as
not comply with the condition precedent of making partial payment of the mortgage obligation of
payment at the time specified in the contract. Here, it is the First Party in order to reduce the amount to
quite evident that the contract involved was one of a 2,000,000.00 only as of November 15, 1990;
contract to sell since the Atienzas, as sellers, were to
retain title of ownership to the land until respondent
Espidol, the buyer, has paid the agreed price. Indeed,
there seems no question that the parties understood this b) 721,921.87 received in cash by the
to be the case. First Party as additional payment of the Second
Party;

Admittedly, Espidol was unable to pay the

second installment of P1,750,000.00 that fell due in c) 1,200,000.00 to be paid in
December 2002. That payment, said both the RTC and the installments as follows:
CA, was a positive suspensive condition failure of which
was not regarded a breach in the sense that there can be
no rescission of an obligation (to turn over title) that did
1. 200,000.00 payable
not yet exist since the suspensive condition had not
on or before January
taken place. x x x. [Emphases and underscoring supplied]
31, 1991;

Thus, the Court fully agrees with the CA when it resolved: 2. 200,000.00 payable
Considering, however, that the Deed of Conditional Sale was not on or before June 30,
cancelled by Vendor Reyes (petitioner) and that out of the total 1991;

purchase price of the subject property in the amount of

3. 800,000.00 payable
4,200,000.00, the remaining unpaid balance of Tuparan on or
(respondent) is only 805,000.00, a substantial amount of the before December 31,
purchase price has already been paid. It is only right and just to 1991;
allow Tuparan to pay the said unpaid balance of the purchase price
Note: All the installments shall not
to Reyes.[10] bear any interest.

Granting that a rescission can be permitted under Article d) 2,000,000.00 outstanding

1191, the Court still cannot allow it for the reason that, considering balance of the mortgage obligation as
of November 15, 1990 which is hereby assumed
the circumstances, there was only a slight or casual breach in the
by the Second Party.
fulfillment of the obligation.

xxx
37
 3. That the Third Party hereby
acknowledges receipts from the Second
Party P278,078.13 as partial payment of the loan
obligation of First Party in order to reduce the
account to only 2,000,000.00 as of November
15, 1990 to be assumed by the Second Party
effective November 15, 1990.[12]
From the records, it cannot be denied that respondent
paid to FSL Bank petitioners mortgage obligation in the amount of
2,278,078.13, which formed part of the purchase price of the
subject property. Likewise, it is not disputed that respondent paid
directly to petitioner the amount of 721,921.87 representing the
additional payment for the purchase of the subject property. Clearly,
out of the total price of 4,200,000.00, respondent was able to pay
the total amount of 3,000,000.00, leaving a balance of
1,200,000.00 payable in three (3) installments.
Out of the 1,200,000.00 remaining balance, respondent
paid on several dates the first and second installments of
200,000.00 each. She, however, failed to pay the third and last
installment of 800,000.00 due on December 31, 1991.
Nevertheless, on August 31, 1992, respondent, through counsel,
offered to pay the amount of 751,000.00, which was rejected by
petitioner for the reason that the actual balance was 805,000.00
excluding the interest charges.
Considering that out of the total purchase price of
4,200,000.00, respondent has already paid the substantial amount
of 3,400,000.00, more or less, leaving an unpaid balance of only
805,000.00, it is right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid purchase price.
The Court agrees with the courts below that the respondent showed
her sincerity and willingness to comply with her obligation when she
offered to pay the petitioner the amount of 751,000.00.
evidence on record to prove that respondent acted fraudulently and
maliciously against the petitioner. In the case of Heirs of Atienza v.
Espidol,[13] it was stated:
Respondents are not entitled to moral
damages because contracts are not referred to
in Article 2219 of the Civil Code, which
enumerates the cases when moral damages may
be recovered. Article 2220 of the Civil Code
allows the recovery of moral damages in
breaches of contract where the defendant acted
fraudulently or in bad faith. However, this case
involves a contract to sell, wherein full payment
of the purchase price is a positive suspensive
condition, the non-fulfillment of which is not a
breach of contract, but merely an event that
prevents the seller from conveying title to the
purchaser. Since there is no breach of contract
in this case, respondents are not entitled to
moral damages.
In the absence of moral, temperate,
liquidated or compensatory damages, exemplary
damages cannot be granted for they are allowed
only in addition to any of the four kinds of
damages mentioned.
WHEREFORE, the petition is DENIED.
SO ORDERED.

On the issue of interest, petitioner failed to substantiate

her claim that respondent made a personal commitment to pay a 6%
monthly interest on the 805,000.00 from the date of
delinquency, December 31, 1991. As can be gleaned from the
contract, there was a stipulation stating that: All the installments
shall not bear interest. The CA was, however, correct in imposing
interest at the rate of 6% per annum starting from the filing of the
complaint on September 11, 1992.

Finally, the Court upholds the ruling of the courts below

regarding the non-imposition of damages and attorneys fees. Aside
from petitioners self-serving statements, there is not enough

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