Wednesday, November 14, 2012

TOYOTA SHAW, INC.


FIRST DIVISION

[ G.R. No. 116650, May 23, 1995 ]

TOYOTA SHAW, INC., PETITIONER, VS. COURT OF APPEALS AND LUNA L. SOSA, RESPONDENTS.

D E C I S I O N


DAVIDE, JR., J.:

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

4 June 1989

AGREEMENTS BETWEEN MR.
SOSA & POPONG BERNARDO
OF TOYOTA SHAW, INC.

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

Very truly yours,

(Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees?  The trial court and the Court of Appeals took the affirmative view.  The petitioner disagrees.  Hence, this petition for review on certiorari.

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows.  Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale.  But upon contacting Toyota Shaw, Inc., he was told that there was an available unit.  So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila.  There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989.  Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928,[2] on which Gilbert signed under the subheading CONFORME.  This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.,"[3] with the initial cash outlay of P100,000.00 broken down as follows:

a)
downpayment
-
P53,148.00
  
b)
insurance
-
P13,970.00
  
c)
BLT registration fee
-
P 1,067.00
  

CHMO fee
-
P 2,715.00
  

service fee
-
P 500.00
  

accessories
-
P29,000.00
  


and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

  1. This sale is subject to availability of unit.
  2. Stated Price is subject to change without prior notice.  Price prevailing and in effect at time of selling will apply.....

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day.  At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office.  According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery.  After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa.  It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price.  Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded.  Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00,[4] the receipt of which was shown by a check voucher of Toyota,[5] which Sosa signed with the reservation, "without prejudice to our future claims for damages."

Thereafter, Sosa sent two letters to Toyota.  In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action.[6] The second, dated 4 November 1989 and signed by M.O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days.[7] Toyota's counsel answered through a letter dated 27 November 1989[8] refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00.[9] He alleges, inter alia, that:

  1. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because:  (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace— that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00).[10]
In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that:  the VSP did not state a date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session,[11] the trial court rendered on 18 February 1992 a decision in favor of Sosa.[12] It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters."[13] Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts."[14] Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants."[15]

The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated."[16] Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:

  1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;
  2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;
  3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case;
  4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and
  5. ordering the defendant to pay the cost of suit.

SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals.  The case was docketed as CA-G.R. CV No. 40043.  In its decision promulgated on 29 July 1994,[17] the Court of Appeals affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponencia and also the following related issues:  (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale.

Article 1458 of the Civil Code defines a contract of sale as follows:

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

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

ART. 1475.  The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

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

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale.  No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein.  The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle.  If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale.[18] This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.  Definiteness as to the price is an essential element of a binding agreement to sell personal property.[19]

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa.  For one thing, Sosa did not even sign it.  For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR
SOSA & POPONG BERNARDO
OF TOYOTA SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent[20] in respect of contracts to sell Toyota's vehicles.  A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.[21]

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale.  There are three stages in the contract of sale, namely:

(a)
preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;


(b)
perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and


(c)
consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.[22]
The second phase of the generation or negotiation stage in this case was the execution of the VSP.  It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation.  It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property."[23]

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved:  the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer.[24] Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price.  When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought.  It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989.  However, in paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead.  Plaintiff and his son went to defendant's office on June 17, 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant, for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff.  Plaintiff demanded for an explanation, but nothing was given; . . . (Italics supplied)[25]

The VSP was a mere proposal which was aborted in lieu of subsequent events.  It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered.  The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation.  At the bottom of this claim is nothing but misplaced pride and ego.  He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price.  It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages.  Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees.[26] No such explicit determination thereon was made in the body of the decision of the trial court.  No reason thus exists for such an award.

WHEREFORE, the instant petition is GRANTED.  The challenged decision of the Court of Appeals in CA-G.R. CV No. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED.  The counterclaim therein is likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Padilla, (Chairman), Bellosillo, and Kapunan, JJ., concur.
Quiason, J., on leave.


[1] Annex "A" of Complaint in Civil Case No. 89-14 of Branch 38 of the Regional Trial Court of Marinduque; Rollo, 70.

[2] Annex of Answer in Civil Case No. 89-14; Rollo, 82; Annex "E" of Petition; Rollo, 85.

[3] Referring to B.A. Finance.

[4] Exhibit "3," Annex "G" of Petition; Rollo, 86.

[5] Exhibit "4," Annex "H" of Petition; Rollo, 87.

[6] Annex "C" of Complaint in Civil Case No. 89-14; Id., 71-72.  This downpayment had already been refunded and received by Sosa himself as shown by the Check Voucher, Exhibit "4."

[7] Annex "C-1," Id.; Id., 73-74.

[8] Annex "I" of Petition; Id., 88-89.

[9] Annex "B," Id.; Id., 64-69.

[10] Rollo, 67.

[11] Id., 83-84.

[12] Id., 90-108.  Per Judge Romulo A. Lopez.

[13] Rollo, 104.

[14] Id.

[15] Id.

[16] Id., 107.

[17] Annex "A" of Petition; Rollo, 45-62.  Per Tayao-Jaguros, L., J., with Elbinias, J. and Salas, B., JJ., concurring.

[18] Velasco vs. Court of Appeals, 51 SCRA 439 [1973], citing Navarro vs. Sugar Producers Cooperative Marketing Association, 1 SCRA 1180 [1961].

[19] 67 Am Jur 2d Sales § 105 [1973].

[20] See Harry Keeler Electric Co. vs. Rodriguez, 44 Phil. 19 [1922]; B.A. Finance Corp. vs. Court of Appeals, 211 SCRA 112 [1992].

[21] Cruz vs. Court of Appeals, 201 SCRA 495 [1991]; Pineda vs. Court of Appeals, 226 SCRA 754 [1993].

[22] ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines, vol. 4, 1985 ed., 411; EDGARDO L. PARAS, Civil Code of the Philippines Annotated, vol. 4, 1989 ed., 490.

[23] See Beltran vs. PAIC Finance Corp., 209 SCRA 105 [1992].

[24] International Harvester Macleod, Inc. vs. Medina, 183 SCRA 485 [1990].

[25] Rollo, 66.

[26] See Central Azucarera de Bais vs. Court of Appeals, 188 SCRA 328 [1990]; Koa vs. Court of Appeals, 219 SCRA 541 [1993]; Scott Consultants & Resource Development Corp. vs. Court of Appeals, G.R. No. 112916, 16 March 1995.



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CONSOLIDATED PLYWOOD INDUSTRIES, INC


SECOND DIVISION

[ G.R. No. 72593, April 30, 1987 ]

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, AND RODOLFO T. VERGARA, PETITIONERS, VS. IFC LEASING AND ACCEPTANCE CORPORATION, RESPONDENT.

D E C I S I O N


GUTIERREZ, JR., J.:

This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a decision of the Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as its resolution dated October 17, 1985, denying the motion for reconsideration.
The antecedent facts culled from the petition are as follows:
The petitioner is a corporation engaged in the logging business.  It had for its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental.  For this purpose, it needed two (2) additional units of tractors.
Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (the "seller-assignor"), a corporation dealing in tractors and other heavy equipment business, offered to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1) an HD-21-B and the other an HD-16-B.
In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28, 1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-corporation requested the seller-assignor to inspect the jobsite.  After conducting said inspection, the seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of ninety (90) days performance of the machines and availability of parts.  (t.s.n., May 28, 1980, pp. 59-66).
With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-corporation through petitioners Wee and Vergara, president and vice-president, respectively, agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors.  It also paid the down payment of Two Hundred Ten Thousand Pesos (P210,000.00).
On April 5, 1978, the seller-assignor issued the sales invoice for the two (2) units of tractors (Exh. "3-A").  At the same time, the deed of sale with chattel mortgage with promissory note was executed (Exh. "2").
Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, the seller-assignor, by means of a deed of assignment (Exh. "1"), assigned its rights and interest in the chattel mortgage in favor of the respondent.
Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the petitioner-corporation's jobsite and as agreed, the seller-assignor stationed its own mechanics to supervise the operations of the machines.
Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).
On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the tractors broke down and requested for the seller-assignor's usual prompt attention under the warranty (Exh. "5").
In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5", the seller-assignor sent to the jobsite its mechanics to conduct the necessary repairs (Exhs. "6", "6-A", "6-B", "6-C", "6-C-1", "6-D", and "6-E"), but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable (t.s.n., May 28, 1980, p. 78).
Because of the breaking down of the tractors, the road building and simultaneous logging operations of petitioner-corporation were delayed and petitioner Vergara advised the seller-assignor that the payments of the installments as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation under its warranty (t.s.n., May 28, 1980, p. 79).
Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the seller-assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale.  The proceeds were to be given to the respondent and the excess, if any, to be divided between the seller-assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning cost (Exh. "7").
No response to this letter, Exhibit "7", was received by the petitioner-corporation and despite several follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this case was filed by the respondent against the petitioners, the corporation, Wee, and Vergara.
The complaint was filed by the respondent against the petitioners for the recovery of the principal sum of One Million Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued interest of One Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100 (P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine Thousand Eighty One Pesos & 71/100 (P249,081.71) and costs of suit.
The petitioners filed their amended answer praying for the dismissal of the complaint and asking the trial court to order the respondent to pay the petitioners damages in an amount at the sound discretion of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five Thousand Pesos (P5,000.00) for expenses of litigation.  The petitioners likewise prayed for such other and further relief as would be just under the premises.
In a decision dated April 20, 1981, the trial court rendered the following judgment:
"WHEREFORE, judgment is hereby rendered:
"1)  ordering defendants to pay jointly and severally in their official and personal capacities the principal sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with accrued interest of ONE HUNDRED FIFTY ONE THOUSAND SIX HUNDRED EIGHTEEN PESOS & 86/100 (P151,618.86) as of August 15, 1979 and accruing interest thereafter at the rate of 12% per annum;
"2)  ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of the principal and to pay the costs of the suit.
"Defendants' counterclaim is disallowed." (pp. 45-46, Rollo)
On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the petitioners.
Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the following errors:
I
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT APPROVE DEFENDANTS-APPELLANTS CLAIM OF WARRANTY.
II
THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF-APPELLEE IS A HOLDER IN DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER THEREOF IN DUE COURSE.
On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in toto the decision of the trial court.  The pertinent portions of the decision are as follows:
xxx                     xxx                   xxx
"From the evidence presented by the parties on the issue of warranty, We are of the considered opinion that aside from the fact that no provision of warranty appears or is provided in the Deed of Sale of the tractors and even admitting that in a contract of sale unless a contrary intention appears, there is an implied warranty, the defense of breach of warranty, if there is any, as in this case, does not lie in favor of the appellants and against the plaintiff-appellee who is the assignee of the promissory note and a holder of the same in due course.  Warranty lies in this case only between Industrial Products Marketing and Consolidated Plywood Industries, Inc.  The plaintiff-appellee herein upon application by appellant corporation granted financing for the purchase of the questioned units of Fiat-Allis Crawler Tractors.
xxx                     xxx                   xxx
"Holding that breach of warranty, if any, is not a defense available to appellants either to withdraw from the contract and/or demand a proportionate reduction of the price with damages in either case (Art. 1567, New Civil Code).  We now come to the issue as to whether the plaintiff-appellee is a holder in due course of the promissory note.
"To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in financing and receivable discounting extending credit facilities to consumers and industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable duly authorized pursuant to R.A. 5980 otherwise known as the Financing Act.
"A study of the questioned promissory note reveals that it is a negotiable instrument which was discounted or sold to the IFC Leasing and Acceptance Corporation for P800,000.00 (Exh. "A") considering the following:  it is in writing and signed by the maker; it contains an unconditional promise to pay a certain sum of money payable at a fixed or determinable future time; it is payable to order (Sec. 1, NIL); the promissory note was negotiated when it was transferred and delivered by IPM to the appellee and duly endorsed to the latter (Sec. 30, NIL); it was taken in the conditions that the note was complete and regular upon its face before the same was overdue and without notice, that it had been previously dishonored and that the note is in good faith and for value without notice of any infirmity or defect in the title of IPM (Sec. 52, NIL); that IFC Leasing and Acceptance Corporation held the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Sec. 57, NIL); the appellants engaged that they would pay the note according to its tenor, and admit the existence of the payee IPM and its capacity to endorse (Sec. 60, NIL).
"In view of the essential elements found in the questioned promissory note, We opine that the same is legally and conclusively enforceable against the defendants-appellants.
"WHEREFORE, finding the decision appealed from according to law and evidence, We find the appeal without merit and thus affirm the decision in toto.  With costs against the appellants." (pp. 50-55, Rollo)
The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the Intermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received by the petitioners on October 21, 1985.
Hence, this petition was filed on the following grounds:
I.
ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.
II.
THE RESPONDENT IS NOT A HOLDER IN DUE COURSE:  AT BEST, IT IS A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE.
III.
SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE TRANSFER OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST THE SELLER-ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING.
IV.
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE BECAUSE:
A)  THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW;
B)  IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLER-ASSIGNOR OF THE PROMISSORY NOTE.
V.
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER-ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM BEING A SALE ON INSTALLMENTS TO A PURE LOAN.
VI.
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON OR CANCELLED.
The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners' counterclaims before the court of origin.
On the other hand, the respondent corporation in its comment to the petition filed on February 20, 1986, contended that the petition was filed out of time; that the promissory note is a negotiable instrument and respondent a holder in due course; that respondent is not liable for any breach of warranty; and finally, that the promissory note is admissible in evidence.
The core issue herein is whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondent-assignee.
Preliminarily, it must be established at the outset that we consider the instant petition to have been filed on time because the petitioners' motion for reconsideration actually raised new issues.  It cannot, therefore, be considered pro-forma.
The petition is impressed with merit.
First, there is no question that the seller-assignor breached its express 90-day warranty because the findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained by the records.  The petitioner was clearly a victim of a warranty not honored by the maker.
The Civil Code provides that:
"ART. 1561.  The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.
"ART. 1562.  In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:
"(1)  Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;
xxx                     xxx                   xxx
"ART. 1564.  An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.
xxx                     xxx                   xxx
"ART. 1566.  The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof.
"This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold." (Emphasis supplied).
It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner.  This liability as a general rule, extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder in due course of the promissory note in question, assuming the note is negotiable, in which case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses may not prevail against it.
Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-corporation notified the seller-assignor's sister company, AG & P, about the breakdown based on the seller-assignor's express 90-day warranty, with which the latter complied by sending its mechanics.  However, due to the seller-assignor's delay and its failure to comply with its warranty, the tractors became totally unserviceable and useless for the purpose for which they were purchased.
Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-assignor.
Articles 1191 and 1567 of the Civil Code provide that:
"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.
xxx                     xxx                   xxx
"ART. 1567.  In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case."
(Emphasis supplied)
Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor, necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor sues it because of the rescission.
In the case of the University of the Philippines v. De los Angeles (35 SCRA 102) we held:
"In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk.  For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.  But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.  Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203)."
(Emphasis supplied)
Going back to the core issue, we rule that the promissory note in question is not a negotiable instrument.
The pertinent portion of the note is as follows:
"FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND EVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71), Philippine Currency,  the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid.  x x x."
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer", it cannot be denied that the promissory note in question is not a negotiable instrument.
"The instrument in order to be considered negotiable must contain the so-called 'words of negotiability'--i.e., must be payable to 'order' or 'bearer'.  These words serve as an expression of consent that the instrument may be transferred.  This consent is indispensable since a maker assumes greater risks under a negotiable instrument than under a non-negotiable one.  x x x.
xxx                     xxx                   xxx
"When instrument is payable to order.--
"SEC. 8.  WHEN PAYABLE TO ORDER.-- The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. . . .
xxx                     xxx                   xxx
"These are the only two ways by which an instrument may be made payable to order.  There must always be a specified person named in the instrument.  It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same.  Without the words 'or order' or 'to the order of,' the instrument is payable only to the person designated therein and is therefore non-negotiable.  Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely 'step into the shoes' of the person designated in the instrument and will thus be open to all defenses available against the latter." (Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition, page 38).
(Emphasis supplied)
Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question.  Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor, Industrial Products Marketing.
This being so, there was no need for the petitioner to implead the seller-assignor when it was sued by the respondent-assignee because the petitioner's, defenses apply to both or either of them.
Actually, the records show that even the respondent itself admitted to being a mere assignee of the promissory note in question, to wit:
"ATTY. PALACA:
"Did we get it right from the counsel that what is being assigned is the Deed of Sale with Chattel Mortgage with the promissory note which is as testified to by the witness was indorsed?  (Counsel for Plaintiff nodding his head.) Then we have no further questions on cross.
"COURT:
"You confirm his manifestation?  You are nodding your head?  Do you confirm that?
"ATTY. ILAGAN:
"The Deed of Sale cannot be assigned.  A deed of sale is a transaction between two persons; what is assigned are rights, the rights of the mortgagee were assigned to the IFC Leasing & Acceptance Corporation.
"COURT:
"He puts it in a simple way, - as one - deed of sale and chattel mortgage were assigned; . . . you want to make a distinction, one is an assignment of mortgage right and the other one is indorsement of the promissory note.  What counsel for defendants wants is that you stipulate that it is contained in one single transaction?
"ATTY. ILAGAN:
"We stipulate it is one single transaction." (pp. 27-29, TSN., February 13, 1980).
Secondly, even conceding for purposes of discussion that the promissory note in question is a negotiable instrument, the respondent cannot be a holder in due course for a more significant reason.
The evidence presented in the instant case shows that prior to the sale on installment of the tractors, there was an arrangement between the seller-assignor, Industrial Products Marketing, and the respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-assignor, in turn, would assign its rights to the respondent which acquired the right to collect the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the sale on installment of the tractors were all executed on the same day by and among the buyer, which is herein petitioner Consolidated Plywood Industries, Inc.; the seller-assignor which is the Industrial Products Marketing; and the assignee-financing company, which is the respondent.  Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional, and that it was subject to the condition that the tractors sold were not defective.  The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners.  Even assuming for the sake of argument that the promissory note is negotiable, the respondent, which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in due course.  As such, the respondent is subject to all defenses which the petitioners may raise against the seller-assignor.  Any other interpretation would be most inequitous to the unfortunate buyer who is not only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire purchase price and all its incidents without being able to raise valid defenses available as against the assignor.
Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify its act of taking the promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide that:
"SEC. 52.  WHAT CONSTITUTES A HOLDER IN DUE COURSE.  - A holder in due course is a holder who has taken the instrument under the following conditions:
xxx                     xxx                   xxx
xxx                     xxx                   xxx
"(c)  That he took it in good faith and for value;
"(d)  That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
xxx                     xxx                   xxx
"SEC. 56.  WHAT CONSTITUTES NOTICE OF DEFECT.  - To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith."
(Emphasis supplied)
We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the buyer, to wit:
"In installment sales, the buyer usually issues a note payable to the seller to cover the purchase price.  Many times, in pursuance of a previous arrangement with the seller, a finance company pays the full price and the note is indorsed to it, subrogating it to the right to collect the price from the buyer, with interest.  With the increasing frequency of installment buying in this country, it is most probable that the tendency of the courts in the United States to protect the buyer against the finance company will find judicial approval here.  Where the goods sold turn out to be defective, the finance company will be subject to the defense of failure of consideration and cannot recover the purchase price from the buyer.  As against the argument that such a rule would seriously affect 'a certain mode of transacting business adopted throughout the State,' a court in one case stated:
"'It may be that our holding here will require some changes in business methods and will impose a greater burden on the finance companies.  We think the buyer - Mr. & Mrs. General Public - should have some protection somewhere along the line.  We believe the finance company is better able to bear the risk of the dealer's insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers. . . .
"'If this opinion imposes great burdens on finance companies it is a potent argument in favor of a rule which will afford protection to the general buying public against unscrupulous dealers in personal property . . . .' (Mutual Finance Co. v. Martin, 63 So. 2d 649, 44 ALR 2d 1 [1953]) "(Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition, p. 128).'"
In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766) involving similar facts, it was held that in a very real sense, the finance company was a moving force in the transaction from its very inception and acted as a party to it.  When a finance company actively participates in a transaction of this type from its inception, it cannot be regarded as a holder in due course of the note given in the transaction.
In like manner, therefore, even assuming that the subject promissory note is negotiable, the respondent, a financing company which actively participated in the sale on installment of the subject two Allis Crawler tractors, cannot be regarded as a holder in due course of said note.  It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses that the petitioners have against the seller-assignor, Industrial Products Marketing.  For Section 58 of the Negotiable Instruments Law provides that “in the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable.  x x x."
Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial and respondent appellate court erred in holding the promissory note in question to be negotiable.  Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust enrichment on the part of both the seller-assignor and respondent assignee at the expense of the petitioner-corporation which rightfully rescinded an inequitable contract.  We note, however, that since the seller-assignor has not been impleaded herein, there is no obstacle for the respondent to file a civil suit and litigate its claims against the seller-assignor in the rather unlikely possibility that it so desires.
WHEREFORE, in view of the foregoing, the decision of the respondent appellate court dated July 17, 1985, as well as its resolution dated October 17, 1986, are hereby ANNULLED and SET ASIDE.  The complaint against the petitioner before the trial court is DISMISSED.
SO ORDERED.
Fernan, (Chairman), Paras, Padilla, Bidin, and Cortes, JJ., concur.



Source: Supreme Court E-Library | Date created: January 18, 2010
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OPHELIA L. TUATIS


THIRD DIVISION

[ G.R. No. 175399, October 27, 2009 ]

OPHELIA L. TUATIS, PETITIONER, VS. SPOUSES ELISEO ESCOL AND VISMINDA ESCOL; HONORABLE COURT OF APPEALS, 22ND DIVISION, CAGAYAN DE ORO CITY; REGIONAL TRIAL COURT, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE; AND THE SHERIFF OF RTC, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE, RESPONDENTS.

D E C I S I O N


CHICO-NAZARIO, J.:

This Petition for Certiorari and Mandamus[1] under Rule 65 of the Rules of Court seeks the annulment of the following Resolutions of the Court of Appeals in CA-G.R. SP No. 00737-MIN: (a) Resolution[2] dated 10 February 2006 dismissing the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction of herein petitioner Ophelia L. Tuatis (Tuatis); (b) Resolution[3] dated 25 July 2006 denying Tuatis' Motion for Reconsideration of the Resolution dated 10 February 2006; and (c) Resolution[4] dated 9 October 2006 denying Tuatis' Motion for Leave to File a Second Motion for Reconsideration. The instant Petition further prays for the annulment of the Order[5] dated 26 September 2005 of the Regional Trial Court (RTC) of Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-618, ordering the Sheriff to immediately serve the Writ of Execution issued on 7 March 2002.

The dispute arose from the following factual and procedural antecedents:

On 18 June 1996, Tuatis filed a Complaint for Specific Performance with Damages[6] against herein respondent Visminda Escol (Visminda) before the RTC, docketed as Civil Case No. S-618.

Tuatis alleged in her Complaint that sometime in November 1989, Visminda, as seller, and Tuatis, as buyer, entered into a Deed of Sale of a Part of a Registered Land by Installment[7] (Deed of Sale by Installment). The subject matter of said Deed was a piece of real property situated in Poblacion, Sindangan, Zamboanga del Norte and more particularly described as "[a] part of a registered land being known as Lot No. 251, Pls-66 covered under OCT [Original Certificate of Title] No. P-5421; x x x with an area of THREE HUNDRED (300) square meters, more or less" (subject property).

The significant portions of the Deed of Sale by Installment stated:

That for and in consideration of the sum of TEN THOUSAND PESOS (P10,000.00), Philippine currency, the SELLER [Visminda[8]] hereby SELLS to the BUYER [Tuatis], the above-described parcel of land under the following terms and conditions:

  1. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of THREE THOUSAND PESOS (P3,000.00), as downpayment;
  2. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of FOUR THOUSAND PESOS (P4,000.00), on or before December 31, 1989;
  3. That the remaining balance of THREE THOUSAND PESOS (P3,000.00) shall be paid by the BUYER [Tuatis] to the SELLER [Visminda] on or before January 31, 1990;
  4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].[9]

Tuatis claimed that of the entire purchase price of P10,000.00, she had paid Visminda P3,000.00 as downpayment. The exact date of said payment was not, however, specified. Subsequently, Tuatis paid P3,000.00 as installment on 19 December 1989, and another P1,000.00 installment on 17 February 1990. Tuatis averred that she paid Visminda the remaining P3,000.00 on 27 February 1990 in the presence of Eric Selda (Eric), a clerk in the law office of one Atty. Alanixon Selda. In support of this averment, Tuatis attached to her Complaint a certification[10] executed by Eric on 27 May 1996.

In the meantime, Tuatis already took possession of the subject property and constructed a residential building thereon.

In 1996, Tuatis requested Visminda to sign a prepared absolute deed of sale covering the subject property, but the latter refused, contending that the purchase price had not yet been fully paid. The parties tried to amicably settle the case before the Lupon Barangay, to no avail.[11]

Tuatis contended that Visminda failed and refused to sign the absolute deed of sale without any valid reason. Thus, Tuatis prayed that the RTC order Visminda to do all acts for the consummation of the contract sale, sign the absolute deed of sale and pay damages, as well as attorney's fees.

In her Answer,[12] Visminda countered that, except for the P3,000.00 downpayment and P1,000.00 installment paid by Tuatis on 19 December 1989 and 17 February 1990,[13] respectively, Tuatis made no other payment to Visminda. Despite repeated verbal demands, Tuatis failed to comply with the conditions that she and Visminda agreed upon in the Deed of Sale by Installment for the payment of the balance of the purchase price for the subject property. Visminda asked that the RTC dismiss Tuatis' Complaint, or in the alternative, order Tuatis to return the subject property to Visminda after Visminda's reimbursement of the P4,000.00 she had received from Tuatis.

After trial, the RTC rendered a Decision[14] on 29 April 1999 in Civil Case No. S-618 in Visminda's favor. The RTC concluded:

Under the facts and circumstances, the evidence for [Tuatis] has not established by satisfactory proof as to (sic) her compliance with the terms and conditions setforth (sic) in [the Deed of Sale by Installment] x x x.

x x x x

In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force x x x.

x x x x

As the contract x x x is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties, and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, [the] same should be given its full force and effect.

EVIDENCE (sic) at hand points of no full payment of the price, hence No. 4 of the stipulation applies[,] which provides:

"That failure (sic) of the Buyer [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the Buyer [Tuatis] shall return the land subject of this Contract to the Seller [Visminda] and the Seller [Visminda] [shall] likewise return all the (sic) amount paid by the Buyer [Tuatis]."

This stipulation is the law between the [Buyer] and [Seller], and should be complied with in good faith x x x.

[Tuatis] constructed the building x x x in bad faith for, (sic) she had knowledge of the fact that the Seller [Visminda] is still the absolute owner of the subject land. There was bad faith also on the part of [Visminda] in accordance with the express provisions of Article 454 [of the New Civil Code][15] since [she] allowed [Tuatis] to construct the building x x x without any opposition on [her] part and so occupy it. The rights of the parties must, therefore, be determined as if they both had acted in bad faith. Their rights in such cases are governed by Article 448 of the New Civil Code of the Philippines.[16]

The RTC decreed the dismissal of Tuatis' Complaint for lack of merit, the return by Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of the P4,000.00 she received from Tuatis.

Tuatis filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 65037. In a Resolution[17] dated 29 August 2000, however, the appellate court dismissed the appeal for failure of Tuatis to serve and file her appellant's brief within the second extended period for the same. An Entry of Judgment[18] was made in CA-G.R. CV No. 65037 on 29 September 2000, as a result of which, the appealed RTC Decision dated 29 April 1999 in Civil Case No. S-618 became final and executory.

Visminda filed a Motion for Issuance of a Writ of Execution[19] before the RTC on 14 January 2002. The RTC granted Visminda's Motion in a Resolution dated 21 February 2002, and issued the Writ of Execution[20] on 7 March 2002.

Tuatis thereafter filed before the RTC on 22 April 2002 a Motion to Exercise Right under Article 448 of the Civil Code of the Philippines.[21] Tuatis moved that the RTC issue an order allowing her to buy the subject property from Visminda. While Tuatis indeed had the obligation to pay the price of the subject property, she opined that such should not be imposed if the value of the said property was considerably more than the value of the building constructed thereon by Tuatis. Tuatis alleged that the building she constructed was valued at P502,073.00,[22] but the market value of the entire piece of land measuring 4.0144 hectares, of which the subject property measuring 300 square meters formed a part, was only about P27,000.00.[23] Tuatis maintained that she then had the right to choose between being indemnified for the value of her residential building or buying from Visminda the parcel of land subject of the case. Tuatis stated that she was opting to exercise the second option.

On 20 December 2004, Visminda deposited the amount of P4,000.00 to the office of the Clerk of Court of the RTC, pursuant to the Decision of the trial court dated 29 April 1999.[24]

In the intervening time, the Writ of Execution issued on 7 March 2002 was yet to be served or implemented by the Sheriff. This prompted Visminda to write a letter to the Office of the Court Administrator (OCA) to complain about the said delay. The OCA endorsed the letter to the RTC.

On 26 September 2005, the RTC issued an Order[25] directing the Sheriff to immediately serve or enforce the Writ of Execution previously issued in Civil Case No. S-618, and to make a report and/or return on the action taken thereon within a period of fifteen (15) days from receipt of the order.

On 10 October 2005, Tuatis filed before the RTC a Motion for Reconsideration[26] of the Order dated 26 September 2005, praying that the same be set aside in view of the pendency of her previous Motion to Exercise Right under Article 448 of the Civil Code of the Philippines. However, before the RTC could rule upon Tuatis' Motion for Reconsideration, the Sheriff enforced the Writ of Execution on 27 October 2005 and submitted his Return to the RTC on 2 November 2005, reporting that the subject writ was fully satisfied.

Tuatis immediately filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction,[27] which was docketed as CA-G.R. No. 00737-MIN. Tuatis sought in said Petition the annulment of the RTC Order dated 26 September 2005, as well as the issuance of an order commanding the RTC and the Sheriff to desist from undertaking any further proceedings in Civil Case No. S-618, and an order directing the RTC to determine the rights of the parties under Article 448 of the Civil Code.

In a Resolution[28] dated 10 February 2006, the Court of Appeals dismissed outright Tuatis' Petition for failure to completely pay the required docket fees, to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and to indicate the place of issue of her counsel's IBP and PTR Official Receipts.

Tuatis filed a Motion for Reconsideration[29] of the Resolution dated 10 February 2006, but said Motion was denied by the appellate court in another Resolution dated 25 July 2006 on the ground that Tuatis had not taken any action to rectify the infirmities of her Petition.

Tuatis subsequently filed a Motion for Leave to File a Second Motion for Reconsideration,[30] but it was similarly denied by the Court of Appeals in a Resolution dated 9 October 2006, as Section 2, Rule 52[31] of the Rules of Court proscribes the filing of a second motion for reconsideration.

Hence, Tuatis filed the instant Petition, principally arguing that Article 448 of the Civil Code must be applied to the situation between her and Visminda.

According to Tuatis, grave abuse of discretion, amounting to lack or excess of their jurisdiction, was committed by the RTC in issuing the Order dated 26 September 2005, and by the Sheriff in enforcing the Writ of Execution on 27 October 2005. Tuatis insists that the Motion for Reconsideration of the Order dated 26 September 2005 that she filed on 10 October 2005 legally prevented the execution of the RTC Decision dated 29 April 1999, since the rights of the parties to the case had yet to be determined pursuant to Article 448 of the Civil Code.[32] Tuatis reiterates that the building she constructed is valued at P502,073.00, per assessment of the Municipal Assessor of Sindangan, Zamboanga del Norte; while the entire piece of land, which includes the subject property, has a market value of only about P27,000.00, based on Tax Declaration No. 12464 issued in the year 2000.[33] Such being the case, Tuatis posits that she is entitled to buy the land at a price to be determined by the Court or, alternatively, she is willing to sell her house to Visminda in the amount of P502,073.00.

In addition, Tuatis attributes grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Court of Appeals for dismissing outright her Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, and subsequently denying her Motion for Reconsideration and Motion for Leave to File a Second Motion for Reconsideration.

The Court grants the present Petition but for reasons other than those proffered by Tuatis.

Procedural deficiencies of Tuatis' Petition before the Court of Appeals

It is true that Tuatis committed several procedural faux pas that would have, ordinarily, warranted the dismissal of her Petition in CA-G.R. No. 00737-MIN before the Court of Appeals.

In its Resolution dated 10 February 2006, the Court of Appeals dismissed outright the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction filed by Tuatis for failure to comply with the following requirements for such a petition: (a) to completely pay the required docket fees, (b) to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and (c) to indicate the place of issue of her counsel's IBP and PTR Official Receipts.

Section 3, Rule 46 of the Rules of Court lays down the requirements for original cases filed before the Court of Appeals and the effect of non-compliance therewith, relevant portions of which are reproduced below:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. - x x x.

x x x x

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the respondent with the original copy intended for the court indicated as such by the petitioner, and shall be accompanied by a clearly legible duplicate original or certified true copy of the judgment, order, resolution, or ruling subject thereof, such material portions of the record as are referred to therein, and other documents relevant or pertinent thereto. The certification shall be accomplished by the proper clerk of court or by his duly authorized representative, or by the proper officer of the court, tribunal, agency or office involved or by his duly authorized representative. The other requisite number of copies of the petition shall be accompanied by clearly legible plain copies of all documents attached to the original.

x x x x

The petitioner shall pay the corresponding docket and other lawful fees to the clerk of court and deposit the amount of P500.00 for costs at the time of the filing of the petition.

The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground for the dismissal of the petition. (Emphases ours.)

The sound reason behind the policy of the Court in requiring the attachment to the petition for certiorari, prohibition, mandamus, or quo warranto of a clearly legible duplicate original or certified true copy of the assailed judgment or order, is to ensure that the said copy submitted for review is a faithful reproduction of the original, so that the reviewing court would have a definitive basis in its determination of whether the court, body, or tribunal which rendered the assailed judgment or order committed grave abuse of discretion.[34] Also, the Court has consistently held that payment of docket fees within the prescribed period is jurisdictional and is necessary for the perfection of an appeal.[35]

Indeed, the last paragraph of Section 3, Rule 46 states that non-compliance with any of the requirements stated therein shall constitute sufficient ground for the dismissal of the petition. However, the Court, in several cases,[36] also declared that said provision must not be taken to mean that the petition shall be automatically dismissed in every instance of non-compliance. The power conferred upon the Court of Appeals to dismiss an appeal, or even an original action, as in this case, is discretionary and not merely ministerial. With that affirmation comes the caution that such discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case.[37]

It must be borne in mind that the rules of procedure are intended to promote, rather than frustrate, the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it, nevertheless, must not be met at the expense of substantial justice. Technical and procedural rules are intended to help secure, not suppress, the cause of justice; and a deviation from the rigid enforcement of the rules may be allowed to attain that prime objective for, after all, the dispensation of justice is the core reason for the existence of courts.[38]

Hence, technicalities must be avoided. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. A litigation is not a game of technicalities. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. Litigations must be decided on their merits and not on technicality. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override, substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage, of justice.[39]

In this case, the Court finds that the Court of Appeals committed grave abuse of discretion in focusing on the procedural deficiencies of Tuatis' Petition and completely turning a blind eye to the merits of the same. The peculiar circumstances of the present case and the interest of substantial justice justify the setting aside, pro hac vice, of the procedural defects of Tuatis' Petition in CA-G.R. No. 00737-MIN.

Perusal of the RTC Decision dated
29 April 1999

The RTC, in the body of its Decision dated 29 April 1999 in Civil Case No. S-618, found that Tuatis breached the conditions stipulated in the Deed of Sale by Installment between her and Visminda; but since both Tuatis and Visminda were guilty of bad faith, "[t]heir rights in such cases are governed by Article 448 of the New Civil Code of the Philippines."[40]

Article 448 of the Civil Code, referred to by the RTC, provides:

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 case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. (Emphases supplied.)

According to the aforequoted provision, the landowner can choose between appropriating the building by paying the proper indemnity for the same, as provided for in Articles 546[41] and 548[42] of the Civil Code; or obliging the builder to pay the price of the land, unless its value is considerably more than that of the structures, in which case the builder in good faith shall pay reasonable rent.[43]

The Court notes, however, that the RTC, in the dispositive portion of its 29 April 1999 Decision, which exactly reads -

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

(1) DISMISSING the Complaint for lack of merit;

(2) ORDERING [Tuatis] to return the physical possession of the land in question to [Visminda]; and,

(3) ORDERING [Visminda] to return the P4,000.00 she received as evidenced by Exhibit "B" and Exhibit "C" [44] to [Tuatis].[45]

utterly failed to make an adjudication on the rights of Tuatis and Visminda under Article 448 of the Civil Code. It would seem that the decretal part of said RTC judgment was limited to implementing the following paragraph in the Deed of Sale by Installment:

  1. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].[46]

without considering the effects of Article 448 of the Civil Code.

It was this apparent incompleteness of the fallo of the RTC Decision dated 29 April 1999 that resulted in the present controversy, and that this Court is compelled to address for a just and complete settlement of the rights of the parties herein.

Finality of the RTC Decision dated
19 April 1999

The Court has not lost sight of the fact that the RTC Decision dated 29 April 1999 in Civil Case No. S-618 already became final and executory in view of the dismissal by the appellate court of Tuatis' appeal in CA-G.R. CV No. 650307 and the entry of judgment made on 29 September 2000.

Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest Court of the land. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time. The only recognized exceptions are the corrections of clerical errors or the making of the so-called nunc pro tunc entries, in which case there is no prejudice to any party, and, of course, where the judgment is void.[47]

Equally well-settled is the rule that the operative part in every decision is the dispositive portion or the fallo, and where there is conflict between the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order, while the opinion in the body is merely a statement, ordering nothing.[48]

Jurisprudence also provides, however, that where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an ambiguity by an amendment even after the judgment has become final. In doing so, the Court may resort to the pleadings filed by the parties and the findings of fact and the conclusions of law expressed in the text or body of the decision.[49] Therefore, even after the RTC Decision dated 29 April 1999 had already become final and executory, this Court cannot be precluded from making the necessary amendment thereof, so that the fallo will conform to the body of the said decision.

If the Court does not act upon the instant Petition, Tuatis loses ownership over the building she constructed, and in which she has been residing, allegedly worth P502,073.00, without any recompense therefor whatsoever; while Visminda, by returning Tuatis' previous payments totaling P4,000.00, not just recovers the subject property, but gains the entire building without paying indemnity for the same. Hence, the decision of the Court to give due course to the Petition at bar, despite the finality of the RTC Decision dated 29 April 1999, should not be viewed as a denigration of the doctrine of immutability of final judgments, but a recognition of the equally sacrosanct doctrine that a person should not be allowed to profit or enrich himself inequitably at another's expense.

Furthermore, the Court emphasizes that it is not even changing or reversing any of the findings of fact and law of the RTC in its Decision dated 29 April 1999. This Court is still bound by said RTC judgment insofar as it found that Tuatis failed to fully pay for the price of the subject property; but since both Tuatis and Visminda were in bad faith, Article 448 of the Civil Code would govern their rights. The Court herein is simply clarifying or completing the obviously deficient decretal portion of the decision, so that said portion could effectively order the implementation of the actual ruling of the RTC, as clearly laid down in the rationale of the same decision.

Applying Article 448 and other
related provisions of the Civil Code

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options:

Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary[50] and useful expenses[51] the latter incurred for said building, as provided in Article 546 of the Civil Code.

It is worthy to mention that in Pecson v. Court of Appeals,[52] the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus:

The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila [40 Phil. 717 (1920)] that the said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued income-yielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner. (Emphasis ours.)

Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession of the building and the subject property.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land.[53] The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda's rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis' obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.

Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis-à-vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda.

The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject property. There is no basis for Tuatis' demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on Visminda's choice, Tuatis' rights as a builder under Article 448 are limited to the following: (a) under the first option, a right to retain the building and subject property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of the building, in which case, she can only be obliged to pay reasonable rent for the same.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.[54] The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.[55]

The raison d'etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.[56]

Visminda's Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to recover possession of the subject property under the first option, since the options under Article 448 of the Civil Code and their respective consequences were also not clearly presented to her by the 19 April 1999 Decision of the RTC. She must then be given the opportunity to make a choice between the options available to her after being duly informed herein of her rights and obligations under both.

As a final note, the directives given by the Court to the trial court in Depra v. Dumlao[57] may prove useful as guidelines to the RTC herein in ensuring that the additional proceedings for the final settlement of the rights of the parties under Article 448 of the Civil Code shall be conducted as thoroughly and promptly as possible.

WHEREFORE, premises considered, the Court:

(1) GRANTS the instant Petition;

(2) ANNULS AND SETS ASIDE (a) the Resolution dated 21 February 2002 of the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, ordering the issuance of a writ for the execution of the Decision dated 19 April 1999 of the said trial court in Civil Case No. S-618; (b) the Writ of Execution issued on 7 March 2002; and (c) the actions undertaken by the Sheriff to enforce the said Writ of Execution;

(3) DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to conduct further proceedings to determine with deliberate dispatch: (a) the facts essential to the proper application of Article 448 of the Civil Code, and (b) respondent Visminda Escol's choice of option under the same provision; and

(4) Further DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to undertake the implementation of respondent Visminda Escol's choice of option under Article 448 of the Civil Code, as soon as possible.

No costs.

SO ORDERED.

Quisumbing,* Carpio, (Chairperson), Peralta, and Abad,** JJ., concur.


* Per Special Order No. 755, dated 12 October 2009, signed by Chief Justice Reynato S. Puno designating Associate Justice Leonardo A. Quisumbing to replace Associate Justice Antonio Eduardo B. Nachura, who is on official leave.

** Per Special Order No. 753, dated 12 October 2009, signed by Chief Justice Reynato S. Puno designating Associate Justice Roberto A. Abad to replace Associate Justice Presbitero J. Velasco, Jr., who is on official leave.

[1] Rollo, pp. 4-22.

[2] Penned by Associate Justice Ricardo R. Rosario with Associate Justices Romulo V. Borja and Myrna Dimaranan-Vidal, concurring; rollo, pp. 38-39.

[3] Rollo, pp. 45-46.

[4] Id. at 58.

[5] Id. at 55.

[6] CA rollo, pp. 17-20.

[7] Id. at 21.

[8] In the Deed of Sale of a Part of a Registered Land by Installment, Visminda was referred to as "Visminda Crampatanta, x x x married to Eliseo Escol x x x."

[9] CA rollo, p. 21.

[10] Id. at 22A-23.

[11] Id. at 24.

[12] Id. at 25-29.

[13] The payments were each evidenced by a certification signed by Visminda that she received the aforesaid amounts from Tuatis, which were marked as Exhibits B and C, respectively, in the proceedings before the RTC; CA rollo, p. 22.

[14] Penned by Judge Wilfredo G. Ochotorena; CA rollo, pp. 30-54.

[15] Although the Decision mentioned Article 454 of the New Civil Code, the same was apparently erroneous since the applicable provision was Article 453 of the said code, which provides:

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.

It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part.

[16] CA rollo, pp. 49-54.

[17] Penned by Associate Justice B.A. Adefuin-De la Cruz with Associate Justices Cancio C. Garcia and Renato C. Dacudao, concurring. Records, p. 123.

[18] Records, p. 124.

[19] Id. at 125-126.

[20] CA rollo, pp. 76-77.

[21] Id. at 55-59.

[22] Id. at 60-61.

[23] This amount was derived from Tax Declaration No. 12464, covering the subject property. (CA rollo, p. 62.)

[24] Records, p. 176.

[25] CA rollo, p. 66.

[26] Id. at 67-75.

[27] Impleaded therein were the spouses Eliseo and Visminda Escol, the RTC of Sindangan, Zamboanga del Norte, Branch 11 and the Sheriff of the said trial court. (CA rollo, pp. 1-16.)

[28] CA rollo, pp. 81-82.

[29] Id. at 85-89.

[30] Id. at 94-106.

[31] Section 2, Rule 52 of the Rules of Court provides:

SEC. 2. Second motion for reconsideration. - No second motion for reconsideration of a judgment or final resolution by the same party shall be entertained.

[32] 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 case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

[33] CA rollo, p. 62.

[34] Durban Apartments Corporation v. Catacutan, G.R. No. 167136, 14 December 2005, 477 SCRA 801, 808; Quintano v. National Labor Relations Commission, G.R. No. 144517, 13 December 2004, 446 SCRA 193, 202-203.

[35] Carlos v. Court of Appeals, G.R. No. 134473, 30 March 2006, 485 SCRA 578, 583.

[36] In Garcia v. Philippine Airlines, Inc. (G.R. No. 160798, 8 June 2005, 459 SCRA 768, 780), the Court held that "if, upon its initial review of the petition, the Court of Appeals is of the view that additional pleadings, documents or order should have been submitted and appended to the petition, it has the following options: (a) dismiss the petition under the last paragraph of [Section 3,] Rule 46 of the Rules of Court; (b) order the petitioner to submit the required additional pleadings, documents, or order within a specific period of time; or (c) order the petitioner to file an amended petition appending thereto the required pleadings, documents or order within a fixed period." (See also Lao v. Court of Appeals [382 Phil. 583, 604 (2000)]; Paras v. Judge Baldado [406 Phil. 589, 596 (2001)]; Hilario v. People [G.R. No. 161070,14 April 2008, 551 SCRA 191, 201].)

Similarly, in La Salette College v. Pilotin (463 Phil. 785, 794 [2003]), the Court recognized that, notwithstanding the mandatory nature of the requirement of payment of appellate docket fees, its strict application is qualified by the following: first, failure to pay those fees within the reglementary period allows only discretionary, not automatic, dismissal; second, such power should be used by the court in conjunction with its exercise of sound discretion in accordance with the tenets of justice and fair play, as well as with a great deal of circumspection in consideration of all attendant circumstances. (See also Public Estates Authority v. Yujuico [404 Phil. 91, 101 (2001); Jose v. Court of Appeals [447 Phil. 159, 165 (2003); Villamor v. Court of Appeals [478 Phil. 728, 735-736 (2004), citing Buenaflor v. Court of Appeals [400 Phil. 395, 401-402 (2000)].)

[37] Philippine Merchant Marine School, Inc. v. Court of Appeals, 432 Phil. 733, 741-742 (2002).

[38] General Milling Corporation v. National Labor Relations Commission, 442 Phil. 425, 428 (2002).

[39] Aguam v. Court of Appeals, 388 Phil. 587, 595 (2000).

[40] In accordance with Article 453 of the Civil Code which provides:

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.

It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part. (Emphasis ours.)

[41] ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.

[42] ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended.

[43] Macasaet v. Macasaet, 482 Phil. 853, 874 (2004).

[44] Exhibits B and C are the certifications signed by Visminda, stating that she indeed received the amounts of P3,000.00 and P1,000.00 from Tuatis on 19 December 1989 and 17 February 1990, respectively.

[45] CA rollo, p. 54.

[46] Id. at 21.

[47] Mayon Estate Corporation v. Altura, G.R. No. 134462, 18 October 2004, 440 SCRA 377, 386.

[48] Mendoza, Jr. v. San Miguel Foods, Inc., G.R. No. 158684, May 16, 2005, 458 SCRA 664, 676-677, cited in Florentino v. Rivera, G.R. No. 167968, 23 January 2006, 479 SCRA 522, 528-529.

[49] Partosa-Jo v. Court of Appeals, G.R. No. 82606, 18 December 1992, 216 SCRA 692, 697.

[50] Necessary expenses have been variously described by the Spanish commentators as those made for the preservation of the thing (4 Manresa's Comentarios al Codigo Civil, p. 258); as those without which the thing would deteriorate or be lost (Scaevola's Comentarios al Codigo Civil, p. 408); as those that augment the income of the things upon which they are expanded (4 Manresa's Comentarios al Codigo Civil, p. 261; 8 Scaevola's Comentarios al Codigo Civil, p. 416). Among the necessary expenditures are those incurred for cultivation, production, upkeep, etc. (4 Manresa's Comentarios al Codigo Civil, p. 257). (Mendoza v. De Guzman, 52 Phil. 164, 171 [1928].)

[51] Useful expenses are incurred to give greater utility or productivity to the thing. (Tolentino, Civil Code, Vol. II (1992 ed.), p. 294.

[52] 314 Phil. 313, 324-325 (1995).

[53] See Depra v. Dumlao, G.R. No. L-57348, 16 May 1985, 136 SCRA 475.

[54] Philippine National Bank v. De Jesus, 458 Phil. 454, 459 (2003).

[55] Technogas Philippines Manufacturing Corporation v. Court of Appeals, 335 Phil. 471, 482 (1997).

[56] Depra v. Dumlao, supra note 53 at 483.

[57] The fallo in Depra v. Dumlao (ibid.) reads:

WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and 546 of the Civil Code, as follows:

  1. The trial Court shall determine

    a)
    the present fair price of DEPRA's 34 square-meter area of land;
    b)
    the amount of the expenses spent by DUMLAO for the building of the kitchen;
    c)
    the increase in value ("plus value") which the said area of 34 square meters may have acquired by reason thereof, and
    d)
    whether the value of said area of land is considerably more than that of the kitchen built thereon.
  2. After said amounts shall have been determined by competent evidence, the Regional Trial Court shall render judgment, as follows:

    a)
    The trial Court shall grant DEPRA a period of fifteen (15) days within which to exercise his option under the law (Article 448, Civil Code), whether to appropriate the kitchen as his own by paying to DUMLAO either the amount of the expenses spent by DUMLAO for the building of the kitchen, or the increase in value ("plus value") which the said area of 34 square meters may have acquired by reason thereof, or to oblige DUMLAO to pay the price of said area. The amounts to be respectively paid by DUMLAO and DEPRA, in accordance with the option thus exercised by written notice of the other party and to the Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by tendering the amount to the Court in favor of the party entitled to receive it;
    b)
    The trial Court shall further order that if DEPRA exercises the option to oblige DUMLAO to pay the price of the land but the latter rejects such purchase because, as found by the trial Court, the value of the land is considerably more than that of the kitchen, DUMLAO shall give written notice of such rejection to DEPRA and to the Court within fifteen (15) days from notice of DEPRA's option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the Court formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the trial Court, within fifteen (15) days from and after the termination of the said period fixed for negotiation, shall then fix the terms of the lease, provided that the monthly rental to be fixed by the Court shall not be less than Ten Pesos (P10.00) per month, payable within the first five (5) days of each calendar month. The period for the forced lease shall not be more than two (2) years, counted from the finality of the judgment, considering the long period of time since 1952 that DUMLAO has occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease. DUMLAO shall not make any further constructions or improvements on the kitchen. Upon expiration of the two-year period, or upon default by DUMLAO in the payment of rentals for two (2) consecutive months, DEPRA shall be entitled to terminate the forced lease, to recover his land, and to have the kitchen removed by DUMLAO or at the latter's expense. The rentals herein provided shall be tendered by DUMLAO to the Court for payment to DEPRA, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the Court.
    c)
    In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos (P10.00) per month as reasonable compensation for the occupancy of DEPRA's land for the period counted from 1952, the year DUMLAO occupied the subject area, up to the commencement date of the forced lease referred to in the preceding paragraph;
    d)
    The periods to be fixed by the trial Court in its Decision shall be inextendible, and upon failure of the party obliged to tender to the trial Court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of execution for the enforcement of payment of the amount due and for compliance with such other acts as may be required by the prestation due the obligee.
No costs.



Source: Supreme Court E-Library | Date created: November 11, 2009
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