UNPAID SELLERS

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82508 September 29, 1989

FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents.

Labaquis, Loyola, Angara and Associates for petitioner.

Alfredo 1. Raya for private respondents.

SARMIENTO, J.:

This is a petition for review on certiorari of the decision, ¹ dated March 17, 1988, of the Court of Appeals which affirmed with modification the decision ² of the Regional Trial Court of Quezon, Branch LIX, Lucena City. The controversy stemmed from the following facts: The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the private respondents to the Rizal Consolidated Corporation which then had for sale one such machinery described as:

ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic]

JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16

3 UNITS PRODUCT CONVEYOR

75 HP ELECTRIC MOTOR

8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION ³

Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the Rizal Consolidated's plant site. Apparently satisfied with the machine, the private respondents signified their intent to purchase the same. They were however confronted with a problem-the rock crusher carried a cash price tag of P 550,000.00. Bent on acquiring the machinery, the private respondents applied for financial assistance from the petitioner, Filinvest Credit Corporation. The petitioner agreed to extend to the private respondents financial aid on the following conditions: that the machinery be purchased in the petitioner's name; that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter. Accordingly, on May 18,1981, a contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1 981 payable as follows:

P10,000.00 - first 3 months

23,000.00 - next 6 months

24,800.00 - next 15 months

The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus, the private respondents issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and twenty-four (24) postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondents executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private respondents on June 9, 1981. Three months from the date of delivery, or on September 7, 1981, however, the private respondents, claiming that they had only tested the machine that month, sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that the petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints to the petitioner, but the latter did not, however, act on them. Subsequently, the private respondents stopped payment on the remaining checks they had issued to the petitioner. ⁵

As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the real estate mortgage. ⁶ On April 18, 1983, the private respondents received a Sheriff s Notice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. ⁷ To thwart the impending auction of their properties, the private respondents filed before the Regional Trial Court of Quezon, on May 4, 1983, ⁸ a complaint against the petitioner, for the rescission of the contract of lease, annullment of the real estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction. ⁹ On May 23, 1983, three days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist from proceeding with the public auction. ¹⁰ Two years later, on September 4, 1985, the trial court rendered a decision in favor of the private respondents, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

1. making the injunction permanent;

2. rescinding the contract of lease of the machinery and equipment and ordering the plaintiffs to return to the defendant corporation the machinery subject of the lease contract, and the defendant corporation to return to plaintiffs the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fully restituted;

3. annulling the real estate mortgage constituted over the properties of the plaintiffs covered by Transfer Certificate of Title Nos. T32480 and T-5779 of the Registry of Deeds of Lucena City;

4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees and the costs of the suit.

SO ORDERED. ¹¹

Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent Court of Appeals.

On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto. ¹² Hence, this petition.

Before us, the petitioner reasserts that the private respondents' cause of action is not against it (the petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller of the subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of the purchase of the said machine. The petitioner argues that it is a financing institution engaged in quasi-banking activities, primarily the lending of money to entrepreneurs such as the private respondents and the general public, but certainly not the leasing or selling of heavy machineries like the subject rock crusher. The petitioner denies being the seller of the rock crusher and only admits having financed its acquisition by the private respondents. Further, the petitioner absolves itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable about machineries, should be held responsible for the detection of defects in the machine they had acquired, and on account of that, they are estopped from claiming any breach of warranty. Finally, the petitioner interposed the defense of prescription, invoking Article 1571 of the Civil Code, which provides:

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold.

We find the petitioner's first contention untenable. While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents.

Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. ¹³ It is apparent here thatthe intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco ¹⁴ we stated:

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. ¹⁵

The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which provides for the remedies of an unpaid seller of movables on installment basis.

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay two or more installments may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that:

Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. (Emphasis ours.)

Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner liable for the rock crusher's failure to produce in accordance with its described capacity. According to the petitioner, it was the private respondents who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial aid from the petitioner. These allegations of the petitioner had never been rebutted by the private respondents. In fact, they were even admitted by the private respondents in the contract they signed. Thus:

LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract." ¹⁶

Moreover, considering that between the parties, it is the private respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well- established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same.

At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded from imputing any liability on the petitioner. One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machine's production capacity being "typewritten" and that of the waiver being "printed" does not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a description is of no moment. What stands is that the private respondents had expressly exempted the petitioner from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states:

WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated. ¹⁷

Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer beware") and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. In the case at bar, to declare the waiver as non-effective, as the lower courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the private respondent has argued for its nullity or illegality. In any event, we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a- vis the deficient output of the rock crusher. Suffice it to say that the private respondents have validly excused the petitioner from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein.

WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the complaint. Costs against the private respondents.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras and Regalado, ii., concur,

Padilla, J.,took no part

Footnotes

* Impleaded as party respondent per Resolution of the Court dated July 18, 1988, Rollo, 158.

1 Herrera, Manuel C., J., ponente, Melo, Jose A.R. and Imperial, Jorge S., JJ., concurring.

2 Promulgated on September 4, 1985.

3 Rollo, 10.

4 Id., 39.

5 Id., 120.

6 Id.

7 Id.,, 41.

8 Id., 12.

9 Id., 38-44.

10 Id., 67.

11 Id., 64-71.

12 Id., 73-80.

13 " Novesteras vs. Court of Appeals, No. L-36654, March 31, 1987,149 SCRA 47.

14 67 Phil. 191.195 (1939).

15 Id., 195.

16 Rollo, 46, 28.

17 Rollo, 45, 27-28.

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 179898 December 23, 2008

MAUNLAD HOMES, INC., N.C. PULUMBARIT INC., N.C.P. LEASING CORPORATION, and NEMENCIO C. PULUMBARIT, SR., petitioners,
vs.
UNION BANK OF THE PHILIPPINES and JULIE C. GO, respondents.

D E C I S I O N

REYES, R.T., J.:

WE sustain the Regional Trial Court (RTC) grant of preliminary injunction in this petition for review on certiorari of the Decision¹ of the Court of Appeals (CA) nullifying the RTC order in Civil Case No. 297-M-04.

The Facts

The subject matter of the case are several parcels of land forming the commercial complex known as Maunlad Malls 1 and 2 located in Malolos, Bulacan. The properties were previously owned and mortgaged by petitioners to respondents. They were foreclosed by respondents.²

Before consolidation of ownership, respondents, as seller, and petitioners, as buyer, entered into a contract to sell the said parcels of land on July 5, 2002. The contract was essentially a buy-back agreement where the purchase price was to be paid in installment. By virtue of the contract to sell, petitioners remained in possession and management of the commercial complex. They also continued to collect rental payments from the tenants of the commercial complex.³

Sometime in February 2004, respondents began interfering with the business operation of the commercial complex, alleging that petitioners were not paying the installments under the contract to sell. Respondents also convinced the tenants of the commercial complex to pay the rentals directly to them, rather than to petitioners.⁴

On March 14, 2004, petitioners (as plaintiffs) filed a complaint for injunction with prayer for temporary restraining order (TRO) and preliminary injunction with the RTC in Malolos, Bulacan. They sought to prevent respondents (as defendants) from collecting rental payments directly from the tenants of the commercial complex.

After summary hearing, the RTC issued a TRO against respondents.⁵ The hearing on the application for preliminary injunction ensued.

On June 23, 2004, the RTC issued an Order⁶ granting the application for preliminary injunction with the following disposition:

WHEREFORE, upon posting and approval of the required bond let a writ of preliminary injunction issue enjoining the defendants from committing further acts of preventing plaintiffs or their authorized representatives from collecting rental payments for the occupancy of Maunlad Shopping Malls 1 and 2 from the tenants thereof; from preventing the tenants from making rental payments directly to the plaintiff or authorized representatives; and also to restrain defendants from collecting the rental payments from the tenants, under pain of contempt of court if the writ of preliminary injunction is not heeded. In short defendants are enjoined from exercising acts of ownership and/or possession over Maunlad Shopping Malls 1 and 2 by virtue of the writ of preliminary injunction.

Meanwhile, let further hearings on the other pending incidents be set after receipt by this Court of the defendants’ opposition to the plaintiff’s motion to cite defendants in contempt of court, and of plaintiffs’ reply thereto, as previously ordered.⁷

The RTC ratiocinated:

Weighing carefully the arguments of both parties, pro and con, on the basis of the testimonies of plaintiffs’ witness, Nemencio C. Pulumbarit, Sr., and defendants’ witness, Julie Go, this court, at this stage of the proceedings, must grant the prayer for the issuance of a writ of preliminary injunction. Injunction as an extraordinary remedy is calculated to preserve or maintain the status quo and is generally availed of to prevent an actual or threatened acts until the merits of the case can be heard (Cagayan de Oro, etc. vs. Court of Appeals, 254 SCRA 220, 228). There are only two requisites to be satisfied if an injunction is to issue, namely: the existence of the right to be protected; and the facts against which injunction is to be directed are violative of said right. (Del Rosario vs. Court of Appeals, 255 SCRA 152, 158). The clear showing of an actually existing right to be protected during the pendency of the principal action (Carillo vs. Capulong, 222 SCRA 593, 600-601) with the threatened violation of it (Sabalones vs. Court of Appeals, 230 SCRA 79, 86) has been duly established by plaintiffs. Clearly, at this stage, plaintiff Maunlad Malls 1 and 2 since the inception, it has the right to remain in continuous possession subject to the final outcome of the ejectment suit pending before the MTC of Makati. On the other hand, defendant Union Bank cannot validly claim, even admitting the circumstances offered by it in evidence to be true and correct, because in this jurisdiction no one has the right to obtain possession of a piece of property without resorting to judicial remedies available under the circumstances. To sanction defendant Union Bank’s claimed ownership and possession of the premises in question, at this time, vis-à-vis its exercise of the rights appurtenant thereto would be to permit it to contradict itself for, as already pointed out, it has already instituted an action for ejectment against Maunlad Homes, Inc. Good faith demands that defendant Union Bank must wait for the final determination of the ejectment suit, it cannot take the law into its own hands by interfering with or preventing plaintiff Maunlad Homes, Inc, from exercising rights of possession over Malls 1 and 2 and cannot continue to prevent it from collecting the rentals owing from the present occupants of the stalls/units therein.

As to the "sampling" of evidence at the hearing on the motion for preliminary injunction will suffice although not complete or conclusive (Syndicated Media vs. Court of Appeals, 219 SCRA 794, 798), and as required by the Rules, plaintiff Maunlad Homes, Inc. is required to post a bond of P150,000.00 to answer for the damages which defendant Union Bank may incur if later, it should be declared finally that the injunctive writ had been wrongly issued (San Miguel vs. Elbinias, 127 SCRA 312, 318).⁸

On July 8, 2008, respondents filed an urgent motion to dissolve injunction and to post counter bond.⁹ The RTC denied the motion, reasoning as follows:

Petitioner Union Bank of the Philippines (UBP) asserts its rights and entitlement to an injunction considering its status as the registered and actual owner of the subject properties, arguing that private respondents’ claims are anchored on a mere "contract to Sell" which does not vest ownership over said properties on the private respondents unless a deed of absolute sale is executed upon full payment of the purchase price by Maunlad Homes. Further, as We have stated in Our April 28, 2003 Resolution, petitioners stand to suffer grave and irreparable injury during the pendency of the instant case before this Court in terms of the collection of monthly rentals from the subject properties should it be found that the assailed Orders of the RTC were erroneously issued.

The writ shall issue upon posting by the petitioners in this Court of a bond in the amount of Two Million Pesos (Php 2,000,000.00) to answer for any damages that may be incurred by the respondents should it be resolved that petitioners are not entitled to the injunctive relief.¹⁰

Undaunted, respondents (CA petitioners) filed a petition for certiorari with the CA under Rule 65 of the 1997 Rules of Civil Procedure.

CA Disposition

On October 3, 2007, the CA issued a decision granting the petition for certiorari and reversing the RTC decision with a fallo reading:

WHEREFORE, the instant petition is GRANTED. The assailed orders dated July 20, 2004 and September 6, 2004 as well as the order dated June 22, 2004 and the writ of preliminary injunction issued by the RTC of Malolos, Bulacan, Branch 16, in Civil Case No. 297-M-2004, are REVERSED and SET ASIDE for lack of factual and legal basis.

SO ORDERED.¹¹

The CA ratiocinated:

Private respondents’ invocation of the contract to sell which Maunlad previously entered into with Union Bank and upon which they justify their right to possess and collect rentals, is insufficient basis for issuance of a preliminary injunction in their favor. As the Supreme Court held:

x x x the contract to sell does not by itself give respondent the right to possess the property. Unlike in a contract of sale, here in a contract to sell, there is yet no actual sale nor any transfer of title, until and unless, full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. Respondent must have fully paid the price of acquire title over the property and the right to retain possession thereof. In cases of non-payment, the unpaid seller can avail of the remedy of ejectment since he retains ownership of the property.

In view of the absence of a clear and unmistakable right on the part of private respondents, we cannot sustain their claim that they would suffer irreparable injury if injunctive relief is not granted in their favor. Where the complainants’ right or title is doubtful or disputed, injunction is not proper. Thus, the possibility of irreparable damage without proof of existing right is no ground for an injunction.

Stated differently, one who prays for issuance of injunction must show the existence of a "clear positive right" especially calling for judicial protection. Injunction is not designed to protect contingent or future right; nor is it a remedy to enforce an abstract right. The duty of the court taking cognizance of a prayer for a writ of preliminary injunction is to determine whether the requisites necessary for the grant of an injunction are present in the case before it. The granting by the trial court despite the absence of any legal right to be protected constitutes grave abuse of discretion.

On the other hand, in line with the petition before the Court, we find that petitioner Union Bank has sufficiently shown its right to the issuance of not only preliminary injunction but also permanent injunction against the respondents.¹²

Aggrieved, petitioners (CA respondents) resorted to this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure.

Issue

Essentially, petitioners raise the sole issue of whether the CA correctly reversed the RTC order granting preliminary injunction.

Our Ruling

The answer is in the negative, calling for a grant of the petition.

Injunctive reliefs may be the main prayer in a complaint or an incident to the main action. In both instances, the object of injunctive reliefs is the same. It is to protect and preserve the status quo until finality of the resolution of the main issue. In Bustamante v. Court of Appeals,¹³ the Court held:

A preliminary injunction is a provisional remedy, an adjunct to the main case subject to the latter’s outcome. Its sole objective is to preserve the status quo until the trial court hears fully the merits of the case. Its primary purpose is not to correct a wrong already consummated, or to redress an injury already sustained, or to punish wrongful acts already committed, but to preserve and protect the rights of the litigant during the pendency of the case.

This Court has ruled that the status quo sought to be preserved by a preliminary injunction is the last actual, peaceable, and uncontested situation which precedes a controversy. The status quo should be existing ante litem motam, or at the time of the filing of the case. For this reason, a preliminary injunction should not establish new relations between the parties, but merely maintain or re-establish the pre-existing relationship between them. x x x¹⁴

Here, the RTC issued the writ of preliminary injunction as an incident to the main prayer for injunction in the complaint of petitioners. The RTC granted the writ of injunction but the CA reversed its decision. A reading of the CA decision reveals that the appellate court reversed the RTC grant of injunction solely because petitioners’ "invocation of the contract to sell" is "insufficient for the issuance of the preliminary injunction." The appellate court reasoned that petitioners have "no clear positive right" to the rental payments.

As We see it, the CA was of the opinion that petitioners have no right to collect rental payments from the tenants of the commercial complex because they ceased to own the disputed property pursuant to the contract to sell. We do not agree. It is wrong for the CA to rule that petitioners are not entitled to collect rental payments because they are no longer the owner of the commercial complex. It is not essential under our law on lease that the lessor be the owner of the leased property. A mere lessee may be a lessor under a sub-lease contract. Even a mere possessor may enter into a contract of lease as lessor.

Records disclose that petitioners never ceased to be the possessor of the commercial complex, although there was a contract to sell the said property. They continued to possess the disputed property before, during, and after the execution of the contract to sell. In fact, petitioners were the ones who entered into the lease contracts with the tenants of the commercial complex.¹⁵

Records further show that respondents entered into a contract to sell with petitioners before consolidating ownership over the disputed property after foreclosure. The contract to sell was essentially a buy-back agreement on installment. By virtue of the contract to sell, petitioners continued to collect rental payments from the tenants of the commercial complex. Respondents did not dispute this right.

It was an error for the appellate court to make a definitive conclusion that petitioner has no right to collect rental payments from the tenants of the commercial complex. Respondents are estopped from asserting otherwise because they allowed petitioners to collect said rental payments after the execution of the contract to sell. Under the terms of the contract to sell, We find no prohibition against the collection of rental payments by petitioners. It may fairly be assumed, unless contradicted at trial, that petitioners have the right to collect and receive rental payments from the tenants of the commercial complex.

It is basic that the grant or denial of the writ of preliminary injunction rests upon the sound discretion of the court.¹⁶ Findings of fact and conclusion of law by the trial court are accorded great weight and respect when supported by evidence. As against the CA denial of the writ of preliminary injunction, We find the RTC grant of injunction to be in order. The RTC order is supported by the evidence on record. We quote with approval pertinent portions, to wit:

x x x Clearly, at this stage, plaintiff Maunlad Homes, Inc. having been in possession of Maunlad Malls 1 and 2 since the inception, it has the right to remain in continuous possession subject to the final outcome of the ejectment suit pending before the MTC of Makati. On the other hand, defendant Union Bank, cannot validly claim, even admitting the circumstances offered by it in evidence to be true and correct because in this jurisdiction no one has the right to obtain possession of a piece of property without resorting to judicial remedies available under the circumstances. To sanction defendant Union Bank’s claimed ownership and possession of the premises in question, at this time, vis-à-vis its exercise of the rights appurtenant thereto would be to permit it to contradict itself for, as already pointed out, it has already instituted an action for ejectment against Maunlad Homes, Inc. Good faith demands that defendant Union Bank must wait for the final determination of the ejectment suit; it cannot take the law into its own hands by interfering with or preventing plaintiff Maunlad Homes, Inc. from exercising rights of possession over Malls 1 and 2 and cannot continue to prevent it from collecting the rentals owning from the present occupants of the stalls/units therein.¹⁷

Moreover, as a matter of prudence, it is highly premature for the CA to make a definitive resolution of the rights and obligations of the parties under the contract to sell. It is beyond the power of the appellate court to conclude that petitioner has no right to collect the rental payments under the contract to sell because that issue is yet to be fully resolved by the RTC in the main application for injunction. The only issue for the CA to resolve was the propriety of the issuance of the writ of preliminary injunction, a mere incident to the main prayer for injunction. The issue of a final injunction has yet to be decided by the RTC.

In all, caution and the balance of convenience dictate that the RTC writ of injunction should be sustained. The issue of the rights and obligations of petitioners and respondents pursuant to the contract to sell should proceed and must be threshed out at trial. Meantime, the status quo needs to be preserved. The status quo ante in this case is the state of things before the filing of the complaint where petitioners were allowed to receive rental payments from the tenants of the commercial complex.

In fine, We find that the CA gravely erred in reversing the RTC grant of preliminary injunction. The writ must be restored and the RTC should resolve with dispatch the main issue of injunction.

WHEREFORE, the petition is GRANTED. The Court of Appeals Decision is REVERSED AND SET ASIDE. The Regional Trial Court order and writ of preliminary injunction are REINSTATED.

SO ORDERED.

RUBEN T. REYES
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO Associate Justice Chairperson
MA. ALICIA AUSTRIA-MARTINEZ Associate Justice	MINITA V. CHICO-NAZARIO Associate Justice
ANTONIO EDUARDO B. NACHURA Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

¹ Rollo, pp. 101-110.

² Id. at 18-19.

³ Id. at 61-62.

⁴ Id. at 62.

⁵ Id. at 19.

⁶ Id. at 61-63.

⁷ Id. at 63.

⁸ Id. at 62-63.

⁹ Id. at 64-70.

¹⁰ Id. at 80-81.

¹¹ Id. at 110-111.

¹² Id. at 109-110.

¹³ G.R. No. 126371, April 17, 2002, 381 SCRA 171.

¹⁴ Bustamante v. Court of Appeals, id. at 180-181.

¹⁵ Rollo, p. 40.

¹⁶ Jao & Company, Inc. v. Court of Appeals, G.R. No. 93233, December 19, 1995, 251 SCRA 391, citing Avila v. Tapucar, G.R. No. 45947, August 27, 1991, 201 SCRA 148, citing Belisle Investment & Finance Co., Inc. v. State Investment House, Inc., G.R. No. L-71917, June 30, 1987, 151 SCRA 630.

¹⁷ Rollo, pp. 62-63.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17825 June 26, 1922

In the matter of the Involuntary insolvency of U. DE POLI.
FELISA ROMAN, claimant-appellee,
vs.
ASIA BANKING CORPORATION, claimant-appellant.

Wolfson, Wolfson and Schwarzkopf and Gibbs, McDonough & Johnson for appellant.
Antonio V. Herrero for appellee.

OSTRAND, J.:

This is an appeal from an order entered by the Court of First Instance of Manila in civil No. 19240, the insolvency of Umberto de Poli, and declaring the lien claimed by the appellee Felisa Roman upon a lot of leaf tobacco, consisting of 576 bales, and found in the possession of said insolvent, superior to that claimed by the appellant, the Asia Banking Corporation.

The order appealed from is based upon the following stipulation of facts:

It is hereby stipulated and agreed by and between Felisa Roman and Asia Banking Corporation, and on their behalf by their undersigned attorneys, that their respective rights, in relation to the 576 bultos of tobacco mentioned in the order of this court dated April 25, 1921, be, and hereby are, submitted to the court for decision upon the following:

I. Felisa Roman claims the 576 bultos of tobacco under and by virtue of the instrument, a copy of which is hereto attached and made a part hereof and marked Exhibit A.

II. That on November 25, 1920, said Felisa Roman notified the said Asia Banking Corporation of her contention, a copy of which notification is hereto attached and made a part hereof and marked Exhibit B.

III. That on November 29, 1920, said Asia Banking Corporation replied as per copy hereto attached and marked Exhibit C.

IV. That at the time the above entitled insolvency proceedings were filed the 576 bultos of tobacco were in possession of U. de Poli and now are in possession of the assignee.

V. That on November 18, 1920, U. de Poli, for value received, issued a quedan, covering aforesaid 576 bultos of tobacco, to the Asia Banking Corporation as per copy of quedan attached and marked Exhibit D.

VI. That aforesaid 576 bultos of tobacco are part and parcel of the 2,777 bultos purchased by U. de Poli from Felisa Roman.

VII. The parties further stipulate and agree that any further evidence that either of the parties desire to submit shall be taken into consideration together with this stipulation.

Manila, P. I., April 28, 1921.

(Sgd.) ANTONIO V. HERRERO
Attorney for Felisa Roman

(Sgd.) WOLFSON, WOLFSON & SCHWARZKOPF
Attorney for Asia Banking Corp.

Exhibit A referred to in the foregoing stipulation reads:

1.º Que la primera parte es dueña de unos dos mil quinientos a tres mil quintales de tacabo de distintas clases, producidos en los municipios de San Isidro, Kabiaw y Gapan adquiridos por compra con dinero perteneciente a sus bienes parafernales, de los cuales es ella administradora.

2.º Que ha convenido la venta de dichos dos mil quinientos a tres mil quintales de tabaco mencionada con la Segunda Parte, cuya compraventa se regira por las condiciones siguientes:

(a) La Primera Parte remitira a la Segunda debidamente enfardado el tabaco de que ella es propietaria en bultos no menores de cincuenta kilos, siendo de cuenta de dicha Primera Parte todos los gastos que origine dicha mercancja hasta la estacion de ferrocarril de Tutuban, en cuyo lugar se hara cargo la Segunda y desde cuyo instante seran de cuenta de esta los riesgos de la mercancia.

(b) El precio en que la Primera Parte vende a la Segunda el tabaco mencionada es el de veintiseis pesos (P26), moneda filipina, por quintal, pagaderos en la forma que despues se establece.

(c) La Segunda Parte sera la consignataria del tabaco en esta Ciudad de Manila quien se hara cargo de el cuando reciba la factura de embarque y la guia de Rentas Internas, trasladandolo a su bodega quedando en la misma en calidad de deposito hasta la fecha en que dicha Segunda Parte pague el precio del mismo, siendo de cuenta de dicha Segunda Parte el pago de almacenaje y seguro.

(d) LLegada la ultima expedicion del tabaco, se procedera a pesar el mismo con intervencion de la Primera Parte o de un agente de ella, y conocido el numero total de quintales remitidos, se hara liquidacion del precio a cuenta del cual se pagaran quince mil pesos (P15,000), y el resto se dividira en cuatro pagares vencederos cada uno de ellos treinta dias despues del anterior pago; esto es, el primer pagare vencera a los treinta dias de la fecha en que se hayan pagado los quince mil pesos, el segundo a igual tiempo del anterior pago, y asi sucesivamente; conviniendose que el capital debido como precio del tabaco devengara un interes del diez por ciento anual.

Los plazos concedidos al comprador para el pago del precio quedan sujetos a la condicion resolutoria de que si antes del vencimiento de cualquier plazo, el comprador vendiese parte del tabaco en proporcion al importe de cualquiera de los pagares que restasen por vencer, o caso de que vendiese, pues se conviene para este caso que desde el momento en que la Segunda Parte venda el tabaco, el deposito del mismo, como garantia del pago del precio, queda cancelado y simultaneamente es exigible el importe de la parte por pagar.

Leido este documento por los otorgantes y encontrandolo conforme con lo por ellos convenido, lo firman la Primera Parte en el lugar de su residencia, San Isidro de Nueva Ecija, y la Segunda en esta Ciudad de Manila, en las fechas que respectivamente al pie de este documento aparecen.

(Fdos.) FELISA ROMAN VDA. DE MORENO
U. DE POLI

Firmado en presencia de:

(Fdos.) ANTONIO V. HERRERO
T. BARRETTO

("Acknowledged before Notary")

Exhibit D is a warehouse receipt issued by the warehouse of U. de Poli for 576 bales of tobacco. The first paragraph of the receipt reads as follows:

Quedan depositados en estos almacenes por orden del Sr. U. de Poli la cantidad de quinientos setenta y seis fardos de tabaco en rama segun marcas detalladas al margen, y con arreglo a las condiciones siguientes:

In the left margin of the face of the receipts, U. de Poli certifies that he is the sole owner of the merchandise therein described. The receipt is endorced in blank "Umberto de Poli;" it is not marked "non-negotiable" or "not negotiable."

Exhibit B and C referred to in the stipulation are not material to the issues and do not appear in the printed record.

Though Exhibit A in its paragraph (c) states that the tobacco should remain in the warehouse of U. de Poli as a deposit until the price was paid, it appears clearly from the language of the exhibit as a whole that it evidences a contract of sale and the recitals in order of the Court of First Instance, dated January 18, 1921, which form part of the printed record, show that De Poli received from Felisa Roman, under this contract, 2,777 bales of tobacco of the total value of P78,815.69, of which he paid P15,000 in cash and executed four notes of P15,953.92 each for the balance. The sale having been thus consummated, the only lien upon the tobacco which Felisa Roman can claim is a vendor's lien.

The order appealed from is based upon the theory that the tobacco was transferred to the Asia Banking Corporation as security for a loan and that as the transfer neither fulfilled the requirements of the Civil Code for a pledge nor constituted a chattel mortgage under Act No. 1508, the vendor's lien of Felisa Roman should be accorded preference over it.

It is quite evident that the court below failed to take into consideration the provisions of section 49 of Act No. 2137 which reads:

Where a negotiable receipts has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom such receipt has been negotiated, whether such negotiation be prior or subsequent to the notification to the warehouseman who issued such receipt of the seller's claim to a lien or right of stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified in delivering the goods to an unpaid seller unless the receipt is first surrendered for cancellation.

The term "purchaser" as used in the section quoted, includes mortgagee and pledgee. (See section 58 (a) of the same Act.)

In view of the foregoing provisions, there can be no doubt whatever that if the warehouse receipt in question is negotiable, the vendor's lien of Felisa Roman cannot prevail against the rights of the Asia Banking Corporation as the indorse of the receipt. The only question of importance to be determined in this case is, therefore, whether the receipt before us is negotiable.

The matter is not entirely free from doubt. The receipt is not perfect: It recites that the merchandise is deposited in the warehouse "por orden" instead of "a la orden" or "sujeto a la orden" of the depositor and it contain no other direct statement showing whether the goods received are to be delivered to the bearer, to a specified person, or to a specified person or his order.

We think, however, that it must be considered a negotiable receipt. A warehouse receipt, like any other document, must be interpreted according to its evident intent (Civil Code, arts. 1281 et seq.) and it is quite obvious that the deposit evidenced by the receipt in this case was intended to be made subject to the order of the depositor and therefore negotiable. That the words "por orden" are used instead of "a la orden" is very evidently merely a clerical or grammatical error. If any intelligent meaning is to be attacked to the phrase "Quedan depositados en estos almacenes por orden del Sr. U. de Poli" it must be held to mean "Quedan depositados en estos almacenes a la orden del Sr. U. de Poli." The phrase must be construed to mean that U. de Poli was the person authorized to endorse and deliver the receipts; any other interpretation would mean that no one had such power and the clause, as well as the entire receipts, would be rendered nugatory.

Moreover, the endorsement in blank of the receipt in controversy together with its delivery by U. de Poli to the appellant bank took place on the very of the issuance of the warehouse receipt, thereby immediately demonstrating the intention of U. de Poli and of the appellant bank, by the employment of the phrase "por orden del Sr. U. de Poli" to make the receipt negotiable and subject to the very transfer which he then and there made by such endorsement in blank and delivery of the receipt to the blank.

As hereinbefore stated, the receipt was not marked "non-negotiable." Under modern statutes the negotiability of warehouse receipts has been enlarged, the statutes having the effect of making such receipts negotiable unless marked "non-negotiable." (27 R. C. L., 967 and cases cited.)

Section 7 of the Uniform Warehouse Receipts Act, says:

A non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it 'non-negotiable,' or 'not negotiable.' In case of the warehouseman's failure so to do, a holder of the receipt who purchased it for value supposing it to be negotiable may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable.

This section shall not apply, however, to letters, memoranda, or written acknowledgments of an informal character.

This section appears to give any warehouse receipt not marked "non-negotiable" or "not negotiable" practically the same effect as a receipt which, by its terms, is negotiable provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable, circumstances which admittedly exist in the present case.

We therefore hold that the warehouse receipts in controversy was negotiable and that the rights of the endorsee thereof, the appellant, are superior to the vendor's lien of the appellee and should be given preference over the latter.

The order appealed from is therefore reversed without costs. So ordered.

Araullo, C.J., Malcolm, Avanceña, Villamor, Johns and Romualdez, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 141283 August 30, 2001

SEGOVIA DEVELOPMENT CORPORATION, petitioner,
vs.
J.L. DUMATOL REALTY and DEVELOPMENT CORPORATION, respondent.

BELLOSILLO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal and nullification of the Decision of the Court of Appeals¹ and the reinstatement and affirmance in toto of the decision of the Office of the President, as well as the nullification and reversal of the Resolution of the appellate court which denied its Motion for Reconsideration.

Petitioner SEGOVIA DEVELOPMENT CORPORATION (SEGOVIA for brevity) and respondent J. L. DUMATOL REALTY AND DEVELOPMENT CORPORATION (DUMATOL for brevity) are domestic corporations engaged in the business of real estate development.

On 2 March 1989 petitioner SEGOVIA and respondent DUMATOL entered into three (3) separate but identical contracts to sell involving three (3) condominium units, namely, Units Nos. 703, 704 and 904, of the Heart Tower Condominium located at Lot 5, Block 2, Valero Street, Salcedo Village, Makati City. The total contract price for the three (3) units was P6,050,000.00 under the following terms and conditions:

	Unit 703	Unit 704	Unit 904
Reservation Deposit	P 50,000.00	P 50,000.00	P 50,000.00
Downpayment	770,000.00	770,000.00	820,000.00
12 Monthly Installments Beginning 25 April 1989	90,000.00	90,000.00	90,000.00
Parking Lot	100,000.00	100,000.00	100,000.00
Total Contract Price	P2,000,000.00	P2,000,000.00	P2,050,000.00

The contracts, which were in standard form approved by the Housing and Land Use Regulatory Board (HLURB), contained the following provisions:

a. Escalation Clause

2.5 Should there be an increase or decrease in the total Consumer Price Index (CPI) (as set forth by the Central Bank of the Philippines or by any agency of the government), of more that FIFTEEN (15%) PERCENT, from the time this Contract is executed, a corresponding adjustment in the unpaid balance or remaining installment under this Contract shall be made. The amount of adjustment shall be the net percentage of change in excess of FIFTEEN (15%) PERCENT. The Buyer has the option to accelerate payments or pay the balance in full without interest to avoid upward adjustments.

b. Cancellation by the Seller

4.1 x x x x Where less than 2 years of installments were paid, the SELLER shall give the BUYER a grace period of 60 days but a penalty of 3% per month shall be levied upon unpaid installments. If the BUYER fails to comply, the SELLER may cancel the Contract after 30 days from receipt by the BUYER of the Notice of Cancellation or the Demand of Rescission of the Contract by a notarial act without need of judicial action.

Out of the total contract price of P6,050,000.00, respondent DUMATOL was able to pay only the amount of P450,000.00 for the three (3)units as follows:

Date of Payment	Mode of Payment	Amount Paid (In Pesos)
23 February 1989	PSB Check No. 242943	P 150,000.00
15 June 1989	PSB Check No. 257286	2,000,000.00
17 August 1989	PSB Check No. 318839	1,000,000.00
17 August 1989	PSB Check No. 337265	500,000.00
28 December 1989	PSB Check No. 396410	250,000.00
30 January 1990	PSB Check No. 396468	500,000.00
31 January 1990 (thru respondent's agent Julius Stracham)	UDB Check No. 125417	100.000.00
	Total	P4,500,000.00

However, the check paid by respondent DUMATOL through Julius Stracham was dishonored by the bank so that only P4,400,000.00 was credited to the account of respondent DUMATOL.

Since respondent DUMATOL had been in default in updating its accounts, petitioner SEGOVIA sent on 5 November 1990 a Notice of Rescession officially notifying respondent that the contract to sell for Unit 904 was being rescinded.²

On 15 November 1990 a meeting was held between the two (2) contracting parties whereby it was approved in principle that petitioner would withdraw the action for rescission subject to the condition that respondent would pay for the following: (a) the total balance for the three (3) condominium units, together with interest and the related charges amounting to P2,808,699.00, would be settled not later than 12:00 o'clock noon of 7 December 1990; and, (b) liquidated damages amounting to P700,000.00.³

In its reply dated 23 November 1990 respondent DUMATOL disputed the computation made by petitioner and informed the, latter that it was prepared to pay the remaining balance of the purchase price plus interests, which amounted to only P1,977,200.00.

In the meantime, in November 1990 respondent received from one Edilberto Bravo an offer to buy Units 703 and 704 at the price of P3,700,000.00 each. However, after being, informed of petitioner's letter to respondent dated 16 November 1990, Mr. Bravo, fearful of being embroiled in the dispute, withdrew his offer.

On 29 November 1990 respondent DUMATOL lodged a complaint⁴ with the HLURB praying among others that the three percent (3%) interest rate being assessed by petitioner on the defaulted payments be declared erroneous and that petitioner be likewise ordered to pay P3,400,000.00 compensatory damages.

On 4 December 1990, the settlement of the outstanding balance of the purchase price not having materialized, respondent received another notice of cancellation from petitioner, this time officially informing respondent that the Contracts to Sell for Units 703, 704 and 904 were being cancelled without need of judicial action.⁵

On 5 December 1990 respondent consigned⁶ with the HLURB the amount of P1,977,220.00 in the form of Philippine Savings Bank Check No. 203331 which represented what it believed to be its remaining accountability to petitioner SEGOVIA.

On 24 May 1991, after due consideration of the respective position papers of the contending parties, the HLURB Arbiter rendered a Judgment: (a) ordering DUMATOL to pay SEGOVIA the amount of P2,559,900.00 which represented the balance due on Units 703, 704 and 904 of the Heart Tower Condominium; (b) ordering DUMATOL to pay the outstanding association dues, utility bills and 1990 real estate taxes for the three (3) units; (c) ordering SEGOVIA to pay DUMATOL P2,746,773.05 as compensatory damages; and, (d) dismissing the case against SEGOVIA for lack of merit.⁷

On appeal, the HLURB increased the account liability of respondent DUMATOL to P3,275,202.40 representing the principal balance, accrued interest and penalties as of 25 June 1991, as well as an additional three percent (3%) penalty per month for each delayed payment with six percent (6%) interest per annum beyond that date until fully paid. The Board likewise ordered respondent DUMATOL to pay petitioner SEGOVIA P30,000.00 as attorney's fees.⁸

Not satisfied with the decision both parties elevated the controversy to the Office of the President which dismissed the appeal of respondent but partly gave due course to that of petitioner. In its judgment, the Office of the President modified the decision of the HLURB by ordering respondent DUMATOL: (a) to pay petitioner SEGOVIA the amount of P3,275,487.56, instead of P3,275,202.40, representing the principal balance, accrued interests and penalties as of 25 June 1991, as well as an additional three percent (3%) per month for each delayed payment, with six percent (6%) interest per annum beyond that date until fully paid; and, (b) to pay fifty percent (50%) of the amount of P3,126,372.11 as contract price adjustment, with six percent (6%) interest per annum from 15 November 1990 until fully paid.

On 12 January 1999 respondent DUMATOL filed before the Court of Appeals a petition seeking to annul and set aside the decision of the Office of the President. In its appeal, respondent prayed that the decision of 24 May 1991 rendered by the HLURB Arbiter in the proceeding below be reinstated. Respondent argued that the three percent (3%) penalty charge was iniquitous and unconscionable and therefore unjustified; that its acts of tendering and consigning the sum of P1,977,200.00 with the HLURB suspended the running of such interest charges; that its constitutional right to due process was violated by the Office of President when it adopted the computation submitted by petitioner on appeal to the HLURB Commissioners; and, that there was no basis for the imposition of the six percent (6% ) interest per annum.

The Court of Appeals granted the petition and nullified the decision rendered by the Office of the President. It opined that respondent's act of consigning to the HLURB the amount of P1,977,200.00 by way of check after tender of payment, was refused by petitioner amounted to substantial compliance with the requirements of a valid consignation. Although the appellate court deemed it pointless to pass upon the propriety of imposing the penalty charge, nonetheless, it noted that under the circumstances of the case the three percent (3%) penalty charge was indeed iniquitous and unconscionable. According to the Court of Appeals⁹ -

x x x it bears considering that the petitioner (respondent herein) stands to lose all, three condominium units, notwithstanding the fact that the total payments made by it in the amount of P4,400,000.00 would have been enough to pay for two (2) condominium units x x x x Petitioner (herein respondent) may lose all three units because of the unconscionable penalty charges, which are evidently disproportionate to the principal obligation.

On the matter of the additional six percent (6%) per annum as damages, the court a quo held that there was no legal basis for its imposition. The record shows that this matter was raised for the first time on appeal as a claim for the twelve percent (12%) interest which was subsequently reduced by the HLURB Commissioners to six percent (6%) per annum.

The pivotal issue to be resolved is whether the Decision of the Court of Appeals which set aside the decision of the Office of the President and reinstated that of the HLURB is sufficiently supported by law and the facts of the case.

To give finality to the main issue, we have to resolve certain equally contentious points which have bewildered the parties at the very outset, specifically: (a) whether the computation of respondent's unpaid obligation to petitioner by the Office of the President is correct; (b) whether there is valid consignation of payment by respondent which therefore justified the suspension of the imposition. of the three percent (3%) penalty interest provided under the contract; (c) whether petitioner Is entitled to the six percent (6%) interest per annum as damages; (d) whether petitioner is liable to pay respondent compensatory damages for unrealized profits; (e) whether petitioner is entitled to the fifty percent (50%) contract price adjustment; and, (f) whether petitioner is entitled to recover attorney's fees.

For clarity, we shall proceed with the first issue by setting forth certain established facts, namely: (a) that the contract price for the three (3) condominium units purchased by respondent is P6,050,000.00; and, (b) under each contract to sell respondent (buyer) committed to pay P90.000.00 for each unit or a total of P270,000.00 for twelve (12) months for the three (3) units, beginning 25 April 1989. Simply stated, by 25 March 1990, respondent-buyer should have already completed the payment of the three (3) condominium units otherwise the unpaid instalments would be subject to a penalty of three percent (3%) interest; and, (c) respondent-buyer had not paid its account balance and had been in arrears from month to month.

We observe that the contending realty firms, and even the tribunals below, are riot in agreement as to the liability of respondent DUMATOL. In its decision, the HLURB Arbiter ordered respondent to pay petitioner the sum of P2,559,900.00 representing the balance on the units subject of the contracts to sell. The HLURB however noted that the computation made by the HLURB Arbiter should have taken into consideration the date when the contract was executed, the installments due, the penalties and interests, the payments made and the application of payments. The Office of the President, for its part, claimed that respondent incurred arrearages as of 25 June 1991 in the amount of P3,275,487.56. This last computation was adopted by the Court of Appeals in its assailed Decision,

Petitioner now assails before us the Arbiter's determination of respondent's account balance for being erroneous. Petitioner contends that the computation showed nineteen (19) monthly instalments of P270,000.00 instead of the agreed twelve (12) months of P270,000.00 for the three (3) units. Further, petitioner points out that the HLURB Arbiter erroneously considered the downpayment for the three (3) units in the amount of P2,360,000.00 as part of the unpaid balance, contrary to the explicit and express provisions of the contracts to sell.

On the other hand, respondent begrudges the adoption by the office of the President and the HLURB Commissioners of a computation entirely based on the computation made by petitioner which, according to respondent, is violative of its right to due process for it deprives respondent of the opportunity to contest the document, to cross-examine the person who prepared it, and to present countervailing evidence.

Given the inconsistent and contradictory claims by the contending parties, exacerbated by the discrepant figures of the court below, it is imperative that a more accurate determination of respondent's accountability be made by a lower body in order to settle the question with finality.

On the second issue, it is crucial to rule upon the validity of respondent's consignation in order to determine its effect on the running of the three percent (3%) interest. Consignation to be valid and effective must comply with the following requisites, namely:

(a) Tender of payment and refusal to accept without reason;¹⁰

(b) Previous notice of consignation to the persons interested in its fulfillment;¹¹

(c) After the deposit or consignation has been made, the persons interested shall be notified thereof.¹²

The factual milieu of this case reveals that on 10 December 1990, respondent consigned with the HLURB Philippine Savings Bank Check No. 203331 for P1,977,220.00 after it received from petitioner the Notice of Cancellation of the three (3) contracts. Patently, the consignment was made only to forestall an action for rescission which petitioner might take. Be that as it may, respondent never made any prior tender of payment to petitioner notwithstanding respondent's submission that there was substantial compliance with the requirements of consignation in light of our ruling in Licuanan v. Diaz¹³ -

In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167 [1983]), the Court ruled that the codal provisions of the Civil Code dealing with consignation (Articles 1252 -1261) should be accorded mandatory construction -

"We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law. Articles 1256-1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. Substantial compliance is not enough for that would render only directory construction of the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicated that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual x x x x

In opposing the three percent (3%) penalty interest, respondent, as sustained by the Court of Appeals, invokes Art. 1229 of the Civil Code which provides -

The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

Respondent also claims that the spirit of the above provision is re-echoed in Art. 2227 of the Civil Code which provides -

Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

We agree. The three percent (3%) penalty interest is patently iniquitous and unconscionable as to warrant the exercise by this Court of its judicial discretion. A close reading of the contracts to sell will show that the three percent (3%) penalty interest on unpaid instalments on a monthly basis (per Sec. 4.1) would translate to a yearly penalty interest of thirty-six percent (36%). Assuming that respondent has an outstanding balance which runs into millions (P2,559,900.00 per HLURB Arbiter's computation), the payments respondent made (amounting to P4.4 million out of the P6.05 million contract price) would be virtually wiped out if the three percent (3%) penalty interest were imposed on the account balance.

With more reason should we question the wisdom of such stipulated provision considering that respondent DUMATOL stands to lose the three (3) condominium units notwithstanding the fact that it has substantially complied with its contractual obligations. Pending determination of the actual liability of respondent, we could only speculate on how staggering the increase in the unpaid instalments of the respondent would now be after more than a decade of litigation.

Although this Court on various occasions has eliminated altogether the three percent (3%) penalty interest for being unconscionable,¹⁴ we are not inclined to do the same in this case. A reduction is more consistent with fairness and equity. We should not lose sight of the fact that petitioner remain an unpaid seller that it has suffered, one way or another, from respondent's non-performance of its contractual obligations. In view of such glaring reality, we invoke the authority granted to us by Art. 1229 of the Civil Code, and as equity dictates, the penalty interest is accordingly reimposed on a reduced rate of one percent (1%) interest per month or twelve percent (12%) per annum.

With respect to the six percent (6%) interest per annum imposed as damages, we disallow the same for lack of legal basis. As correctly pointed out by the Court of Appeals, the contracts to sell do not provide for a six percent (6%) interest on the unpaid principal and accumulated penalty and interest charges. The interest was raised for the first time on appeal as a claim for twelve, percent (12%) interest which was subsequently reduced to six percent (6%) by the HLURB. In disallowing the interest, we quote with approval the observation of the appellate court¹⁵ -

x x x x We hold that there is no legal basis for its imposition. It is a basic legal principle that parties may not raise a new cause of action on appeal x x x x This matter was raised for the first time on appeal as a claim for 12% interest which was subsequently reduced by the HULRB Commissioners to 6% per annum. Respondents, (petitioner herein) never made a counterclaim for these amounts in their answer and position paper during the proceedings at the arbiter's level x x x x

Neither can we find statutory justification for the imposition of the six percent (6%) interest in Art. 1226¹⁶ of the Civil Code. An obligation with a penal clause is one that contains an accessory undertaking, primarily intended to induce faithful performance of the principal prestation. Such cannot be true in this case because there is no stipulation in the contracts to sell imposing the six percent (6%) interest as penalty for the non-performance of the contractual obligations.

The Court of Appeals next invokes Art. 2212 of the Civil Code -

Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

Nonetheless, the court a quo deleted the six percent (6%) legal interest in view of the failure of petitioner to comply with the requirement of judicial demand. We recall that the matter of the six percent (6%) interest was not demanded by petitioner in its counterclaim but was imposed only at the instance of the HLURB in its decision on appeal.

Apropos the fourth issue, we do not agree with the appellate court that respondent DUMATOL is entitled to actual damages for unrealized profits. The sworn affidavit of Mr. Edilberto Bravo shows that he offered to buy for a definite price two (2) condominium units from respondent. The sale did not materialize however when Mr. Bravo withdrew his offer after perusing petitioner's letter dated 16 November 1990 for fear of getting involved in a litigation over the units. A cursory reading of the letter however will show that it contains basically a mere confirmation of an agreement by both parties during a meeting the previous day for the settlement of the total account balance. If indeed damages were sustained by respondent as a result of the aborted sale, it was not directly attributable to petitioner. What is undeniable is that respondent is in arrears in the payment of its accounts and petitioner, by sending a letter, was merely trying to enforce an agreement which it should not be denied of. In fine, we find the evidence grossly anemic to support respondent's claim for actual damages.

Anent the fifth issue, we agree with the Court of Appeals that he award of a fifty percent (50%) contract price adjustment in favor of petitioner should be disallowed. We note that as early as in the proceeding before the HLURB Arbiter, the "Consumer Price Index for All Income Households" (supposedly the basic for the adjustment of the contract price per Sec. 2.5 of the Contract to Sell)as part of petitioner's evidence, was not admitted for lack o proper authentication by the National Statistical Coordination Board. An authenticated copy subsequently submitted by the petitioner was likewise not admitted by the HLURB on the ground that the rules of evidence demand that documents should have been presented and proved at the trial stage. It is elementary that documents forming no part of the evidence before the appellate court shall not be considered in the disposition of the issues.

On the last question, we agree with the observation of the Office of the President and the Court of Appeals that petitioner is not entitled to attorney's fees for lack of legal and factual basis. Mere filing of a complaint does not ipso facto entitle a party to attorney's fees. Respondent disputed the amount being levied against it in the belief that petitioner's computation is not in accordance with the terms of the contracts to sell. The filing of the complainant was means sanctioned by law to protect its rights and interests.

WHEREFORE, the assailed Decision of the Court of Appeals dated 30 July 1999 insofar as it (a) deleted for lack of basis the six percent (6%) interest per annum imposed on the unpaid instalments and penalty; (b) disallowed a fifty percent (50%) contract price adjustment; and, (c) did not award attorney's fees in favor of petitioner Segovia Development Corporation, is AFFIRMED.

The Decision however is MODIFIED in that (a) the penalty interest per month on the unpaid instalments is reimposed on a reduced rate of one percent (1%) penalty interest per month or twelve percent (12%) per annum; and, (b) the award of actual or compensatory damages in favor of respondent J. L. Dumatol Realty and Development Corporation for unrealized profits is deleted.

Let this case be remanded to the HLURB Arbiter for proper computation of respondent's liability consistent with the guidelines set forth in the body of this Decision. No costs.

SO ORDERED.1âwphi1.nêt

Mendoza, Quisumbing, Buena, De Leon, Jr., JJ., concur.

Footnotes

¹ Decision penned by, Associate Justice Demetrio G. Demetria with Associate Justices Ramon A. Barcelona and Mercedes Gozo-Dadole concurring.

² Annex "F;" Rollo, p. 122.

³ Id., p. 148.

⁴ HLURB Case No. REM-112990-4657, entitled "J.L. Dumatol Realty Development Corp. v. Segovia Development Corp.;" Rollo, p. 127.

⁵ Annex "G;" id. p. 124.

⁶ Annex "G;" id. p. 296.

⁷ Decision penned by Atty. Abraham M. Vermudez, Housing and Land Use Arbiter, HLURB, in HLRB Case No. REM-112990-4657, id., p. 152.

⁸ Id., p. 165.

⁹ Id., p. 62.

¹⁰ Art. 1256, par. 1, New Civil Code.

¹¹ Art. 1257, par. 1, id.

¹² Art. 1258, par. 2, Id.

¹³ G.R. No. 59805, 21 July 1989, 175 SCRA 530.

¹⁴ Estrella Palmares v. Court of Appeals, 288 SCRA 422, 445; Magallanes v. Court of Appeals, G.R. No. 112614, 16 May 1994.

¹⁵ Rollo, p. 64.

¹⁶ In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation."

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 122710 October 12, 2001

PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.

PARDO, J.:

The Case

The case is an appeal via certiorari from the decision of the Court of Appeals¹ affirming the decision of the trial court sentencing petitioner Philippine National Bank (PNB), the Development Bank of the Philippines, Marinduque Mining and Industrial Corporation (MMIC), Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization Trust, to pay jointly and severally the sum of P920,755.95, representing the principal obligation of Marinduque Mining and Industrial Corporation (MMIC) to Remington Industrial Sales Corporation (Remington), including the stipulated interest as of June 22, 1984, plus ten (10%) per cent surcharge per annum by way of penalty, until fully paid, the sum equivalent to 10% of the amount due as attorneys' fees and costs.

The Facts

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

"On August 1, 1984, the plaintiff² filed (with the Regional Trial Court, Branch 19, Manila)³ a complaint for sum of money with damages against the Marinduque Mining and Industrial Corporation for unpaid purchases of construction materials and other merchandise covering the period from July 16, 1982 to October 4, 1983, in the sum of P921,755.95; interest at the rate of 18% per annum; the sum equivalent to 25% of the amount of the claim as attorney's fees, and the costs of the suit. (pages 1-4, Vol. I of the Records).

"On September 7, 1984, said complaint was amended to include the Philippine National Bank and the Development Bank of the Philippines as co-defendants in view of the foreclosure by the latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machineries, equipment and other assets of the Marinduque Mining and Industrial Corporation. The amended complaint also prayed for the issuance of a writ of preliminary injunction to enjoin the sale of "defendant MMIC's Sipalay Copper Mines in Negros; the Gagacy Copper Mines in Samar, and the Antipolo Cement Plant which auction would more than wipeout whatever worth defendant MMIC's assets which ultimately (sic) be prejudicial to the rights and interests" of plaintiff (appellee). (pages 179-185, Vol. I of the Records).

"Then again, on September 13, 1984, a second amended complaint was filed to include as additional defendant the Nonoc Mining and Industrial Corporation, a corporation organized by the Philippine National Bank and the Development Bank of the Philippines, it being the assignee of all real and personal properties, chattels, machineries, equipment and all other assets of the Marinduque Mining & Industrial Corporation at its Nonoc nickle factory in Surigao del Norte, which were foreclosed and acquired by the two banks. (pages 172-178, Vol. I of the Records).

"On March 26, 1986, with leave of court, the plaintiff (appellee) filed a third amended complaint including the Maricalum Mining Corporation and Island Cement Corporation as co-defendants, alleging therein that the properties, real and personal, chattels, machineries, equipment and all other assets of the Marinduque Mining & Industrial Corporation at Sipalay, Negros Occidental, mining projects at Rizal Province, which were foreclosed by the Philippine National Bank and Development Bank of the Philippines were transferred to MMC and ICC. (pages 329-339, Vol. I of the Records).

"The plaintiff (appellee), in said pleading, asserted that "defendants, PNB, DBP, MMIC, NMIC, Maricalum and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction, at least as far as plaintiff Remington Industrial Sales Corporation is concerned," on account of any or all of the following reasons:

"1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extra-judicial foreclosure of MMIC's assets as to make their supposed projects, assets, machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the latter.

"2. The personnel, key offices and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of co- defendant MMIC such that x x x practically there has only been a change of name for all legal purpose and intents.

"3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island Cement likewise used to be the places of business, mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendant MMIC, Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their control and management.

"On top of everything, co-defendants PNB, DBP, NMIC, Maricalum and Island Cement being all corporations created by the government in the pursuit of business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the financial obligations of x x x MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC's assets, machineries and equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete takeover by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte, copper mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the legitimate pursuit of its business activities, invested considerable time, sweat and private money to supply, among others, co-defendant MMIC with some of its vital needs for its operation, which co-defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBP's instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary to disregard the corporation fiction that co-defendants PNB, DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be treated as one and the same at least as far as plaintiff's transactions with co-defendant MMIC are concerned , so as not to defeat public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case. (pages 335-337, Vol. I of the Records).

"On May 13, 1986, defendants PNB, Nonoc Mining and Industrial Corporation (NONOC), Maricalum Mining Corporation (MARICALUM), and Island Cement Corporation (ISLAND) filed their "Answer to Third Amended Complaint and Counterclaim,"⁴ alleging therein that "(n)owhere in the complaint is there any averment of facts by which answering defendants may be considered under obligation to the plaintiff, whether by law, contract, quasi-contract, delict, or quasi-delict, which are the only sources of obligations, and nowhere is there any averment in the complaint that such obligation is what is being enforced by court action.

"According to them:

" — The PNB and the DBP, as the joint highest bidder, acquired the MARINDUQUE assets that had been sold at the foreclosure sales.

" — The Nonoc Mining and Industrial Corporation (NONOC), the Maricalum Mining Corporation, and the Island Cement Corporation were organized and established in accordance with the Corporation Law and duly registered with the Securities and Exchange Commission.

" — The nickel mines plant in Nonoc Island, Surigao del Norte, and all appurtenances thereto which had been acquired by the PNB and the DBP on the foreclosure sale of said properties were sold to the Nonoc Mining and Industrial Corporation.

" — The copper mines plant in Sipalay, Negros Occidental and all the appurtenances thereto which had been acquired by the PNB and the DBP at the foreclosure sales thereof were sold to Island Cement Corporation.

" — There is no truth to the allegation that x x x: the NONOC, the MARICALUM and the ISLAND CEMENT are under the complete control of the PNB and the DBP — the truth being that the former are themselves separate and distinct corporations, with identity and personality of their own, with their own boards of directors, with their own management organizations.

" — The allegation to the effect that their creation, organization, and establishment of the three named corporations were "maliciously designed to evade payment of obligations of defendant MMIC to creditors such as plaintiff," is completely bereft of any legal or factual basis. Simply put, said three (3) corporations were set up for the purpose of putting to good use their acquired assets rather than have them deteriorate to eventual uselessness by action of elements in a long course of time. The imputation of malicious intent in the establishment of said corporations is not only false and baseless, but also libelous and destructive of their good names and repute.

"The defendants (appellants PNB, DBP, NONOC, MARICALUM, ISLAND CEMENT and APT) opposed plaintiff's (respondent Remington's) claim that it enjoys "preference to defendant MMIC's properties for the unpaid price of the movables sold by the plaintiff to defendant MMIC over and above that of the claim by way of mortgage of defendants DBP and PNB and therefore the acquisition in its entirety by the latter defendants of defendant MMIC's properties without paying herein plaintiff is not in accord with law. (pages 333- 334, Vol. I of the Records).

"On June 3, 1986, defendant DBP filed its Answer to Third Amended Complaint. (pages 5- 14, Vol. II of the Records).

"On September 12, 1986, respondent Remington filed with the trial court an "Ex Parte Motion for Preliminary Attachment of co-defendant Marinduque Mining and Industrial Corporation's Properties,"⁵ which was opposed by the defendants (appellants).

"On April 3, 1989, respondent Remington filed with the trial court a motion for leave to admit its fourth amended complaint (pages 1-3, Vol. III of the Records). In said fourth amended complaint, the Asset Privatization Trust was impleaded (pages 4-15, Vol. III of the Records). Said fourth amended complaint was admitted by the lower court in its order dated April 29, 1989. In impleading APT as one of the defendants, the plaintiff (appellee) cited the following grounds:

"1. Since the admission of the third amended complaint x x x Presidential Proclamation No. 50 dated December 8, 1986 took effect by virtue of which, the Asset Privatization Trust was created to take care among others, of the rehabilitation of the non- performing assets of the government owned or controlled corporations, and the disposition thereof;

"2. Pursuant to said Presidential Proclamation No. 50 the assets of Marinduque Mining and Industrial Corporation, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation, x x x have been transferred to the aforesaid Asset Privatization Trust x x x on June 5, 1987 as claimed by x x x PNB and DBP.

"3. Due to these subsequent developments x x x, which all took place after the admission of the third amended complaint, it is necessary now to include x x x the Asset Privatization Trust, the latter having become an indispensable and necessary party, in addition to the fact that all the more plaintiff has become uncertain against whom to ask for reliefs x x x .

"On June 14, 1989, defendant APT filed its answer (pages 217-223, Vol. III of the Records), alleging, inter alia, that the PNB and the DBP did not transfer and assign the properties of the NMIC, the MMC and the ICC in favor of the National Government or APT x x x what were actually transferred were the financial claims which the PNB and the DBP had against the NMIC, MMC and the ICC. Under paragraph 9 of the same answer, the APT stressed that:

"a) NMIC, MMC and ICC are private corporations duly organized and existing under and by virtue of Philippine laws and therefore, have separate and distinct personalities from each other, as well as from PNB, DBP and APT;

"b) The mere fact that the officers and employees of MMIC were re-hired by the x x x NMIC, MMC and ICC does not detract from the fact that there was indeed a change of ownership;

"c) Since there are three (3) separate mining claims situated in different areas, the same were transferred and assigned separately to NMIC, MMC and ICC. It is understandable, therefore, that NMIC, MMC and ICC have to maintain their respective places of business.

"d) The properties of MMIC which were foreclosed by PNB and DBP were never transferred to APT as evidenced by the Deeds of Transfer executed by PNB and DBP.

"On August 28, 1989, defendants PNB and DBP filed their separate reply to APT's answer (pages 314-315 and 317-319, Vol. III of the Records) denying APT's claim that what was transferred to the latter was merely the financial claims the banks had against the rest of their co-defendants.

"On January 30, 1990, defendant DBP (appellant) filed its memorandum (pages 456-463, Vol. III of the Records) raising as issues whether or not:

"1. plaintiff has preference over the unpaid price of the movables its sold to Marinduque Mining Industrial Corporation?

"2. the acquisition by PNB/DBP of the foreclosed assets of MMIC without first paying MMIC (sic) is illegal, or x x x , is DBP/PNB liable for the unpaid price of MMIC purchases with plaintiff?

"3. The disposition by DBP/PNB of those foreclosed assets was in fraud of creditors?

"4. the rest of the co-defendants are one and the same entity as DBP and PNB?

"On February 22, 1990, the plaintiff (appellee) filed its memorandum (pages 487-584, Vol. III of the Records) wherein it stressed that all the defendants (appellants) are jointly and severally liable to it (plaintiff-appellee) for the unpaid Marinduque Mining's account, relying on the doctrine of piercing the veil of corporate fiction. It posited the "notion of distinct and separate legal personalities x x x can not be availed of by any of these defendant-entities, or by any corporation for that matter, to defeat public convenience nor to justify wrong, much less to protect fraud or confuse legitimate issues." The same holds true when one corporation is a mere dummy, adjunct, business conduit or a mere alter-ego of another, in which case that corporate fiction of separate and distinct legal personalities, simply will have to be disregarded and ignored." (page 540, Vol. III of the Records). It cited Article 19 of the New Civil Code on Human Relations. It tried to draw attention to the articles of incorporation of the Nonoc Mining, the Maricalum Mining and the Island Cement and the fact that they and PNB have one and the same lawyer, the Senior Vice-President and Chief Legal Counsel of the PNB thereby revealing the eloquent dominance of the PNB over the Nonoc Mining, the Maricalum Mining and the Island Cement, aside from their articles of incorporation. It emphasized the fact that the board of directors of the Marinduque Mining was dominated entirely by representatives of co-defendants PNB and DBP at the time the mortgage trust agreement was executed on July 13, 1981 and when the same was amended on April 27, 1984. It was contended that the mortgage agreement executed by Marinduque Mining in favor of the PNB and the DBP covering both real and personal properties "as well as assets of whatever kind, nature and description which co-defendant Marinduque Mining may subsequently acquire from date thereof" was done in fraud of creditors. It claimed that the execution of the agreements was simply like 'taking everything, lock, stock and barrel, from one's left pocket to x x x to one's right pocket, the mortgagor x x x being without any control or voice of its own, perpetrated by mortgagees PNB and DBP x x x leaving nothing to other entities who might have just but unpaid and uncollected claims against the mortgagor, existing before or at the dates of the mortgage and of the amendment thereof." (page 553, Vol. III of the Records).

"It likewise assailed the mortgage agreement and the subsequent foreclosure inasmuch as, per Executive Order No. 81, the Development Bank of the Philippines had a capital stock only of P5 billion, while the Philippine National Bank had an authorized capital stock of only P2 billion per Presidential Decree No. 694 — so that according to it '(W)ithin these capitalizations it was not only against public morals but x x x contrary to public policy, for these two (2) co-defendants, public financial institutions, to have granted credit accommodations in 1981 to Marinduque Mining of P4 billion from PNB and P2,200,000.00 from DBP." (page 559, Vol. III of the Records). It pointed out that 'as of December 31, 1980 as shown by the general information sheet of Marinduque Mining x x x it had a total number of subscriptions of 49,815,679 shares. Even if the same is multiplied by P10.00 per share, the total amount subscribed x x x would at most amount to P498,156.00 x x x . And in all likelihood, DBP and PNB were both aware of other credit obligations of Marinduque Mining in favor of other parties existing prior to 1981 when the credit accommodations of a total amount of P6,200,000,000.00 x x x were granted by them to Marinduque Miningx x x" (pages 559-560, Vol. III of the Records).

"It attacked the transfers made by the PNB and the DBP in favor of their co-defendants for having been made under questionable and incredible circumstances. According to the plaintiff (appellee):

" — a deed of transfer x x x was allegedly executed by PNB and DBP in favor of Nonoc Mining, in which it was made to appear that Nonoc Mining, acquired all the rights, interest and properties of PNB and DBP, acquired from co-defendant Marinduque Mining, comprising the Nonoc nickel project of Marinduque Mining at Nonoc Island, Surigao del Norte for a consideration of P14,361,000,000.00 (Exhibit 13-PNB), and Nonoc Mining at the time had only an authorized capital stock of P100,000,000.00, P25,000,000.00 of which was the subscribed and paid-up capital (Exhibits BBBBB).

" — Maricalum Mining was made to appear on June 6, 1985 as a transferee having allegedly acquired from PNB for a consideration of P325,800,000.00 all the rights, interest and participation of PNB over the properties of co-defendant Marinduque Mining located at Sipalay, Negros Occidental (Exhibit 14-PNB). Such transfer was allegedly made, even if Maricalum Mining organized and incorporated by PNB and DBP as their dummy on September 24, 1984 had only an authorized capital stock of P20,000,000.000 and a subscribed and paid-up capital of P5,000,000.00 (Exhibits FFFFF).

" — Most questionable, incomprehensible and suspicious of all is the alleged acquisition by Island Cement of all the rights, interest and participation of PNB and DBP over the properties of Marinduque Mining located in Antipolo, Rizal comprising its cement plant division therein. The alleged deed of transfer which was to be produced x x x as promised by the counsel of PNB x x x was not actually produced and presented in evidence.

" — There has been no showing whatever that the transfer certificates of title over the properties of Marinduque Mining located in various part of the Philippines, such as Surigao del Norte, Negros Occidental, Samar and Rizal were transferred to PNB and DBP as the highest bidders in the extrajudicial foreclosure sales conducted in the four (4) provinces of Surigao del Norte, Negros Occidental, Samar and Rizalx x x . no showing whatever that the titles to the Marinduque Mining properties acquired by PNB and DBP and allegedly transferred by them to Nonoc Mining, Maricalum Mining and Island Cement, were transferred to the names of the latter, respectively." (pages 568- 570, Vol. III of the Records).

"The plaintiff (appellee) also questioned PNB's transfer to the National Government and/or APT thusly:

"How can this Honorable Court give even a semblance of x x x . belief to the alleged deed of transfer dated February 27, 1987 executed between the PNB and the National Government and/or Asset Privatization Trust (Exhibit 15-PNB) by which the latter allegedly acquired again, and also, all these Marinduque Mining properties, which had already been transferred supposedly to Nonoc Mining, Maricacalum Mining and Island Cement, by the same transferor PNB and DBP?" (page 571, Vol. III of the Records).

"The plaintiff (appellee) further described PNB's and DBP's incorporation of Nonoc Mining, Maricalum Mining and Island Cement as ultra vires, since the 'Republic Act, Proclamations and Executive Orders issued relative to their existence' utterly fails to show that either or both the PNB and DBP are authorized by their respective Charters, to engage in mining." (pages 580-581, Vol. III of the Records).

"On February 28, 1990, defendant (appellant) APT filed its memorandum (pages 586-590, Vol. III of the Records) limiting the issues to: whether or not —

"1. plaintiff has preference over the properties of defendant MMIC for the unpaid price of the movables sold by plaintiff;

"2. plaintiff has preference over the unpaid price of the movables sold to MMIC;

"3. PNB, DBP and APT are liable for the unpaid price of MMIC's purchases." (page 587 of the same Record).

"On March 21, 1990, defendants PNB, NMIC, MMC and ICC (appellants) submitted their memorandum (pages 594-608, of the same Record) wherein they claimed that:

"a. Plaintiff has no cause of action against herein defendants;

"b. Defendants PNB and DBP did not become the universal successors of Marinduque when they foreclosed and subsequently acquired the mortgaged properties of the latter;

"c. Plaintiff does not enjoy the preferential rights provided under paragraph (3) of Art. 2241 of the New Civil Code;

"d. Herein defendants are entities separate and distinct from each other and governed by their respective Charter and/or Articles of Incorporation and By-laws; and

"e. Defendant PNB's rights and interest over the acquired assets of Marinduque were already transferred to the National Government." (page 599 of the same Record).

"On April 10, 1990, the lower court rendered a decision in favor of the plaintiff (appellee). On May 2, 1990 defendants Philippine National Bank, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, and Island Cement Corporation filed with the trial court their "Notice of Appeal" (pages 643-644, Vol. III of the Records), while defendant Development Bank of the Philippines filed its "Notice of Appeal" on May 8, 1990 (page 648 of the Record). Defendant Asset Privatization Trust, on the other hand, filed its "Notice of Appeal" on May 8, 1990 (page 650, Vol. III of the Records).

After due proceedings, on October 6, 1995, the Court of Appeals promulgated its decision, the dispositive portion of which reads:

"WHEREFORE, premises considered, the appealed decision of the Regional Trial Court, Branch 19, in Manila in Civil Case No. 84-25858 is hereby AFFIRMED, with costs against the appellants."⁶

Hence, this petition.⁷

The Issue

The issue presented is whether the Philippine National Bank is liable to pay for unpaid goods and merchandise supplied by Remington Industrial Sales Corporation to Marinduque Mining and Industrial Corporation by way of sales on credit simply because the goods and merchandise were included in the foreclosure of Marinduque's property mortgaged to the Philippine National Bank.

The Court's Ruling

To start with, Remington's claim is for unpaid purchases of construction materials and other merchandise that it supplied to Marinduque during the period July 16, 1982 to October 4, 1983, in the sum of P921,755.95, plus interest at 18% per annum, 25% of the amount claimed as attorney's fees and costs. The claim was only against MMIC.

However, on August 31, 1984, PNB foreclosed its chattel and real estate mortgages on the property of MMIC constituted as security of its loans secured from the PNB. The foreclosure was an exercise of a legal right granted to PNB. The contract between Remington and MMIC was one of sale on credit which commenced July 16, 1982 to October 4, 1983. The goods and merchandise, subject of the sale were delivered to the MMIC. Remington was an unpaid seller.

When PNB foreclosed the asset of MMIC on August 31, 1984, the goods and merchandise sold by Remington to PNB were in the actual possession and control of MMIC and were included in the foreclosure sale. Remington, however, had relinquished ownership of the merchandise sold to MMIC and the fact the goods were delivered to MMIC transferred ownership over the same to the latter. Thus, MMIC's possession of the goods and merchandise was in the concept of owner and when the PNB foreclosed the mortgages on MMIC's property, real and personal, MMIC was the owner of the goods and merchandise sold to it on credit. The failure of MMIC to pay the purchase price of the goods does not ipso facto revert ownership of the goods to the seller unless the sale was first invalidated. PNB's act of including in its foreclosure the unpaid goods and merchandise sold to MMIC and which PNB acquired at the auction sale did not make PNB an obligor to pay for such unpaid goods. Consequently, Remington has no cause of action against PNB for recovery of the value of the goods and merchandise. PNB caused Remington no injury. The obligation to pay remains with MMIC. If there was any damage to Remington resulting from including the unpaid goods and merchandise in the foreclosure, it was damnum absque injuria.⁸

The Judgment

WHEREFORE, the Court REVERSES the decision of the Court of Appeals⁹ and in lieu thereof, enters judgment DISMISSING the complaint of Remington Industrial Sales Corporation in Civil Case No. 84-25858, Regional Trial Court, Branch 19, Manila, as against defendants Philippine National Bank and Development Bank of the Philippines.

No costs.

SO ORDERED.

Davide, Jr., C. J., Puno, and Ynares-Santiago, JJ., concur.
Kapunan, J., on official leave.

Footnotes

¹ In CA-G. R. CV No. 27720, promulgated on October 06, 1995. Petition, Annex "A", Rollo, pp. 48-66. Mabutas, Jr., J., ponente Valdez, Jr., and Brawner, JJ., concurring.

² Herein respondent Remington Industrial Sales Corporation.

³ Docketed as Civil Case No. 84-25858.

⁴ Ibid., pp. 535-549.

⁵ Ibid., pp. 100-107.

⁶ Petition, Annex "A", Rollo, pp. 48-66.

⁷ Filed on December 1, 1995. Rollo, pp. 10-46. On June 23, 1999, we gave due course to the petition (Rollo, pp. 231-232).

⁸ Gilchrist v. Cuddy, 29 Phil. 548 [1915]; Escano v. Court of Appeals, 100 SCRA 203 [1980]; Mijares v. Court of Appeals, 338 Phil. 274, 290 [1997]; Komatsu Industries (Phils.), Inc. v. Court of Appeals, 352 Phil. 440, 455 [1998].

⁹ In CA-G. R. CV No. 27720, promulgated on October 6, 1995.

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 81158 May 22, 1992

OSCAR A. JACINTO and LIBRADA FRANCO-JACINTO, petitioners,
vs.
ROGELIO KAPARAZ, RAUL KAPARAZ and ROSE MARIET KAPARAZ, respondents.

Garcia, Iñigo & Ledesma Law Office for petitioners.

DAVIDE, JR, J.:p

Petitioners urge this Court to review and set aside the decision of the respondent Court of Appeals of 30 July 1987 in C.A.-G.R. CV No. 69357, ¹ the dispositive portion of which reads:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and judgment is hereby rendered as follows:

1. The Complaint/Amended Complaint is hereby dismissed.

2. The agreement between the parties dated March 11, 1966 (Exhibit "A"; also marked as Exhibit "1" ) is hereby declared extinguished.

3. To prevent unjust enrichment at the expense of another, the defendants-appellants are hereby ordered to reimburse to the plaintiffs-appellees the sum of P500.00 paid by the latter to the Development Bank of the Philippines for the defendants-appellants' P2,600.00 loan account.

No pronouncement as to costs.

SO ORDERED. ²

The undisputed antecedent facts are as follows:

On 11 March 1966, herein petitioners and private respondents entered into an agreement (hereinafter referred to as Agreement) under which the private respondents agreed to sell and convey to petitioners a portion consisting of six hundred (600) square meters of a lot located in Matiao, Mati, Davao Oriental and covered by Transfer Certificate of Title No. T-3694 for a total consideration of P1,800.00 of downpayment of P800.00 was paid upon execution of the Agreement. The balance of P1,000.00 was to be paid by petitioners on installment at the rate of P100.00 a month to the Development Bank of the Philippines (DBP) to be applied to private respondents' loan accounts. Paragraphs 5, 6, 7 and 8 of the Agreement read as follows:

That the PARTY OF THE FIRST PART is very much in need of cash to pay the loan to the DEVELOPMENT BANK OF THE PHILIPPINES herein abovementioned which is very much in arrears and the PARTY OF THE SECOND PART is agreeable to advance the sum of EIGHT HUNDRED (P800.00) PESOS as partial payment of the said loan to the Development Bank of the Philippines provided that the PARTY OF THE FIRST PARTY (sic) shall sell, transfer, cede and convey absolutely to the party of the SECOND PART an area of SIX HUNDRED (600) SQUARE METERS with a frontage of twenty (20) METERS along the present national highway, at the corner of the aforementioned land bordering a proposed five-meter subdivision road adjacent to the property of the PARTY OF THE SECOND PART;

That for and in consideration of the foregoing premises and of the sum of EIGHT HUNDRED (800.00) PESOS which the PARTY OF THE FIRST PARTY (sic) hereby acknowledges to have received from the PARTY OF THE SECOND PART, THE PARTY OF THE FIRST PART hereby agrees, promises and binds himself to sell, cede, transfer, and convey absolutely to the PARTY OF THE SECOND PART SIX HUNDRED (600) SQUARE METERS portion of the property covered by TRANSFER CERTIFICATE OF TITLE NO. T-3694 together with all the improvements thereon, which portion is situated along the national highway and shown as the shaded area in the sketch at the back hereof; the total consideration of the sale of the said SIX HUNDRED (600) SQUARE METERS shall be ONE THOUSAND EIGHT HUNDRED PESOS (P1,800.00), including the amount of EIGHT HUNDRED PESOS (P800.00) advanced by the PARTY OF THE SECOND PART upon the execution of this document;

That the unpaid balance of the total consideration of the sale amounting to ONE THOUSAND (P1,000.00) PESOS shall be paid by the PARTY OF THE SECOND PART directly to the DEVELOPMENT BANK OF THE PHILIPPINES, DAVAO BRANCH, in ten (10) equal monthly installments of ONE HUNDRED (P100.00) PESOS each not later than the 15th day following the end of each month beginning May 10, 1966;

That the PARTY OF THE SECOND PART has the right and privilege by virtue of this (sic) presents to take possession of the area of SIX HUNDRED (600) SQUARE METERS subject of this agreement and to appropriate for himself all the improvements existing thereon effective from the date of execution of this agreement; ³

Paragraph 9 thereof reads:

That the PARTY OF THE FIRST PART agrees and binds himself to acknowledge receipt of every and all monthly payments remitted to the DEVELOPMENT BANK OF THE PHILIPPINES by the PARTY OF THE SECOND PART and further agrees and binds himself to execute the final deed of absolute sale of the SIX HUNDRED (600) SQUARE METERS herein above referred to in favor of the PARTY OF THE SECOND PART as soon as the settlement or partition of the estate of the deceased NARCISA R. KAPARAZ shall have been consummated and effected, but not later than March 31, 1967; ⁴

Upon the execution of the agreement, petitioners paid the downpayment of P800.00 and were placed in possession of the portion described therein. As to the P1,000.00 which was to be paid directly to the DBP, petitioners claim that they had even made an excess payment of P100.00.

In view of the refusal of private respondents to execute the deed of sale, petitioners filed against them a complaint for specific performance with the then Court of First Instance (now Regional Trial Court) of Davao Oriental. The complaint was docketed as Civil Case No. 586 and was amended on 23 January 1979. In their Answer filed on 28 June 1977, later amended on 19 December 1979 as a consequence of the filing of the amended complaint, private respondents alleged that the sale did not materialize because of the failure of petitioners to fulfill their promise to make timely payments on the stipulated price to the DBP; as a result of such failure, they (private respondents) failed to secure the release of the mortgage on the property. They then prayed for the dismissal of the case and a declaration that the agreement is null and void.

After due trial, the court below rendered on 19 November 1981 a decision in favor of the petitioners, the dispositive portion of which reads as follows:

FOR ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiffs and against the defendants ––

(1) Declaring the plaintiffs to be the owners of the property consisting of six hundred (600) square meters, more or less, denominated as Lot H-12, Psd-11-000576, which was formerly a portion of the property covered by Transfer Certificate of Title No. T-3694, and now covered by Transfer Certificate of Title No. T-5824 in the name of defendant Rogelio Kaparaz;

(2) Ordering defendant Rogelio Kaparaz to reconvey this property to the plaintiffs herein;

(3) Ordering defendants to pay plaintiffs reasonable attorney's fees in the amount of P3,000.00 and to pay the costs.

SO ORDERED. ⁵

The facts as found by the trial court are as follows:

xxx xxx xxx

The adduced evidence will show that the parties herein above executed a certain agreement (Exh. "A" for the plaintiffs; Exhibit "1" for the defendants) dated March 11, 1966, the pertinent portions of which are hereunder quoted, to wit:

xxx xxx xxx

From the foregoing provisions of the said agreement, the defendants herein have bound themselves to sell and convey a portion of the property covered by Transfer Certificate of Title No. T-3694, consisting of SIX HUNDRED (600) SQUARE METERS, to the plaintiffs for a consideration of P1,800.00, P800.00 of which had been received by the defendants upon the execution of the document and the remaining balance of P1,000.00 shall be paid by the plaintiffs directly to the Development Bank of the Philippines in "ten (10) equal monthly installments of ONE HUNDRED (P100.00) PESOS EACH not later than the 15th day following the end of each month beginning May 10, 1966". The defendants, on the other hand, have also bound themselves to execute the final deed of absolute sale of the portion above-mentioned in favor of the plaintiffs "as soon as the settlement or partition of the estate of the deceased NARCISA R. KAPARAZ shall have been consummated and effected, but not later than March 31, 1967."

It appears that plaintiffs had paid defendant Domingo Kaparaz the amount of P400.00 (Exh. "B"), the P200.00 which was paid by plaintiffs to the development Bank of the Philippines for the account of the late Domingo Kaparaz and the P200.00 was given to said defendant. Plaintiff Oscar Jacinto made another payment to the Development Bank of the Philippines for the account of Domingo and Narcisa Kaparaz covered by Official Receipt No. 1113990, dated November 29, 1966, in the amount of P200.00 (Exh. "F"). Another payment was again made to the Development Bank of the Philippines for the same account by plaintiff Oscar Jacinto covered by Official Receipt No. 1334193, dated December 5, 1968, in the amount of P300.00 (Exh. "C") and another payment also was made on December 9, 1968 in the amount of P200.00 covered by Official Receipt No. 1334196 (Exh. ''H''). All of these payments are certified by the Development Bank of the Philippines (Exh. "E") to have been made by plaintiff Oscar Jacinto and applied to the accounts of Domingo and Narcisa Kaparaz. For the subdivision survey of the lot of six (600) square meters involved in this case, plaintiffs contributed the amount of P80.00 (Exh. "J") and another amount of P350.00 was paid also to Engr. Ladera (Exh. "I") plaintiffs, all in all, aside from the payments that they made to the Surveyor, have paid the Development Bank of the Philippines for the account of the late Domingo Kaparaz in the total amount of P700.00 which in already in excess of the price consideration of P1,800.00 after defendants had received the amount of P1,200.00. Plaintiff Oscar Jacinto explained that the payment was in excess of P100.00 because the balance of P600.00 which was originally intended to be paid for the surveyor was instead paid by him to the bank plus P100.00 to cover the accumulated interests. Thus (sic), making the total payments to the Development Bank of the Philippines in the amount of P700.00.

On the other (hand), defendant Rogelio Kaparaz testified that plaintiffs did not comply with the terms of the agreement (Exh. "A") by having failed to pay the ten (10) equal monthly installments. For failure of plaintiffs to pay the monthly installments, as agreed (sic) in the agreement (Exh. "A" ), he decided to pay the Development Bank of the Philippines of (sic) their accounts. The partial payment was made on July 3, 1967 in the amount of P3,000.00 covered by Official Receipt No. 1160314 (Exh. "2") and another payment for the balance was made on August 15, 1967 in the amount of 73,124.11 covered by Official Receipt No. 1160831 (Exh. "4").

It is likewise admitted that the estate of the late Narcisa R. Kaparaz had already been settled and that six hundred (600) square meters portion of the lot covered by Transfer Certificate of Title No. T-3694, or Lot No. H-12, Psd-11-000576, has already been adjudicated to defendant Rogelio Kaparaz and is now registered in his name under Transfer Certificate of Title No. T-5824. ⁶

Private respondents appealed from said decision to the Court of Appeals which docketed the case as C.A.-G.R. CV No. 69357. In their Brief, they contended that the trial court erred in: (a) finding that petitioners had fully paid the consideration for the property subject of the agreement, (b) ruling that the delay in the payments to the DBP is only a slight breach of the agreement, (c) holding private respondents' failure to protest petitioners' delay of payment amounted to implied waiver to rescind the agreement, (d) declaring that laches did not operate against petitioners considering that the prescriptive period has not even expired, (e) not holding that the parties are in pari delicto, and (f) ordering Rogelio Kaparaz to reconvey the property in question to petitioners.

As earlier adverted to, in its decision of 30 July 1987, the respondent Court of Appeals reversed the decision of the trial court. The respondent Court was of the opinion that: (a) The petitioners had not fully discharged their obligation under the agreement considering that their last payments to DBP of P300.00 ⁷ and P200.00 8 were "several months delayed beyond the date/s agreed upon by the parties," and that the agricultural loan to which the amortizations of the unpaid balance of P1,000.00 of the purchase price were to be applied had in fact been fully settled by the private respondents. The application of these payments by the DBP to another account of the private respondents was of no moment because the agreement of the parties specifically referred to the agricultural loan. (b) No evidence supports the .conclusion of the trial court that private respondents failed to protest the delay in the payments. On the contrary, the evidence discloses that private respondents demanded from the petitioners the balance of the obligation after the latter had defaulted; having received no response, private respondents themselves paid .the agricultural loan. (c) The delay in the payments was not a slight breach. The dates of the payments were so essential that they were specifically stipulated upon by the parties. The primary importance of timely payments sprang from the nature of the subject bank account consisting of a loan secured by a real estate mortgage which demanded up-to-date amortization to prevent foreclosure. (d) While the trial court was correct in holding that both parties defaulted in the performance of their respective obligations, petitioners were the first to incur in delay. There is, therefore, greater justification to decree rescission. Moreover, even granting that there was no evidence as to who violated the agreement first, then the contract is deemed extinguished pursuant to the second sentence of Article 1192 of the Civil Code. This Article provides that:

In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damage.

Unable to accept the above verdict, petitioner commenced this petition wherein they allege that respondent Court erred in not finding that: (a) petitioners had fully paid the consideration for the 600 square meters of Lot H; (b) private respondents' failure to protest the delay of payments can be considered as estoppel on their part and an implied waiver of their right to rescind the sale; (c) assuming that the last two payments to the DBP were not valid as they were applied to another account, there was at least substantial performance by the petitioners of their obligation; (d) the breach on the part of petitioners was only slight or casual and would not warrant rescission of the sale; (e) under the circumstances, it was necessary for the respondents to make a notarial demand or obtain prior judicial approval to effect rescission of the sale; and finally, (e) the agreement was extinguished.

After the filing of the Comments by private respondents, the reply thereto by petitioners and the rejoinder to the latter by private respondents, the Court gave due course to the petition and required the parties to submit simultaneously their respective Memoranda, ⁹ which they subsequently complied with. ¹⁰

The petition is impressed with merit.

Vital to the resolution of the controversy is the determination of the true nature of the questioned agreement. Is it a contract of sale or a contract to sell? The two are not, of course, the same. In the latter case, ownership is retained by the seller and is not to pass until full payment of the price. Such payment is a positive suspensive condition the failure of which is not a broach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. In such a situation, to argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory question. ¹¹ Otherwise stated, as capsulized in Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., ¹² "there can be no rescission or resolution of an obligation as yet non-existent, because the suspensive condition did not happen." Expanding on this point, this Court, in said case, made the following disquisitions:

. . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the ownership of the thing sold (since it was never disposed of), such restoration being the logical consequence of the fulfillment of a resolutory condition, express or implied (article 1190); neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mere incident to its right of ownership. It is elementary that, as stated by Castan, ––

b) Si la condicion suspensive Ilega a faltar, la obligacion se tiene por no existente, y el acreedor pierde todo derecho, incluso el de utilizar las medidas conservativas. (3 Catan Derecho Civil, 7a Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. 113).

On the other hand, since in a contract of sale, the non-payment of the price is a resolutory condition, ¹³ the remedy of the seller under Article 1191 of the Civil Code is to exact fulfillment or to rescind the contract. In respect, however, to the sale of immovable property, this Article must be read together with Article 1592 of the same Code:

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.

This Article applies to instances where no stipulation for automatic rescission is made because it says "even though". ¹⁴

The agreement in the instant case has all the earmarks of a contract of sale. The possession of the portion sold was immediately delivered to the petitioners. They were granted the right to enjoy all the improvements therein effective from the date of the execution of the agreement. Private respondents unqualifiedly bound themselves to execute the final deed of sale "as soon as the settlement or partition of the estate of the deceased Narcisa R. Kaparaz shall have been consummated and effected, but not later than March 31, 1967" and only upon full payment of the unpaid portion of the purchase price. The private respondents did not reserve unto themselves the ownership of the property until full payment of the unpaid balance of P1,000.00. Finally, there is no stipulation giving the private respondents the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period. In reality, the agreement was an absolute sale which allowed the petitioners to pay the remaining balance of the purchase price in installment. We agree with the submission of
petitioners ¹⁵ that Dignos vs. Court of Appeals ¹⁶ applies in this case. In said case, this Court stated:

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).

As stated earlier, in a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. The latter, with respect to the sale of immovables, is specifically governed by Article 1592 of the Civil Code. ¹⁷ In the case at bar, there was non-compliance with the requirements prescribed in these provisions. It is not controverted that private respondents had neither filed an action for specific performance nor demanded the rescission of the agreement either judicially or by a notarial act before the filing of the complaint in Civil Case No. 586. It is only in their Answer that they belatedly raised the defense of resolution of the contract pursuant to Article 1191 by reason of petitioners' breach of their obligation.

Even if the general law on resolution, Article 1191 of the Civil Code, is to be applied, Our decision would still be for the petitioners. The third paragraph of this Article reads:

xxx xxx xxx

The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

It is not denied that petitioners made two (2) payments in the sums of P200.00 and P300.00 at a time when what remained unsettled under the agreement was only P400.00. There was then an excess payment of P100.00. These payments were made to the DBP which applied them to an outstanding account of the private respondents. Private respondents neither complained of the delay in these payments nor rejected their application to their account. They were, undoubtedly, benefited by the application because it either satisfied their account or correspondingly reduced it. The claim that the account to which it was applied was not the account stipulated in the agreement is without merit. In the first place, the agreement fails to disclose an express agreement that the monthly amortizations on the P1,000.00 unpaid balance of the purchase price to be made to the DBP should be applied exclusively to the agricultural loan indicated in the exordium of the agreement. The loan was mentioned only to lay the basis for private respondents' need for the downpayment. In the second place, to allow private respondents to reject the payment of P400.00, plus the excess of P100.00 after they benefited therefrom, would be unjust.

Then too, at no time before the filing of their Answer did private respondents declare their intention to rescind the agreement, or if they did, communicate such intention to the petitioners. It was necessary for private respondents to have done so. As this Court held in University of the Philippines vs. De los Angeles: ¹⁸

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

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

Finally, the delay incurred by petitioners was but a casual or slight breach of the agreement, which did not defeat the object of the parties in entering into the agreement. A mere casual breach does not justify rescission. ¹⁹ The prompt payment of the monthly amortizations of the unpaid balance of P1,000.00 was not a condition precedent to the execution of the final deed of sale. Besides, petitioners had already paid P1,400.00 of the total consideration of P1,800.00, or exactly 77.77% of the purchase price within the period stipulated. Moreover, they had in fact overpaid the private respondents by P100.00.

Accordingly, We rule that rescission of the agreement was not available to private respondents.

We further rule that the respondent Court erred in declaring the agreement extinguished pursuant to the second sentence of Article 1192 of the Civil Code. Having concluded, although erroneously, that petitioners were the first to breach the agreement, it should have applied the first sentence thereof by equitably tempering petitioners' liability. The second sentence applies only to cases where it cannot be determined which of the parties first violated the contract.

The foregoing disquisitions render unnecessary any discussion on the other issues raised by petitioners.

WHEREFORE, the petition is GRANTED. The challenged decision of the Court of Appeals is REVERSED and the judgment of the lower court is hereby REINSTATED and AFFIRMED. Costs against private respondents.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur.

Footnotes

1 Per Associate Justice Cecilio L. Pe, concurred in by Associate Justices Nathanael P. De Paño, Jr. and Antonio M. Martinez.

2 Rollo, 39.

3 Rollo, 54-55; pages 12-13 of Brief for Petitioners in C.A.-G.R. CV No. 69357.

4 Rollo, 57.

5 Rollo, 13.

6 Rollo, 30-32; Decision in C.A.-G.R. CV No. 69357 (Annex "A" of Petition), 3-5.

7 Exhibit "G".

8 Exhibit "H".

9 Rollo, 129.

10 Id., 138; 148.

11 Manuel vs. Rodriguez, 109 Phil. 1 [1960]; Roque vs. Lapuz, 96 SCRA 741 [1980].

12 46 SCRA 381 [1972].

13 Manuel vs. Rodriguez, supra.; Lim vs. Court of Appeals, 182 SCRA 564 [1990], citing Sing Yee vs. Santos, 47 O.G. 6372.

14 PARAS, E.L., Civil Code of the Philippines Annotated, vol. V, 11th ed., 1986, 198.

15 Memorandum for Petitioners, 7; Rollo, 144, et seq.

16 158 SCRA 375 [1988].

17 This was Article 1504 of the old Civil Code; Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., 86 SCRA 305 [1978].

18 35 SCRA 102 [1970].

19 Philippine Amusement Enterprises, Inc. vs. Natividad, 21 SCRA 284 [1967]; Angeles vs. Calasanz, 135 SCRA 323 [1985].

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 163075 &nbspJanuary 23, 2006

AYALA LIFE ASSURANCE, INC., Petitioner,
vs.
RAY BURTON DEVELOPMENT CORPORATION, Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the petition for review on certiorari¹ assailing the Decision² dated January 21, 2004 of the Court of Appeals in CA-G.R. CV No. 74635,³ as well as its Resolution dated April 2, 2004 denying petitioner’s motion for reconsideration.

The facts are:

On December 22, 1995, Ayala Life Assurance, Inc., petitioner, and Ray Burton Development Corporation, respondent, entered into a contract denominated as a "Contract to Sell," with a "Side Agreement" of even date. In these contracts, petitioner agreed to sell to respondent a parcel of land, with an area of 1,691 square meters, situated at Madrigal Business Park, Ayala Alabang Village, Muntinlupa City, covered by Transfer Certificate of Title No. 186485 of the Registry of Deeds of Makati City. The purchase price of the land is P55,000.00 per square meter or a total of P93,005,000.00, payable as follows:

(a) On contract date – P24,181,300.00 representing 26 percent of the purchase price, inclusive of the P1,000,000.00 option money;

(b) Not later than January 6, 1996 – P3,720,200.00 representing 4 percent of the purchase price to complete 30 percent down payment; and

(c) In consecutive quarterly installments for a period of 5 years from December 22, 1995 – P65,103,500.00 representing the 70 percent balance of the purchase price. ­ ­

The contract contains a stipulation in paragraphs 3 and 3.1 for an "Event of Default." It provides that in case the purchaser (respondent) fails to pay any installment for any reason not attributable to the seller (petitioner), the latter has the right to assess the purchaser a late penalty interest on the unpaid installment at two (2%) percent per month, computed from the date the amount became due until full payment thereof. And if such default continues for a period of six (6) months, the seller has the right to cancel the contract without need of court declaration by giving the purchaser a written notice of cancellation. In case of such cancellation, the seller shall return to the purchaser the amount he received, less penalties, unpaid charges and dues on the property.

Respondent paid thirty (30%) down payment and the quarterly amortization, including the one that fell due on June 22, 1998.

However, on August 12, 1998, respondent notified petitioner in writing that it will no longer continue to pay due to the adverse effects of the economic crisis to its business. Respondent then asked for the immediate cancellation of the contract and for a refund of its previous payments as provided in the contract.

Petitioner refused to cancel the contract to sell. Instead, on November 25, 1999, it filed with the Regional Trial Court, Branch 66, Makati City, a complaint for specific performance against respondent, docketed as Civil Case No. 99-2014, demanding from the latter the payment of the remaining unpaid quarterly installments beginning September 21, 1999 in the total sum of P33,242,382.43, inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner, asserting that on August 12, 1998, it (respondent) notified the latter of its inability to pay the remaining installments. Respondent invoked the provisions of paragraphs 3 and 3.1 of the contract to sell providing for the refund to it of the amounts paid, less interest and the sum of 25% of all sums paid as liquidated damages.

After pre-trial, petitioner moved for a summary judgment on the ground that respondent’s answer failed to tender any genuine issue as to any material fact, except as to the amount of damages. The trial court granted the motion and ordered the parties to submit their memoranda.

On December 10, 2001, the trial court rendered a Decision holding that respondent transgressed the law in obvious bad faith. The dispositive portion reads:

WHEREFORE, defendant (now respondent) is hereby sentenced and ordered to pay plaintiff (now petitioner) the sum of P33,242,383.43, representing the unpaid balance of the principal amount owing under the contract, interest agreed upon, and penalties. Defendant is further ordered to pay plaintiff the sum of P200,000.00 as attorney’s fees and the costs of suit.

Upon full payment of the aforementioned amounts by defendant, plaintiff shall, as it is hereby ordered, execute the appropriate deed of absolute sale conveying and transferring full title and ownership of the parcel of land subject of the sale to and in favor of defendant.

On appeal, the Court of Appeals rendered a Decision dated January 21, 2004 in CA-G.R. CV No. 74635, reversing the trial court’s Decision, thus:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Ayala Life is hereby ordered to refund all sums paid under the Contract to Sell, with interest of twelve percent (12%) per annum from 12 August 1998 until fully paid, less the amount equivalent to 25% of the total amount paid as liquidated damages.

SO ORDERED.

The Court of Appeals ruled that the parties’ transaction in question is in the nature of a contract to sell, as distinguished from a contract of sale. Under their contract, ownership of the land is retained by petitioner until respondent shall have fully paid the purchase price. Its failure to pay the price in full is not a breach of contract but merely an event that prevents petitioner from conveying the title to respondent. Under such a situation, a cause of action for specific performance does not arise. What should govern the parties’ relation are the provisions of their contract on the "Event of Default" stated earlier.

Hence, the instant petition for review on certiorari.

Petitioner contends that the Court of Appeals committed a reversible error in holding that: (a) the remedy of specific performance is not available in a contract to sell, such as the one at bar; and (b) petitioner is liable to refund respondent all the sums the latter paid under the contract to sell, with interest at 12% per annum from August 12, 1998 until fully paid, less the amount equivalent to 25% of the total amount paid as liquidated damages.

Petitioner argues that by virtue of the contract to sell, it has the right to choose between fulfillment and rescission of the contract, with damages in either case. Thus, it is immaterial to determine whether the parties’ subject agreement is a contract to sell or a contract of sale.

In its comment, respondent disputed petitioner’s allegations and prayed that the petition be denied for lack of merit.

The issues are:

1. Whether respondent’s non-payment of the balance of the purchase price gave rise to a cause of action on the part of petitioner to demand full payment of the purchase price; and

2. Whether petitioner should refund respondent the amount the latter paid under the contract to sell.

At the outset, it is significant to note that petitioner does not dispute that its December 22, 1995 transaction with respondent is a contract to sell. It bears stressing that the exact nature of the parties’ contract determines whether petitioner has the remedy of specific performance.

It is thus imperative that we first determine the nature of the parties’ contract.

The real nature of a contract may be determined from the express terms of the written agreement and from the contemporaneous and subsequent acts of the contracting parties.⁴ In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued.⁵ If the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.⁶ If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.⁷ The denomination or title given by the parties in their contract is not conclusive of the nature of its contents.⁸

Here, the questioned agreement clearly indicates that it is a contract to sell, not a contract of sale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. – The title to the property shall transfer to the PURCHASER upon payment of the balance of the Purchase Price and all expenses, penalties and other costs which shall be due and payable hereunder or which may have accrued thereto. Thereupon, the SELLER shall execute a Deed of Absolute Sale in favor of the PURCHASER conveying all the SELLER’S rights, title and interest in and to the Property to the PURCHASER.⁹

As correctly stated by the Court of Appeals in its assailed Decision, "The ruling of the Supreme Court in Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the said case, a contract to sell and a contract of sale were clearly and thoroughly distinguished from each other, with the High Tribunal stressing that in a contract of sale, the title passes to the buyer upon the delivery of the thing sold. In a contract to sell, the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. In the first case, the vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside. In the second case, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract."¹⁰

Considering that the parties’ transaction is a contract to sell, can petitioner, as seller, demand specific performance from respondent, as buyer?

Black’s Law Dictionary defined specific performance as "(t)he remedy of requiring exact performance of a contract in the specific form in which it was made, or according to the precise terms agreed upon. The actual accomplishment of a contract by a party bound to fulfill it."¹¹

Evidently, before the remedy of specific performance may be availed of, there must be a breach of the contract.

Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full payment of the agreed purchase price. Such payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. Thus, a cause of action for specific performance does not arise.

In Rayos v. Court of Appeals,¹² we held:

x x x. 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:

x x x

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 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 (Leano v. Court of Appeals, 369 SCRA 36 [2001]; Lacanilao v. Court of Appeals, 262 SCRA 486 [1996]).

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 (Agustin v. Court of Appeals, 186 SCRA 375 [1990]). The parties stand as if the conditional obligation had never existed. Article 1191¹³ of the New Civil Code will not apply because it presupposes an obligation already extant (Padilla v. Posadas, 328 SCRA 434 [2001]. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened (Rillo v. Court of Appeals, 274 SCRA 461 [1997]). (Underscoring supplied)

Here, the provisions of the contract to sell categorically indicate that respondent’s default in the payment of the purchase price is considered merely as an "event," the happening of which gives rise to the respective obligations of the parties mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this contract: the PURCHASER fails to pay any installment on the balance, for any reason not attributable to the SELLER, on the date it is due, provided, however, that the SELLER shall have the right to charge the PURCHASER a late penalty interest on the said unpaid interest at the rate of 2% per month computed from the date the amount became due and payable until full payment thereof.

3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event shall then be continuing for a period of six (6) months, the SELLER shall have the right to cancel this Contract without need of court declaration to that effect by giving the PURCHASER a written notice of cancellation sent to the address of the PURCHASER as specified herein by registered mail or personal delivery. Thereafter, the SELLER shall return to the PURCHASER the aggregate amount that the SELLER shall have received as of the cancellation of this Contract, less: (i) penalties accrued as of the date of such cancellation, (ii) an amount equivalent to twenty five percent (25%) of the total amount paid as liquidated damages, and (iii) any unpaid charges and dues on the Property. Any amount to be refunded to the PURCHASER shall be collected by the PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of such cancellation, the SELLER shall be free to dispose of the Property covered hereby as if this Contract had not been executed. Notice to the PURCHASER sent by registered mail or by personal delivery to its address stated in this Contract shall be considered as sufficient compliance with all requirements of notice for purposes of this Contract.¹⁴

Therefore, in the event of respondent’s default in payment, petitioner, under the above provisions of the contract, has the right to retain an amount equivalent to 25% of the total payments. As stated by the Court of Appeals, petitioner having been informed in writing by respondent of its intention not to proceed with the contract on August 12, 1998, or prior to incurring delay in payment of succeeding installments,¹⁵ the provisions in the contract relative to penalties and interest find no application.

The Court of Appeals further held that with respect to the award of interest, petitioner is liable to pay interest of 12% per annum upon the net refundable amount due from the time respondent made the extrajudicial demand upon it on August 12, 1998 to refund payment under the Contract to Sell,¹⁶ pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.¹⁷

In sum, we find that the Court of Appeals, in rendering the assailed Decision and Resolution, did not commit any reversible error.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson

RENATO C. CORONA Associate Justice

ADOLFO S. AZCUNA Asscociate Justice

CANCIO C. GARCIA
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO
Associate Justice
Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

¹ Filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

² Penned by Presiding Justice Romeo A. Brawner (now retired) and concurred in by Justice Rebecca De Guia-Salvador and Justice Jose C. Reyes, Jr.

³ Titled "Ayala Life Assurance, Inc., Plaintiff-Appellee, v. Ray Burton Development Corporation, Defendant-Appellant."

⁴ Blas v. Angeles-Hutalla, G.R. No. 155594, September 27, 2004, 439 SCRA 273, citing Velasquez v. Court of Appeals, 345 SCRA 468 (2000).

⁵ Blas v. Angeles-Hutalla, id., citing Golden Diamond, Inc. v. Court of Appeals, 332 SCRA 605 (2000).

⁶ Article 1370, New Civil Code.

⁷ Id.

⁸ Blas v. Angeles-Hutalla, supra, citing Romero v. Court of Appeals, 250 SCRA 223 (1995).

⁹ Contract to Sell, p. 3; Records, p. 19.

¹⁰ See also Dijamco v. Court of Appeals, G.R. No. 113665, October 7, 2004, 440 SCRA 190; Rayos v. Court of Appeals, G.R. No. 135528, July 14, 2004, 434 SCRA 365.

¹¹ Sixth Centennial Edition at 1138.

¹² Supra; see also Pingol v. Court of Appeals, G.R. No. 102909, September 6, 1993, 226 SCRA 118.

¹³ "Art. 1191. 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. (1124)"

¹⁴ Contract to Sell, p. 2; Record, p. 19.

¹⁵ Paragraph 7, p. 3 of the Complaint states that default in payment of installments began on 21 September 1998. (Records, p. 14)

¹⁶ Rollo, pp. 77-83.

¹⁷ G.R. No. 97412, July 12, 1994, 234 SCRA 78.

¹⁸ Labasan v. Lacuesta¸ 86 SCRA 16 (1979).

¹⁹ New Life Enterprises v. Court of Appeals, 207 SCRA 669 (1992).

²⁰ Samson v. Court of Appeals, 238 SCRA 397 (1994).

²¹ Records, p. 54.

²² Villanueva v. Sandiganbayan, 223 SCRA 543 (1993).

²³ Tan Ti v. Alvear, 26 Phil. 566.

²⁴ Ramos v. Ramos, 61 SCRA 284.

²⁵ Angel Jose Warehousing, Co. v. Chelda Enterprises, et al., L-25704, 24 April 1968, 23 SCRA 119 [1968].

²⁶ 70 SCRA 65.

²⁷ Article 526, New Civil Code, Kasilag v. Rodriguez, 69 Phil. 217.

²⁸ Records.

²⁹ Rollo, pp. 77-83.

³⁰ G.R. No. 97412, 12 July 1994, 234 SCRA 78 [1994].

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 119777 October 23, 1997

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

G.R. No. 120690 October 23, 1997

FRANCISCO HOLGADO and HRS. OF PEDRO ESCANLAR, namely BERNARDO, FELY, SONIA, LILY, DYESEBEL and NOEMI all surnamed ESCANLAR, petitioners,
vs.
HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN, and SP. PAQUITO CHUA and NEY SARROSA CHUA and REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

ROMERO, J.:

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

The case arose from the following facts:

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

Petitioners were unable to pay the Cari-an heirs' individual shares, amounting to P55,000.00 each, by the due date. However, said heirs received at least 12 installments from petitioners after May 1979. ⁵ Rodolfo Cari-an was fully paid by June 21, 1979. Generosa Martinez, Carmen Cari-an and Fredisminda Cari-an were likewise fully compensated for their individual shares, per receipts given in evidence. ⁶ The minor Leonell's share was deposited with the Regional Trial Court on September 7, 1982. ⁷

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

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

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

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

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

The trial court allowed a third-party complaint against the third-party defendants Paquito and Ney Chua on January 7, 1986 where Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when they executed the second sale on September 21, 1982 and that the latter sale is illegal and of no effect. Respondents Chua countered that they did not know of the earlier sale of one-half portion of the subject lots to Escanlar and Holgado. Both parties claimed damages. ¹³

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

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

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

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

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

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

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

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

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

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

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

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

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

5) Ordering the fourth-party defendant spouses, Dr. Edwin Jayme and Elisa Tan Jayme, to pay to the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa-Chua, the sum of One Hundred Fifty Seven Thousand Pesos (P157,000.00) as rentals for the riceland and Three Million Two Hundred Thousand Pesos (P3,200,000.00) as rentals for the fishpond from October, 1985 to July 24, 1989 plus the rentals from the latter date until the property shall have been delivered to the spouses Dr. Paquito Chua and Ney Sarrosa-Chua;

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

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

SO ORDERED. ¹⁶

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

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

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

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

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

The September 15, 1978 sale of rights, interests and participation as to 1/2 portion pro indiviso of the two subject lots is a contract of sale for the following reasons: First, private respondents as sellers did not reserve unto themselves the ownership of the property until full payment of the unpaid balance of P225,000.00. Second, there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period. ²⁴ Prior to the sale, petitioners were in possession of the subject property as lessees. Upon sale to them of the rights, interests and participation as to the 1/2 portion pro indiviso, they remained in possession, not in concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu. ²⁵ Under Article 1477 of the Civil Code, the ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof. ²⁶

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

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

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

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

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

In the case of Dillena v. Court of Appeals, ²⁸ the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. ²⁹ It is settled that court approval is necessary for the validity of any disposition of the decedent's estate. However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs. ³⁰ It must be recalled that during the period of indivision of a decedent's estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. ³¹ But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon the termination of the
co-ownership. ³²

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

Melo, Francisco and Panganiban, JJ., concur.

Narvasa, C.J., is on leave.

Footnotes

1 Before the Court of First Instance of Negros Occidental, Branch 55.

2 Order dated September 28, 1972 in Special Proceedings No. 7-7279.

3 On August 2, 1979, the probate court approved the contract of lease of all the properties of the estate dedicated to rice production. On August 9, the court approved the contract of lease over Lot No. 1617 in Special Proceeding No. 7-7279.

4 Exhibit B.

5 Exhibits 9-A; 9-G; 9-FF; 9-KK; 9-RR; 9-XX; 9-YY; 9-AAA; 9-BBB; 9-CCC; 9-DDD; 9-EEE; 9-FFF; These were evidenced by handwritten receipts for installments like P112.50 (one cavan of rice), P451.50 (3 cavans of rice and 1 pig), et. al.

6 Thus, in a receipt dated December 27, 1979, Fredisminda Cari-an acknowledged receipt of P45,625.00. Carmen Cari-an and Generosa Martinez each received the same amount. Exhibits 2-6.

7 The amount of P34,218 was deposited per Order issued by Judge Osterwaldo Emilia. Exhibit 8, Records, p. 23. Nelly Chua vda. de Cari-an received the rest of their share less attorney's fees and commission.

8 Opposition to Motion for Approval dated January 5, 1982.

9 Namely Lazaro Nombre, Victoria Madalag and Domingo Campillanos.

10 Civil Case No. 218 (formerly Civil Case No. 1358), then Court of First Instance now the Regional Trial Court of Negros Occidental, Branch 61.

11 Exhibit 35.

12 Penned by Judge Bernardo T. Ponferrada in Special Proceeding No. 7-7279, Exhibit 3-D.

13 In addition, a complaint for Cancellation of Titles with Damages (Civil Case No. 389) was filed by Pedro Escanlar, Francisco Holgado and Edwin Jayme against the spouses Paquito Chua and Ney Sarrosa-Chua and the Register of Deeds of Negros Occidental before the Regional Trial Court of Negros Occidental sometime in July 1988.

14 Exhibit 31 for defendant.

15 Should be P34,218.75 per Order dated September 7, 1982 in Special Proceeding No. 7-7279. Exhibit 8, Records, p. 23.

16 Decision penned by Judge Rodolfo S. Layumas, Rollo, pp. 129-157.

17 CA-G.R. CV No. 39975.

18 Decision of the Court of Appeals, p. 9. Rollo, p. 65. Penned by Justice Antonio P. Solano, with Justices Minerva P. Gonzaga-Reyes and Eduardo G. Montenegro, concurring, Rollo, pp. 57-71.

19 Rollo, p. 74.

20 The petition in G.R. No. 119777 was posted on May 26, 1995 at the instance of the spouses Edwin and Elisa Jayme. The filing of the petition in G.R. No. 120690 was directed by Francisco Holgado. Counsel for the latter filed a Manifestation on November 2, 1995 stating that petitioners Escanlar and Holgado were unaware that counsel for the Jaymes had already filed a petition for review; that the Jaymes and petitioners have a common interest and thus request the consolidation of both cases. The Court granted the request for consolidation on January 17, 1996. Rollo of G.R. No. 120690, pp. 81-84.

21 43 SCRA 93 (January 31, 1972).

22 TOLENTINO, IV CIVIL CODE OF THE PHILIPPINES 3 (1992 edition).

23 Dignos v. CA, 158 SCRA 375 (1988).

24 Jacinto v. Kaparaz, 209 SCRA 246, 256 (May 22, 1992).

25 Ownership, under Roman law and the legal systems based on it, such as the Civil Law of the Philippines based on the Spanish Civil Code, cannot be transferred by mere agreement. Non nudis pactis, sed traditione dominia rerum transferentur. Tradition or delivery is needed to pass ownership. As a mode of acquisition of property, it consists in putting a thing at the disposal of the person to whom one wishes to convey it. The normal mode of accomplishing this is by real traditio or actual physical handing over of the thing by the transferer to the transferee. In contrast, there may be symbolical tradition, belonging to the class called feigned or fictitious tradition, one of which is traditio brevi manu where the buyer, being already in possession of the thing sold due to some other cause such as lease, merely remains in possession after the sale is effected, but now in concept of owner.

26 Also Article 1496 of the Civil Code.

27 Dissenting opinion of Justice Flerida Ruth P. Romero in Visayan Sawmill Company Inc. v. CA, 219 SCRA at 397 (March 3, 1993) citing Hanlon v. Haussermann, 40 Phil. 796 (1920).

28 163 SCRA 30 (July 28, 1988).

29 The Court explained that although the Rules of Court (specifically Sections 4 and 7 of Rule 89) do not specifically state that the sale of an immovable property belonging to an estate of a decedent, in a special proceeding, should be made with the approval of the court, this authority is necessarily included in its capacity as a probate court. Citing Manotok Realty Inc. v. CA, 149 SCRA 174 (April 9, 1983).

30 Acebedo v. Abesamis, 217 SCRA 193 (January 18, 1993) citing Go Ong v. CA, 154 SCRA 276 (September 24, 1987).

31 When there are two or more heirs, the entire estate of the decedent is owned in common by such heirs prior to its partition. Article 1078, Civil Code. J. VITUG, COMPENDIUM OF CIVIL LAW AND JURISPRUDENCE 452 (1993 edition).

32 Article 493 of the Civil Code, Go Ong v. CA, supra and Philippine National Bank v. CA, 98 SCRA 207 (1980).

33 Article 1370 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (Emphasis added.)

34 In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. Article 1371, Civil Code.

35 Petitioners filed said motion for approval of the September 1978 sale on November 10, 1981. The heirs of Cari-an submitted their opposition to this motion on January 5, 1982.

36 Exhibit 20-B, Order dated February 28, 1985, penned by Judge Bernardo T. Ponferrada. Exhibit, pp. 71-71.

37 Angeles v. Calasanz, 135 SCRA 332 (March 18, 1985) also citing De Guzman v. Guieb, 48 SCRA 68, where the Court held that said right to rescind was forfeited by the vendors who received delayed payments without protest or qualification.

38 TSN, June 16, 1989, pp. 4-11.

39 Exhibits 2-6.

40 TSN, June 11, 1986; October 8, 1986, pp. 6-33; August 25, 1986, pp. 5-27.

41 Cf. page 6; Exhibit 31.

42 The number and identity of the heirs of Guillermo Nombre are not relevant at this point.

43 TSN, July 24, 1989, pp. 17-18.

Republic of the Philippines
SUPREME COURT

THIRD DIVISION

G.R. No. 123672 December 14, 2005

FERNANDO CARRASCOSO, JR., Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P. Leviste, Respondents

x---------------------------------------x

G.R. No. 164489

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner,
vs.
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC., represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO CARRASCOSO, JR., Respondents.

D E C I S I O N

CARPIO MORALES, J.:

El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93¹ situated in Sablayan, Occidental Mindoro.

On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution² was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts bearing thereon.

On March 23, 1972, by a Deed of Sale of Real Property,³ El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).

The pertinent provisions of the Deed of Sale read:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above-described property subject to the following terms and consitions (sic):

1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo (sic) the present mortgage over the above-described property.

2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of which amount is hereby acknowledged by the VENDOR.

3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the VENDEE to the VENDOR within a period of three (3) years, as follows:

(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.

(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.

(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.

4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall have full authority to register the same and obtain the corresponding transfer certificate of title in his name.

xxx

6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant and is therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes liable under the said law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur thereon.⁴ (Underscoring supplied)

From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on March 23, 1975.

On even date, the Board of Directors of El Dorado passed a Resolution reading:

"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to the property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed of Sale shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.;

"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.;

"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of any vendor’s lien on the property."⁵ (Emphasis and underscoring supplied)

Feliciano Leviste also executed the following affidavit on the same day:

1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by the Deed of Sale attached hereto as Annex "A" and made an integral part hereof, the El Dorado Plantation, Inc. has no objection to the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long as the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale, Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though subordinated to the preferred claim of the mortgagee bank.

2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendor’s lien on the property, subject matter of the deed of sale.

3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex "A" hereof, where the purchase price provided therein has not been fully paid.

4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc.⁶ (Emphasis and underscoring supplied)

On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage⁷ over the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the Deed of Sale.⁸

The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorado’s TCT No. T-93 as Entry No. 15240⁹ on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT No. T-6055¹⁰ was in its stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate mortgage in favor of HSB was annotated as Entry No. 15242.¹¹

On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of P70,000.00 as requested by the spouses Carrascoso.¹² The Amendment of Real Estate Mortgage was also annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.¹³

The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied therewith.

In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and Sell¹⁴ whereby the former agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total of P3,000,000.00.

The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascoso’s TCT No. T-6055.

Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel, Atty. Benjamin Aquino, by letter¹⁵ dated December 27, 1976, called the attention of the Board to Carrascoso’s failure to pay the balance of the purchase price of the property amounting to P1,300,000.00. And Lauro’s lawyer manifested that:

Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don Lauro Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission of the sale made by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that the Board of Directors take the corresponding action for rescission.¹⁶

Lauro’s desire to rescind the sale was reiterated in two other letters¹⁷ addressed to the Board dated January 20, 1977 and March 3, 1977.

Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977¹⁸ to Carrascoso informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real Property.

The pertinent portions of the letter read:

x x x

I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable, although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972, which was subsequently increased to P1,070,000.00 on May 18, 1972.

You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the members of the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done on your part after our numerous requests for payment of the said amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be advised that we would like to rescind the contract of sale of the land.¹⁹ (Underscoring supplied)

Jose Leviste, by letter²⁰ dated March 10, 1977, informed Lauro’s counsel Atty. Aquino of his (Jose’s) February 21, 1977 letter to Carrascoso, he lamenting that "Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply" and advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying with the demands of your client [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract against . . . Carrascoso."²¹

Lauro and El Dorado finally filed on March 15, 1977 a complaint²² for rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI) of Occidental Mindoro, docketed as Civil Case No. R-226.

Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two prayed for the issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him of P500,000.00, (2) secure a discharge of the real estate mortgage constituted on the property from HSB, (3) submit an accounting of the fruits of the property from March 23, 1972 up to the return of possession of the land to El Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the amount of P100,000.00 for attorney’s fees and other damages.²³

Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis Pendens, inscribed as Entry No. 39737.²⁴

In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale²⁵ over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent portions of the Deed are as follows:

WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975, which is made a part hereof by reference;

WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to in the aforementioned agreement to Buy and Sell;

WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR and the VENDEE have agreed as follows:

1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the VENDOR, the VENDOR hereby sells, transfers and conveys unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey plan xxx

2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner:

a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings Bank in full payment of the VENDOR’s mortgaged obligation therewith;

b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;

The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the VENDEE but which are for the account of the VENDOR under Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDOR upon issuance of title to the VENDEE.²⁶ (Underscoring supplied)

In turn, PLDT, by Deed of Absolute Sale²⁷ dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC.

In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting,²⁸ adopted and approved a Resolution ratifying and conferring "the prosecution of Civil Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled ‘Lauro P. Leviste vs. Fernando Carascoso (sic), etc.’ initiated by stockholder Mr. Lauro P. Leviste."²⁹

In his Answer with Compulsory Counterclaim,³⁰ Carrascoso alleged that: (1) he had not paid his remaining P1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of time to comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no showing of compliance with the condition precedent of exhaustion of intra-corporate remedies and the requirement that a derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado committed a gross misrepresentation when it warranted that the property was not being cultivated by any tenant to take it out of the coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing of the complaint for which Lauro and El Dorado must be held liable.

On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770,³¹ 42774,³² 42769³³ and 24772,³⁴ respectively. On even date, Carrascoso’s TCT No. T-6055 was cancelled and TCT No. T-12480³⁵ covering the 1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis Pendens was carried over to TCT No. T-12480.

On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention³⁶ which was granted by the trial court by Order³⁷ of September 7, 1978.

PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim³⁸ against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6, 1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare portion of the property or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending litigation over the property and neither were they aware that a notice of lis pendens had been annotated on Carrascoso’s title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDT’s actual possession of the 1,000 hectare portion of the property since June 30, 1975 and of its exercise of exclusive rights of ownership thereon through agricultural development.³⁹

By Decision⁴⁰ of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which the CFI has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows, quoted verbatim:

WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:

1. Dismissing the plaintiffs’ complaint against the defendant on the ground of prematurity;

2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must first be set off from the latter’s unpaid balance to the former;

3. Dismissing the defendants-intervenors’ counterclaim and cross-claim; and

4. Ordering the plaintiffs to pay to (sic) the costs of suit.

SO ORDERED.⁴¹ (Underscoring supplied)

Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.

By Decision⁴² of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as follows, quoted verbatim:

WHEREFORE, not being meritorious, PLDT’s/PLDTAC’s appeal is hereby DISMISSED and finding El Dorado’s appeal to be impressed with merit, We REVERSE the appealed Decision and render the following judgment:

1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.

2. Fernando Carrascoso, Jr. is commanded to:

2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc. without prejudice to the landholdings of legitimate tenants thereon;

2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of the 825-hectare-remaining portion minus the tenants’ landholdings, from July 11, 1975 up to its delivery to El Dorado Plantation, Inc. including whatever he may have received from the tenants if any by way of compensation under the Operation Land Transfer or under any other pertinent agrarian law;

2.3 Pay El Dorado Plantation, Inc. an attorney’s fee of P20,000.00 and litigation expenses of P30,000.00;

2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;

3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado Plantation, Inc.;

4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance by Fernando Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above to El Dorado Plantation, Inc.

5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting of the fruits of the land during the period mentioned above for the latter’s approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc.

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Art. 448 of the Civil Code.

SO ORDERED.⁴³ (Underscoring supplied)

PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration⁴⁴ of the January 31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25, 1996 a petition for review,⁴⁵ docketed as G.R. No. 123672, assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial court except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare portion of the property was subject to the notice of lis pendens.

Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party⁴⁶ was filed praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by Resolution⁴⁷ of July 10, 1996.

PLDT and PLDTAC filed their Comment⁴⁸ to Carrascoso’s petition and prayed that judgment be rendered finding them to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion of the property, together with all the improvements they built thereon. Reiterating that they were not purchasers pendente lite, they averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of the property prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.

El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment⁴⁹ to Carrascoso’s petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of the January 31, 1996 CA Decision be modified to read as follows:

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Arts. 449 and 450 of the Civil Code, without right to indemnity on the part of the latter should the former decide to keep the improvements under Article 449.⁵⁰ (Underscoring supplied)

Carrascoso filed on November 13, 1996 his Reply⁵¹ to the Comment of El Dorado and the heirs of Lauro.

In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA decision had remained unresolved, this Court, by Resolution⁵² of June 30, 2003, directed the appellate court to resolve the same.

By Resolution⁵³ of July 8, 2004, the CA denied PLDT and PLDTAC’s Motion for Reconsideration for lack of merit.

PLDT⁵⁴ thereupon filed on September 2, 2004 a petition for review⁵⁵ before this Court, docketed as G.R. No. 164489, seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate court. It prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare portion of the property and that it and its successors-in-interest be declared owners and legal possessors thereof, together with all improvements built, sown and planted thereon.

By Resolution⁵⁶ of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.

In his petition, Carrascoso faults the CA as follows:

I

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR RESCISSION WAS PREMATURELY FILED.

II

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF SALE.

III

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF THE TRIAL COURT.⁵⁷ (Underscoring supplied)

PLDT, on the other hand, faults the CA as follows:

I

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE.

II

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.’s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDT’S AGREEMENT TO BUY AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS PENDENS.⁵⁸ (Underscoring supplied)

Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated March 23, 1972, no objection was interposed to his mortgaging of the property to any bank provided that the balance of the purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the unpaid balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing of the complaint for rescission with damages on March 15, 1977 was premature as he fully paid his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of Mortgage⁵⁹ signed by HSB President Gregorio B. Licaros.

Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El Dorado’s directors and officers, particularly Jose and Angel Leviste.

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations 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.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.⁶⁰ They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.⁶¹

The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them.⁶²

A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent.⁶³ The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and discharges the obligations created thereunder.⁶⁴ Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.⁶⁵

In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon.

The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long lapsed.

The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascoso’s mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the purchase price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.

As the CA correctly found:

The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was extended. Neither can We see in it anything that can logically infer said accommodation.

A partially unpaid seller can agree to the buyer’s mortgaging the subject of the sale without changing the time fixed for the payment of the balance of the price. The two agreements are not incompatible with each other such that when one is to be implemented, the other has to be suspended. In the case at bench, there was no impediment for Carrascoso to pay the balance of the price after mortgaging the land.

Also, El Dorado’s subordinating its "preferred claim" or waiving its superior "vendor’s lien" over the land in favor of the mortgagee of said property only means that in a situation where the unpaid price of the Land and loan secured by the mortgage over the Land both become due and demandable, the mortgagee shall have precedence in going after the Land for the satisfaction of the loan. Such accommodations do not necessarily imply the modification of the period fixed in the contract of sale for the payment by Carrascoso of the balance.

The palpable purpose of El Dorado in not raising any objection to Carrascoso’s mortgaging the land was to eliminate any legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorado’s yielding its "superior lien" over the land in favor of the mortgagee was plainly intended to overcome the natural reluctance of lending institutions to accept a land whose price has not yet been fully paid as collateral of a loan.⁶⁶ (Underscoring supplied)

Respecting Carrascoso’s insistence that he was granted verbal extensions within which to pay the balance of the purchase price of the property by El Dorado’s directors and officers Jose and Angel Leviste, this Court finds the same unsubstantiated by the evidence on record.

It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his failure to comply, despite "numerous" requests, with his obligation to pay the amount of P1,300,000.00 and 10% annual interest thereon, and advising him that "we would like to rescind the contract of sale." This letter reiterated the term of payment agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascosos’s non-compliance therewith.

Carrascoso, harping on Jose Leviste’s March 10, 1977 letter to Lauro’s counsel wherein he (Jose Leviste) stated that "some of the Directors of the corporation could not see their way clear in complying with the demands of [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract against Dr. Fernando Carrascoso," argues that the extensions priorly given to him "no doubt lead to the logical conclusion on some of the directors’ inability to file suit against him."⁶⁷

The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit against him, the same should not be interpreted to mean that this was brought about by a prior extension of the period to pay the balance of the purchase price of the property as such reluctance could have been due to a myriad of reasons totally unrelated to the period of payment of the balance.

The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing negates all the speculations of the court a quo and pretensions of Carrascoso.

x x x

The unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal amounts. Since he did not perform his obligation under the contract of sale, he, therefore, breached it. Having breached the contract, El Dorado’s cause of action for rescission of that contract arose.⁶⁸ (Underscoring supplied)

Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two weeks prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a helicopter, that there were people and cattle in the area; when he confronted El Dorado about it, he was told that the occupants were caretakers of cattle who would soon leave;⁶⁹ four months after the execution of the Deed of Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that there were people claiming to be tenants in certain portions of the property;⁷⁰ and he thus brought the matter again to El Dorado which informed him that the occupants were not tenants but squatters.⁷¹

Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of non-tenancy committed by El Dorado, he incurred expenses in the amount of P2,890,000.00 for which he should be reimbursed, his unpaid obligation to El Dorado amounting to P1,300,000.00 to be deducted therefrom.⁷²

The breach of an express warranty makes the seller liable for damages.⁷³ The following requisites must be established in order that there be an express warranty in a contract of sale: (1) the express warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation or promise thereon.⁷⁴

Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If Carrascoso would become liable under the said law, he would be reimbursed for all expenses and damages incurred thereon.

Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons were indeed tenants.⁷⁵ The fact of tenancy⁷⁶ not having been priorly established,⁷⁷ El Dorado may not be held liable for actual damages.

Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice of Lis Pendens.

PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment of the condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.⁷⁸

The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read:

2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the former, 1,000 hectares of the above-described parcel of land as shown in the map hereto attached as Annex "A" and made an integral part hereof and as hereafter to be more particularly determined by the survey to be conducted by Certeza & Co., at the purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos (P3,000,000.00) payable in cash.

3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a period of one (1) year from the date of execution of this Agreement. However, the VENDEE shall have the option to extend the life of this Agreement by another six months, during which period the VENDEE shall definitely inform the VENDOR of its decision on whether or not to finalize the deed of absolute sale for the aforementioned 1,000 hectares of land.

The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land shall be spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and which shall not exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE from the aforementioned purchase price of P3,000,000.00.

The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the signing of this Agreement.

x x x

It is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned 1,000 hectares at any time within the period of this Agreement for purposes of commencing the development of the same.

x x x

5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid taxes, existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the VENDOR of the purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances, such that said payments shall be made directly to the corresponding creditors. Thus, the balance of the purchase price will be paid to the VENDOR after the title to the land is cleared of all such liens and encumbrances.

x x x

7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement.⁷⁹

A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over said property.⁸⁰

Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved as well as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In other words, a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation.⁸¹

x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or any part of it during the litigation.

The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the court until the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien.

The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the litigation within the power of the court until the judgment or decree shall have been entered; otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution. The doctrine of lis pendens is based on considerations of public policy and convenience, which forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions in pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the power of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the purpose of the pending suit may not be defeated by successive alienations and transfers of title.⁸² (Italics in the original)

In ruling against PLDT and PLDTAC, the appellate court held:

PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory contract be the same as a contract of sale which is a principal contract? If PLDT’s contention is correct that it bought the Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the Agreement to Buy and Sell but it did so not as owner but as prospective buyer of the property. As prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did it pursue and go through with the sale if it had not been willing to gamble with the result of this case?⁸³ (Underscoring supplied)

Further, in its July 8, 2004 Resolution, the CA held:

PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to it the ownership of the property.

x x x

Ownership was retained by CARRASCOSO which EL DORADO may very well recover through its action for rescission.

x x x

PLDT’s possession at the time the notice of lis pendens was registered not being a legal possession based on ownership but a mere possession in fact and the Agreement to Buy and Sell under which it supposedly took possession not being registered, it is not protected from an adverse judgment that may be rendered in the case subject of the notice of lis pendens.⁸⁴ (Underscoring supplied)

In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, ownership is not transferred upon delivery of the property but upon full payment of the purchase price.⁸⁵ In the former, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in the latter, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.⁸⁶

PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for the application of Articles 1181⁸⁷ and 1187⁸⁸ of the Civil Code as held in Coronel v. Court of Appeals.⁸⁹

The Court is not persuaded.

For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.⁹⁰ Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.⁹¹

A perusal of the contract⁹² adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell in the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to transfer title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to "definitely inform Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the parties declared that they "are now decided to execute" such deed, indicating that the Agreement to Buy and Sell was, as the appellate court held, merely a preparatory contract in the nature of a contract to sell. In fact, the parties even had to stipulate in the said Agreement to Buy and Sell that Carrascoso, "during the existence of the Agreement, shall not sell, cede, assign and/or transfer the parcel of land," which provision this Court has held to be a typical characteristic of a contract to sell.⁹³

Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely the beneficial title to the 1,000 hectare portion of the property.

The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate and expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested right is an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a property right to be vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have become fixed or established and is no longer open to doubt or controversy.⁹⁴ (Underscoring supplied)

In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the operative act to convey and affect the land.

An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration shall be the operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation of the owner’s duplicate certificate of title for the registration of any deed or voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original and owner’s duplicate certificate of title. The reason for requiring the production of the owner’s duplicate certificate in the registration of a voluntary instrument is that, being a willful act of the registered owner, it is to be presumed that he is interested in registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the Register of Deeds in order to accomplish such registration. However, where the owner refuses to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth his adverse claim, as provided for in Section 110 of Act No. 496. xxx⁹⁵ (Underscoring supplied)

In Valley Golf Club, Inc. v. Salas,⁹⁶ where a Deed of Absolute Sale covering a parcel of land was executed prior to the annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after such annotation, this Court held:

The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional payment by the CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precede the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the operative act to convey and affect the land. That registration was not effected by the CLUB until December 4, 1963, or three (3) years after it had made full payment to ROMERO. xxx

x x x

As matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens, the CLUB must be legally held to have been aware of the flaws in the title. By virtue of the lis pendens, its acquisition of the property was subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUB’s cause of action lies, not against the SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365, but against ROMERO who was found to have had no right to dispose of the land.⁹⁷ (Underscoring supplied)

PLDT further argues that El Dorado’s prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is equivalent to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a purchaser pendente lite nor a purchaser in bad faith.

PLDT anchors its argument on the testimony of Lauro and El Dorado’s counsel Atty. Aquino from which it infers that Atty. Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on Carrascoso’s title only after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the property.

The pertinent portions of Atty. Aquino’s testimony are reproduced hereunder:

Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr. Carrascoso?

A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a result of the filing of the instant complaint.

Q: Do you know the notice of Lis Pendens?

A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice of Lis Pendens".

Q: As a consequence of the filing of the complaint which was annotated, you have known that?

A: Yes.

x x x

Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the property?

A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co.

Q: And what did you do?

A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered that the articles incorporated (sic) and other corporate matters had been organized and established of the PLDT, Co., and had been annotated.

x x x

Q: Do you know what happened to the property?

A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis Pendens.

x x x

Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say when?

A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property to PLDT.

x x x

Q: Will you tell to the Honorable Court what newspaper was that?

A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What was [confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register of Deeds and that was the reason why we obtained the case.

Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time when counsel is being able (sic) to read the newspaper allegedly (interrupted)

x x x

Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards (sic) to the transfer of property to PLDT, would have been accorded prior to the pendency of the case.

x x x

A: I cannot remember.⁹⁸

PLDT also relies on the following testimony of Carrascoso:

Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your transaction with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell with the PLDT?

A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my transaction with the PLDT, sir.

Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose Leviste?

A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.

x x x

Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?

A: One of the stockholders and director of the plaintiff-corporation, sir.

Q: Will you please tell us the other officers?

A: Expedito Leviste, sir.

A: Will you tell the position of Expedito Leviste?

A: He was the corporate secretary, sir.

Q: If you know, was Dr. Jose Leviste also a director at that time?

A: Yes, sir.⁹⁹

On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell prior to the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis pendens on his title. It further asserts that it always acted in good faith:

xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is no evidence that El Dorado was notified of this contract. The property is located in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not an unusual activity on the land, thus it could have been the Petitioner who was using the land. Not having been notified of this sale, El Dorado could not have stopped PLDT from developing the land.

The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land but also in putting up improvements on the property such as buildings, roads, irrigation systems and drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively participated as intervenors. They were not innocent bystanders. xxx¹⁰⁰

This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As such, it cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the annotation of the notice of lis pendens on Carrascoso’s title.

Respecting Carrascoso’s allegation that some of the directors and officers of El Dorado had knowledge of his dealings with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice to the corporation, whether he communicates such knowledge or not.¹⁰¹ In the case at bar, however, apart from Carrascoso’s claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare portion of the property to PLDT, no evidence was presented to substantiate his claim. Such self-serving, uncorroborated assertion is indubitably inadequate to prove that El Dorado had notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis pendens on his title.

PLDT is, of course, not without recourse. As held by the CA:

Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so because it was Carrascoso’s refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until paid.¹⁰² (Underscoring supplied)

The appellate court’s decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation prior to the consummation of the contract.

The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract.

Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of abrogating the contract in all parts.¹⁰³ (Underscoring supplied)

The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the Court affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El Dorado.

As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should be made between those which it built prior to the annotation of the notice of lis pendens and those which it introduced subsequent thereto.

When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:

Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.¹⁰⁴ Good faith is thus identified by the belief that the land is owned; or that by some title one has the right to build, plant, or sow thereon.¹⁰⁵

The owner of the land on which anything has been built, sown or planted in good faith shall have the right to appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful expenses,¹⁰⁶ and in the proper case, expenses for pure luxury or mere pleasure.¹⁰⁷

The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land.

If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land.

If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.

The right to choose between appropriating the improvement or selling the land on which the improvement of the builder, planter or sower stands, is given to the owner of the land.¹⁰⁸

On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent.

In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare portion of the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the full consent of Carrascoso.¹⁰⁹ Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on Carrascoso’s TCT No. T-6055, PLDT is deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of the property.

After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.

Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the property, it should only be made to pay for those improvements at the time good faith existed on the part of PLDT or until March 15, 1977,¹¹⁰ to be pegged at its current fair market value.¹¹¹

The commencement of PLDT’s payment of reasonable rent should start on March 15, 1977 as well, to be paid until such time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the reimbursement of expenses as aforestated, that is, if El Dorado opts to appropriate the improvements.¹¹²

If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of ownership.¹¹³

WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8, 2004 of the Court of Appeals are AFFIRMED with MODIFICATION in that

1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:

a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses actually spent by PLDT for the improvements thereon as of March 15, 1977;

b. include for determination the increase in value ("plus value") which the 1,000 hectare portion may have acquired by reason of the existence of the improvements built by PLDT before March 15, 1977 and the current fair market value of said improvements;

2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to oblige PLDT to pay the price of the land, and

3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as reasonable compensation for its occupancy of the 1,000 hectare portion of the property from the time that its good faith ceased to exist until such time that possession of the same is delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.

Costs against petitioners.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

RENATO C. CORONA

Associate Justice

CANCIO C. GARCIA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN

Associate Justice
Chairman

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice

Footnotes

¹ Exhibit "A", II Records at 366-372.

² I Records at 9-10.

³ Exhibit "1", II Records at 376-380.

⁴ Id. at 377-378.

⁵ Exhibit "2", Id. at 857.

⁶ Exhibit "2-A", Id. at 858.

⁷ Exhibit "D-3-a", Id. at 384-389.

⁸ G.R. No. 123672 Rollo at 38.

⁹ Exhibit "A-2", II, Records at 371.

¹⁰ Exhibit "D", Id. at 381-383.

¹¹ II Records at 382.

¹² Exhibit "D-3-b", II Records at 390-391.

¹³ II Records at 462-A.

¹⁴ Exhibit "15", I Records at 159-163.

¹⁵ Exhibit "E", II Records at 393-394.

¹⁶ II Records at 394.

¹⁷ Exhibits "F" and "G", II Records at 395-398.

¹⁸ Exhibit "H-1", Id. at 400-401.

¹⁹ Id. at 401.

²⁰ Exhibit "H", II Records at 399.

²¹ Ibid.

²² I Records at 1-8.

²³ Id. at 7-8.

²⁴ Exhibit "L-1", II Records at 472.

²⁵ Exhibit "21", I Records at 261-264.

²⁶ Id. at 261-262.

²⁷ Exhibit "T", I Records at 265-267.

²⁸ Exhibit "K", II Records at 406-408.

²⁹ Exhibit "J", Id. at 405.

³⁰ I Records at 145-153.

³¹ Exhibit "L-2", II Records at 473.

³² II Records at 474.

³³ Id. at 472.

³⁴ Exhibit "L-3", II Records at 473.

³⁵ Exhibit "Q", III Records at 1480.

³⁶ I Records at 220-223.

³⁷ Id. at 240.

³⁸ Id. at 247-255.

³⁹ Id. at 251-252.

⁴⁰ III Records at 1962-1970.

⁴¹ Id. at 1969-1970.

⁴² G.R. No. 123672 Rollo at 35-58.

⁴³ Id. at 56-58.

⁴⁴ Id. at 147-154.

⁴⁵ Id. at 11-33.

⁴⁶ Id. at 79-81.

⁴⁷ Id. at 95.

⁴⁸ Id. at 87-94.

⁴⁹ Id. at 102-126.

⁵⁰ Id. at 126.

⁵¹ Id. at 128-134.

⁵² Id. at 171-177.

⁵³ Id. at 181-196.

⁵⁴ PLDTAC, now a moribund company, no longer joined in the petition.

⁵⁵ G.R. No. 164489 Rollo at 210-246.

⁵⁶ Id. at 50.

⁵⁷ G.R. No. 123672 Rollo at 20-21.

⁵⁸ G.R. No. 164489 Rollo at 226.

⁵⁹ Exhibit "5", II Records at 864.

⁶⁰ Ong v. Court of Appeals, 310 SCRA 1, 9 (1999) (citation omitted).

⁶¹ IV A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 175 (1997 ed).

⁶² Velarde v. Court of Appeals, 361 SCRA 56, 68 (2001).

⁶³ Id. at 66.

⁶⁴ Blas v. Angeles-Hutalla, 439 SCRA 273, 293 (2004) (citation omitted), Soliva v. Intestate Estate of Marcelo M. Villalba, 417 SCRA 277, 285 (2003) (citation omitted).

⁶⁵ Velarde v. Court of Appeals, supra at 57.

⁶⁶ G.R. No. 123672 Rollo at 44-45.

⁶⁷ Id. at 22.

⁶⁸ Id. at 47.

⁶⁹ TSN, August 21, 1979 at 45.

⁷⁰ TSN, June 2, 1980 at 15.

⁷¹ TSN, August 21, 1979 at 47.

⁷² Id. at 26.

⁷³ C. Villanueva, Law on Sales, 538 (2004 ed).

⁷⁴ Civil Code, art. 1546.

⁷⁵ Bautista v. Mag-isa Vda. De Villena [438 SCRA 259, 265-266 (2004)] provides:

Tenants are defined as persons who – in themselves and with the aid available from within their immediate farm households – cultivate the land belonging to or possessed by another, with the latter’s consent; for purposes of production, sharing the produce with the landholder under the share tenancy system, or paying to the landholder a price certain or ascertainable in produce or money or both under the leasehold tenancy system.

⁷⁶ VHJ Construction and Development Corporation v. Court of Appeals [436 SCRA 392, 398-399 (2004)] provides:

xxx a tenancy relationship cannot be presumed. There must be evidence to prove this allegation. xxx

x x x

The requisites of a tenancy relationship are as follows: (1) the parties are the landowner and the tenant; (2) the subject is agricultural land; (3) there is consent by the landowner; (4) the purpose is agricultural production; (5) there is personal cultivation, and (6) there is sharing of the harvests. All these requisites are necessary to create a tenancy relationship, and the absence of one or more requisites will not make the alleged tenant a de jure tenant. xxx unless a person has established his status as a de jure tenant, he is not xxx covered by the Land Reform Program of the Government under existing tenancy laws. xxx

⁷⁷ Vide: Investment & Development, Inc. v. Court of Appeals, 162 SCRA 636 (1988).

⁷⁸ G.R. No. 164489 Rollo at 232.

⁷⁹ Exhibit "15", I Records at 160-162.

⁸⁰ Villanueva v. Court of Appeals, 281 SCRA 298, 306 (1997) (citations omitted).

⁸¹ Esguerra v. Court of Appeals, 267 SCRA 380, 397-398 (1997) citations omitted).

⁸² Po Lam v. Court of Appeals, 347 SCRA 86, 96-97 (2000) (citations omitted).

⁸³ G.R. No. 123672 Rollo at 51.

⁸⁴ Id. at 192-195.

⁸⁵ Jovellanos v. Court of Appeals, 210 SCRA 126, 132 (1992) (citation omitted).

⁸⁶ Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565, 576-577 (1995).

⁸⁷ Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

⁸⁸ Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

⁸⁹ 263 SCRA 15 (1996).

⁹⁰ Coronel v. Court of Appeals, supra at 27-28.

⁹¹ Id. at 28.

⁹² RECEIPT OF DOWNPAYMENT

x x x

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

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

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

⁹³ Padilla v. Paredes, 328 SCRA 434, 442-443 (2000).

⁹⁴ Jovellanos v. Court of Appeals, 210 SCRA 126, 134-135 (1992) (citations omitted).

⁹⁵ L.P. Leviste & Company v. Noblejas, 89 SCRA 520, 528 (1979) (citations omitted).

⁹⁶ 125 SCRA 471 (1983).

⁹⁷ Id. at 477-478 (citation omitted).

⁹⁸ TSN, August 21, 1979 at 8-13.

⁹⁹ TSN, February 4, 1982 at 39-44.

¹⁰⁰ G.R. No. 123672 Rollo at 124-125.

¹⁰¹ Francisco v. Government Service Insurance System, 7 SCRA 577, 584-585 (1963) (citation omitted).

¹⁰² G.R. No. 123672 Rollo at 55.

¹⁰³ IV A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 180-181 (1997 ed).

¹⁰⁴ Macasaet v. Macasaet, 439 SCRA 625, 643 (2004) (citations omitted).

¹⁰⁵ Id. at 644 (citation omitted).

¹⁰⁶ Civil Code, art. 546.

¹⁰⁷ Civil Code, art 548.

¹⁰⁸ Ballatan v. Court of Appeals, 304 SCRA 34, 46 (1999).

¹⁰⁹ The July 11, 1975 Agreement to Buy and Sell likewise provides that PLDT shall have the right to enter any part of the 1,000 hectare portion of the property within the period of the Agreement for purposes of commencing its development.

¹¹⁰ Rosales v. Castelltort, G.R. No. 157044, October 5, 2005.

¹¹¹ Pecson v. Court of Appeals, 244 SCRA 407, 415-416 (1995).

¹¹² Rosales v. Castelltort, supra.

¹¹³ Tecnogas Philippines Manufacturing Corporation v. Court of Appeals, 268 SCRA 5, 22 (1997).

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 170115 February 19, 2008

PROVINCE OF CEBU, petitioner,
vs.
HEIRS OF RUFINA MORALES, NAMELY: FELOMINA V. PANOPIO, NENITA VILLANUEVA, ERLINDA V. ADRIANO and CATALINA V. QUESADA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision¹ of the Court of Appeals dated March 29, 2005 in CA-G.R. CV No. 53632, which affirmed in toto the Decision² of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-11140 for specific performance and reconveyance of property. Also assailed is the Resolution³ dated August 31, 2005 denying the motion for reconsideration.

On September 27, 1961, petitioner Province of Cebu leased⁴ in favor of Rufina Morales a 210-square meter lot which formed part of Lot No. 646-A of the Banilad Estate. Subsequently or sometime in 1964, petitioner donated several parcels of land to the City of Cebu. Among those donated was Lot No. 646-A which the City of Cebu divided into sub-lots. The area occupied by Morales was thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title (TCT) No. 30883⁵ was issued in favor of the City of Cebu.

On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public auction in order to raise money for infrastructure projects. The highest bidder for Lot No. 646-A-3 was Hever Bascon but Morales was allowed to match the highest bid since she had a preferential right to the lot as actual occupant thereof.⁶ Morales thus paid the required deposit and partial payment for the lot.⁷

In the meantime, petitioner filed an action for reversion of donation against the City of Cebu docketed as Civil Case No. 238-BC before Branch 7 of the then Court of First Instance of Cebu. On May 7, 1974, petitioner and the City of Cebu entered into a compromise agreement which the court approved on July 17, 1974.⁸ The agreement provided for the return of the donated lots to petitioner except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot No. 646-A-3 was returned to petitioner and registered in its name under TCT No. 104310.⁹

Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC.¹⁰ Apart from the deposit and down payment, she was not able to make any other payments on the balance of the purchase price for the lot.

On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to then Cebu Governor Eduardo R. Gullas asking for the formal conveyance of Lot No. 646-A-3 to Morales’ surviving heirs, in accordance with the award earlier made by the City of Cebu.¹¹ This was followed by another letter of the same tenor dated October 10, 1986 addressed to Governor Osmundo G. Rama.¹²

The requests remained unheeded thus, Quesada, together with the other nieces of Morales namely, respondents Nenita Villanueva and Erlinda V. Adriano, as well as Morales’ sister, Felomina V. Panopio, filed an action for specific performance and reconveyance of property against petitioner, which was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional Trial Court of Cebu City.¹³ They also consigned with the court the amount of P13,450.00 representing the balance of the purchase price which petitioner allegedly refused to accept.¹⁴

Panopio died shortly after the complaint was filed.¹⁵

Respondents averred that the award at public auction of the lot to Morales was a valid and binding contract entered into by the City of Cebu and that the lot was inadvertently returned to petitioner under the compromise judgment in Civil Case No. 238-BC. They alleged that they could not pay the balance of the purchase price during the pendency of said case due to confusion as to whom and where payment should be made. They thus prayed that judgment be rendered ordering petitioner to execute a final deed of absolute sale in their favor, and that TCT No. 104310 in the name of petitioner be cancelled.¹⁶

Petitioner filed its answer but failed to present evidence despite several opportunities given thus, it was deemed to have waived its right to present evidence.¹⁷

On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:

WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant Province of Cebu, hereby directing the latter to convey Lot 646-A-3 to the plaintiffs as heirs of Rufina Morales, and in this connection, to execute the necessary deed in favor of said plaintiffs.

No pronouncement as to costs.

SO ORDERED.¹⁸

In ruling for the respondents, the trial court held thus:

[T]he Court is convinced that there was already a consummated sale between the City of Cebu and Rufina Morales. There was the offer to sell in that public auction sale. It was accepted by Rufina Morales with her bid and was granted the award for which she paid the agreed downpayment. It cannot be gainsaid that at that time the owner of the property was the City of Cebu. It has the absolute right to dispose of it thru that public auction sale. The donation by the defendant Province of Cebu to Cebu City was not voided in that Civil Case No. 238-BC. The compromise agreement between the parties therein on the basis of which judgment was rendered did not provide nullification of the sales or disposition made by the City of Cebu. Being virtually successor-in-interest of City of Cebu, the defendant is bound by the contract lawfully entered into by the former. Defendant did not initiate any move to invalidate the sale for one reason or another. Hence, it stands as a perfectly valid contract which defendant must respect. Rufina Morales had a vested right over the property. The plaintiffs being the heirs or successors-in-interest of Rufina Morales, have the right to ask for the conveyance of the property to them. While it may be true that the title of the property still remained in the name of the City of Cebu until full payment is made, and this could be the reason why the lot in question was among those reverted to the Province, the seller’s obligation under the contract was, for all legal purposes, transferred to, and assumed by, the defendant Province of Cebu. It is then bound by such contract.¹⁹

Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in toto. Upon denial of its motion for reconsideration, petitioner filed the instant petition under Rule 45 of the Rules of Court, alleging that the appellate court erred in:

FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE RIGHT TO EQUAL THE BID OF THE HIGHEST BIDDER OF THE SUBJECT PROPERTY AS LESSEES THEREOF;

FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA MORALES, THE SALE WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND THAT THE TRANSACTION WAS PERFECTED AND CONSUMMATED;

FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST RESPONDENTS;

FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS WERE NOT ABLE TO PAY THE AGREED INSTALLMENTS;

AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE RESPONDENTS AND AGAINST THE PETITIONERS.²⁰

The petition lacks merit.

The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is bound to respect the contract of sale entered into by the latter pertaining to Lot No. 646-A-3. The City of Cebu was the owner of the lot when it awarded the same to respondents’ predecessor-in-interest, Morales, who later became its owner before the same was erroneously returned to petitioner under the compromise judgment. The award is tantamount to a perfected contract of sale between Morales and the City of Cebu, while partial payment of the purchase price and actual occupation of the property by Morales and respondents effectively transferred ownership of the lot to the latter. This is true notwithstanding the failure of Morales and respondents to pay the balance of the purchase price.

Petitioner can no longer assail the award of the lot to Morales on the ground that she had no right to match the highest bid during the public auction. Whether Morales, as actual occupant and/or lessee of the lot, was qualified and had the right to match the highest bid is a foregone matter that could have been questioned when the award was made. When the City of Cebu awarded the lot to Morales, it is assumed that she met all qualifications to match the highest bid. The subject lot was auctioned in 1965 or more than four decades ago and was never questioned. Thus, it is safe to assume, as the appellate court did, that all requirements for a valid public auction sale were complied with.

A sale by public auction is perfected "when the auctioneer announces its perfection by the fall of the hammer or in other customary manner".²¹ It does not matter that Morales merely matched the bid of the highest bidder at the said auction sale. The contract of sale was nevertheless perfected as to Morales, since she merely stepped into the shoes of the highest bidder.

Consequently, there was a meeting of minds between the City of Cebu and Morales as to the lot sold and its price, such that each party could reciprocally demand performance of the contract from the other.²² A contract of sale is a consensual contract and is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. The elements of a valid contract of sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent.²³ All these elements were present in the transaction between the City of Cebu and Morales.

There is no merit in petitioner’s assertion that there was no perfected contract of sale because no "Contract of Purchase and Sale" was ever executed by the parties. As previously stated, a contract of sale is a consensual contract that is perfected upon a meeting of minds as to the object of the contract and its price. Subject to the provisions of the Statute of Frauds, a formal document is not necessary for the sale transaction to acquire binding effect.²⁴ For as long as the essential elements of a contract of sale are proved to exist in a given transaction, the contract is deemed perfected regardless of the absence of a formal deed evidencing the same.

Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of the purchase price is evidence that there was really no contract of sale over the lot between Morales and the City of Cebu. On the contrary, the fact that there was an agreed price for the lot proves that a contract of sale was indeed perfected between the parties. Failure to pay the balance of the purchase price did not render the sale inexistent or invalid, but merely gave rise to a right in favor of the vendor to either demand specific performance or rescission of the contract of sale.²⁵ It did not abolish the contract of sale or result in its automatic invalidation.

As correctly found by the appellate court, the contract of sale between the City of Cebu and Morales was also partially consummated. The latter had paid the deposit and downpayment for the lot in accordance with the terms of the bid award. She first occupied the property as a lessee in 1961, built a house thereon and was continuously in possession of the lot as its owner until her death in 1969. Respondents, on the other hand, who are all surviving heirs of Morales, likewise occupied the property during the latter’s lifetime and continue to reside on the property to this day.²⁶

The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof.²⁷ In this case, respondents’ predecessor had undoubtedly commenced performing her obligation by making a down payment on the purchase price. Unfortunately, however, she was not able to complete the payments due to legal complications between petitioner and the city.

Thus, the City of Cebu could no longer dispose of the lot in question when it was included as among those returned to petitioner pursuant to the compromise agreement in Civil Case No. 238-BC. The City of Cebu had sold the property to Morales even though there remained a balance on the purchase price and a formal contract of sale had yet to be executed. Incidentally, the failure of respondents to pay the balance on the purchase price and the non-execution of a formal agreement was sufficiently explained by the fact that the trial court, in Civil Case No. 238-BC, issued a writ of preliminary injunction enjoining the city from further disposing the donated lots. According to respondents, there was confusion as to the circumstances of payment considering that both the city and petitioner had refused to accept payment by virtue of the injunction.²⁸ It appears that the parties simply mistook Lot 646-A-3 as among those not yet sold by the city.

The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to petitioner under the compromise agreement in Civil Case No. 238-BC. At that time, the city merely retained rights as an unpaid seller but had effectively transferred ownership of the lot to Morales. As successor-in-interest of the city, petitioner could only acquire rights that its predecessor had over the lot. These rights include the right to seek rescission or fulfillment of the terms of the contract and the right to damages in either case.²⁹

In this regard, the records show that respondent Quesada wrote to then Cebu Governor Eduardo R. Gullas on March 11, 1983, asking for the formal conveyance of Lot 646-A-3 pursuant to the award and sale earlier made by the City of Cebu. On October 10, 1986, she again wrote to Governor Osmundo G. Rama reiterating her previous request. This means that petitioner had known, at least as far back as 1983, that the city sold the lot to respondents’ predecessor and that the latter had paid the deposit and the required down payment. Despite this knowledge, however, petitioner did not avail of any rightful recourse to resolve the matter.

Article 1592 of the Civil Code pertinently provides:

Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand, the court may not grant him a new term. (Underscoring supplied)

Thus, respondents could still tender payment of the full purchase price as no demand for rescission had been made upon them, either judicially or through notarial act. While it is true that it took a long time for respondents to bring suit for specific performance and consign the balance of the purchase price, it is equally true that petitioner or its predecessor did not take any action to have the contract of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for rescission has been made.³⁰ The consignation of the balance of the purchase price before the trial court thus operated as full payment, which resulted in the extinguishment of respondents’ obligation under the contract of sale.

Finally, petitioner cannot raise the issue of prescription and laches at this stage of the proceedings. Contrary to petitioner’s assignment of errors, the appellate court made no findings on the issue because petitioner never raised the matter of prescription and laches either before the trial court or Court of Appeals. It is basic that defenses and issues not raised below cannot be considered on appeal.³¹ Thus, petitioner cannot plead the matter for the first time before this Court.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 53632 are AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice
*RENATO C. CORONA Associate Justice	ANTONIO EDUARDO B. NACHURA Associate Justice
RUBEN T. REYES Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

^* In lieu of Justice Minita V. Chico-Nazario, per Special Order No. 484 dated January 11, 2008.

¹ Rollo, pp. 26-32.

² Id. at 33-36.

³ Id. at 37-38.

⁴ Id. at 39-41.

⁵ RTC Records, pp. 8-9.

⁶ Id. at 119.

⁷ Id. at 12.

⁸ Id. at 134-141.

⁹ Id. at 15.

¹⁰ Id. at 105.

¹¹ Id. at 130.

¹² Id. at 131.

¹³ Id. at 1-6.

¹⁴ Id. at 125.

¹⁵ Id. at 133.

¹⁶ Id. at 4-5.

¹⁷ Id. at 143.

¹⁸ Rollo, p. 36.

¹⁹ Id. at 35-36.

²⁰ Id. at 17-18.

²¹ CIVIL CODE, Art. 1476(2).

²² Id., Art. 1475.

²³ City of Cebu v. Heirs of Candido Rubi, 366 Phil. 70, 78 (1999).

²⁴ Article 1483 of the Civil Code states:

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties.

²⁵ Buenaventura v. Court of Appeals, 461 Phil. 761, 772 (2003).

²⁶ TSN, August 12, 1994, pp. 11 and 36.

²⁷ San Miguel Properties Phils., Inc. v. Spouses Huang, 391 Phil. 636, 645 (2000).

²⁸ TSN, August 12, 1994, p. 32.

²⁹ Article 1191 of the Civil Code states:

Art. 1191. The power to rescind obligations 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 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.

³⁰ See note 23 at 83.

³¹ Ramos v. Sarao, G.R. No. 149756, February 11, 2005, 451 SCRA 103, 122.