Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41847 December 12, 1986
CATALINO LEABRES, petitioner,
vs.
COURT OF APPEALS and MANOTOK REALTY, INC., respondents.
Magtanggol C. Gunigundo for petitioner.
Marcelo de Guzman for respondents.

PARAS, J.:
Before Us is a Petition for certiorari to review the decision of the Court of Appeals which
is quoted hereunder:
In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted
decision:
(1) Upon defendant's counterclaim, ordering plaintiff Catalino Leabres to
vacate and/or surrender possession to defendant Manotok Realty, Inc. the
parcel of land subject matter of the complaint described in paragraph 3
thereof and described in the Bill of Particulars dated March 4, 1966;
(2) To pay defendant the sum of P81.00 per month from March 20, 1959, up to
the time he actually vacates and/or surrenders possession of the said parcel of
land to the defendant Manotok Realty, Inc., and
(3) To pay attorney's fees to the defendant in the amount of P700.00 and pay
the costs. (Decision, R.A., pp. 54-55).

Certificates of Title No. 62042; 45142; 45149; 49578; 40957 and 59585. Shortly after the
death of said deceased, plaintiff Catalino Leabres bought, on a partial payment of
Pl,000.00 a portion (No. VIII, Lot No. 1) of the Subdivision from surviving husband
Vicente J. Legarda who acted as special administrator, the deed or receipt of said sale
appearing to be dated May 2, 1950 (Annex "A"). Upon petition of Vicente L. Legarda,
who later was appointed a regular administrator together with Pacifica Price and
Augusto Tambunting on August 28, 1950, the Probate Court of Manila in the Special
Proceedings No. 10808) over the testate estate of said Clara Tambunting, authorized
through its order of November 21, 1951 the sale of the property.
In the meantime, Vicente L. Legarda was relieved as a regular Administrator and the
Philippine Trust Co. which took over as such administrator advertised the sale of the
subdivision which includes the lot subject matter herein, in the issues of August 26 and
27, September 2 and 3, and 15 and 17, 1956 of the Manila Times and Daily Mirror. In the
aforesaid Special Proceedings No. 10808, no adverse claim or interest over the
subdivision or any portion thereof was ever presented by any person, and in the sale
that followed, the Manotok Realty, Inc. emerged the successful bidder at the price of
P840,000.00. By order of the Probate Court, the Philippine Trust Co. executed the Deed
of Absolute Sale of the subdivision dated January 7, 1959 in favor of the Manotok
Realty, Inc. which deed was judicially approved on March 20, 1959, and recorded
immediately in the proper Register of Deeds which issued the corresponding Certificates
of Title to the Manotok Realty, Inc., the defendant appellee herein.
A complaint dated February 8, 1966, was filed by herei n plaintiff, which seeks, among
other things, for the quieting of title over the lot subject matter herein, for continuing
possession thereof, and for damages. In the scheduled hearing of the case, plaintiff
Catalino Leabres failed to appear although he was duly notified, and so the trial Court, in
its order dated September 14, 1967, dismissed the complaint (Annex
"E").<re||an1w> In another order of dismissal was amended as to make the same
refer only to plaintiff's complaint and the counter claim of the defendant was reinstated
and as the evidence thereof was already adduced when defendant presented its
evidence in three other cases pending in the same Court, said counterclaim was also
considered submitted for resolution. The motion for reconsideration dated January 22,
1968 (Annex " I "), was filed by plaintiff, and an opposition thereto dated January 25,
1968, was likewise filed by defendant but the Court a quo dismissed said motion in its
order dated January 12, 1970 (Annex "K"), "for lack of merits" (pp. 71-72, Record on
Appeal).
Appealing the decision of the lower Court, plaintiff-appellant advances the following
assignment of errors:

The facts of this case may be briefly stated as follows:

I
Clara Tambunting de Legarda died testate on April 22, 1950. Among the properties left
by the deceased is the "Legarda Tambunting Subdivision" located on Rizal Avenue
Extension, City of Manila, containing an area of 80,238.90 sq. m., covered by Transfer

THE LOWER COURT ERRED IN DENYING THE MOTION FOR RECONSIDERATION,

DATED OCTOBER 9, 1967, THUS DEPRIVING THE PLAINTIFF-APPELLANT HIS DAY
IN COURT.
II
THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT CATALINO
LEABRES TO VACATE AND/OR SURRENDER THE POSSESSION OF THE LOT
SUBJECT MATTER OF THE COMPLAINT TO DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT TO PAY
DEFENDANT-APPELLEE THE SUM OF P 81.00 PER MONTH FROM MARCH 20,
1969, UP TO THE TIME HE ACTUALLY VACATE THE PARCEL OF LAND.
(Appellant's Brief, p. 7)
In the First Assigned Error, it is contended that the denial of his Motion for
Reconsideration dated October 9, 1967, the plaintiff-appellant was not accorded his day
in Court.
The rule governing dismissal of actions for failure to prosecute is provided for in Section
3, Rule 17 of the Rules of Court, as follows:
If the plaintiff fails to appear at the time of the trial, or to prosecute his action for an
unreasonable length of time, or to comply with these rules or any order of the Court,
the action may be dismissed upon motion of the defendant or upon the Court's own
motion. This dismissal shall have the effect of an adjudication upon the merits, unless
otherwise provided by the Court.
Under the afore-cited section, it is discretionary on the part of the Court to dismiss an
action for failure to prosecute, and its action will not be reversed upon appeal in the
absence of abuse. The burden of showing abuse of this discretion is upon the appellant
since every presumption is toward the correctness of the Court's action (Smith, Bell &
Co., et al vs. American Pres. Lines, Ltd., and Manila Terminal Co., No. L-5304, April 30,
1954; Adorable vs. Bonifacio, G. R. No. L-0698, April 22, 1959); Flores vs. Phil. Alien
Property Administration, G.R. No. L-12741, April 27, 1960). By the doctrine laid down in
these cases, and by the provisions of Secti on 5, Rules 131 of the Rules of Court,
particularly paragraphs (m) and (o) which respectively presume the regularity of official
performance and the passing upon by the Court over all issues within a case, it matters
not if the Court dismissing the action for failure to prosecute assigns any special reason
for its action or not. We take note of the fact that the Order declaring appellant in
default was handed down on September 14, 1967. Appellant took no steps to have this
Order set aside. It was only on January 22, 1968, after he was furnished a copy of the

Court's decision dated December 9, 1967 or about four months later that he attached
this Order and the decision of the Court. Appellant slept on his rights-if he had any. He
had a chance to have his day in Court but he passed it off. Four months later he alleges
that sudden illness had prevented him. We feel appellant took a long time too-long in
fact-to inform the Court of his sudden illness. This sudden illness that according to him
prevented him from coming to Court, and the time it took him to tell the Court about it,
is familiar to the forum as an oft repeated excuse to justify indifference on the part of
litigants or outright negligence of those who represent them which subserves the
interests of justice. In the instant case, not only did the appellant wantonly pass off his
chance to have a day in Court but he has also failed to give a convincing, just and valid
reason for the new hearing he seeks. The trial court found it so; We find it so. The trial
Court in refusing to give appellant a new trial does not appear to have abused his
discretion as to justify our intervention.
The Second and Third Assignments of Error are hereby jointly treated in our discussion
since the third is but a consequence of the second.
It is argued that had the trial Court reconsidered its order dated September 14, 1967
dismissing the complaint for failure to prosecute, plaintiff-appellant might have proved
that he owns the lot subjectmatter of the case, citing the receipt (Annex A) in his favor;
that he has introduced improvements and erected a house thereon made of strong
materials; that appellee's adverse interest over the property was secured in bad faith
since he had prior knowledge and notice of appellant's physical possession or
acquisition of the same; that due to said bad faith appellant has suffered damages, and
that for all the foregoing, the judgment should be reversed and equitable relief be given
in his favor.
As above stated, the Legarda-Tambunting Subdivision which includes the lot subject
matter of the instant case, is covered by Torrens Certificates of Title. Appellant anchors
his claim on the receipt (Annex "A") dated May 2, 1950, which he claims as evidence of
the sale of said lot in his favor. Admittedly, however, Catalino Leabres has not registered
his supposed interest over the lot in the records of the Register of Deeds, nor did he
present his claim for probate in the testate proceedings over the estate of the owner of
said subdivision, in spite of the notices advertised in the papers. (Saldana vs. Phil. Trust
Co., et al.; Manotok Realty, Inc., supra).
On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole
subdivision which includes the subject matter herein by order and with approval of the
Probate Court and upon said approval, the Deed of Absolute Sale in favor of appellee
was immediately registered with the proper Register of Deeds. Manotok Realty, Inc. has
therefore the better right over the lot in question because in cases of lands registered
under the Torrens Law, adverse interests not therein annotated which are without the
previous knowledge by third parties do not bind the latter. As to the improvement
which appellant claims to have introduced on the lot, purchase of registered lands for
value and in good faith hold the same free from all liens and encumbrances except

those noted on the titles of said land and those burdens imposed by law. (Sec. 39, Act.
496).<re||an1w> An occupant of a land, or a purchaser thereof from a person
other than the registered owner, cannot claim good faith so as to be entitled to
retention of the parcels occupied by him until reimbursement of the value of the
improvements he introduced thereon, because he is charged with notice of the
existence of the owner's certificate of title (J.M. Tuason & Co. vs. Lecardo, et al., CA-G.R.
No. 25477-R, July 24, 1962; J.M. Tuason & Co., Inc. vs. Manuel Abundo, CA-G.R. No.
29701-R, November 18, 1968).
Appellant has not convinced the trial Court that appellee acted in bad faith in the
acquisition of the property due to the latter's knowledge of a previous acquisition by the
former, and neither are we impressed by the claim. The purchaser of a registered land
has to rely on the certificate of title thereof. The good faith of appellee coming from the
knowledge that the certificate of title covering the entire subdivision contain no
notation as to appellant's interest, and the fact that the records of these eases like
Probate Proceedings Case No. 10808, do not show the existence of appellant's claim,
strongly support the correctness of the lower Court's decision
WHEREFORE, in view of the foregoi ng, we find no reason to amend or set aside the
decision appealed from, as regards to plaintiff-appellant Catalino Leabres. We therefore
affirm the same, with costs against appellant. (pp. 33-38, Rollo)
Petitioner now comes to us with the following issues:
(1) Whether or not the petitioner was denied his day in court and deprived of
due process of law.
(2) Whether or not the petitioner had to submit his receipt to the probate
court in order that his right over the parcel of land in dispute could be
recognized valid and binding and conclusive against the Manotok Realty, Inc.
(3) Whether or not the petitioner could be considered as a possessor in good
faith and in the concept of owner. (p. 11, Rollo)
Petitioner's contention that he was denied his day in court holds no water. Petitioner
does not deny the fact that he failed to appear on the date set for hearing on
September 14, 1967 and as a consequence of his non-appearance, the order of dismissal
was issued, as provided for by Section 3, Rule 17 of the Revised Rules of Court.
Moreover, as pointed out by private respondent in its brief, the hearing on June 11,
1967 was not ex parte. Petitioner was represented by his counsel on said date, and
therefore, petitioner was given his day in Court.

The main objection of the petition in the lower court's proceeding is the reception of
respondent's evidence without declaring petitioner in default. We find that there was
no necessity to declare petitioner in default since he had filed his answer to the
counterclaim of respondent.
Petitioner anchors his main arguments on the receipt (Exh. 1) dated May 2, 1950, as a
basis of a valid sale. An examination of the receipt reveals that the same can neither be
regarded as a contract of sale or a promise to sell. There was merely an
acknowledgment of the sum of One Thousand Pesos (P1,000.00). There was no
agreement as to the total purchase price of the land nor to the monthly installment to
be paid by the petitioner. The requisites of a valid Contract of Sale namely 1) consent or
meeting of the minds of the parties; 2) determinate subject matter; 3) price certain in
money or its equivalent-are lacking in said receipt and therefore the "sale" is not valid
nor enforceable. Furthermore, it is a fact that Dona Clara Tambunting died on April 22,
1950. Her estate was thereafter under custodia legis of the Probate Court which
appointed Don Vicente Legarda as Special Administrator on August 28, 1950. Don
Vicente Legarda entered into said sale in his own personal-capacity and without court
approval, consequently, said sale cannot bind the estate of Clara Tambunting. Petitioner
should have submitted the receipt of alleged sale to the Probate Court for its approval
of the transactions. Thus, the respondent Court did not err in holding that the peti tioner
should have submitted his receipt to the probate court in order that his right over the
subject land could be recognized-assuming of course that the receipt could be regarded
as sufficient proof.
Anent his possession of the land, petitioner cannot be deemed a possessor in good faith
in view of the registration of the ownership of the land. To consider petitioner in good
faith would be to put a premium on his own gross negligence. The Court resolved to
DENY the petition for lack of merit and to AFFIRM the assailed judgment.
Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8506

August 31, 1956

CELESTINO CO & COMPANY, petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General
Guillermo E. Torres and Solicitor Federico V. Sian for respondent.
BENGZON, J.:
Appeal from a decision of the Court of Tax Appeals.
Celestino Co & Company is a duly registered general copartnership doing business under
the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes
of 7 per cent on the gross receipts of its sash, door and window factory, in accordance
with section one hundred eighty-six of the National Revenue Code imposing taxes on
sale of manufactured articles. However in 1952 it began to claim liability only to the
contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code;
and having failed to convince the Bureau of Internal Revenue, it brought the matter to
the Court of Tax Appeals, where it also failed. Said the Court:
To support his contention that his client is an ordinary contractor . . . counsel
presented . . . duplicate copies of letters, sketches of doors and windows and
price quotations supposedly sent by the manager of the Oriental Sash Factory
to four customers who allegedly made special orders to doors and window
from the said factory. The conclusion that counsel would like us to deduce
from these few exhibits is that the Oriental Sash Factory does not manufacture
ready-made doors, sash and windows for the public but only upon special
order of its select customers. . . . I cannot believe that petitioner company
would take, as in fact it has taken, all the trouble and expense of registering a
special trade name for its sash business and then orders company stationery
carrying the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.)
926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of
doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber,
of the best quality workmanships" solely for the purpose of supplying the
needs for doors, windows and sash of its special and limited customers. One ill
note that petitioner has chosen for its tradename and ha s offered itself to the

public as a "Factory", which means it is out to do business, in its chosen lines

on a big scale. As a general rule, sash factories receive orders for doors and
windows of special design only in particular cases but the bulk of their sales is
derived from a ready-made doors and windows of standard sizes for the
average home. Moreover, as shown from the investigation of petitioner's book
of accounts, during the period from January 1, 1952 to September 30, 1952, it
sold sash, doors and windows worth P188,754.69. I find it difficult to believe
that this amount which runs to six figures was derived by petitioner entirely
from its few customers who made special orders for these items.
Even if we were to believe petitioner's claim that it does not manufacture
ready-made sash, doors and windows for the public and that it makes these
articles only special order of its customers, that does not make it a contractor
within the purview of section 191 of the national Internal Revenue Code. there
are no less than fifty occupations enumerated in the aforesaid section of the
national Internal Revenue Code subject to percentage tax and after reading
carefully each and every one of them, we cannot find under which the business
of manufacturing sash, doors and windows upon special order of customers
fall under the category of "road, building, navigation, artesian well, water
workers and other construction work contractors" are those who alter or
repair buildings, structures, streets, highways, sewers, street railways railroads
logging roads, electric lines or power lines, and includes any other work for the
construction, altering or repairing for which machinery driven by mechanical
power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
Having thus eliminated the feasibility off taxing petitioner as a contractor
under 191 of the national Internal Revenue Code, this leaves us to decide the
remaining issue whether or not petitioner could be taxed with lesser strain and
more accuracy as seller of its manufactured articles under section 186 of the
same code, as the respondent Collector of Internal Revenue has in fact been
doing the Oriental Sash Factory was established in 1946.
The percentage tax imposed in section 191 of our Tax Code is generally a tax
on the sales of services, in contradiction with the tax imposed in section 186 of
the same Code which is a tax on the original sales of articles by the
manufacturer, producer or importer. (Formilleza's Commentaries and
Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The fact
that the articles sold are manufactured by the seller does not exchange the
contract from the purview of section 186 of the National Internal Revenue
Code as a sale of articles.
There was a strong dissent; but upon careful consideration of the whole matter are
inclines to accept the above statement of the facts and the law. The important thing to
remember is that Celestino Co & Company habitually makes sash, windows and doors,
as it has represented in its stationery and advertisements to the public. That it

"manufactures" the same is practically admitted by appellant itself. The fact that
windows and doors are made by it only when customers place their orders, does not
alter the nature of the establishment, for it is obvious that it only accepted such orders
as called for the employment of such material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief the appellant's position in this
Court:

On the other hand, petitioner's idea of being a contractor doing construction jobs is
untenable. Nobody would regard the doing of two window panels a construction work
in common parlance.2
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in
filing orders for windows and doors according to specifications, it did not sell, but
merely contracted for particular pieces of work or "merely sold its services".
Said article reads as follows:

Since the petitioner, by clear proof of facts not disputed by the respondent,
manufacturers sash, windows and doors only for special customers and upon
their special orders and in accordance with the desired specifications of the
persons ordering the same and not for the general market: since the doors
ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence
and which never would have existed but for the order of the party desiring it;
and since petitioner's contractual relation with his customers is that of a
contract for a piece of work or since petitioner is engaged in the sale of
services, it follows that the petitioner should be taxed under section 191 of the
Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p.
11-12).
But the argument rests on a false foundation. Any builder or homeowner, with sufficient
money, may order windows or doors of the kind manufactured by this appellant.
Therefore it is not true that it serves special customers only or confines its services to
them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro
& Sons Inc. may purchase from appellant doors of the same kind, provided he pays the
price. Surely, the appellant wi ll not refuse, for it can easily duplicate or even mass produce the same doors-it is mechanically equipped to do so.
That the doors and windows must meet desired specifications is neither here nor there.
If these specifications do not happen to be of the kind habitually manufactured by
appellant special forms for sash, mouldings of panels it would not accept the order
and no sale is made. If they do, the transaction would be no different from a
purchasers of manufactured goods held is stock for sale; they are bought because they
meet the specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with the peculiar
specifications of a customer-sizes not previously held in stock for sale to the public-it
thereby becomes an employee or servant of the customer,1 not the seller of lumber.
The same consideration applies to this sash manufacturer.
The Oriental Sash Factory does nothing more than sell the goods that it mass-produces
or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and
combining them in such forms as its customers may desire.

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

The appealed decision is consequently affirmed. So ordered.

Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix,
JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 71122 March 25, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Generoso Jacinto for respondents.

CORTES, J.:
Assailed in this petition is the decision of the Court of Tax Appeals in CTA case No. 3357
entitled "ARNOLDUS CARPENTRY SHOP, INC. v. COMMISSIONER OF INTERNAL
REVENUE."
The facts are simple.
Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation
which has been in existence since 1960. It has for its secondary purpose the "preparing,
processing, buying, selling, exporting, importing, manufacturing, trading and dealing in
cabinet shop products, wood and metal home and office furniture, cabinets, doors,
windows, etc., including their component parts and materials, of any and all nature and
description" (Rollo, pp. 160-161). These furniture, cabinets and other woodwork were
sold locally and exported abroad.
For this business venture, private respondent kept samples or models of its woodwork
on display from where its customers may refer to when placing their orders.
Sometime in March 1979, the examiners of the petitioner Commissioner of Internal
Revenue conducted an investigation of the business tax liabilities of private respondent
pursuant to Letter of Authority No. 08307 NA dated November 23, 1978. As per the
examination, the total gross sales of private respondent for the year 1977 from both its
local and foreign dealings amounted to P5,162,787.59 (Rollo. p. 60). From this amount,
private respondent reported in its quarterly percentage tax returns P2,471,981.62 for its

gross local sales. The balance of P2,690,805.97, which is 52% of the total gross sales,
was considered as its gross export sales (CTA Decision, p. 12).
Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire
Trinidad made a report to the Commissioner classifying private respondent as an "other
independent contractor" under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code. The
relevant portion of the report reads:
Examination of the records show that per purchase orders, which are
hereby attached, of the taxpayer's customers during the period under
review, subject corporation should be considered a contractor and not
a manufacturer. The corporation renders service in the course of an
independent occupation representing the will of his employer only as
to the result of his work, and not as to the means by which it is
accomplished, (Luzon Stevedoring Co. v. Trinidad, 43 Phil. 803).
Hence, in the computation of the percentage tax, the 3% contractor's
tax should be imposed instead of the 7% manufacturer's tax. [Rollo,
p. 591 (Emphasis supplied.)
xxx xxx xxx
As a result thereof, the examiners assessed private respondent for deficiency tax in the
amount of EIGHTY EIGHT THOUSAND NINE HUNDRED SEVENTY TWO PESOS AND
TWENTY THREE CENTAVOS ( P88,972.23 ). Later, on January 31, 1981, private
respondent received a letter/notice of tax deficiency assessment inclusive of charges
and interest for the year 1977 in the amount of ONE HUNDRED EIGHT THOUSAND
SEVEN HUNDRED TWENTY PESOS AND NINETY TWO CENTAVOS ( P 108,720.92 ). This tax
deficiency was a consequence of the 3% tax imposed on private respondent's gross
export sales which, in turn, resulted from the examiners' finding that categorized private
respondent as a contractor (CTA decision, p.2).
Against this assessment, private respondent filed on February 19, 1981 a protest with
the petitioner Commissioner of Internal Revenue. In the protest letter, private
respondent's manager maintained that the carpentry shop is a manufacturer and
therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the
National Internal Revenue Code. He explained that it was the 7% tax exemption on
export sales which prompted private respondent to exploit the foreign market which
resulted in the increase of its foreign sales to at least 52% of its total gross sales in 1977
(CTA decision, pp. 1213).
On June 23, 1981, private respondent received the final decision of the petitioner
stating:
It is the stand of this Office that you are considered a contractor an
not a manufacturer. Records show that you manufacture woodworks

only upon previous order from supposed manufacturers and only in

accordance with the latter's own design, model number, color, etc.
[Rollo p. 64] (Emphasis supplied.)
On July 22, 1981, private respondent appealed to the Court of Tax Appeals alleging that
the decision of the Commissioner was contrary to law and the facts of the case.
On April 22, 1985, respondent Court of Tax Appeals rendered the questioned decision
holding that private respondent was a manufacturer thereby reversing the decision of
the petitioner.
Hence, this petition for review wherein petitioner raises the sole issue of. Whether or
not the Court of Tax Appeals erred in holding that private respondent is a manufacturer
and not a contractor and therefore not liable for the amount of P108,720.92, as
deficiency contractor's tax, inclusive of surcharge and interest, for the year 1977.
The petition is without merit.
1. Private respondent is a "manufacturer" as defined in the Tax Code and not a
"contractor" under Section 205(e) of the Tax Code as petitioner would have this Court
decide.
(a) Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines
"independent contractors" as:
... persons (juridical and natural) not enumerated above (but not
including individuals subject to the occupation tax under Section 12
of the Local Tax Code) whose activity consists essentially of the sale of
all kinds of services for a fee regardless of whether or not the
performance of the service calls for the exercise or use of the physical
or mental faculties of such contractors or their employees. (Emphasis
supplied.)
Private respondent's business does not fall under this definition.
Petitioner contends that the fact that private respondent "designs and makes samples
or models that are 'displayed' or presented or 'submitted' to prospective buyers who
'might choose' therefrom" signifies that what private respondent is selling is a kind of
service its shop is capable of rendering in terms of woodwork skills and craftsmanship
(Brief for Petitioner, p. 6). He further stresses the point that if there are no orders
placed for goods as represented by the sample or model, the shop does not produce
anything; on the other hand, if there are orders placed, the shop goes into fall
production to fill up the quantity ordered (Petitioner's Brief, p. 7).

The facts of the case do not support petitioner's claim. Petitioner is ignoring the fact
that private respondent sells goods which it keeps in stock and not services. As the
respondent Tax Court had found:
xxx xxx xxx
Petitioner [private respondent herein] claims, and the records bear
petitioner out, that it had a ready stock of its shop products for
sale to its foreign and local buyers. As a matter of fact, the purchase
orders from its foreign buyers showed that they ordered by referring
to the models designated by petitioner. Even purchases by local
buyers for television cabinets (Exhs. '2 to13', pp. 1-13, BIR records)
were by orders for existing models except only for some adjustments
in sizes and accessories utilized.
With regard to the television cabinets, petitioner presented three
witnesses its bookkeeper, production manager and manager who
testified that samples of television cabinets were designed and made
by petitioner, from which models the television companies such as
Hitachi National and others might choose, then specified whatever
innovations they desired. If found to be saleable, some television
cabinets were manufactured for display and sold to the general
public. These cabinets were not exported but only sold locally. (t.s.n.,
pp. 2235, February 18,1982; t.s.n., pp. 7-10, March 25, 1982; t.s.n.,
pp. 3-6, August 10, 1983.)
xxx xxx xxx
In the case of petitioner's other woodwork products such as
barometer cases, knife racks, church furniture, school furniture,
knock down chairs, etc., petitioner's above-mentioned witnesses
testified that these were manufactured without previous
orders. Samples were displayed, and if in stock, were available for
immediate sale to local and foreign customers. Such testimony was
not contradicted by respondent (petitioner herein). And in all the
purchase orders presented as exhibits, whether from foreign or local
buyers, reference was made to the model number of the product
being ordered or to the sample submitted by petitioner.
Respondent's examiners, in their memorandum to the Commissioner
of Internal Revenue, stated that petitioner manufactured only upon
previous orders from customers and "only in accordance with the
latter's own design, model number, color, etc." (Exh. '1', p. 27, BIR
records.) Their bare statement that the model numbers and designs
were the customers' own, unaccompanied by adequate evidence, is

difficult to believe. It ignores commonly accepted and recognized

business practices that it is not the customer but the manufacturer
who furnishes the samples or models from which the customers select
when placing their orders, The evidence adduced by petitioner to
prove that the model numbers and designs were its own is more
convincing [CTA decision, pp. 6-8.] (Emphasis supplied)
xxx xxx xxx
This Court finds no reason to disagree with the Tax Court's finding of fact. It has been
consistently held that while the decisions of the Court of Tax Appeals are appealable to
the Supreme Court, the former's finding of fact are entitled to the highest respect. The
factual findings can only be disturbed on the part of the tax court [Collector of Intern. al
Revenue v. Henderson, L-12954, February 28, 1961, 1 SCRA 649; Aznar v. Court of Tax
Appeals, L-20569, Aug. 23, 1974, 58 SCRA 519; Raymundo v. de Joya, L-27733, Dec. 3,
1980, 101 SCRA 495; Industrial Textiles Manufacturing Co. of the Phils. , Inc. v.
Commissioner of Internal Revenue, L-27718 and L-27768, May 27,1985,136 SCRA 549.]
(b) Neither can Article 1467 of the New Civil Code help petitioner's cause. Article 1467
states:
A contract for the delivery at a certain price of an article Which the vendor in the
ordinary course of his business manufactures or procures for the - general market,
whether the same is on hand at the time or not, is a contract of sale, but if the goods are
to be manufactured specially for the customer and upon his special order, and not for
the general market, it is a contract for a piece of work.
Petitioner alleged that what exists prior to any order is but the sample model only,
nothing more, nothing less and the ordered quantity would never have come into
existence but for the particular order as represented by the sample or model [Brief for
Petitioner, pp. 9-101.]
Petitioner wants to impress upon this Court that under Article 1467, the true test of
whether or not the contract is a piece of work (and thus classifying private respondent
as a contractor) or a contract of sale (which would classify private respondent as a
manufacturer) is the mere existence of the product at the time of the perfection of the
contract such that if the thing already exists, the contract is of sale, if not, it is work.
This is not the test followed in this jurisdiction. As can be clearly seen from the wordings
of Art. 1467, what determines whether the contract is one of work or of sale is whether
the thing has been manufactured specially for the customer and upon his special
order." Thus, if the thing is specially done at the order of another, this is a contract for a
piece of work. If, on the other hand, the thing is manufactured or procured for the
general market in the ordinary course of one's business, it is a b contract of sale.

Jurisprudence has followed this criterion. As held in Commissioner of Internal Revenue v.

Engineering Equipment and Supply Co. (L-27044 and L-27452, June 30, 1975, 64 SCRA
590, 597), "the distinction between a contract of sale and one for work, labor and
materials is tested by the inquiry whether the thing transferred is one not in existence
and which never would have existed but for the order of the party desiring to acquire it,
or a thing which would have existed and has been the subject of sale to some other
persons even if the order had not been given." (Emphasis supplied.) And in a BIR ruling,
which as per Sec. 326 (now Sec. 277) of the Tax Court the Commissioner has the power
to make and which, as per settled jurisprudence is entitled to the greatest weight as an
administrative view [National Federation of Sugar Workers (NFSW) v. Ovejera, G.R. No.
59743, May 31, 1982, 114 SCRA 354, 391; Sierra Madre Trust v. Hon. Sec. of Agriculture
and Natural Resources, Nos. 32370 and 32767, April 20, 1983,121 SCRA 384; Espanol v.
Chairman and Members of the Board of Administrators, Phil. Veterans Administration,
L-44616, June 29, 1985, 137 SCRA 3141, "one who has ready for the sale to the general
public finished furniture is a manufacturer, and the mere fact that he did not have on
hand a particular piece or pieces of furniture ordered does not make him a contractor
only" (BIR Ruling No. 33-1, series of 1960). Likewise,
xxx xxx xxx
When the vendor enters into a contract for the delivery of an article
which in the ordinary course of his business he manufactures or
procures for the general market at a price certain (Art. 1458) such
contract is one of sale even if at the time of contracting he may not
have such article on hand. Such articles fall within the meaning of
"future goods" mentioned in Art. 1462, par. 1. [5 Padilla, Civil Law:
Civil Code Annotated 139 (1974)
xxx xxx xxx
These considerations were what precisely moved the respondent Court of Tax Appeals
to rule that 'the fact that [private respondent] kept models of its products... indicate
that these products were for sale to the general public and not for special orders,'
citing Celestino Co and Co. v. Collector of Internal Revenue [99 Phil, 841 (1956)]. (CTA
Decision, pp. 8-9.)
Petitioner alleges that the error of the respondent Tax Court was due to the 'heavy
albeit misplaced and indiscriminate reliance on the case of Celestino Co and Co. v.
Collector of Internal Revenue [99 Phil. 841, 842 (1956)] which is not a case in point' 1
Brief for Petitioner, pp. 14-15). The Commissioner of Internal Revenue made capital of
the difference between the kinds of business establishments involved a FACTORY in the
Celestino Co case and a CARPENTRY SHOP in this case (Brief for Petitioner, pp. 14-18).
Petitioner seems to have missed the whole point in the former case.

True, the former case did mention the fact of the business concern being a FACTORY,
Thus:
xxx xxx xxx
... I cannot believe that petitioner company would take, as in fact it
has taken, all the trouble and expense of registering a special trade
name for its sash business and then orders company stationery
carrying the bold print "Oriental Sash Factory (Celestino Co and
Company, Prop.) 926 Raon St., Quiapo, Manila, Tel. No. 33076,
Manufacturers of all kinds of doors, windows, sashes furniture, etc.
used season dried and kiln-dried lumber, of the best quality
workmanship" solely for the purpose of supplying the need for doors,
windows and sash of its special and limited customers. One will note
that petitioner has chosen for its trade name and has offered itself to
the public as a FACTORY, which means it is out to do business in its
chosen lines on a big scale. As a general rule, sash factories receive
orders for doors and windows of special design only in particular
cases but the bulk of their sales is derived from ready-made doors
and windows of standard sizes for the average home. [Emphasis
supplied.]
xxx xxx xxx
However, these findings were merely attendant facts to show what the Court was really
driving at thehabituality of the production of the goods involved for the general
public.
In the instant case, it may be that what is involved is a CARPENTRY SHOP. But, in the
same vein, there are also attendant facts herein to show habituality of the production
for the general public.
In this wise, it is noteworthy to again cite the findings of fact of the respondent Tax
Court:
xxx xxx xxx
Petitioner [private respondent herein] claims, and the records bear
petitioner out, that it had a ready stock of its shop products for
sale to its foreign and local buyers. As a matter of fact, the purchase
orders from its foreign buyers showed that they ordered by referring
to the models designed by petitioner. Even purchases by local buyers
for television cabinets... were by orders for existing models. ...

With regard to the television cabinets, petitioner presented three

witnesses... who testified that samples of television cabinets were
designed and made by petitioner, from which models the television
companies ... might choose, then specified whatever innovations they
desired. If found to be saleable, some television cabinets were
manufactured for display and sold to the general public.
xxx xxx xxx
In the case of petitioner's other woodwork products... these were
manufactured without previous orders. Samples were displayed, and
if in stock, were available for immediate sale to local and foreign
customers. (CTA decision, pp. 6-8.1 [Emphasis supplied.]
(c) The private respondent not being a "contractor" as defined by the Tax Code or of the
New Civil Code, is it a 'manufacturer' as countered by the carpentry shop?
Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows:
"Manufacturer" includes every person who by physical or chemical
process alters the exterior texture or form or inner substance of any
raw material or manufactured or partially manufactured product in
such manner as to prepare it for a special use or uses to which it
could not have been in its original condition, or who by any such
process alters the quality or any such raw material or manufactured
or partially manufactured product so as to reduce it to marketable
shape or prepare it for any of the uses of industry, or who by any
such process combines any such raw material or manufactured or
partially manufactured products with other materials or products of
the same or different kinds and in such manner that the finished
product of such process or manufacture can be put to a special use or
uses to which such raw material or manufactured or partially
manufactured products in their original condition would not have
been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines the
same to produce such finished products for the purpose of their sale
or distribution to others and not for his own use or consumption.
It is a basic rule in statutory construction that when the language of the law is clear and
unequivocal, the law must be taken to mean exactly what it says [Banawa et al. v.
Mirano et al., L-24750, May 16, 1980, 97 SCRA 517, 533].
The term "manufacturer" had been considered in its ordinary and general usage. The
term has been construed broadly to include such processes as buying and converting
duck eggs to salted eggs ('balut") [Ngo Shiek v. Collector of Internal Revenue, 100 Phil.

60 (1956)1; the processing of unhusked kapok into clean kapok fiber [Oriental Kapok
Industries v. Commissioner of Internal Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or
making charcoal out of firewood Bermejo v. Collector of Internal Revenue, 87 Phil. 96
(1950)].
2. As the Court of Tax Appeals did not err in holding that private respondent is a
"manufacturer," then private respondent is entitled to the tax exemption under See.
202 (d) and (e) mow Sec. 167 (d) and (e)] of the Tax Code which states:
Sec. 202. Articles not subject to percentage tax on sales. The
following shall be exempt from the percentage taxes imposed in
Sections 194, 195, 196, 197, 198, 199, and 201:
xxx xxx xxx
(d) Articles shipped or exported by the manufacturer or producer,
irrespective of any shipping arrangement that may be agreed upon
which may influence or determine the transfer of ownership of the
articles so exported.
(e) Articles sold by "registered export producers" to (1) other"
registered export producers" (2) "registered export traders' or (3)
foreign tourists or travelers, which are considered as "export sales."
The law is clear on this point. It is conceded that as a rule, as argued by petitioner, any
claim for tax exemption from tax statutes is strictly construed against the taxpayer and
it is contingent upon private respondent as taxpayer to establish a clear right to tax
exemption [Brief for Petitioners, p. 181. Tax exemptions are strictly construed against
the grantee and generally in favor of the taxing authority [City of Baguio v. Busuego, L29772, Sept. 18, 1980, 100 SCRA 1161; they are looked upon with disfavor [Western
Minolco Corp. v. Commissioner Internal Revenue, G.R. No. 61632, Aug. 16,1983,124
1211. They are held strictly against the taxpayer and if expressly mentioned in the law,
must at least be within its purview by clear legislative intent [Commissioner of Customs
v. Phil., Acetylene Co., L-22443, May 29, 1971, 39 SCRA 70, Light and Power Co. v.
Commissioner of Customs, G.R. L-28739 and L-28902, March 29, 1972, 44 SCRA 122].
Conversely therefore, if there is an express mention or if the taxpayer falls within the
purview of the exemption by clear legislative intent, then the rule on strict construction
will not apply. In the present case the respondent Tax Court did not err in classifying
private respondent as a "manufacturer". Clearly, the 'latter falls with the term
'manufacturer' mentioned in Art. 202 (d) and (e) of the Tax Code. As the only question
raised by petitioner in relation to this tax exemption claim by private respondent is the
classification of the latter as a manufacturer, this Court affirms the holding of
respondent Tax Court that private respondent is entitled to the percentage tax
exemption on its export sales.

There is nothing illegal in taking advantage of tax exemptions. When the private
respondent was still exporting less and producing locally more, the petitioner did not
question its classification as a manufacturer. But when in 1977 the private respondent
produced locally less and exported more, petitioner did a turnabout and imposed the
contractor's tax. By classifying the private respondent as a contractor, petitioner would
likewise take away the tax exemptions granted under Sec. 202 for manufacturers.
Petitioner's action finds no support in the applicable law.
WHEREFORE, the Court hereby DENIES the Petition for lack of merit and AFFIRMS the
Court of Tax Appeals decision in CTA Case No. 3357.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Bidin, concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11491

(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said
payment when made shall be considered as a prompt payment, and as such a
deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr.
Parsons may deem convenient to pay in cash.

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered
into by and between the plaintiff, as party of the first part, and J. Parsons (to whose
rights and obligations the present defendant later subrogated itself), as party of the
second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the
latter's establishment in Iloilo, and shall invoice them at the same price he has
fixed for sales, in Manila, and, in the invoices, shall make and allowance of a
discount of 25 per cent of the invoiced prices, as commission on the sale; and
Mr. Parsons shall order the beds by the dozen, whether of the same or of
different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within
a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the vessel at
the point where the beds are received, shall be paid by Mr. Parsons.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of
any alteration in price which he may plan to make in respect to his beds, and
agrees that if on the date when such alteration takes effect he should have any
order pending to be served to Mr. Parsons, such order shall enjoy the
advantage of the alteration if the price thereby be lowered, but shall not be
affected by said alteration if the price thereby be increased, for, in this latter
case, Mr. Quiroga assumed the obligation to invoice the beds at the price at
which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga"
beds.
ART. 2. In compensation for the expenses of advertisement which, for the
benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference to
Mr. Parsons in case anyone should apply for the exclusive agency for any island
not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
"Quiroga" beds in all the towns of the Archipelago where there are no
exclusive agents, and shall immediately report such action to Mr. Quiroga for
his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated
by either of the contracting parties on a previous notice of ninety days to the
other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the
averment that the defendant violated the following obligations: not to sell the beds at
higher prices than those of the invoices; to have an open establishment in Iloilo; itself to
conduct the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen and in no
other manner. As may be seen, with the exception of the obligation on the part of the
defendant to order the beds by the dozen and in no other manner, none of the
obligations imputed to the defendant in the two causes of action are expressly set forth
in the contract. But the plaintiff alleged that the defendant was his agent for the sale of
his beds in Iloilo, and that said obligations are implied in a contract of commercial

agency. The whole question, therefore, reduced itself to a determination as to whether

the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or
an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the
contract in question, what was essential, as constituting its cause and subject matter, is
that the plaintiff was to furnish the defendant with the beds which the latter might
order, at the price stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the plaintiff for the sale of
these beds in Manila, with a discount of from 20 to 25 per cent, according to their class.
Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or
in cash, if the defendant so preferred, and in these last two cases an additional discount
was to be allowed for prompt payment. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the plaintiff to
supply the beds, and, on the part of the defendant, to pay their price. These features
exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal
the price he obtains from the sale of the thing to a third person, and if he does not
succeed in selling it, he returns it. By virtue of the contract between the pl aintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price
within the term fixed, without any other consideration and regardless as to whether he
had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant
and the plaintiff is one of purchase and sale, in order to show that it was not one made
on the basis of a commission on sales, as the plaintiff claims it was, for these contracts
are incompatible with each other. But, besides, examining the clauses of this contract,
none of them is found that substantially supports the plaintiff's contention. Not a single
one of these clauses necessarily conveys the idea of an agency. The words commission
on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself,
than a mere discount on the invoice price. The word agency, also used in articles 2 and
3, only expresses that the defendant was the only one that could sell the plaintiff's beds
in the Visayan Islands. With regard to the remaining clauses, the least that can be said is
that they are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of
the defendant corporation and who established and managed the latter's business in
Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble
with the defendant, had maintained a civil suit against it, and had even accused one of
its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted
the contract Exhibit A, and, when questioned as to what was his purpose in contracting
with the plaintiff, replied that it was to be an agent for his beds and to collect a
commission on sales. However, according to the defendant's evidence, it was Mariano
Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what wa s his idea

in contracting with the plaintiff is of no importance, inasmuch as the agreements

contained in Exhibit A which he claims to have drafted, constitute, as we have said, a
contract of purchase and sale, and not one of commercial agency. This only means that
Ernesto Vidal was mistaken in his classification of the contract. But it must be
understood that a contract is what the law defines it to be, and not what it is called by
the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it
could not sell; that, without previous notice, it forwarded to the defendant the beds
that it wanted; and that the defendant received its commission for the beds sold by the
plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part
of both of them, there was mutual tolerance in the performance of the contract in
disregard of its terms; and it gives no right to have the contract considered, not as the
parties stipulated it, but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in the instant case, its essential agreements are clearly set
forth and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected in
exchange for the price paid for them, but was for other beds of another kind; and for
the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
which shows that it was not considered that the defendant had a right, by virtue of the
contract, to make this return. As regards the shipment of beds without previous notice,
it is insinuated in the record that these brass beds were precisely the ones so shipped,
and that, for this very reason, the plaintiff agreed to their return. And with respect to
the so-called commissions, we have said that they merely constituted a discount on the
invoice price, and the reason for applying this benefit to the beds sold directly by the
plaintiff to persons in Iloilo was because, as the defendant obligated itself in the
contract to incur the expenses of advertisement of the plaintiff's beds, such sales were
to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of i ts breach would only entitle the plaintiff to
disregard the orders which the defendant might place under other conditions; but if the
plaintiff consents to fill them, he waives his right and cannot complain for having acted
thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations the
breach of which is alleged as a cause of action are not imposed upon the defendant,
either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-47538

June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner,

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the
purpose of reviewing its Amusement Company (formerly known as Teatro Arco),
plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in
the Court of First Instance of Manila to secure a reimbursement of certain amounts
allegedly overpaid by it on account of the purchase price of sound reproducing
equipment and machinery ordered by the petitioner from the Starr Piano Company of
Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed
by the appellate court, which are admitted by the respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the
laws of the Philippine Islands, with its office in Manila, was engaged in the
business of operating cinematographs. In 1930, its name was changed to Arco
Amusement Company. C. S. Salmon was the president, while A. B. Coulette
was the business manager. About the same time, Gonzalo Puyat & Sons, Inc.,
another corporation doing business in the Philippine Islands, with office in
Manila, in addition to its other business, was acting as exclusive agents in the
Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It would
seem that this last company dealt in cinematographer equipment and
machinery, and the Arco Amusement Company desiring to equipt its
cinematograph with sound reproducing devices, approached Gonzalo Puyat &
Sons, Inc., thru its then president and acting manager, Gil Puyat, and an
employee named Santos. After some negotiations, it was agreed between the
parties, that is to say, Salmon and Coulette on one side, representing the
plaintiff, and Gil Puyat on the other, representing the defendant, that the
latter would, on behalf of the plaintiff, order sound reproducing equipment

from the Starr Piano Company and that the plaintiff would pay the defendant,
in addition to the price of the equipment, a 10 per cent commission, plus all
expenses, such as, freight, insurance, banking charges, cables, etc. At the
expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr
Piano Company, inquiring about the equipment desired and making the said
company to quote its price without discount. A reply was received by Gonzalo
Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b.
factory Richmond, Indiana. The defendant did not show the plaintiff the cable
of inquiry nor the reply but merely informed the plaintiff of the price of
$1,700. Being agreeable to this price, the plaintiff, by means of Exhibit "1",
which is a letter signed by C. S. Salmon dated November 19, 1929, formally
authorized the order. The equipment arrived about the end of the year 1929,
and upon delivery of the same to the plaintiff and the presentation of
necessary papers, the price of $1.700, plus the 10 per cent commission agreed
upon and plus all the expenses and charges, was duly paid by the plaintiff to
the defendant.
Sometime the following year, and after some negotiations between the same
parties, plaintiff and defendants, another order for sound reproducing
equipment was placed by the plaintiff with the defendant, on the same terms
as the first order. This agreement or order was confirmed by the plaintiff by its
letter Exhibit "2", without date, that is to say, that the plaintiff would pay for
the equipment the amount of $1,600, which was supposed to be the price
quoted by the Starr Piano Company, plus 10 per cent commission, plus all
expenses incurred. The equipment under the second order arrived in due time,
and the defendant was duly paid the price of $1,600 with its 10 per cent
commission, and $160, for all expenses and charges. This amount of $160 does
not represent actual out-of-pocket expenses paid by the defendant, but a
mere flat charge and rough estimate made by the defendant equivalent to 10
per cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one
Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the
officials of the Arco Amusement Company discovered that the price quoted to
them by the defendant with regard to their two orders mentioned was not the
net price but rather the list price, and that the defendants had obtained a
discount from the Starr Piano Company. Moreover, by reading reviews and
literature on prices of machinery and cinematograph equipment, said officials
of the plaintiff were convinced that the prices charged them by the defendant
were much too high including the charges for out-of-pocket expense. For these
reasons, they sought to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent was
one of outright purchase and sale, and absolved that petitioner from the complaint. The

appellate court, however, by a division of four, with one justice dissenting held
that the relation between petitioner and respondent was that of agent and principal,
the petitioner acting as agent of the respondent in the purchase of the equipment in
question, and sentenced the petitioner to pay the respondent alleged overpayments in
the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the
date of the filing of the complaint until said amount is fully paid, as well as to pay the
costs of the suit in both instances. The appellate court further argued that even if the
contract between the petitioner and the respondent was one of purchase and sale, the
petitioner was guilty of fraud in concealing the true price and hence would still be liable
to reimburse the respondent for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate
court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que,
segun hechos, entre la recurrente y la recurrida existia una relacion implicita
de mandataria a mandante en la transaccion de que se trata, en vez de la de
vendedora a compradora como ha declarado el Juzgado de Primera Instncia de
Manila, presidido entonces por el hoy Magistrado Honorable Marcelino
Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que,
suponiendo que dicha relacion fuerra de vendedora a compradora, la
recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto
al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion, y
condenar a la recurrente ha obtenido de la Starr Piano Company of Richmond,
Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the
respondent was one of purchase and sale, and not one of agency, for the reasons now
to be stated.
In the first place, the contract is the law between the parties and should include all the
things they are supposed to have been agreed upon. What does not appear on the face
of the contract should be regarded merely as "dealer's" or "trader's talk", which can not
bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell,
120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill,
173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the
prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject
of its contract with the petitioner, are clear in their terms and admit no other
interpretation that the respondent in question at the prices indicated which are fixed
and determinate. The respondent admitted in its complaint filed with the Court of First
Instance of Manila that the petitioner agreed to sell to it the first sound reproducing
equipment and machinery. The thi rd paragraph of the respondent's cause of action
states:

3. That on or about November 19, 1929, the herein plaintiff (respondent) and
defendant (petitioner) entered into an agreement, under and by virtue of
which the herein defendant was to secure from the United States, and sell and
deliver to the herein plaintiff, certain sound reproducing equipment and
machinery, for which the said defendant, under and by virtue of said
agreement, was to receive the actual cost price plus ten per cent (10%), and
was also to be reimbursed for all out of pocket expenses in connection with
the purchase and delivery of such equipment, such as costs of telegrams,
freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken place
unfavorable to the defendant (petitioner), such as change in prices, mistake in their
quotation, loss of the goods not covered by insurance or failure of the Starr Piano
Company to properly fill the orders as per specifications, the plaintiff (respondent)
might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and
$1,600." This is incompatible with the pretended relation of agency between the
petitioner and the respondent, because in agency, the agent is exempted from all
liability in the discharge of his commission provided he acts in accordance with the
instructions received from his principal (section 254, Code of Commerce), and the
principal must indemnify the agent for all damages which the latter may incur in
carrying out the agency without fault or imprudence on his part (article 1729, Civil
Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent
(10%) commission, this does not necessarily make the petitioner an agent of the
respondent, as this provision is only an additional price which the respondent bound
itself to pay, and which stipulation is not incompatible with the contract of purchase and
sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent of the respondent in the purchase of
equipment and machinery from the Starr Piano Company of Richmond, Indiana, is
incompatible with the admitted fact that the petitioner is the exclusive agent of the
same company in the Philippines. It is out of the ordinary for one to be the agent of
both the vendor and the purchaser. The facts and circumstances indicated do not point
to anything but plain ordinary transaction where the respondent enters into a contract
of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano
Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as
vendee for any difference between the cost price and the sales price which represents
the profit realized by the vendor out of the transaction. This is the very essence of
commerce without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost price as distinguished
from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses

incurred by the petitioner. The distinction which the respondents seeks to draw
between the cost price and the list price we consider to be spacious. It is to be observed
that the twenty-five per cent (25%) discount granted by the Starr piano Company to the
petitioner is available only to the latter as the former's exclusive agent in the
Philippines. The respondent could not have secured this discount from the Starr Piano
Company and neither was the petitioner willing to waive that discount in favor of the
respondent. As a matter of fact, no reason is advanced by the respondent why the
petitioner should waive the 25 per cent discount granted it by the Starr Piano Company
in exchange for the 10 percent commission offered by the respondent. Moreover, the
petitioner was not duty bound to reveal the private arrangement it had with the Starr
Piano Company relative to such discount to its prospective customers, and the
respondent was not even aware of such an arrangement. The respondent, therefore,
could not have offered to pay a 10 per cent commission to the petitioner provided it
was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well
known that local dealers acting as agents of foreign manufacturers, aside from obtaining
a discount from the home office, sometimes add to the list price when they resell to
local purchasers. It was apparently to guard against an exhorbitant additional price that
the respondent sought to limit it to 10 per cent, and the respondent is estopped from
questioning that additional price. If the respondent later on discovers itself at the short
end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract,
much less compel a reimbursement of the excess price, on that ground alone. The
respondent could not secure equipment and machinery manufactured by the Starr
Piano Company except from the petitioner alone; it willingly paid the price quoted; it
received the equipment and machinery as represented; and that was the end of the
matter as far as the respondent was concerned. The fact that the petitioner obtained
more or less profit than the respondent calculated before entering into the contract or
reducing the price agreed upon between the petitioner and the respondent. Not every
concealment is fraud; and short of fraud, it were better that, within certain limits,
business acumen permit of the loosening of the sleeves and of the sharpening of the
intellect of men and women in the business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the appellate
court is accordingly reversed and the petitioner is absolved from the respondent's
complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as
Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee,"
without pronouncement regarding costs. So ordered.
Avancea, C.J., Diaz, Moran and Horrilleno, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the
9th Division, Court of Appeals dated July 31,1981, affirming with modification the
Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case
No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos
and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and
(2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's)
motion for reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot
No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7,
1965, appellants (petitioners) Dignos spouses sold the said parcel of
land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an assumption of
indebtedness with the First Insular Bank of Cebu in the sum of
P12,000.00, which was paid and acknowledged by the vendors in the
deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the
next installment in the sum of P4,000.00 to be paid on or before
September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in
favor of defendants spouses, Luciano Cabigas and Jovita L. De
Cabigas, who were then U.S. citizens, for the price of P35,000.00. A
deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the
Dignos spouses in favor of the Cabigas spouses, and which was
registered in the Office of the Register of Deeds pursuant to the
provisions of Act No. 3344.

As the Dignos spouses refused to accept from plaintiff-appellant the

balance of the purchase price of the land, and as plaintiff- appellant
discovered the second sale made by defendants-appellants to the
Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo,
pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August
25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on
November 25, 1965 by defendant Isabela L. de Dignos in favor of
defendant Luciano Cabigas, a citizen of the United States of America,
null and void ab initio, and the deed of sale executed by defendants
Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded.
Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay
the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants spouses upon the execution of the Deed of absolute Sale of Lot No.
3453, Opon Cadastre and when the decision of this case becomes
final and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants
Luciano Cabigas and Jovita L. de Cabi gas, through their attorney-infact, Panfilo Jabalde, reasonable amount corresponding to the
expenses or costs of the hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and
Isabela Lumungsod de Dignos should return to defendants-spouses
Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as
equity demands that nobody shall enrich himself at the expense of
another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss
(petitioners herein) appealed to the Court of Appeals, which appeal was docketed
therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except
as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses
for the building of a fence upon the land in question. The disposive portion of said
decision of the Court of Appeals reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the

modification of the judgment as pertains to plaintiff-appellant above
indicated, the judgment appealed from is hereby AFFIRMED in all
other respects.

III.

IV.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants - appellants
(petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the
Court of Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court denied the
petition for lack of merit. A motion for reconsideration of said resolution was filed on
March 16, 1982. In the resolution dated April 26,1982, respondents were required to
comment thereon, which comment was filed on May 11, 1982 and a reply thereto was
filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August
9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed,
this Court resolved to reconsider its resolution of February 10, 1982 and to give due
course to the instant petition. On September 6, 1982, respondents filed a rejoinder to
reply of petitioners which was noted on the resolution of September 20, 1982.

V.

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING

THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL
CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD
OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE
BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN
AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT
DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND
MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND
THE LAW APPLICABLE THERETO.

The foregoing assignment of errors may be synthesized into two main issues, to wit:
I. Whether or not subject contract is a deed of absolute sale or a
contract Lot sell.
II. Whether or not there was a valid rescission thereof.
There is no merit in this petition.
It is significant to note that this petition was denied by the Second Division of this Court
in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for
reconsideration and on the basis of all subsequent pleadings filed, the petition was
given due course.
I. The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

Petitioners raised the following assignment of errors:

I.

II.

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN

GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT,
EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER
OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT
AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT
ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING
OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE
CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF
PROMISE TO SELL.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY
APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL
CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE
OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN
JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos

P12,000.00) Phil. Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thousand
Pesos (P12,000.00) Loan from the First Insular Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of Four.
Thousand Pesos (P4,000.00) on or before September 15,1965;
4. That the said spouses agrees to defend the said Atilano G. Jabil
from other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale in
favor of Atilano G. Jabil over the above-mentioned property upon the
payment of the balance of Four Thousand Pesos. (Original Record, pp.
10-11)

In their motion for reconsideration, petitioners reiterated their contention that the
Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the
same is subject to two (2) positive suspensive conditions, namely: the payment of the
balance of P4,000.00 on or before September 15,1965 and the immediate assumption
of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further
contended that in said contract, title or ownership over the property was expressly
reserved in the vendor, the Dignos spouses until the suspensive condition of full and
punctual payment of the balance of the purchase price shall have been met. So that
there is no actual sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners
aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors
thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist
that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of
conveyance is a very strong indication that the parties did not intend "transfer of
ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover,
petitioners anchored their contention on the very terms and conditions of the contract,
more particularly paragraph four which reads, "that said spouses has agreed to sell the
herein mentioned property to Atilano G. Jabil ..." and condition number five which
reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned
property upon the payment of the balance of four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this Court in analogous
cases.
Thus, it has been held that a deed of sale is absolute in nature although denominated as
a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or
stipulation to the effect that title to the property sold is reserved in the vendor until full
payment of the purchase price, nor is there a stipulation giving the vendor the right to
unilaterally rescind the contract the moment the vendee fails to pay within a fixed
period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation reserving
the title of the property on the vendors nor does it give them the right to unilaterally
rescind the contract upon non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of the
Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate
subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477
of the same Code provides that "The ownership of the thing sold shall be transferred to
the vendee upon actual or constructive delivery thereof." As applied in the case of
Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the

absence of stipulation to the contrary, the ownership of the thing sold passes to the
vendee upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold in the
case at bar, as subject Deed of Sale is a private instrument, it is beyond question that
there was actual delivery thereof. As found by the trial court, the Dignos spouses
delivered the possession of the land in question to Jabil as early as March 27,1965 so
that the latter constructed thereon Sally's Beach Resort also known as Ja bil's Beach
Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's
Beach Resort on September 1, 1965. Such facts were admitted by petitioner spouses
(Decision, Civil Case No. 23-L; Record on Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December 16,1981 found that
the acts of petitioners, contemporaneous with the contract, clearly show that an
absolute deed of sale was intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.
II. Petitioners claim that when they sold the land to the Cabigas spouses, the contract of
sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours
with the case at bar, the contract of sale being absolute in nature is governed by Article
1592 of the Civil Code. It is undisputed that petitioners never notified private
respondents Jabil by notarial act that they were rescinding the contract, and neither did
they file a suit in court to rescind the sale. The most that they were able to show is a
letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos
spouses not to go to the house of Jabil because the latter had no money and further
advised petitioners to sell the land in litigation to another party (Record on Appeal, p.
23). As correctly found by the Court of Appeals, there is no showing that Amistad was
properly authorized by Jabil to make such extra-judicial rescission for the latter who, on
the contrary, vigorously denied having sent Amistad to tell petitioners that he was
already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it
is required that acts and contracts which have for their object the extinguishment of
real rights over immovable property must appear in a public document.
Petitioners laid considerable emphasis on the fact that private respondent Jabil had no
money on the stipulated date of payment on September 15,1965 and was able to raise
the necessary amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence of the agreement, a
slight delay on the part of one party in the performance of his obligation is not a
sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra).
Considering that private respondent has only a balance of P4,000.00 and was delayed in

payment only for one month, equity and justice mandate as in the aforecited case that
Jabil be given an additional period within which to complete payment of the purchase
price.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed
decision of the Court of Appeals is Affirmed in toto.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

SECOND DIVISION

[G.R. No. 135528. July 14, 2004]

SPOUSES ORLANDO A. RAYOS and MERCEDES T. RAYOS, petitioners, vs. THE COURT OF
APPEALS and SPOUSES ROGELIO and VENUS MIRANDA, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of
Appeals [2] in CA-G.R. CV No. 46727 which affirmed the Decision [3] of the Regional Trial
Court of Makati, Branch 62, in Civil Case No. 15639 for specific performance and
damages, and Civil Case No. 15984 for sum of money and damages.
The two (2) cases stemmed from the following antecedent facts:
On December 24, 1985, petitioner Orlando A. Rayos, a practicing lawyer, and his
wife, petitioner Mercedes T. Rayos, secured a short-term loan from the Philippine
Savings Bank (PSB) payable within a period of one (1) year in quarterly installments
of P29,190.28, the first quarterly payment to start on March 24, 1986. The loan was
evidenced by a promissory note which the petitioners executed on December 24,
1985.[4] To secure the payment of the loan, the petitioners -spouses executed, on the
same date, a Real Estate Mortgage over their property covered by Transfer Certificate of
Title (TCT) No. 100156 located in Las Pias, Metro Manila. [5]
On December 26, 1985, the petitioners, as vendors, and the respondents, Spouses
Miranda, as vendees, executed a Deed of Sale with Assumption of Mortgage over the
subject property for the price of P214,000.00. However, on January 29, 1986, the
petitioners-spouses, likewise, executed a Contract to Sell the said property in favor of
the respondents forP250,000.00 with the following condition:
3. That upon full payment of the consideration hereof, the SELLER shall execute a Deed
of Absolute Sale in favor of the BUYER that the payment of capital gains tax shall be for
the account of the SELLER and that documentary stamps, transfer tax, registration
expenses for the transfer of title including the notarization and preparation of this
Contract and subsequent documents if any are to be executed, real estate taxes from
January 1, 1986 and other miscellaneous expenses shall be for the account of the
BUYER; the SELLER hereby represents that all association dues has been paid but that
subsequent to the execution of this Contract the payment of the same shall devolve
upon the BUYER.[6]

The petitioners obliged themselves to execute a deed of absolute sale over the
property in favor of the respondents upon the full payment of the purchase price
thereof.
Respondent Rogelio Miranda filed an application dated May 4, 1986 with the PSB
to secure the approval of his assumption of the petitioners obligation on the loan, and
appended thereto a General Information sheet.[7] Respondent Rogelio Miranda stated
therein that he was the Acting Municipal Treasurer of Las Pias and had an unpaid
account with the Manila Banking Corporation in the amount of P18,777.31. The PSB
disapproved his application. Nevertheless, respondent Rogelio Miranda paid the first
quarterly installment on the petitioners loan on March 21, 1986 in the amount
of P29,190.28. The said amount was paid for the account of the petitioners. Respondent
Rogelio Miranda, likewise, paid the second quarterly installment in the amount
of P29,459.00 on June 23, 1986, also for the account of the petitioners.[8]
In the meantime, respondent Rogelio Miranda secured the services of petitioner
Orlando Rayos as his counsel in a suit he filed against the Manila Banking Corporation,
relative to a loan from the bank in the amount of P100,000.00. Both parties agreed to
the payment of attorneys fees, as follows:
Our agreement is as follows:
1.

You will pay me P700.00 as filing fee and other miscellaneous

expenses which I personally received from you this morning;

2.

Award to you of any amount in terms of moral, exemplary or actual

and other forms of damages shall accrue to you in the amount of
70% thereof;

3.

30% of the award to you in the concept of No. 2 hereof shall

pertain to me as my contingent fee;

4.

All attorneys fees that the court shall award to me or by the

management of TMBC if they agree to extrajudicially settle shall
pertain exclusively to me;

5.

Execution of judgment expenses shall be for your account;

6.

Should the case be appealed, my contingent fee shall increase by

10% if the appeal is to the Intermediate Appellate Court on
questions of facts and law, and if appealed from there to the
Supreme Court, then another 10% shall accrue to me.[9]

On May 14, 1986, petitioner Orlando Rayos filed respondent Rogelio Mirandas
complaint against the bank with the Regional Trial Court of Makati, docketed as Civil

Case No. 13670.[10]In the meantime, the latter paid the third quarterl y installment on
the PSB loan account amounting to P29,215.66, for which the bank issued a receipt for
the account of the petitioners.
The parties executed a Compromise Agreement in Civil Case No. 13670 in which
they agreed that each party shall pay for the respective fees of their respective
counsels.[11] The trial court rendered judgment on October 23, 1986 based on the said
compromise agreement.[12] Petitioner Orlando Rayos demanded the payment of
attorneys fees in the amount of P5,631.93, but respondent Rogelio Miranda refused to
pay.
On November 12, 1986, petitioner Orlando Rayos wrote to respondent Rogelio
Miranda and enclosed a copy of his motion in Civil Case No. 13670 for the annotation of
his attorneys lien at the dorsal portion of the latters title used as security for the loan
with the Manila Banking Corporation.[13] The respondent opposed the motion, claiming
that the petitioner agreed to render professional services on a contingent basis. [14]

January 2, 1987, the PSB wrote respondent Rogelio Mi randa that it was returning his
check.[22]
On January 2, 1987, respondent Rogelio Miranda filed a complaint against the
petitioners and the PSB for damages with a prayer for a writ of preliminary attachment
with the RTC of Makati. The case was docketed as Civil Case No. 15639 and raffled to
Branch 61 of the court. The respondent alleged inter alia that the petitioners and the
PSB conspired to prevent him from paying the last quarterly payment of the petitioners
loan with the bank, despite the existence of the deed of sale with assumption of
mortgage executed by him and the petitioners, and in refusing to turn over the owners
duplicate of TCT No. 100156, thereby preventing the transfer of the title to the property
in his name. Respondent Rogelio Miranda prayed that:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of plaintiff and
against defendants, ordering the latter, jointly and severally, as follows:

Petitioner Orlando Rayos again wrote respondent Rogelio Miranda on November

30, 1986, reminding the latter of the last quarterly payment of his loan with the PSB. He
also advised the respondent to thereafter request the bank for the cancellation of the
mortgage on his property and to receive the owners duplicate of his title over the
same. Petitioner Orlando Rayos also wrote that their dispute over his attorneys fees in
Civil Case No. 13670 should be treated differently. [15]

(a) To pay to plaintiff the sum of P267,197.33, with legal interest from date
of demand, as actual or compensatory damages representing the
unreturned price of the land;

Petitioner Orlando Rayos then received a Letter dated November 27, 1986 from
the PSB, reminding him that his loan with the bank would mature on December 24,
1986, and that it expected him to pay his loan on or before the said date. [16] Fearing that
the respondents would not be able to pay the amount due, petitioner Orlando Rayos
paid P27,981.41 [17] to the bank on December 12, 1986, leaving the balance
of P1,048.04. In a Letter dated December 18, 1986, the petitioner advised the PSB not to
turn over to the respondents the owners duplicate of the title over the subject property,
even if the latter paid the last quarterly installment on the loan, as they had not
assumed the payment of the same.[18]

(c) To pay to plaintiff the sum of P1,000,000.00 as moral damages;

On December 24, 1986, respondent Rogelio Miranda arrived at the PSB to pay the
last installment on the petitioners loan in the amount of P29,223.67. He informed the
bank that the petitioners had executed a deed of sale with assumption of mortgage in
their favor, and that he was paying the balance of the loan, conformably to said
deed. On the other hand, the bank informed the respondent that it was not bound by
said deed, and showed petitioner Orlando Rayos Letter dated December 18, 1986. The
respondent was also informed that the petitioners had earlier paid the amount
of P27,981.41 on the loan. The bank refused respondent Rogelio Mirandas offer to pay
the loan, and confirmed its refusal in a Letter dated December 24, 1986. [19]

(g) That a Writ of Attachment be issued against the properties of defendant

Rayos spouses as security for the satisfaction of any judgment that
may be recovered.

On even date, respondent Rogelio Miranda wrote the PSB, tendering the amount
of P29,223.67 and enclosed Interbank Check No. 01193344 payable to
PSB.[20] Thereafter, on December 29, 1986, the petitioners paid the balance of their loan
with the bank in the amount of P1,081.39 and were issued a receipt therefor.[21] On

(b) To pay to plaintiff the sum of P500,000.00 as consequential damages;

(d) To pay to plaintiff the sum of P100,000.00 as exemplary damages by way

of example or correction for the public good;
(e) To pay to plaintiff the sum of P100,000.00 for and as attorneys fees;
(f) To pay for the costs of suit; and

PLAINTIFF FURTHER PRAYS for such other remedies and relief as are just or equitable in
the premises.[23]
The trial court granted the respondents plea for a writ of preliminary attachment
on a bond of P260,000.00. After posting the requisite bond, the respondent also filed a
criminal complaint against petitioner Orlando Rayos for estafa with the Office of the
Provincial Prosecutor of Makati, docketed as I.S. No. 87-150. He, likewise, filed a
complaint for disbarment in this Court against petitioner Orlando Rayos, docketed as
Administrative Case No. 2974. Unaware of the said complaint, the petitioner wrote the

respondent on January 3, 1986 that as soon as his payment to the PSB of P29,223.67
was refunded, the owners duplicate of the title would be released to him. [24] On January
5, 1986, petitioner Orlando Rayos wrote respondent Rogeli o Miranda, reiterating that
he would release the title in exchange for his cash settlement of P29,421.41.[25] The
respondent failed to respond.
In the meantime, the PSB executed on January 8, 1987 a Release of Real Estate
Mortgage in favor of the petitioners,[26] and released the owners duplicate of title of TCT
No. 100156.[27] On January 17, 1987, petitioner Orlando Rayos wrote respondent Rogelio
Miranda, reiterating his stance in his Letters of January 3 and 5, 198 7.
In the meantime, the petitioners received the complaint in Civil Case No. 15639
and filed their Answer with Counterclaim in which they alleged that:
14. That plaintiff has no cause of action against defendants Rayos, the latter are willing
to deliver the title sought by plaintiff under the terms set out in their letters dated
January 3, 5, 17, and 20, hereto marked as Annexes 1, 1-A, 1-B and 1-C;[28]
Petitioner Orlando Rayos filed a complaint on February 1, 1987 against respondent
Rogelio Miranda with the Regional Trial Court of Makati, docketed as Civil Case No.
15984 for Specific Performance with Damages for the collection of the amount
of P29,223.67 which he had paid to the PSB on December 12 and 19, 1986, and his
attorneys fees in Civil Case No. 13670. The trial court consolidated the cases in Branch
62 of the RTC.
Respondent Rogelio Miranda filed an Amended Complaint in Civil Case No. 15639
for specific performance with damages, impleading the officers of the PSB as parties defendants. He alleged that of the purchase price of the property of P214,000.00, he
had paid the entirety thereof to the petitioners, and that petitioner Orlando Rayos acted
unethically in trying to collectP5,631.93 from him as his attorneys fees in Civil Case No.
13670, and in having such claim annotated at the dorsal portion of his title over the
property he mortgaged to the Manila Banking Corporation.
Respondent Rogelio Miranda prayed that, after due proceedings, judgment be
rendered in his favor, thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of plaintiff and
against defendants, as follows:
(a) Ordering defendants spouses Orlando A. Rayos and Mercedes T. Rayos to deliver
forthwith to plaintiff the Owners Duplicate of Transfer Certificate of Title No. 100156,
Registry of Deeds for Pasay City;
(b) Ordering defendants, jointly and severally, to pay to plaintiff the sum
of P1,000,000.00 as moral damages;

(c) Ordering defendants, jointly and severally, to pay to plaintiff the sum of P867,197.33
as exemplary damages by way of example or correction for the public good;
(d) Ordering defendants, jointly and severally, to pay to plaintiff the sum of P100,000.00
for and as attorneys fees;
(e) Ordering defendants, jointly, to pay the costs of suit; and
(f) Ordering the issuance of a Writ of Attachment against the properties of defendants
Rayos spouses as security for the satisfaction of any judgment that may be recovered.
PLAINTIFF further prays for such other remedies and relief as are just or equitable in the
premises.[29]
In the meantime, petitioner Orlando Rayos filed an Amended Complaint in Civil
Case No. 15984 impleading his wife and that of respondent Rogelio Miranda as parties
to the case. On March 4, 1987, the trial court issued an Order granting the petitioners
motion in Civil Case No. 15639 for the discha rge of the attachment on their
property.[30] The court also denied the respondents motion for reconsideration of the
Order of the court. The respondents, thereafter, filed a petition for review with the
Court of Appeals for the nullification of the said Order.
On July 9, 1987, the public prosecutor dismissed the charge of estafa against
petitioner Orlando Rayos.[31] The respondents appealed the resolution to the
Department of Justice.
On May 26, 1987, the PSB and its officers filed their Answer in Civil Case No.
15639, and alleged the following by way of special and/or affirmative defenses, thus:
27. The application for the plaintiff to assume the mortgage loan of the defendants
Spouses Rayos was not approved, and it was NOT even recommended by the Marketing
Group of defendant PSBank for approval by its Top Management, because the credit
standing of the plaintiff was found out to be not good;
28. The acceptance of the payments made by the plaintiff for three (3) amortizations on
the loan of defendants Spouses Rayos was merely allowed upon the insistence of the
plaintiff, which payments were duly and accordingly receipted, and said acceptance was
in accordance with the terms of the Real Estate Mortgage executed by the defendants
Spouses Rayos in favor of the defendant PSBank and is also allowed by law;[32]
The parties in Civil Case No. 15639 agreed to submit the case for the trial courts
decision on the basis of their pleadings and their respective affidavits. In a Resolution
dated July 26, 1988, then Undersecretary of Justice Silvestre Bello III affirmed the Public
Prosecutors resolution in I.S. No. 87-150.[33]

On January 30, 1989, the petitioners sold the property to Spouses Mario and
Enriqueta Ercia for P144,000.00. The said spouses were not impleaded as parties defendants in Civil Case No. 15639. On May 18, 1989, the petitioners filed an amended
complaint in Civil Case No. 15984, appending thereto a copy of the Contract to Sell in
favor of the respondents. The trial court admitted the said complaint.
On November 15, 1989, this Court rendered its Decision dismissing the complaint
for disbarment against Rayos.[34]
On January 29, 1993, the trial court rendered judgment, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
I. (a) In Civil Case No. 15639, this Court orders plaintiff Rogelio Miranda to refund to
spouses Orlando and Mercedes T. Rayos the total sum of P29,069.45, Rayos paid to PS
Bank as the last amortization and as release of mortgage fee, without any interest; and
upon receipt of the sum of P29,069.45 from Rogelio Miranda, Spouses Orlando and
Mercedes T. Rayos shall deliver to Rogelio Miranda Transfer Certificate of Title No.
100156 of the Registry of Deeds of Pasay City; and, deliver to Rogelio Miranda the
possession of the parcel of land described in the said title;
(b) Dismissing the complaint for damages of Plaintiff Rogelio Miranda against Spouses
Orlando and Remedios (sic) T. Rayos, Philippine Savings Bank, Jose Araullo, Cesar I.
Valenzuela, Dionisio Hernandez, Nestor E. Valenzuela, Raul T. Totanes, and Belinda Lim,
for insufficiency of evidence; while the counterclaims of PS Bank, Jose Araullo, Cesar
Valenzuela, Dionisio Hernandez, Nestor E. Valenzuela, Raul Totanes, and Belinda Lim,
are likewise dismissed for insufficiency of evidence.
(c) The counterclaims of Spouses Orlando and Mercedes T. Rayos will be treated in Civil
Case No. 15984;
II. In Civil Case No. 15984, this Court orders Defendant Rogelio Miranda to pay to
Plaintiff Orlando Rayos the sum of P4,133.19 at 12% interest per annum, from the date
of the filing of the complaint on Feb. 11, 1987 until fully paid.
No costs in both cases.
SO ORDERED.[35]
The petitioners appealed the decision to the Court of Appeals contending that:
I. THE COURT A QUO COMMITTED A GRAVE ERROR IN NOT FINDING THAT
ROGELIO A. MIRANDA COMMITTED A BREACH OF CONTRACT IN NOT
PAYING THE FULL CONTINGENT FEE OF 30% IN WRITING IN THE
MANILABANK CASE AND BECAUSE OF THAT BREACH, HE CANNOT NOW

DEMAND SPECIFIC PERFORMANCE AND THE COURT A QUOSHOULD HAVE

LEFT THE PARTIES AS THEY ARE;
II. THE COURT A QUO SIMILARLY COMMITTED AN ERROR IN NOT FINDING
THAT THE DECISION IN SEVA VS. ALFREDO BERWIN & CO. & MEDEL IS
APPLICABLE FOUR SQUARE WHEREBY HE WHO BREACHES HIS CONTRACT
IS NOT ENTITLED TO SPECIFIC PERFORMANCE;[36]
On July 27, 1998, the Court of Appeals rendered judgment affirming with
modification the decision of the RTC, thus:
WHEREFORE, premises considered, the appealed decision of the Regional Trial Court of
Makati City, is hereby AFFIRMED, with the modification abovestated.[37]
The petitioners filed the instant petition, and ascribed the following errors on the
appellate court:
I. THE COURT OF APPEALS (CA) COMMITTED AN ERROR IN NOT FINDING
THAT THE PRIVATE RESPONDENT MIRANDA COMMITTED THE FIRST
BREACH FOR FAILURE TO ASSUME THE LOAN THUS HE FAILED TO
SURROGATE (sic) HIMSELF TO PSB.
II. THE CA COMMITTED AN ERROR IN FINDING THAT PETITIONERS PREEMPTED PRIVATE RESPONDENT MIRANDA IN DEPOSITING THE LAST
AMORTIZATION WHEN MIRANDA HAD NO LEGAL STANDING WITH PSB
DUE TO THE LATTERS NON-APPROVAL OF THE ASSUMPTION OF THE
LOAN.
III. THE CA COMMITTED AN ERROR IN FINDING BOTH PARTIES GUILTY OF
FIRST VIOLATING THE OBLIGATIONS INCUMBENT UPON THEM EVEN
INFERRING THAT PETITIONERS COMMITTED THE BREACH FIRST BUT
LATER CONCLUDING THAT THE BREACH WAS COMMITTED BY BOTH
PARTIES. IT DID NOT MAKE A CORRECT ASSESSMENT OF WHO ACTUALLY
COMMITTED THE FIRST BREACH.
IV. THE CA COMMITTED AN ERROR IN NOT ALLOWING THE OFFSET IF ITS
DECISION STOOD OF THE AMOUNT OF P4,133.19 PLUS 12% INT. P.A.
FROM THE FILING OF THE COMPLAINT (CV 15984), THUS, ENTIRELY
DISREGARDING THE DECISION OF THE TRIAL COURT IN SAID CASE
ALLOWING ONLY THE DECISION IN CV 15639.
V. THE CA COMMITTED AN ERROR IN NOT APPLYING THE DECSION (sic) LAID
DOWN IN SEVA VS. ALFRED BERWIN & CO. AND MEDEL THAT A PERSON
HIMSELF AT FAULT CANNOT ENFORCE SPECIFIC PERFORMANCE.[38]
The petitioners assert that the Court of Appeals erred in not finding that the
respondents first committed a breach of their contract to sell upon their failure to pay
the amount due for the last quarterly installment of their loan from the PSB. The
petitioners fault the Court of Appeals for not relying on the resolution of Undersecretary

Silvestre Bello III affirming the dismissal of the criminal complaint for estafa in I.S. No.
87-150, as cited by this Court in its decision in Miranda v. Rayos,[39] where it was also
held that petitioner Orlando Rayos paid the last quarterly installment because he
thought that the respondents would not be able to pay the same. The petitioners argue
that they had no other alternative but to pay the last quarterly installment due on their
loan with the PSB, considering that they received a demand letter from the bank on
November 28, 1986, coupled by its denial of the respondents request to assume the
payment of the loan. They insist that they did not block the respondents payment of the
balance of the loan with the bank. The petitioners contend that even if the parties
committed a breach of their respective obligations under the contract to sell, it
behooved the Court of Appeals to apply Article 1192 of the Civil Code in the instant
case, which reads:
The power to rescind obligation is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
The petition has no merit.
The assailed ruling of the Court of Appeals reads:
After due study, the Court finds that there was no basis in fact and law for the
appellants to usurp the payment of the last amortization on the mortgage upon the
parcel of land it had conveyed to the Mirandas.Even if the appellants wanted to keep
their good credit standing, they should not have preempted Miranda in paying the final
amortization. There is no sufficient showing that Miranda was in danger of defaulting on
the said payment. In fact, it appears that he approached the bank to tender payment,
but he was refused by the bank, because he was bea ten to the draw, so to speak, by the
appellants. Appellants were able to do so because, for some reasons, the Mirandas
assumption of the mortgage has not been approved by the bank. In doing so, the
appellants had unilaterally cancelled the deed of sale with assumption of mortgage,
without the consent of the Mirandas. This conduct by the appellants is, to say the least,
injudicious as under Article 1308 of the Civil Code, contracts must bind both contracting
parties and their validity or compliance cannot be left to the will of one of them.

Just as nobody can be forced to enter into a contract, in the same manner, once a
contract is entered into, no party can renounce it unilaterally or without the consent of
the other. It is a general principle of law that no one may be permitted to change his
mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party. In a regime of law and order, repudiation of an agreement
validly entered into cannot be made without any ground or reason in law or in fact for
such repudiation.
In the same way that the Rayos spouses must respect their contract with the Mirandas
for the sale of real property and assumption of mortgage, Rogelio Miranda has to
recognize his obligations under his agreement to pay contingent attorneys fees to
Orlando Rayos.[40]
The Court of Appeals erred in so ruling.
The findings and disquisitions of the Court of Appeals cannot prevail over our
findings in Miranda v. Rayos,[41] a case which involves the same parties, and where we
held that the petitioners cannot be faulted for paying the amortization due for the last
quarterly installment on their loan with the PSB:
It is difficult to imagine that complainant would be so nave as to be totally unaware of
the provisions of the original contract between the PSB and the spouses Rayos. He is a
degree holder (A.B. Pre-Law and B.S.C.) and Acting Municipal Treasurer of Las Pias. In
short, he is not an ordinary layman. As a buyer with a knowledge of law, it was
unnatural for him to read the provisions of the real estate mortgage wherein it is
provided, among others, that the sale of the property covered by the mortgage does not
in any manner relieve the mortgagor of his obligation but that on the contrary, both the
vendor and the vendee, or the party in whose favor the alienation or encumbrance is
made shall be, jointly and severally, liable for said mortgage obligations. There is every
reason to believe that it was pursuant to the said provision in the real estate mortgage
that complainant tried to assume the loan obligation of the Rayoses by filling up and
submitted the loan application (page 30, records) sent by Orland Rayos. By signing the
loan application and the general information sheet (page 31, records) in connection with
said application, complainant showed that he knew that there was a need to formally
apply to the bank in order for him to assume the mortgage.
We find respondent spouses version that when complainants application to assume the
mortgage loan was disapproved he begged that he be allowed to pay the quarterly
amortization credible, owing to the fact that complainant made the payments for the
account of the Rayoses. Hence, complainant knew that since his application to the PSB
was not approved, there was no substitution of parties and so he had to pay for the
account of respondent spouses as shown by the receipts issued by the PSB.
As for the charge that Rayos paid the last installment to block complainant from getting
the title and transferring the same to his name, respondents version is more satisfactory

and convincing. Respondent Orland Rayos paid the last amortization when it became
apparent that complainant would not be able to give the payment on the due date as he
was still trying to sell his Lancer car. Even if complainant was able to pay the last
installment of the mortgage loan, the title would not be released to him as he knew very
well that his application to assume the mortgage was disapproved and he had no
personality as far as PSB was concerned.[42]
Contrary to the ruling of the Court of Appeals, the petitioners did not unilaterally
cancel their contract to sell with the respondents when they paid the total amount
of P29,062.80 to the PSB in December 1986.[43] In fact, the petitioners wrote the
respondents on January 3, 5 and 17, 1987, that they were ready to execute the deed of
absolute sale and turn over the owners duplicate of TCT No. 100156 upon the
respondents remittance of the amount of P29,223.67. The petitioners reiterated the
same stance in their Answer with Counterclaim in Civil Case No. 15639. The petitioners
cannot, likewise, be faulted for refusing to execute a deed of absolute sale over the
property in favor of the respondents, and in refusing to turn over the owners duplicate
of TCT No. 100156 unless the respondents refunded the said amount. The respondents
were obliged under the contract to sell to pay the said amount to the PSB as part of the
purchase price of the property. On the other hand, it cannot be argued by the
petitioners that the respondents committed a breach of their obligation when they
refused to refund the said amount.
It bears stressing that the petitioners and the respondents executed two
interrelated contracts, viz: the Deed of Sale with Assumption of Mortgage dated
December 26, 1985, and the Contract to Sell dated January 29, 1986. To determine the
intention of the parti es, the two contracts must be read and interpreted
together.[44] Under the two contracts, the petitioners bound and obliged themselves to
execute a deed of absolute sale over the property and transfer title thereon to the
respondents after the payment of the full purchase price of the property, inclusive of
the quarterly installments due on the petitioners loan with the PSB:
3. That upon full payment of the consideration hereof, the SELLER shall execute a Deed
of Absolute Sale in favor of the BUYER that the payment of capital gains tax shall be for
the account of the SELLER and that documentary stamps, transfer tax, registration
expenses for the transfer of title including the notarization and preparation of this
Contract and subsequent documents if any are to be executed, real estate taxes from
January 1, 1986 and other miscellaneous expenses shall be for the account of the
BUYER; the SELLER hereby represents that all association dues has been paid but that
subsequent to the execution of this Contract the payment of the same shall devolve
upon the BUYER.[45]
Construing the contracts together, it is evident that the parties executed a
contract to sell and not a contract of sale. The petitioners retained ownership without
further remedies by the respondents[46] until the payment of the purchase price of the
property in full. Such payment is a positive suspensive condition, failure of which is not
really a breach, serious or otherwise, but an event that prevents the obligation of the

petitioners to convey title from arising, in accordance with Article 1184 of the Civil
Code.[47] In Lacanilao v. Court of Appeals,[48] we held that:
It is well established that where the seller promised to execute a deed of absolute sale
upon completion of payment of the purchase price by the buyer, the agreement is a
contract to sell. In contracts to sell, where ownership is retained by the seller until
payment of the price in full, such payment is a positive suspensive condition, failure of
which is not really a breach but an event that prevents the obligation of the vendor to
convey title in accordance with Article 1184 of the Civil Code.
The non-fulfillment by the respondent of his obligation to pay, which is a
suspensive condition to the obligation of the petitioners to sell and deliver the title to
the property, rendered the contract to sell ineffective and without force and
effect.[49] The parties stand as if the conditional obligation had never existed. Article
1191 of the New Civil Code will not apply because it presupposes an obligation already
extant.[50] There can be no rescission of an obligation that is still non-existing, the
suspensive condition not having happened. [51]
However, the respondents may reinstate the contract to sell by paying
the P29,223.67, and the petitioners may agree thereto and accept the respondents late
payment.[52] In this case, the petitioners had decided before and after the respondents
filed this complaint in Civil Case No. 15639 to accept the payment of P29,223.67, to
execute the deed of absolute sale over the property and cause the transfer of the title of
the subject property to the respondents. The petitioners even filed its amended
complaint in Civil Case No. 15984 for the collection of the said amount. The Court of
Appeals cannot, thus, be faulted for affirming the decision of the trial court and ordering
the petitioners to convey the property to the respondents upon the latters payment of
the amount of P29,223.67, provided that the property has not been sol d to a third-party
who acted in good faith.
IN VIEW OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. The
Decision of the Court of Appeals in CA-G.R. CV No. 46727 is AFFIRMED, except as to the
factual finding that the petitioners usurped the payment of the last amortization on the
mortgage upon the parcel of land. Costs against the petitioners.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

SECOND DIVISION

The Evidence of
The Respondent

[G.R. No. 137845. September 9, 2004]

The Antecedents

On June 4, 1987, the respondent and petitioner Angel Clemeno, Jr., relatives by
consanguinity, entered into a verbal contract of sale over the property covered by TCT
No. 277244 under the following terms and conditions: (a) the respondent would pay the
purchase price of the property in the amount of P270,000.00, inclusive of the balance of
the loan of the petitioners, the Spouses Clemeno with the SSS[6] within two years from
June 4, 1987;[7] (b) the respondent would pay the monthly amortizations of the vendors
loan with the SSS; and (c) upon the payment of the purchase price of the property, the
Spouses Clemeno would execute a deed of sale in favor of the respondent. [8] The
respondent made a down payment ofP25,000.00 for which petitioner Clemeno, Jr.
issued a receipt dated June 4, 1987.[9] He then made a partial payment of P5,000.00 to
petitioner Clemeno, Jr. on July 8, 1987,[10] and another partial payment of P50,000.00 on
February 9, 1988.[11] The respondent paid the realty taxes due on the property for 1987
and 1988.[12]

The Spouses Nilus and Teresita Sacramento were the owners of a parcel of land
covered by Transfer Certificate of Title (TCT) No. 158728 and the house constructed
thereon located at No. 68 Madaling Araw Street, Teresa Heights Subdivision, Novaliches,
Quezon City. The Spouses Sacramento mortgaged the property with the Social Security
System (SSS) as security for their housing loan and, likewise, surrendered the owners
and duplicate copies of the certificate of title. On September 2, 1980, the spouses
executed a Deed of Sale with Assumption of Mortgage in favor of Maria Linda Clemeno
and her husband Angel C. Clemeno, Jr., with the conformity of the SSS. [2] On March 6,
1981, the Register of Deeds issued TCT No. 277244 over the property in the name of the
vendees,[3] who, in turn, executed a Real Estate Mortgage Contract over the property in
favor of the SSS to secure the payment of the amount ofP22,900.00, the balance of the
loan.[4] The Spouses Clemeno also surrendered the owners duplicate copy of the said
title to the SSS. However, per the records of the SSS Loans Department, the vendors (the
Spouses Sacramento) remained to be the debtors.

In the meantime, petitioner Clemeno, Jr. read a press release from the SSS in the
newspapers allowing delinquent borrowers to restructure the balance of their loans as
of March 31, 1988 with no arrearages on the balance of their account under certain
terms and conditions.[13] On February 26, 1988, he paid the amount of P6,692.63 to the
SSS, in partial payment of his loan account.[14] He also made a written request to the SSS
for a restructuring of his loan.[15] Thereafter, the SSS Loans Collection Department issued
on March 15, 1988, addressed to the borrower on record, that effective March 15, 1988,
the monthly amortization on the loan was P841.84.[16] Petitioner Clemeno, Jr., as
mortgagor, affixed his conformity thereto.[17] He then wrote a letter authorizing the
respondent to pay the balance of his restructured loan with the SSS, which payments
would be considered as partial payment of the house and lot. [18]Conformably, the
respondent remitted to the SSS the monthly amortization payments for the account of
petitioner Clemeno, Jr. However, the receipts issued by the SSS were in the name of
petitioners Nilus Sacramento or Clemeno, Jr.[19]

On July 1, 1992, respondent Romeo R. Lobregat, a lawyer and an Election Registrar

in the Commission on Elections, filed a Complaint against the petitioners, the Spouses
Clemeno, and Nilus Sacramento for breach of contract, specific performance with
damages with the RTC of Quezon City. The case was docketed as Civil Case No. 92-12620
and raffled to Branch 100. On May 7, 1993, the trial court dismissed the case without
prejudice for lack of interest on the part of the plaintiff to prosecute. [5] The petitioners,
for their part, filed a Complaint against the respondent for recovery of possession of
property with damages, docketed as Civil Case No. 93-17268 and raffled to Branch 93 of
the court. In the meantime, the RTC, Branch 100 set aside its Order in Civil Case No. 92 12620 and reinstated the case. The two (2) cases were then consolidated in the RTC,
Branch 100.

The respondent made additional partial payments for the sale of the property to
petitioner Clemeno, Jr. on January 17, 1989, and, March 20, 1989, in the total amount
of P10,000.00.[20]He also continued remitting to the SSS the monthly amortizations due
for the account of petitioner Clemeno, Jr.[21]

ANGEL CLEMENO, JR., MALYN CLEMENO, and NILUS SACRAMENTO, petitioners, vs.
ROMEO R. LOBREGAT, respondent.
D ECI S I ON
CALLEJO, SR., J.:
This is a petition for review of the Decision[1] of the Court of Appeals in CA-G.R. CV No.
53655 reversing the decision of the Regional Trial Court of Quezon City, Branch 224, in
Civil Case Nos. 92-12620 and 93-17268.

The respondent was able to secure a loan of P160,000.00 on April 1, 1989, which
was more than sufficient to cover his balance of the purchase of the property. He then
offered to pay the said balance to petitioner Clemeno, Jr., [22] but the latter told him to
keep the money because the owners duplicate copy of the title was still with the SSS
and to instead continue paying the monthly amortizations due. The respondent did so
and made payments until March 1990.[23] He no longer paid after this date because the
SSS informed him that petitioner Clemeno, Jr. had already paid the balance of his
account in full on March 23, 1990. Indeed, on May 9, 1990, the SSS had executed a

Release of Real Estate Mortgage in favor of petitioner Clemeno, Jr. and released the
owners duplicate of TCT No. 277244.[24]
The respondent offered to pay the balance of the purchase price of the property
to petitioner Clemeno, Jr. and asked the latter to execute the deed of sale over the
property and deliver the title over the property under his name, but petitioner Clemeno,
Jr. refused to do so unless the respondent agreed to buy the property at the price
prevailing in 1992. The respondent refused.
On June 12, 1992, the respondents counsel wrote petitioner Clemeno, Jr.,
informing the latter that he (the respondent) had already paid P113,049.96 of the
purchase price of the property and that he was ready to pay the balance thereof in the
amount of P156,970.04. He demanded that petitioner Clemeno, Jr. execute a deed of
absolute sale over the property and deliver the title thereto in his name upon his receipt
of the amount of P156,970.04.[25]
In his reply-letter, petitioner Clemeno, Jr. stated that he never sold the property to
the respondent; that he merely tolerated the respondents possession of the property
for one year or until 1987, after which the latter offered to buy the property, which
offer was rejected; and that he i nstead consented to lease the property to the
respondent. The petitioner also declared in the said letter that even if the respondent
wanted to buy the property, the same was unenforceable as there was no document
executed by them to evince the sale.[26]
In their Answer to the complaint, the petitioners alleged that they entered into a
verbal lease-purchase agreement over the house and lot with the respondent under the
following terms and conditions:
(a) The purchase price will be P270,000.00 to be paid in full not later than June 1,
1988;
(b) The rental is P1,500.00 a month, for the whole period from June 1987 to June
1, 1988;
(c) If the whole purchase price is not paid on the agreed date, the total amount
equivalent to one-year rental shall be deducted from the amount already
paid by the plaintiff, who shall peacefully vacate the premises and surrender
possession of the house and lot to the defendants.
(d) The purchase price of P270,000.00 shall be payable: P90,000.00 upon taking
possession of the property, P90,000.00 payable within six (6) months
thereafter, and P90,000.00 not later than June 1, 1988.[27]
The petitioners further alleged that despite the respondents failure to comply with
the conditions of their agreement, the latter was still granted an extension of until
September 1989 to pay the purchase price of the property, but managed to pay
only P113,049.96, including the monthly amortizations of their loan account with the

SSS and realty tax payments. The petitioners further alleged that the respondent even
failed to pay any rental for the property from June 1987 to June 1, 1988. They posited
that the contract between the parties was unenforceable under Article 1403(2) of the
New Civil Code, and prayed that judgment be rendered in their favor as prayed for by
them in their complaint in Civil Case No. 93-17268, thus:
WHEREFORE, it is most respectfully prayed that after due hearing, a decision in favor of
plaintiff be rendered, ordering Defendant
(a) And all other persons claiming under him to vacate the premi ses located
at 86 Madaling Araw St., Teresa Heights Subdivision, Novaliches,
Quezon City;
(b) To pay plaintiff a balance of P64,349.14 for the use and occupancy of the
premises until May 31, 1993, and at the rate of P3,628.80 a month
from June 1, 1993 unti l the premises shall have been finally vacated;
(c) To pay P50,000.00 plus P2,000.00 per appearance as and for attorneys
fees; and
(d) To pay the costs of suit.
Plaintiff further prays for such other relief reasonable and conscionable in the
premises.[28]

The Evidence for the

Petitioners
Petitioner Clemeno, Jr. and the respondent were townmates. Sometime in June
1987, petitioner Clemeno, Jr. agreed to sell the property for P270,000.00 payable in
three (3) installments: (a) P90,000.00 upon the respondents taking possession of the
property; (b) P90,000.00 payable within six (6) months thereafter; and (c) P90,000.00
not later than June 1, 1988. The respondent assured petitioner Clemeno, Jr. that there
would be nothing to worry about the documentation of the sale; being a lawyer, he
would take care of everything. However, the respondent failed to pay the balance of the
purchase price of the property in the amount of P156,970.04 despite promises to do so.
On September 16, 1989, petitioner Clemeno, Jr. went to the respondents house to
talk to him anew, but the latter was nowhere to be found. He made a typewritten letter
to the respondent, stating that the latter had been given more than enough time to
exercise the option to buy the property but failed to do so; hence, the offer was deemed
cancelled. The petitioner left the letter with the respondents daughter, Mi chelle
Lobregat.

The trial court rendered judgment in favor of the petitioners, as follows:

Accordingly, therefore, the Court hereby renders judgment in favor of Angel Clemeno,
[Jr.] as against Romeo Lobregat and orders the latter and other persons claiming under
him to:

4. THAT THE LOWER COURT FAILED TO CONSIDER THE DELIBERATE

OMISSION OF DEFENDANTS-APPELLEES TO OBSERVE THE NON-FORUM
SHOPPING REQUIREMENT.
5. THAT THE LOWER COURT MISAPPLIED THE PRINCIPLE OF STATUTE OF
FRAUDS.[30]

1. Vacate the premises located at No. 86 Madaling Araw Street, Teresa

Heights Subdivision, Novaliches, Quezon City;

On February 23, 1999, the Court of Appeals rendered judgment reversing the
decision of the trial court. The fallo of the decision reads:

2. Pay Angel Clemeno, Jr. the amount of P64,349.14 for the use and
occupancy of the premises until May 31, 1993 and at the rate
of P3,628.80 a month from June 1, 1993 until the premises have been
finally vacated;

WHEREFORE, the decision appealed from is REVERSED, and judgment is hereby

rendered:
1. In Civil Case No. Q-92-12620

3. Pay the amount of P50,000.00 as attorneys fees and other legal expenses,
and

(a) Ordering defendants-appellees to accept the remaining balance of the

purchase price of the house and lot subject of sale in the amount
of P156,109.00 and, thereafter, execute in favor of plaintiff-appellant
the corresponding deed of sale or proper mode of conveyance; and

4. To pay the costs of suit.

(b) Ordering defendants-appellees to pay, jointly and severally, plaintiffappellant P50,000.00 by way of moral damages, P25,000.00 by way of
exemplary damages, and P15,000.00 as attorneys fees.

IT IS SO ORDERED.[29]
The trial court ruled that since both the sale and lease agreements were not
reduced to writing, both contracts were unenforceable under Article 1403(2) of the New
Civil Code, and had decided the cas e based on justice and equity.
The respondent appealed the decision to the Court of Appeals and raised the
following assignment of errors:
1. THE LOWER COURT, AFTER THE COMPLETE, MERITORIOUS AND WRITTEN
PIECES OF EVIDENCE SUBMITTED BY PLAINTIFF-APPELLANT LOBREGAT,
FAILED/REFUSED TO CONSIDER THE SAME. INSTEAD, DECIDED ONLY THE
CASE OF ACCION PUBLICIANA FILED BY DEFENDANT-APPELLEE A.
CLEMENO, JR.
2. THE LOWER COURT FAILED TO CONSIDER THAT RECEIPTS ARE NOT
CONTRACT OF SALE BUT EVIDENCE FOR CONTRACT OF SALE AS EVEN
NOTED BY THE LOWER COURT.
3. THAT THE LOWER COURT FAILED TO CONSIDER THAT THE PIECES OF
EVIDENCE OF LOBREGAT CLEARLY SHOW THAT [THE] SALE WAS THE
TRANSACTION BETWEEN HEREIN PARTIES AS ADMITTED BY DEFENDANTAPPELLEE A. CLEMENO, JR. (T.S.N., p. 16, Nov. 20, 1995) (T.S.N., pp. 26 &
27, April 19, 1996)
3. THAT THE HONORABLE LOWER COURT DISREGARDED ITS OWN RULING AS
TO THE APPELLEES INTENTIONAL FAILURE TO FOLLOW/COMPLY WITH ITS
ORDER DATED MAY 31, 1996.

2. In Civil Case No. Q-93-17268 dismissing the complaint therein.

Costs against defendants-appellees.
SO ORDERED.[31]
The Court of Appeals ruled that the contract entered into between the parties was
a contract of sale, not a contract to sell. The appellate court also ruled that Article
1403(2) was not applicable because the contract was already partly performed, since
partial payments had been made by the respondent as evidenced by receipts signed by
the petitioners.
The petitioners now come to this Court, contending that:
I.

The Honorable Court of Appeals grossly erred in holding that the contract
entered by the parties is a contract of sale and not a contract to sell. [32]

II.

The Court of Appeals erred seriously when it held that Under Article 1356
of the Civil Code, contract shall be obligatory, in whatever form they may
have been entered into, provided all the essentia l requisites for their
validity are present and that the contract of sale of a piece of land may be

proved orally, totally ignoring the positive mandate of Article 1358 of the
Civil Code, [33]
III.

The Honorable Court of Appeals erred in holding that the Statute of

Frauds cannot be raised as a defense against specific performance, there
being partial performance of the down-payment and subsequent
installments, even if short of the full price and after the expiry of the
agreed dates of payment.[34]

The Court shall resolve these issues simultaneously as they are interrelated.
The petitioners posit that the respondent failed to prove the essential elements of
a contract of sale over the subject property. They contend that the receipts wherein
they acknowledged the recei pt of the amounts therein specified do not conform to the
legal requirements of a contract of sale, and cited the ruling of this Court in Manotok
Realty, Inc. vs. Court of Appeal.[35] They also posit that even by his own admission, the
respondent defaulted in the payment of the purchase price of the property; hence, they
are not obliged to execute a deed of absolute sale over the property and deliver the title
to him. The petitioners assert that even if they had entered into an agreement with the
respondent, such agreement was a mere contract to sell, not a contract of sale. They
further assert that even if, indeed, the parties had entered into a contract of sale, the
same is unenforceable under paragraph 2, Article 1403 of the New Civil Code, which
provides that such contract must be in writing; and Article 1358 of the New Civil Code
which requires that such contract must appear in a public document.
On the other hand, the appellate court held that the petitioners and the
respondent entered into a verbal contract of sale and not a contract to sell over the
subject property, thus:
In the case at bench, Clemeno had agreed to sell his house and lot to Lobregat for a total
consideration of P270,000.00 payable in installments within a period of two (2) years.
The receipt, Exhibit A, is self-explanatory: it speaks of the receipt by Clemeno of the sum
of P25,000.00 from Lobregat as advance payment of the subject house and lot, the total
purchase price of which is P270,000.00. Significantly, upon his receipt of the advance
payment, Clemeno delivered the possession of the premises to Lobregat who is now the
present possessor thereof. Subsequent payments were made by Lobregat on the
purchase price, all of which were duly receipted for by Clemeno. The receipts Exhibits A1, A-2 and A-3, for example, speak uniformly of additional part payment for the house
and lot subject of this case. Moreover, as suggested by Clemeno himself, Lobregat had
been religiously remitting the monthly payments on Clemenos loan obligation with the
SSS. Note, for instance, Exhibit A-4 one of the many receipts of payment to SSS where it
is indicated that the real estate loan is in the name of Angel C. Clemeno, Jr., as
borrower, but bears the name of Romeo Lobregat, as payor, on behalf of Clemeno. It is
as clear as sunlight that the parties had entered into a contract of sale and not merely a
contract to sell.[36]
The petition has no merit.

We find and so hold that the contract between the parties was a perfected verbal
contract of sale, not a contract to sell over the subject property, with the petitioner as
vendor and the respondent as vendee. Sale is a consensual contract and is perfected by
mere consent, which is manifested by a meeting of the minds as to the offer and
acceptance thereof on three elements: subject matter, price and terms of payment of
the price.[37] The petitioners sold their property to the respondent for P270,000.00,
payable on installments, and upon the payment of the purchase price thereof, the
petitioners were bound to execute a deed of sale in favor of the respondent and deliver
to him the certificate of title over the property in his name. The parties later agreed for
the respondent to assume the payment of the petitioners loan amortization to the SSS,
which payments formed part of the purchase price of the property. The evidence shows
that upon the payment made by the respondent of the amount of P27,000.00 on June 4,
1987, the petitioners vacated their house and delivered possession thereof to the
respondent. Conformably to Article 1477 of the New Civil Code, the ownership of the
property was transferred to the respondent upon such delivery. The petitioners cannot
re-acquire ownership and recover possession thereof unless the contract is rescinded in
accordance with law.[38] The failure of the respondent to complete the payment of the
purchase price of the property within the stipulated period merely accorded the
petitioners the option to rescind the contract of sale as provided for in Article 1592 of
the New Civil Code.[39]
The contract entered into by the parties was not a contract to sell because there
was no agreement for the petitioners to retain ownership over the property until after
the respondent shall have paid the purchase price in full, nor an agreement reserving to
the petitioners the right to unilaterally resolve the contract upon the buyers failure to
pay within a fixed period.[40]Unlike in a contract of sale, the payment of the price is a
positive suspensive condition in a contract to sell, failure of which is not a breach but an
event that prevents the obligation of the vendor to convey the title from becoming
effective.[41]
The fact that the receipts issued by the SSS evidencing the respondents
remittances of the monthly amortization payments of the petitioners loan, and that the
receipts issued to the respondent for the payment of realty taxes for 1987 and 1988
were in the name of Nilus Sacramento and/or the petitioner Clemeno, Jr., does not
negate the fact of the transfer of the ownership over the property to the respondent on
June 4, 1987. Moreover, the deed of sale over the property in favor of the respondent
had not yet been executed by the petitioners. The Spouses Sacramento and later, the
petitioners, were the borrowers, as per the records of the SSS.
The contract of sale of the parties is enforceable notwithstanding the fact that it
was an oral agreement and not reduced in writing as required by Article 1403(2) of the
New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases, an agreement hereafter made shall be unenforceable by action,

unless the same, or some note or memorandum thereof, be in writing, and subscribed
by the parties charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
(d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accepts and receives part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money: but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the amount and kind
of property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
This is so because the provision applies only to executory, and not to completed,
executed or partially executed contracts.[42] In this case, the contract of sale had been
partially executed by the parties, with the transfer of the possession of the property to
the respondent and the partial payments made by the latter of the purchase price
thereof.
We agree with the petitioners contention that the respondent did not pay the
total purchase price of the property within the stipulated period. Moreover, the
respondent did not pay the balance of the purchase price of the property. However,
such failure to pay on the part of the respondent was not because he could not pay, but
because petitioner Angel Clemeno, Jr. told him not to do so. The latter ins tructed the
respondent to continue paying the monthly amortizations due to the SSS on the loan.
Unknown to the respondent, petitioner Angel Clemeno, Jr. wanted to increase the
purchase price of the property at the prevailing market value in 1992, and not i ts value
in 1987 when the contract of sale was perfected.
The petitioners failed to prove their claim that a lease purchase agreement over
the property was entered into. Except for their bare claim, they failed to adduce a
morsel of documentary evidence to prove the same. On the other hand, all the receipts
issued by them on the partial payments made by the respondent were for the purchase
price of the property, and not as rentals thereof.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.
Puno, (Chairman), Tinga, and Chico-Nazario, JJ., concur.
Austria-Martinez, J., on official leave.

Republic of the Philippines

SUPREME COURT
Manila

1. Declaring plaintiff Bernardina C. Ojeda as owner and entitled to the

possession of Lot No. 6354 as described in the sketch found on page
44 of the record;

THIRD DIVISION

2. Declaring said plaintiff as owner and entitled to the possession of

Lot 6353 as described in the sketch, without prejudice to whatever
may be the rights thereto of her sister Melecia Ceno who is said to be
presently in China;

G.R. No. 75111 November 21, 1991

MARGARITO ALMENDRA, DELIA ALMENDRA, BERNARDINA OJEDA and MELECIA
CENO, petitioners,
vs.
THE HON. INTERMEDIATE APPELLATE COURT, ANGELES ALMENDRA, ROMAN
ALMENDRA and MAGDALENO CENO, respondents.
Custodio P. Canete for petitioners.
Serafin P. Ramento and Leon T. Tumandao for private respondents.

3. Declaring defendant Aleja C. Almendra as owner and entitled to

the possession of Lot No. 6366 as described in the sketch found on
page 44 of the record;
4. Declaring said defendant also as owner and entitled to the
possession of Lot No. 6352 as described in the sketch, subject to
whatever may be the rights thereto of her son Magdaleno Ceno who
is said to be presently in China.
No special pronouncement as to costs, except that the fees of the
commissioner shall be proportionately borne by the parties.
SO ORDERED.

FERNAN, C.J.:p
This is a petition for review on certiorari of the then Intermediate Appellate Court's
decision and resolution denying the motion for reconsideration of said decision which
upheld the validity of three (3) deeds of sale of real properties by a mother in favor of
two of her children in total reversal of the decision the lower court.
The mother, Aleja Ceno, was first married to Juanso Yu Book with whom she had three
children named Magdaleno, Melecia and Bernardina, all surnamed Ceno. Sometime in
the 1920's, Juanso Yu Book took his family to China where he eventually died. Aleja and
her daughter Bernardina later returned to the Philippines.
During said marriage, Aleja acquired a parcel of land which she declared in her name
under Tax Declaration No. 11500. 1 After Juanso Yu Book's death, Bernardina filed
against her mother a case for the partition of the said property in the then Court of First
Instance of Leyte. 2 On August 17, 1970, the lower court 3 rendered a "supplemental
decision" 4 finding that the said property had been subdivided into Lots Nos. 6354
(13,788 square meters), 6353 (16,604 square meters), 6352 (23,868 square meters) and
6366 (71,656 square meters). The dispositive portion of said decision rea ds:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment:

Meanwhile, Aleja married Santiago Almendra with whom she had four children named
Margarito, Angeles, Roman and Delia. During said marriage Aleja and Santiago acquired
a 59,196-square-meter parcel of land in Cagbolo, Abuyog, Leyte. Original Certificate of
Title No. 10094 was issued therefor in the name of Santiago Almendra married to Aleja
Ceno and it was declared for tax purposes in his name. 5
In addition to said properties, Aleja inherited from her father, Juan Ceno, a 16,000square-meter parcel of land also in Cagbolo. 6 For his part, her husband Santiago
inherited from his mother Nicolasa Alvero, a 164-square-meter parcel of residential land
located in Nalibunan, Abuyog, Leyte. 7
While Santiago was alive, he apportioned all these properties among Aleja's children in
the Philippines, including Bernardina, who, in turn, shared the produce of the properties
with their parents. After Santiago's death, Aleja sold to her daughter, Angeles Almendra,
for P2,000 two parcels of land more particularly described in the deed of sale da ted
August 10, 1973, 8 as follows:
1. Half-portion, which pertains to me as my conjugal share, with my
late husband Santiago Almendra of the land located at Bo. Cagbolo,
under T/D No. 22234, covered by OCT No. P-10094 in name of
Santiago Almendra; having an area of 5.9196 hectares; with

boundaries specifically designated at the technical descriptions of the

title thereof; and hence the half portion subject of sale shall have an
area of more or less 2.9598 hectares; specifically designated in the
sketch below marked as X: the hilly portion.
2. Half-portion of a parcel of land located at Bo. Cagbolo, Abuyog,
Leyte under T/D No. 27190 in the name of Aleja Ceno; having an area
of 1.6000 hectares bounded as follows to wit: N. Cagbolo creek; E.
Leon Elmido; S. Magno Elmido and W., Higasan River, which portion
shall have an area of more or less 8000 hec. (sic), and designated as X
in the sketch below: 9
On December 26, 1973, Aleja sold to her son, Roman Almendra, also for P2,000 a parcel
of land described in the deed of sale as located in Cagbulo (sic), Abuyog, Leyte "under
T/D No. 11500 which cancelled T/D No. 9635; having an area of 6.6181 hec., assessed at
P1,580.00 . . ." 10
On the same day, Aleja sold to Angeles and Roman again for P2,000 yet another parcel
of land described in the deed of sale 11 as follows:
A parcel of land designated as Lot No. 6352 in the name of Melicia
Ceno, under Project PLS-645, Abuyog, Leyte, which had been treated
in the CIVIL CASE No. 4387, For PARTITION OF REAL PROPERTY, CFI Leyte, Tacloban City, Branch 11; Bernardina Ojeda, Plaintiff, -vs.- Aleja
C. Almendra, defendant, wherein said SUPPLEMENTAL DECISION,
dated August 17th, 1970, in said case by Judge Jesus N. Borromeo:
PART OF THE DECISION, COMMISSIONER'S
REPORT:
Par. 3) That the partition, plaintiff and defendant
agreed to exchange the names or owners of Lot
No. 6353 which is in the name of Magdaleno Ceno
with Lot No. 6352 in the name of Melecia Ceno as
appearing in the sketch, copy of the Public Land
Subdivision of Abuyog, Leyte, under Project PLS645 . . . .
DISPOSITIVE PORTION OF SAID DECISION:
Par. 4) Declaring said defendant (Aleja C.
Almendra) also as owner and entitled to the
possession of Lot No. 6352 as described in the
sketch, subject to whatever may be the rights

thereto of her son Magdaleno Ceno who is said to

be presently in China.
Aleja died on May 7, 1975. On January 21, 1977 Margarito, Delia and Bernardina filed a
complaint against Angeles and Roman for the annulment of the deeds of sale in their
favor, partition of the properties subjects therein and accounting of their
produce. 12 From China, their sister Melecia signed a special power of attorney in favor
of Bernardina. Magdaleno, who was still in China, was impleaded as a defendant in the
case and summons by publication was made on him. Later, the plaintiffs informed the
court that they had received a document in Chinese characters which purportedly
showed that Magdaleno had died. Said document, however, was not produced in court.
Thereafter, Magdaleno was considered as in default without prejudice to the provisions
of Section 4, Rule 18 of the Rules of Court which allows the court to decide a case
wherein there several defendants upon the evidence submitted only by the answering
defendants.
On April 30, 1981, the lower court rendered a decision 13 the dispositive portion of
which states:
WHEREFORE, judgment is hereby rendered declaring the deeds of
sale herein (Exhs."E", "F"and"H") to be simulated and therefore null
and void; ordering the partition of the estate of the deceased Aleja
Ceno among her heirs and assigns; appointing the Acting Clerk of
Court, Atty. Cristina T. Pontejos, as commissioner, for the purpose of
said partition, who is expected to proceed accordingly upon receipt
of a copy of this decision; and to render her report on or before 30
days from said receipt. The expenses of the commissioner shall be
borne proportionately by the parties herein.
SO ORDERED.
The defendants appealed to the then Intermediate Appellate Court which, on February
20, 1986 rendered a decision 14 finding that, in nullifying the deeds of sale in question,
the lower court totally disregarded the testimony of the notary public confirming the
authenticity of the signatures of Aleja on said deeds and the fact that Angeles and
Roman actually paid their mother the amounts stipulated in the contracts. The appellate
court also stated that the uniformity in the prices of the sale could not have nullified the
sale because it had been duly proven that there was consideration and that Angeles and
Roman could afford to pay the same. Hence, it upheld validity of the deeds of sale and
ordered the partition of the "undisposed" properties left by Aleja and Santiago
Almendra and, if an extrajudicial partition can be had, that it be made within a
reasonable period of time after receipt of its decision.

The plaintiffs' motion for reconsideration having been denied, they filed the instant
petition for review on certioraricontending principally that the appellate court erred in
having sanctioned the sale of particular portions of yet undivided real properties.
While petitioners' contention is basically correct, we agree with the appellate court that
there is no valid, legal and convincing reason for nullifying the questioned deeds of sale.
Petitioner had not presented any strong, complete and conclusive proof to override the
evidentiary value of the duly notarized deeds of sale. 15 Moreover, the testimony of the
lawyer who notarized the deeds of sale that he saw not only Aleja signing and affixing
her thumbmark on the questioned deeds but also Angeles and Aleja "counting money
between
them," 16 deserves more credence than the self-serving allegations of the petitioners.
Such testimony is admissible as evidence without further proof of the due execution of
the deeds in question and is conclusive as to the truthfulness of their contents in the
absence of clear and convincing evidence to the contrary. 17
The petitioners' allegations that the deeds of sale were "obtained through fraud, undue
influence and misrepresentation," and that there was a defect in the consent of Aleja in
the execution of the documents because she was then residing with Angeles, 18 had not
been fully substantiated. They failed to show that the uniform price of P2,000 in all the
sales was grossly inadequate. It should be emphasized that the sales were effected
between a mother and two of her children in which case filial love must be taken into
account. 19
On the other hand, private respondents Angeles and Roman amply proved that they had
the means to purchase the properties. Petitioner Margarito Almendra himself admitted
that Angeles had a sari-sari store and was engaged in the business of buying and selling
logs. 20 Roman was a policeman before he became an auto mechanic and his wife was a
school teacher 21
The unquestionability of the due execution of the deeds of sale notwithstanding, the
Court may not put an imprimatur on the intrinsic validity of all the sales. The August 10,
1973 sale to Angeles of one-half portion of the conjugal property covered by OCT No. P10094 may only be considered valid as a sale of Aleja's one-half interesttherein. Aleja
could not have sold particular hilly portion specified in the deed of sale in absence of
proof that the conjugal partnership property had been partitioned after the death of
Santiago. Before such partition, Aleja could not claim title to any definite portion of the
property for all she had was an ideal or abstract quota or proportionate share in the
entire property. 22
However, the sale of the one-half portion of the parcel of land covered by Tax
Declaration No. 27190 is valid because the said property is paraphernal being Aleja's
inheritance from her own father. 23

As regards the sale of the property covered by Tax Declaration No. 11500, we hold that,
since the property had been found in Civil Case No. 4387 to have been subdivided, Aleja
could not have intended the sale of the whole property covered by said tax declaration.
She could exercise her right of ownership only over Lot No. 6366 which was
unconditionally adjudicated to her in said case.
Lot No. 6352 was given to Aleja in Civil Case No. 4387 "subject to whatever may be the
rights thereto of her son Magdaleno Ceno." A reading of the deed of Sale 24 covering
parcel of land would show that the sale is subject to the condition stated above; hence,
the rights of Magdaleno Ceno are amply protected. The rule on caveat emptor applies.
WHEREFORE, the decision of the then Intermediate Appellate Court is hereby affirmed
subject to the modifications herein stated. The lower court is directed to facilitate with
dispatch the preparation and approval of a project of partition of the properties
considered unsold under this decision. No costs.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.