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[G.R. No. 124242. January 21, 2005]

SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.

D E C I S I O N

TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the spouses about having received information that the spouses sold the same property to another without his knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the balance of the purchase price became due, he requested for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages[1] against his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final deed of sale in his favor, respondents allegedly refused.

In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasantas request, the latter rescinded the contract to sell and declared that the original loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Managers Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 1990[3] wherein he prayed for the issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons.

The Spouses Lu filed their Opposition[4] to the amended complaint contending that it raised new matters which seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated 17 January 1990[5] admitted the amended complaint.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention[6] before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.[7] It alleged that it was a buyer in good faith and for value and therefore it had a better right over the property in litigation.

In his Opposition to SLDCs motion for intervention,[8] respondent Babasanta demurred and argued that the latter had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.[9] Respondent Babasantas motion for the issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January 1991[10] conditioned upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis pendens. SLDC further

alleged that it only learned of the filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly because Babasantas claims were not annotated on the certificates of title at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorneys fees. On the complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not register the respective sales in their favor, ownership of the property should pertain to the buyer who first acquired possession of the property. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be considered to have been first transferred to SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith.

Respondent Babasanta appealed the trial courts decision to the Court of Appeals alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred in failing to consider that the contract to sell between them and Babasanta had been novated when the latter abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo Babasanta null and

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void ab initio for lack of knowledge and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision[11] which set aside the judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal interest and to pay attorneys fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.[12] However, in a Manifestation dated 20 December 1995,[13] the Spouses Lu informed the appellate court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,[14] the appellate court considered as withdrawn the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate court denied SLDCs motion for reconsideration on the ground that no new or substantial arguments were raised therein which would warrant modification or reversal of the courts decision dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. [15]

SLDC contended that the appellate court erred in concluding that it had prior notice of Babasantas claim over the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latters representation that she needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due from it and should not be construed as notice of the prior sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it,

SLDC argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated on 3 May 1989.

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that due to financial constraints they have no more interest to pursue their rights in the instant case and submit themselves to the decision of the Court of Appeals.[16]

On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration of the sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioners registration of the sale did not confer upon it any right. Babasanta further asserted that petitioners bad faith in the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00) managers check in his favor.

The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the successive transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.[17] While the receipt signed by Pacita did not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lus letter dated 29 May 1989[18] wherein she admitted that she agreed to sell

the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,[19] which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance absolute.[20] Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.[21]

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price.

Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer title, they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.[22] In a

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contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.[23]

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment.[24] Consignation of the amounts due in court is essential in order to extinguish Babasantas obligation to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired obligatory force.

On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasantas claim of ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere consent[25] and from that moment, the parties may reciprocally demand performance.[26] The essential elements of a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.[27]

The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership.[28] Under Article 712 of the Civil Code, ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in

consequence of certain contracts, by tradition. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same.[29] Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.[30] The word delivered should not be taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee.[31] Legal or constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale;[32] symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept;[33] traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;[34]traditio brevi manu if the buyer already had possession of the object even before the sale;[35] and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity.[36]

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the

parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.[37]

However, it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property. It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the owner.[38] Verily, the act of registration must be coupled with good faith that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.[39]

Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasantas claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to confer upon the latter any title to the property since the registration was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Salein favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent annotation of lis pendenshas no effect at all on the consummated sale between SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of the claim or interest of some other person in the property.[40] Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the registered owners of the property and were in fact in possession of the lands. Time and again, this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title.[41] In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order,

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judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering.

However, the constructive notice operates as suchby the express wording of Section 52from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.

More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the notice of lis pendens cannot help Babasantas position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Natao v. Esteban,[42] serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation. Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDCs faith in the merit of its cause has been vindicated with the Courts present decision which is the ultimate denouement on the controversy.

The Court of Appeals has made capital[43] of SLDCs averment in its Complaint-in-Intervention[44] that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination.[45] However, there is nothing in the said pleading and the testimony which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior

notice of lis pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim could not prevail over that of SLDCs. In Abarquez v. Court of Appeals,[46] this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This Court awarded the property to the Israels because registration of the property by Abarquez lacked the element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta.

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDCs right is definitely superior to that of Babasantas.

At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,[47] we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual assignment of the right to repurchase the same land.

Accordingly, there was no double sale of the same land in that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.

G.R. No. 166714             February 9, 2007

AMELIA S. ROBERTS, Petitioner, vs.MARTIN B. PAPIO, Respondent.

D E C I S I O N

CALLEJO, SR., J.:

Assailed in this petition for review on certiorari is the Decision1 of the Court of Appeals (CA), in CA-G.R. CV No. 69034 which reversed and set aside the Decision2 of the Regional Trial Court (RTC), Branch 150, Makati City, in Civil Case No. 01-431. The RTC ruling had affirmed with modification the Decision3 of the Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil Case No. 66847. The petition likewise assails the Resolution of the CA denying the motion for reconsideration of its decision.

The Antecedents

The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot located in Makati (now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-44980.4 In order to secure aP59,000.00 loan from the Amparo Investments Corporation, they executed a real estate mortgage on the property. Upon Papio’s failure to pay the loan, the corporation filed a petition for the extrajudicial foreclosure of the mortgage.

Since the couple needed money to redeem the property and to prevent the foreclosure of the real estate mortgage, they executed a Deed of Absolute Sale over the property on April 13, 1982 in favor of Martin Papio’s cousin, Amelia Roberts. Of the P85,000.00 purchase price, P59,000.00 was paid to the Amparo Investments Corporation, while

the P26,000.00 difference was retained by the spouses.5 As soon as the spouses had settled their obligation, the corporation returned the owner’s duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.

Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-year contract of lease dated April 15, 1982, effective May 1, 1982. The contract was subject to renewal or extension for a like period at the option of the lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee was obliged to pay monthly rentals of P800.00 to be deposited in the lessor’s account at the Bank of America, Makati City branch.6

On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name of Amelia Roberts as owner.7

Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another year.8 He then failed to pay rentals, but he and his family nevertheless remained in possession of the property for a period of almost thirteen (13) years.

In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to pay the monthly rental of P2,500.00 from January 1, 1986 to December 31, 1997, and P10,000.00 from January 1, 1998 to May 31, 1998; thus, his total liability was P410,000.00. She demanded that Papio vacate the property within 15 days from receipt of the letter in case he failed to settle the amount.9 Because he refused to pay, Papio received another letter from Roberts on April 22, 1999, demanding, for the last time, that he and his family vacate the property.10 Again, Papio refused to leave the premises.

On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a Complaint11 for unlawful detainer and damages against Martin Papio before the MeTC, Branch 64, Makati City. She alleged the following in her complaint:

Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated at No. 1046 Teresa St., Brgy. Valenzuela, Makati City.12 Upon Papio’s pleas to continue staying in the property, they executed a two-year lease

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contract13 which commenced on May 1, 1982. The monthly rental was P800.00. Thereafter, TCT No. 11447814 was issued in her favor and she paid all the realty taxes due on the property. When the term of the lease expired, she still allowed Papio and his family to continue leasing the property. However, he took advantage of her absence and stopped payment beginning January 1986, and refused to pay despite repeated demands. In June 1998, she sent a demand letter15 through counsel requiring Papio to pay rentals from January 1986 up to May 1998 and to vacate the leased property. The accumulated arrears in rental are as follows: (a)P360,000.00 from January 1, 1986 to December 31, 1997 at P2,500.00 per month; and (b) P50,000.00, from January 1, 1998 to May 31, 1998 at P10,000.00 per month.16 She came to the Philippines but all efforts at an amicable settlement proved futile. Thus, in April 1999, she sent the final demand letter to defendant directing him and his family to pay and immediately vacate the leased premises.17

Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April 15, 1982 Contract of Lease, and TCT No. 114478.

In his Answer with counterclaim, Papio alleged the following:

He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his cousin who is a resident of California, United States of America (USA), arrived in the Philippines and offered to redeem the property. Believing that she had made the offer for the purpose of retaining his ownership over the property, he accepted. She then remitted P59,000.00 to the mortgagor for his account, after which the mortgagee cancelled the real estate mortgage. However, he was alarmed when the plaintiff had a deed of absolute sale over the property prepared (for P83,000.00 as consideration) and asked him to sign the same. She also demanded that the defendant turn over the owner’s duplicate of TCT No. S-44980. The defendant was in a quandary. He then believed that if he signed the deed of absolute sale, Roberts would acquire ownership over the property. He asked her to allow him to redeem or reacquire the property at any time for a reasonable amount.18 When Roberts agreed, Papio signed the deed of absolute sale.

Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property for P250,000.00. In July 1985, since Roberts was by then already in the USA, he remitted to her authorized representative, Perlita Ventura, the amount of P150,000.00 as partial payment for the property.19 On June 16, 1986, she again remittedP100,000.00, through Ventura. Both payments were evidenced by receipts signed by Ventura.20 Roberts then declared that she would execute a deed of absolute sale and surrender the title to the property. However, Ventura had apparently misappropriated P39,000.00 out of the P250,000.00 that she had received; Roberts then demanded that she pay the amount misappropriated before executing the deed of absolute sale. Thus, the sole reason why Roberts refused to abide by her promise was the failure of her authorized representative to remit the full amount of P250,000.00. Despite Papio’s demands, Roberts refused to execute a deed of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action to demand payment of rental and eject him from the property.

Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura to the plaintiff wherein the former admitted having used the money of the plaintiff to defray the plane fares of Perlita’s parents to the USA, and pleaded that she be allowed to repay the amount within one year; (b) the letter of Eugene Roberts (plaintiff’s husband) to Perlita Ventura dated July 25, 1986 where he accused Ventura of stealing the money of plaintiff Amelia (thus preventing the latter from paying her loan on her house and effect the cancellation of the mortgage), and demanded that she deposit the balance;21 and (c) plaintiff’s letter to defendant Papio dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of P39,000.00 so that the plaintiff could transfer the title of the property to the defendant.22

Papio asserted that the letters of Roberts and her husband are in themselves admissions or declarations against interest, hence, admissible to prove that he had reacquired the property although the title was still in her possession.

In her Affidavit and Position Paper,23 Roberts averred that she had paid the real estate taxes on the property after she had purchased it; Papio’s initial right to

occupy the property was terminated when the original lease period expired; and his continued possession was only by mere tolerance. She further alleged that the Deed of Sale states on its face that the conveyance of the property was absolute and unconditional. She also claimed that any right to repurchase the property must appear in a public document pursuant to Article 1358, Paragraph 1, of the Civil Code of the Phililppines.24 Since no such document exists, defendant’s supposed real interest over the property could not be enforced without violating the Statute of Frauds.25 She stressed that her Torrens title to the property was an "absolute and indefeasible evidence of her ownership of the property which is binding and conclusive upon the whole world."

Roberts admitted that she demanded P39,000.00 from the defendant in her letter dated July 25, 1986. However, she averred that the amount represented his back rentals on the property.26 She declared that she neither authorized Ventura to sell the property nor to receive the purchase price therefor. She merely authorized her to receive the rentals from defendant and to deposit them in her account. She did not know that Ventura had received P250,000.00 from Papio in July 1985 and on June 16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that she became aware of the receipts when she received defendant Papio’s letter to which were appended the said receipts. She and her husband offered to sell the property to the defendant in 1984 for US$15,000.00 on a "take it or leave it" basis when they arrived in the Philippines in May 1984.27However, defendant refused to accept the offer. The spouses then offered to sell the property anew on December 20, 1997, for P670,000.00 inclusive of back rentals.28 However, defendant offered to settle his account with the spouses.29 Again, the offer came on January 11, 1998, but it was rejected. The defendant insisted that he had already purchased the property in July 1985 for P250,000.00.

Roberts insisted that Papio’s claim of the right to repurchase the property, as well as his claim of payment therefor, is belied by his own letter in which he offered to settle plaintiff’s claim for back rentals. Even assuming that the purchase price of the property had been paid through Ventura, Papio did not adduce any proof to show that Ventura had been authorized to sell the property or to accept any payment thereon. Any payment to Ventura could have no binding effect

on her since she was not privy to the transaction; if at all, such agreement would be binding only on Papio and Ventura.

She further alleged that defendant’s own inaction belies his claim of ownership over the property: first, he failed to cause any notice or annotation to be made on the Register of Deed’s copy of TCT No. 114478 in order to protect his supposed adverse claim; second, he did not institute any action against Roberts to compel the execution of the necessary deed of transfer of title in his favor; and third, the defense of ownership over the property was raised only after Roberts demanded him to vacate the property.

Based solely on the parties’ pleadings, the MeTC rendered its January 18, 2001 Decision30 in favor of Roberts. The fallo of the decision reads:

WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby ordered to:

1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City;

2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to December 13, 1997 at the rate equivalent to Php2,500.00 per month and thereafter, Php10,000.00 from January 1998 until he actually vacates the premises;

3. Pay the plaintiff attorney’s fees as Php20,000.00; and

4. Pay the costs

SO ORDERED.31

The MeTC held that Roberts merely tolerated the stay of Papio in the property after the expiration of the contract of lease on May 1, 1984; hence, she had a cause of action against him since the only elements in an unlawful detainer action are the fact of lease and the expiration of its term. The defendant as tenant cannot controvert the title of the plaintiff or assert any right adverse thereto or set up any inconsistent right to change the existing relation between them. The plaintiff need not prove her ownership over the property inasmuch as evidence of ownership can be admitted only for the purpose of determining the

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character and extent of possession, and the amount of damages arising from the detention.

The court further ruled that Papio made no denials as to the existence and authenticity of Roberts’ title to the property. It declared that "the certificate of title is indefeasible in favor of the person whose name appears therein and incontrovertible upon the expiration of the one-year period from the date of issue," and that a Torrens title, "which enjoys a strong presumption of regularity and validity, is generally a conclusive evidence of ownership of the land referred to therein."

As to Papio’s claim that the transfer of the property was one with right of repurchase, the MeTC held it to be bereft of merit since the Deed of Sale is termed as "absolute and unconditional." The court ruled that the right to repurchase is not a right granted to the seller by the buyer in a subsequent instrument but rather, a right reserved in the same contract of sale. Once the deed of absolute sale is executed, the seller can no longer reserve the right to repurchase; any right thereafter granted in a separate document cannot be a right of repurchase but some other right.

As to the receipts of payment signed by Ventura, the court gave credence to Roberts’s declaration in her Affidavit that she authorized Ventura only to collect rentals from Papio, and not to receive the repurchase price. Papio’s letter of January 31, 1998, which called her attention to the fact that she had been sending people without written authority to collect money since 1985, bolstered the court’s finding that the payment, if at all intended for the supposed repurchase, never redounded to the benefit of the spouses Roberts.

Papio appealed the decision to the RTC, alleging the following:

I.

THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.

II.

THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A REPURCHASE TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT PLAINTIFF-APPELLEE WITHHELD THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANT’S NAME.

III.

THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-APPELLANT AND HIS WIFE ARE IN THEMSELVES ADMISSION AND/OR DECLARATION OF THE FACT THAT DEFENDANT-APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF THE PURCHASE AMOUNT COVERING THE SUBJECT PROPERTY.

IV.

THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN] AMERICAN CITIZEN AND RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE, NEITHER WAS HER ALLEGED ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER [FURNISH] THE LOWER COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING HER TO APPEAR IN COURT IN BEHALF OF HER PRINCIPAL.32

Papio maintained that Roberts had no cause of action for eviction because she had already ceded her right thereto when she allowed him to redeem and reacquire the property upon payment of P250,000.00 to Ventura, her duly authorized representative. He also contended that Roberts’s claim that the authority of Ventura is limited only to the collection of the rentals and not of the purchase price was a mere afterthought, since her appended Affidavit was executed sometime in October 1999 when the proceedings in the MeTC had already started.

On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution.33 The court granted the motion in an Order34 dated June 19, 2001. Subsequently, a Writ of Execution35 pending appeal was issued on September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon enforced the writ and placed Roberts in possession of the property.

Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific performance with damages against Roberts. Papio, as plaintiff, claimed that he entered into a contract of sale with pacto de retro with Roberts, and prayed that the latter be ordered to execute a Deed of Sale over `the property in his favor and transfer the title over the property to and in his name. The case was docketed as Civil Case No. 01-851.

On October 24, 2001, the RTC rendered judgment affirming the appealed decision of the MeTC. The fallo of the decision reads:36

Being in accordance with law and the circumstances attendant to the instant case, the court finds merit in plaintiff-appellee’s claim. Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed in toto.

SO ORDERED.37

Both parties filed their respective motions for reconsideration.38 In an Order39 dated February 26, 2002, the court denied the motion of Papio but modified its decision declaring that the computation of the accrued rentals should commence from January 1986, not January 1996. The decretal portion of the decision reads:

Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with modification that defendant pay plaintiff the reasonable rentals accrued for the period January 1, 1986 to December [31, 1997] per month and thereafter and P10,000.00 [per month] from January 1998 to October 28, 2001 when defendant-appellant actually vacated the subject leased premises.

SO ORDERED.40

On February 28, 2002, Papio filed a petition for review41 in the CA, alleging that the RTC erred in not

finding that he had reacquired the property from Roberts for P250,000.00, but the latter refused to execute a deed of absolute sale and transfer the title in his favor. He insisted that the MeTC and the RTC erred in giving credence to petitioner’s claim that she did not authorize Ventura to receive his payments for the purchase price of the property, citing Roberts’ letter dated July 25, 1986 and the letter of Eugene Roberts to Ventura of even date. He also averred that the MeTC and the RTC erred in not considering his documentary evidence in deciding the case.

On August 31, 2004, the CA rendered judgment granting the petition. The appellate court set aside the decision of the RTC and ordered the RTC to dismiss the complaint. The decretal portion of the Decision42 reads:

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered: (1) rendering an initial determination that the "Deed of Absolute Sale" dated April 13, 1982 is in fact an equitable mortgage under Article 1603 of the New Civil Code; and (2) resolving therefore that petitioner Martin B. Papio is entitled to possession of the property subject of this action; (3) But such determination of ownership and equitable mortgage are not clothed with finality and will not constitute a binding and conclusive adjudication on the merits with respect to the issue of ownership and such judgment shall not bar an action between the same parties respecting title to the land, nor shall it be held conclusive of the facts therein found in the case between the same parties upon a different cause of action not involving possession. All other counterclaims for damages are hereby dismissed. Cost against the respondent.

SO ORDERED.43

According to the appellate court, although the MeTC and RTC were correct in holding that the MeTC had jurisdiction over the complaint for unlawful detainer, they erred in ignoring Papio’s defense of equitable mortgage, and in not finding that the transaction covered by the deed of absolute sale by and between the parties was one of equitable mortgage under Article 1602 of the New Civil Code. The appellate court ruled that Papio retained the ownership of the property and its peaceful possession; hence, the MeTC should have dismissed the complaint without

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prejudice to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the property.

Roberts filed a motion for reconsideration of the decision on the following grounds:

I. Petitioner did not allege in his Answer the defense of equitable mortgage; hence, the lower courts [should] not have discussed the same;

II. Even assuming that Petitioner alleged the defense of equitable mortgage, the MeTC could not have ruled upon the said defense,

III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction.44

The CA denied the motion.

In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:

I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN DECLARING THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE EXERCISE OF THAT JURISDICTION ACQUIRED BECAUSE IT DID NOT CONSIDER ALL PETITIONER’S DEFENSE OF EQUITABLE MORTGAGE.

II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN REQUIRING THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS NEVER AVAILED OF BY RESPONDENT.45

Petitioner argues that respondent is barred from raising the issue of equitable mortgage because his defense in the MeTC and RTC was that he had repurchased the property from the petitioner; by such representation, he had impliedly admitted the existence and validity of the deed of absolute sale whereby ownership of the property was transferred to petitioner but reverted to him upon the exercise of said right. The respondent even filed a complaint for specific performance with damages, which is now pending in the RTC of Makati City, docketed as Civil Case No. 01-851 entitled "Martin B. Papio vs. Amelia Salvador-Roberts." In that case, respondent claimed that his transaction with the petitioner was a sale with pacto de retro. Petitioner posits that Article 1602

of the Civil Code applies only when the defendant specifically alleges this defense. Consequently, the appellate court was proscribed from finding that petitioner and respondent had entered into an equitable mortgage under the deed of absolute sale.

Petitioner further avers that respondent was ably represented by counsel and was aware of the difference between a pacto de retro sale and an equitable mortgage; thus, he could not have been mistaken in declaring that he repurchased the property from her.

As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue should be properly addressed and resolved by the RTC in an action to enforce ownership, not in an ejectment case before the MeTC where the main issue involved is possession de facto. According to her, the obvious import of the CA Decision is that, in resolving an ejectment case, the lower court must pass upon the issue of ownership (in this case, by applying the presumptions under Art. 1602) which, in effect, would use the same yardstick as though it is the main action. The procedure will not only promote multiplicity of suits but also place the new owner in the absurd position of having to first seek the declaration of ownership before filing an ejectment suit.

Respondent counters that the defense of equitable mortgage need not be particularly stated to apprise petitioner of the nature and character of the repurchase agreement. He contends that he had amply discussed in his pleadings before the trial and appellate courts all the surrounding circumstances of the case, such as the relative situation of the parties at the time; their attitude, acts, conduct, and declarations; and the negotiations between them that led to the repurchase agreement. Thus, he argues that the CA correctly ruled that the contract was one of equitable mortgage. He insists that petitioner allowed him to redeem and reacquire the property, and accepted his full payment of the property through Ventura, the authorized representative, as shown by the signed receipts.

The threshold issues are the following: (1) whether the MeTC had jurisdiction in an action for unlawful detainer to resolve the issue of who between petitioner and respondent is the owner of the property and entitled to the de facto possession thereof; (2)

whether the transaction entered into between the parties under the Deed of Absolute Sale and the Contract of Lease is an equitable mortgage over the property; and (3) whether the petitioner is entitled to the material or de facto possession of the property.

The Ruling of the Court

On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve the issue of who between petitioner or respondent is the lawful owner of the property, and is thus entitled to the material or de facto possession thereof) is correct. Section 18, Rule 70 of the Rules of Court provides that when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. The judgment rendered in an action for unlawful detainer shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building. Such judgment would not bar an action between the same parties respecting title to the land or building.46

The summary nature of the action is not changed by the claim of ownership of the property of the defendant.47The MeTC is not divested of its jurisdiction over the unlawful detainer action simply because the defendant asserts ownership over the property.

The sole issue for resolution in an action for unlawful detainer is material or de facto possession of the property. Even if the defendant claims juridical possession or ownership over the property based on a claim that his transaction with the plaintiff relative to the property is merely an equitable mortgage, or that he had repurchased the property from the plaintiff, the MeTC may still delve into and take cognizance of the case and make an initial or provisional determination of who between the plaintiff and the defendant is the owner and, in the process, resolve the issue of who is entitled to the possession. The MeTC, in unlawful detainer case, decides the question of ownership only if it is intertwined with and necessary to resolve the issue of possession.48 The resolution of the MeTC on the ownership of the property is merely provisional or interlocutory. Any question involving the issue of ownership should be raised and resolved in a separate

action brought specifically to settle the question with finality, in this case, Civil Case No. 01-851 which respondent filed before the RTC.

The ruling of the CA, that the contract between petitioner and respondent was an equitable mortgage, is incorrect. The fact of the matter is that the respondent intransigently alleged in his answer, and even in his affidavit and position paper, that petitioner had granted him the right to redeem or repurchase the property at any time and for a reasonable amount; and that, he had, in fact, repurchased the property in July 1985 for P250,000.00 which he remitted to petitioner through an authorized representative who signed receipts therefor; he had reacquired ownership and juridical possession of the property after his repurchase thereof in 1985; and consequently, petitioner was obliged to execute a deed of absolute sale over the property in his favor.

Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to reacquire the property in 1982 within two years upon the payment of P53,000.00, plus petitioner’s airfare for her trip to the Philippines from the USA and back; petitioner promised to sign the deed of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil Case No. 01-851, for specific performance with damages to compel petitioner to execute the said deed of absolute sale over the property presumably on the strength of Articles 1357 and 1358 of the New Civil Code. Certainly then, his claim that petitioner had given him the right to repurchase the property is antithetical to an equitable mortgage.

An equitable mortgage is one that, although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law.49 A contract between the parties is an equitable mortgage if the following requisites are present: (a) the parties entered into a contract denominated as a contract of sale; and (b) the intention was to secure an existing debt by way of mortgage.50 The decisive factor is the intention of the parties.

In an equitable mortgage, the mortgagor retains ownership over the property but subject to foreclosure

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and sale at public auction upon failure of the mortgagor to pay his obligation.51 In contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the vendor a retro to repurchase the property upon compliance with legal requirements for the repurchase. The failure of the vendor a retro to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title over the property.52

One repurchases only what one has previously sold. The right to repurchase presupposes a valid contract of sale between the same parties.53 By insisting that he had repurchased the property, respondent thereby admitted that the deed of absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable mortgage; hence, he had acquired ownership over the property based on said deed. Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale is an equitable mortgage unless there is allegation and evidence of palpable mistake on the part of respondent;54 or a fraud on the part of petitioner. Respondent made no such allegation in his pleadings and affidavit. On the contrary, he maintained that petitioner had sold the property to him in July 1985 and acknowledged receipt of the purchase price thereof except the amount of P39,000.00 retained by Perlita Ventura. Respondent is thus bound by his admission of petitioner’s ownership of the property and is barred from claiming otherwise.55

Respondent’s admission that petitioner acquired ownership over the property under the April 13, 1982 deed of absolute sale is buttressed by his admission in the Contract of Lease dated April 15, 1982 that petitioner was the owner of the property, and that he had paid the rentals for the duration of the contract of lease and even until 1985 upon its extension. Respondent was obliged to prove his defense that petitioner had given him the right to repurchase, and that petitioner obliged herself to resell the property for P250,000.00 when they executed the April 13, 1982 deed of absolute sale.

We have carefully reviewed the case and find that respondent failed to adduce competent and credible evidence to prove his claim.

As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the property is not incorporated therein. The contract is one of absolute sale and not one with right to repurchase. The law states that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.56 When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it any other intention that would contradict its plain import.57 The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves, or the imposition upon one party to a contract or obligation to assume simply or merely to avoid seeming hardships.58Their true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.59 As the Court held in Villarica, et al. v. Court of Appeals:60

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case.61

In Ramos v. Icasiano,62 we also held that an agreement to repurchase becomes a promise to sell when made after the sale because when the sale is made without such agreement the purchaser acquires the thing sold absolutely; and, if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser as absolute owner. An option to buy or a promise to sell is different and distinct from the right of repurchase that must be reserved by means of stipulations to that effect in the contract of sale.63

There is no evidence on record that, on or before July 1985, petitioner agreed to sell her property to the respondent for P250,000.00. Neither is there any documentary evidence showing that Ventura was authorized to offer for sale or sell the property for and in behalf of petitioner for P250,000.00, or to receive

the said amount from respondent as purchase price of the property. The rule is that when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void64 and cannot produce any legal effect as to transfer the property from its lawful owner.65 Being inexistent and void from the very beginning, said contract cannot be ratified.66 Any contract entered into by Ventura for and in behalf of petitioner relative to the sale of the property is void and cannot be ratified by the latter. A void contract produces no effect either against or in favor of anyone.67

Respondent also failed to prove that the negotiations between him and petitioner has culminated in his offer to buy the property for P250,000.00, and that they later on agreed to the sale of the property for the same amount. He likewise failed to prove that he purchased and reacquired the property in July 1985. The evidence on record shows that petitioner had offered to sell the property for US$15,000 on a "take it or leave it" basis in May 1984 upon the expiration of the Contract of Lease68 —an offer that was rejected by respondent—which is why on December 30, 1997, petitioner and her husband offered again to sell the property to respondent for P670,000.00 inclusive of back rentals and the purchase price of the property under the April 13, 1982 Deed of absolute Sale.69The offer was again rejected by respondent. The final offer appears to have been made on January 11, 199870but again, like the previous negotiations, no contract was perfected between the parties.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.71 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.72 Once perfected, they bind the contracting

parties and the obligations arising therefrom have the form of law between the parties which must be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.73

There was no contract of sale entered into by the parties based on the Receipts dated July 1985 and June 16, 1986, signed by Perlita Ventura and the letter of petitioner to respondent dated July 25, 1986.

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing and the other, to pay therefor a price certain in money or its equivalent.74 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:75

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.76

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.77 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.78

Respondent’s reliance on petitioner’s letter to him dated July 25, 1986 is misplaced. The letter reads in full:

7-25-86

Dear Martin & Ising,

Enclosed for your information is the letter written by my husband to Perlita. I hope that you will be able to convince your cousin that it’s to her best interest to

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deposit the balance of your payment to me of P39,000.00 in my bank acct. per our agreement and send me my bank book right away so that we can transfer the title of the property.

Regards,

Amie 79

We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and the letter of Eugene Roberts, dated July 25, 1986, where Ventura admitted having used the money of petitioner amounting to P39,000.00 without the latter’s knowledge for the plane fare of Ventura’s parents. Ventura promised to refund the amount ofP39,000.00, inclusive of interests, within one year.80 Eugene Roberts berated Ventura and called her a thief for stealing his and petitioner’s money and that of respondent’s wife, Ising, who allegedly told petitioner that she, Ising, loaned the money to her parents for their plane fare to the USA. Neither Ventura nor Eugene Roberts declared in their letters that Ventura had used the P250,000.00 which respondent gave to her.

Petitioner in her letter to respondent did not admit, either expressly or impliedly, having received P211,000.00 from Ventura. Moreover, in her letter to petitioner, only a week earlier, or on July 18, 1986, Ventura admitted having spent the P39,000.00 and pleaded that she be allowed to refund the amount within one (1) year, including interests.

Naririto ang total ng pera mo sa bankbook mo, P55,000.00 pati na yong deposit na sarili mo at bale ang nagalaw ko diyan ay P39,000.00. Huwag kang mag-alala ibabalik ko rin sa iyo sa loob ng isang taon pati interest.

Ate Per81 1awphi1.net

It is incredible that Ventura was able to remit to petitioner P211,000.00 before July 25, 1986 when only a week earlier, she was pleading to petitioner for a period of one year within which to refund the P39,000.00 to petitioner.

It would have bolstered his cause if respondent had submitted an affidavit of Ventura stating that she had remittedP211,000.00 out of the P250,000.00 she

received from respondent in July 1985 and June 20, 1986.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The Decision of the Metropolitan Trial Court, affirmed with modification by the Regional Trial Court, is AFFIRMED.

SO ORDERED.

BOSTON BANK OF THE G. R. No. 158149

PHILIPPINES, (formerly BANK

OF COMMERCE),

Petitioner, Present:

- versus - 

PERLA P. MANALO and CARLOS

MANALO, JR.,

 D E C I S I O N

 CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 47458 affirming, on appeal, the Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-3905.

The Antecedents

The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was then offered for sale to individual lot buyers.[3]

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila (OBM), as vendee, executed a Deed of Sale of Real Estate over some residential lots in the subdivision, including Lot 1, Block 2, with an area of 907.5 square meters, and Lot

2, Block 2, with an area of 832.80 square meters. The transaction was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in favor of the Philippine National Bank as security for its account amounting to P5,187,000.00, and the Central Bank of the Philippines as security for advances amounting toP22,185,193.74.[4] Nevertheless, XEI continued selling the residential lots in the subdivision as agent of OBM.[5]

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner ofAurora Boulevard and Katipunan Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision, and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and the terms of payment could be fixed and incorporated in the conditional sale.[6] Manalo, Jr. met with Ramos and informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase price amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement.[7]

The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed a fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they would be issued Torrens titles over the lots they had purchased.[8] The spouses Manalo were notified of the resumption of the selling operations of XEI.[9] However, they did not pay the balance of the downpayment on the lots because Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August 14, 1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance of the downpayment be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a balance of P34,724.34 on the downpayment of the two lots after deducting the account of Ramos, plus P3,819.68[10] interest thereon from September 1, 1972 to July 31, 1973, and that the interests on the unpaid balance of the purchase price of P278,448.00 from September 1, 1972 to July 31, 1973 amounted to P30,629.28.[11] The spouses were informed that they were being billed for said unpaid interests.[12]

On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the purchase price of the lots.[13] In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the notice of resumption of Leis selling operations, and that there had been no arrangement on the payment of interests; hence, they should not be charged with interest on the balance of the downpayment on the property.[14] Further, they demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase price.[15]

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he remove the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on

SALES 10

installment basis from XEI.[16] Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977.[17]

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and those yet to be sold.[18] On December 8, 1977, OBM warned Manalo, Jr., that putting up of a business sign is specifically prohibited by their contract of conditional sale and that his failure to comply with its demand would impel it to avail of the remedies as provided in their contract of conditional sale.[19]

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM.[20] The lien in favor of the Central Bank of the Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980.[21]

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot buyers in the subdivision.[22] CBM reiterated in its letter to Ng that, as ofJanuary 24, 1984, Manalo was a homeowner in the subdivision.[23]

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property since it (CBM) was the owner of the lot and she had no permission for such construction.[24] She agreed to have a conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However, she failed to do so.[25] On September 5, 1986, CBM reiterated its demand that it be furnished with the documents promised,[26] but Perla Manalo did not respond.

On July 27, 1987, CBM filed a complaint[27] for unlawful detainer against the spouses with the Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully occupying the

property without its consent and that despite its demands, they refused to vacate the property. The latter alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been rescinded.[28]

While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the purchase price of the property (P313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988, CBM wrote the spouses, through counsel, proposing that the price of P1,500.00 per square meter of the property was a reasonable starting point for negotiation of the settlement.[29] The spouses rejected the counter proposal,[30] emphasizing that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint[31] because of the issues raised.[32]

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold to them by the defendants remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no contract was forthcoming; they constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr., informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of his original agreement with the defendants predecessor-in-interest; during the hearing of the ejectment case on October 16, 1988, they offered to pay P313,172.34 representing the balance on the purchase price of said lots; such tender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear of any and all liens and encumbrances of whatever kind and nature.

[33] The plaintiffs prayed that, after due hearing, judgment be rendered in their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of the plaintiffs after payment of the sum of P313,172.34, sufficient in form and substance to transfer to them titles thereto free and clear of any and all liens and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the amounts of P300,000.00 and P30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale, notwithstanding repeated demands therefor and for having been constrained to engage the services of undersigned counsel for which they agreed to pay attorneys fees in the sum of P50,000.00 to enforce their rights in the premises and appearance fee of P500.00;

(c) And for such other and further relief as may be just and equitable in the premises.[34]

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it; and (b) it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from its predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of the lots.[35] The defendant, likewise, interposed counterclaims for damages and attorneys fees and prayed for the eviction of the plaintiffs from the property.[36]

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case by paying P942,648.70, representing the balance of the purchase price of the two lots based on the current market value.[37] However, the defendant rejected the same and insisted that for the smaller lot, they pay P4,500,000.00, the current market value of the property.[38] The defendant insisted that it owned the

property since there was no contract or agreement between it and the plaintiffs relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI and Alberto Soller;[39] Alfredo Aguila,[40] and Dra. Elena Santos-Roque[41] to prove that XEI continued selling residential lots in the subdivision as agent of OBM after the latter had acquired the said lots.

For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to execute the corresponding contract of conditional sale and forfeited the P34,877.66 downpayment for the two lots, but did not notify them of said forfeiture.[42] It alleged that OBM considered the lots unsold because the titles thereto bore no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEIs resumption of its selling operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant

(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate Subdivision after payment of the sum ofP942,978.70 sufficient in form and substance to transfer to them titles thereto free from any and all liens and encumbrances of whatever kind and nature.

(b) Ordering the defendant to pay moral and exemplary damages in the amount of P150,000.00; and

(c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs.

SO ORDERED.[43]

SALES 11

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a complete contract to sell over the lots, and that they had already partially consummated the same. It declared that the failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of conditional sale did not prevent the defendants obligation to convey titles to the lots from acquiring binding effect. Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of the balance of the downpayment on the property and the execution of a deed of conditional sale (which were not complied with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of testimony providing facts to justify such awards.[44]

On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure P942,978.70 appearing [in] par. (a) of the dispositive portion thereof is changed to P313,172.34 plus interest thereon at the rate of 12% per annum from September 1, 1972 until fully paid and (b) the award of moral and exemplary damages and attorneys fees in favor of plaintiffs-appellees is DELETED.

SO ORDERED.[45]

The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to Sell over the two lots but declared that the balance of the purchase price of the property amounting to P278,448.00 was payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to the appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other lot buyers.[46]The CA also declared that, while XEI must have resumed its selling operations

before the end of 1972 and the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of cancellation of the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at the very least, a 60-day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots in its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission that satisfied the requirements of the New Civil Code. However, the appellate court denied the motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that, as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or P278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount, including the other terms and conditions of the contract, there would be no existing contract of sale or contract to sell.[47] Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of P200.00 per square meter (or P348,060.00), the amount of the downpayment thereon and the application of theP34,887.00 due from Ramos as part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment of the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same subdivision) were also applicable to the contract entered into between the petitioner and the respondents. It insists that such a ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not even discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated with those of the other lot buyers, as, for one thing, the

respondents made a partial payment on the downpayment for the two lots even before the execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties, nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the extinction of its obligation to convey title to the lots to the respondents.

Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the purchase price of the property was not completely paid, and no installment payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the respondents below was barred by laches because despite demands, they failed to pay the balance of the purchase price of the lots (let alone the downpayment) for a considerable number of years.

For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as to the price, the contract is valid despite the parties failure to agree on the manner of payment. In such a situation, the balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code. They insist that the law does not require a party to agree on the manner of payment of the purchase price as a prerequisite to a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of Appeals[48] to support their submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase price of

the property is an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with the OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the balance of the purchase price. They point out that such letters referred to the terms of the terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform terms of 120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed interests). The respondents assert that XEI was a real estate broker and knew that the contracts involving residential lots in the subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said lots.

Respondents further posit that the terms and conditions to be incorporated in the corresponding contract of conditional sale to be executed by the parties would be the same as those contained in the contracts of conditional sale executed by lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L. Co.[49]

The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became owners of the lots upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged a perfect contract to sell over the property; (3) whether  petitioner is estopped from contending that no such contract was

SALES 12

forged by the parties; and (4) whether respondents has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is that this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings of facts of the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under any of the following exceptions:

(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[50]

We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioners appeal is contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well as the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is plain error.[51] Although a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision,[52] or when an issue is closely related

to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete resolution of the case.[53] When the trial court decides a case in favor of a party on certain grounds, the Court may base its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of a party.[54]

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property was raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioners claim that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the property to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a contract to sell; hence, petitioner is entitled to ventilate the issue before this Court.

We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid by the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[55] On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.[56]

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract

of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.[57]

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. 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.[58]

In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties. Indeed, this Court ruled in Velasco v. Court of Appeals[59] that:

It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the respondent still had to meet and agree on how and when the down-payment and the installment payments were to be paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000.00 as part of the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners themselves admit that some essential matter the terms of payment still had to be mutually covenanted.[60]

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the schedule of payment of the balance of the purchase price on the property amounting

to P278,448.00. We have meticulously reviewed the records, including Ramos February 8, 1972 and August 22, 1972 letters to respondents,[61] and find that said parties confined themselves to agreeing on the price of the property (P348,060.00), the 20% downpayment of the purchase price (P69,612.00), and credited respondents for the P34,887.00 owing from Ramos as part of the 20% downpayment. The timeline for the payment of the balance of the downpayment (P34,724.34) was also agreed upon, that is, on or before XEI resumed its selling operations, on or before December 31, 1972, or within five (5) days from written notice of such resumption of selling operations. The parties had also agreed to incorporate all the terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the purchase price and the other substantial terms and conditions in the corresponding contract of conditional sale, to be later signed by the parties, simultaneously with respondents settlement of the balance of the downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.

Hurricane Rotary Well Drilling

Rizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot in our Xavierville Estate Subdivision.

 

Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.

Sincerely yours,

XAVIERVILLE ESTATE, INC.

(Signed)

EMERITO B. RAMOS, JR.President

SALES 13

CONFORME:

(Signed)

CARLOS T. MANALO, JR.

Hurricane Rotary Well Drilling[62]

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extension

Caloocan City

Dear Mrs. Manalo:

This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended, consisting of 1,740.3 square meters more or less, at the price ofP200.00 per square meter or a total price of P348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided, however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment and sign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and regulations of the subdivision.

If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein below provided.

Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:

By:

(Signed) (Signed)

EMERITO B. RAMOS, JR. PERLA P. MANALO

President Buyer[63]

Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet to be agreed upon on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too indefinite to be enforceable.[64] And when an essential element of a contract is reserved for future agreement of the parties, no legal obligation arises until such future agreement is concluded.[65]

So long as an essential element entering into the proposed obligation of either of the parties remains to be determined by an agreement which they are to make, the contract is incomplete and unenforceable.[66] The reason is that such a contract is lacking in the necessary qualities of definiteness, certainty and mutuality.[67]

There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on the terms of payment of the balance of the purchase price of the property and the other substantial terms and conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.[68]

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner of payment of the purchase price of the property was not raised therein.

We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment contained in the three contracts of conditional sale executed by XEI and other lot buyers in the corresponding contract of conditional sale, which would later be signed by them.[69] We have meticulously reviewed the respondents complaint and find no such allegation therein.[70] Indeed, respondents merely alleged in their complaint that they were

bound to pay the balance of the purchase price of the property in installments. When respondent Manalo, Jr. testified, he was never asked, on direct examination or even on cross-examination, whether the terms of payment of the balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form part of the corresponding contract of conditional sale to be signed by them simultaneously with the payment of the balance of the downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property on installment basis.[71] However, in the said letter, XEI failed to state a specific amount for each installment, and whether such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to adduce a shred of evidence to prove that they were obliged to pay the P278,448.00 monthly, semi-annually or annually. The allegation that the payment of the P278,448.00 was to be paid in installments is, thus, vague and indefinite. Case law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.[72]

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were obliged to pay the P278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned from the ruling of the appellate court, it failed to justify its use of the terms of payment under the three contracts of conditional sale as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the downpayment. Considering, however, the Contracts of Conditional Sale (Exhs. N, O and P) entered into by XEI with other lot buyers, it would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly installments (exclusive of the downpayment but including pre

computed interests) commencing on delivery of the lot to the buyer.[73]

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the respondents. Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in doubt.[74] Indeed, the Court emphasized in Chua v. Court of Appeals[75] that it is not the province of a court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the P278,448.00 to be incorporated in the corresponding contract of conditional sale were those contained in the contracts of conditional sale executed by XEI and Soller, Aguila and Roque.[76] They likewise failed to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in 120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same mode and timeline of payment of the P278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not admissible to prove that he did the same or similar thing at another time, although such evidence may be received to prove habit, usage, pattern of conduct or the intent of the parties.

Similar acts as evidence. Evidence that one did or did not do a certain thing at one time is not admissible to prove that he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of fixed amounts with pre-

SALES 14

computed interests, and that XEI and the respondents had intended to adopt such terms of payment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts of conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision as sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further failed to prive that the trial court admitted the said deeds[77] as part of the testimony of respondent Manalo, Jr.[78]

Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must be numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind of sufficiently similar circumstances to outweigh the danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in like circumstances.[79] It is only when examples offered to establish pattern of conduct or habit are numerous enough to lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and uniformity of response or ratio of reaction to situations.[80]

There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: Life casts the moulds of conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from life.[81] Usage furnishes a standard for the measurement of

many of the rights and acts of men.[82] It is also well-settled that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by implication into their agreement, if nothing is said to be contrary.[83]

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant respondents the right to pay the P278,448.00 in 120 months, presumably because of respondents belief that the manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI or OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but granted one 180 months to do so.[84] There is no evidence on record that XEI granted the same right to buyers of two or more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be so with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract made by the parties thereto[85] or by reference to an agreement incorporated in the contract of sale or contract to sell or if it is capable of being ascertained with certainty in said contract;[86] or if the contract contains express or implied provisions by which it may be rendered certain;[87] or if it provides some method or criterion by which it can be definitely ascertained.[88] As this Court held in Villaraza v. Court of Appeals,[89] the price is considered certain if, by its terms, the contract furnishes a basis or measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of conditional sale executed

by XEI and that of the other lot buyers[90] as basis for or mode of determination of the schedule of the payment by the respondents of the P278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company[91] is not applicable in this case because the basic price fixed in the contract was P9.45 per long ton, but it was stipulated that the price was subject to modification in proportion to variations in calories and ash content, and not otherwise. In this case, the parties did not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance of the purchase price of the property amounting to P278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase price of the property amounting toP278,448.00 despite notice to them of the resumption by XEI of its selling operations. The respondents enjoyed possession of the property without paying a centavo.On the other hand, XEI and OBM failed and refused to transmit a contract of conditional sale to the respondents. The respondents could have at least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots; hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552 applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 47458 is REVERSED andSET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the respondents.

SO ORDERED.

SPS. LUIS V. CRUZ and G.R. NO. 145470

AIDA CRUZ,

Petitioners, Present:

- versus - 

SPS. ALEJANDRO FERNANDO,

SR., and RITA FERNANDO, Promulgated:

Respondents. December 9, 2005

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

For resolution is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision[1] dated October 3, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61247, dismissing petitioners appeal and affirming the decision of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 79, in Civil Case No. 877-M-94.

The antecedent facts are as follows:

Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of a 710-square meter property located in Sto. Cristo, Baliuag, Bulacan. On October 21, 1994, spouses Alejandro Fernando, Sr. and Rita Fernando (respondents) filed before the RTC a complaint for accion publiciana against petitioners, demanding the latter to vacate the premises and to pay the amount of P500.00 a month as reasonable rental for the use thereof. Respondents alleged in their complaint that: (1) they are owners of the property, having bought the same from the spouses Clodualdo and Teresita Glorioso (Gloriosos) per Deed of Sale dated March 9, 1987; (2) prior to their acquisition of the property, the Gloriosos offered to sell to petitioners the rear portion of the property but the transaction did not materialize due to petitioners failure to exercise their option; (3) the offer to sell is embodied in a Kasunduan dated August 6, 1983 executed before the Barangay Captain; (4) due to petitioners failure to buy the allotted portion, respondents bought the whole property from the Gloriosos; and (5) despite repeated demands, petitioners refused to vacate the property.[2]

 

SALES 15

Petitioners filed a Motion to Dismiss but the RTC dismissed it for lack of merit in its Order dated March 6, 1995.[3] Petitioners then filed their Answer setting forth the affirmative defenses that: (1) the Kasunduan is a perfected contract of sale; (2) the agreement has already been partially consummated as they already relocated their house from the rear portion of the lot to the front portion that was sold to them; (3) Mrs. Glorioso prevented the complete consummation of the sale when she refused to have the exact boundaries of the lot bought by petitioners surveyed, and the existing survey was made without their knowledge and participation; and (4) respondents are buyers in bad faith having bought that portion of the lot occupied by them (petitioners) with full knowledge of the prior sale to them by the Gloriosos.[4]

After due proceedings, the RTC rendered a Decision on April 3, 1998 in favor of respondents. The decretal portion of the decision provides:

PREMISES CONSIDERED, the herein plaintiffs was able to prove by preponderance of evidence the case of accion publiciana, against the defendants and judgment is hereby rendered as follows:

1. Ordering defendants and all persons claiming under them to vacate placefully (sic) the premises in question and to remove their house therefore (sic);

2. Ordering defendants to pay plaintiff the sum of P500.00 as reasonable rental per month beginning October 21, 1994 when the case was filed before this Court and every month thereafter until they vacate the subject premises and to pay the costs of suit.

The counter claim is hereby DISMISSED for lack of merit.

SO ORDERED.[5]

Petitioners appealed the RTC decision but it was affirmed by the CA per its Decision dated October 3, 2000.

Hence, the present petition raising the following issues:

1. Whether the Honorable Court of Appeals committed an error of law in holding that the

Agreement (Kasunduan) between the parties was a mere offer to sell, and not a perfected Contract of Purchase and Sale?

2. Whether the Honorable Court of Appeals committed an error of law in not holding that where the parties clearly gave the petitioners a period of time within which to pay the price, but did not fix said period, the remedy of the vendors is to ask the Court to fix the period for the payment of the price, and not an accion publiciana?

3. Whether the Honorable Court of Appeals committed an error of law in not ordering respondents to at least deliver the back portion of the lot in question upon payment of the agreed price thereof by petitioners, assuming that the Regional Trial Court was correct in finding that the subject matter of the sale was said back portion, and not the front portion of the property?

4. Whether the Honorable Court of Appeals committed an error of law in affirming the decision of the trial court ordering the petitioners, who are possessors in good faith, to pay rentals for the portion of the lot possessed by them?[6]

The RTC dwelt on the issue of which portion was being sold by the Gloriosos to petitioners, finding that it was the rear portion and not the front portion that was being sold; while the CA construed the Kasunduan as a mere contract to sell and due to petitioners failure to pay the purchase price, the Gloriosos were not obliged to deliver to them (petitioners) the portion being sold.

Petitioners, however, insist that the agreement was a perfected contract of sale, and their failure to pay the purchase price is immaterial. They also contend that respondents have no cause of action against them, as the obligation set in the Kasunduan did not set a period, consequently, there is no breach of any obligation by petitioners.

The resolution of the issues in this case principally is dependent on the interpretation of the Kasunduan dated August 6, 1983 executed by petitioners and the Gloriosos. The Kasunduan provided the following pertinent stipulations:

a. Na pumayag ang mga maysumbong (referring to the Gloriosos) na pagbilhan ang mga ipinagsumbong (referring to petitioners) na bahagi ng lupa at ang ipagbibili ay may sukat na 213 metrong parisukat humigit kumulang sa halagang P40.00 bawat metrong parisukat;

b. Na sa titulong papapanaugin ang magiging kabuuang sukat na mauukol sa mga ipinagsusumbong ay 223 metrong parisukat at ang 10 metro nito ay bilang kaloob ng mga maysumbong sa mga Ipinagsusumbong na bahagi ng right of way;

c. Na ang right of way ay may luwang na 1.75 meters magmula sa daang Lopez Jaena patungo sa likuran ng lote na pagtatayuan ng bahay ng mga Ipinagsusumbong na kanyang bibilhin;

d. Na ang gugol sa pagpapasukat at pagpapanaog ng titulo ay paghahatian ng magkabilang panig na ang panig ay magbibigay ng halagang hindi kukulanging sa halagang tig-AAPAT NA DAANG PISO (P400.00);

e. Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang nabili o mabibili sa buwan ng Enero 31, 1984;[7] (Emphasis supplied)

Under Article 1458 of the Civil Code, a contract of sale is a contract by which one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Article 1475 of the Code further provides that the contract of sale is perfected at the moment there is meeting of the 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.

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold, as distinguished from a contract to sell where ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price.[8] Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price.

In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.

The Kasunduan provides for the following terms and conditions: (a) that the Gloriosos agreed to sell to petitioners a portion of the property with an area of 213 meters at the price of P40.00 per square meter; (b) that in the title that will be caused to be issued, the aggregate area is 223 square meters with 10 meters thereof serving as right of way; (c) that the right of way shall have a width of 1.75 meters from Lopez Jaena road going towards the back of the lot where petitioners will build their house on the portion of the lot that they will buy; (d) that the expenses for the survey and for the issuance of the title will be divided between the parties with each party giving an amount of no less than P400.00; and (e) that petitioners will definitely relocate their house to the portion they bought or will buy by January 31, 1984.

The foregoing terms and conditions show that it is a contract to sell and not a contract of sale. For one, the conspicuous absence of a definite manner of payment of the purchase price in the agreement confirms the conclusion that it is a contract to sell. This is because the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist.[9] Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale.[10] As held in Toyota Shaw, Inc. vs. Court of Appeals,[11] 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.

The Kasunduan does not establish any definite agreement between the parties concerning the terms of payment. What it merely provides is the purchase price for the 213-square meter property at P40.00 per square meter.

For another, the telltale provision in the Kasunduan that: Na pumayag ang mga maysumbong na pagbilhan ang mga ipinagsumbong na bahagi ng lupa at angipagbibili ay may sukat na 213 metrong parisukat humigit kumulang sa halagang P40.00 bawat metrong parisukat, simply

SALES 16

means that the Gloriosos only agreed to sell a portion of the property and that the portion to be sold measures 213 square meters.

Another significant provision is that which reads: Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang nabili o mabibili sa buwan ng Enero 31, 1984. The foregoing indicates that a contract of sale is yet to be consummated and ownership of the property remained in the Gloriosos. Otherwise, why would the alternative term mabibili be used if indeed the property had already been sold to petitioners.

In addition, the absence of any formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership.[12]

Normally, in a contract to sell, the payment of the purchase price is the positive suspensive condition upon which the transfer of ownership depends.[13] The parties, however, are not prohibited from stipulating other lawful conditions that must be fulfilled in order for the contract to be converted from a contract to sell or at the most an executory sale into an executed one.[14]

In the present case, aside from the payment of the purchase price, there existed another suspensive condition, i.e.: that petitioners will relocate their house to the portion they bought or will buy by January 31, 1984.

Petitioners failed to abide by the express condition that they should relocate to the rear portion of the property being bought by January 31, 1984. Indeed, theKasunduan discloses that it is the rear portion that was being sold by the Gloriosos, and not the front portion as petitioners stubbornly claim. This is evident from the provisions establishing a right of way from Lopez Jaena road going towards the back of the lot, and requiring them to relocate their house to the portion being sold by January 31, 1984. Petitioners are presently occupying the front portion of the property. Why the need for a right of way and for petitioners to relocate if the front portion on which their house stands is the portion being sold?

This condition is a suspensive condition noncompliance of which prevented the Gloriosos from proceeding with the sale and ultimately

transferring title to petitioners; and the Kasunduan from having obligatory force.[15] It is established by evidence that the petitioners did not transfer their house located in the front portion of the subject property to the rear portion which, under the Kasunduan, they intended to buy. Thus, no obligation arose on the part of the Gloriosos to consider the subject property as having been sold to petitioners because the latters non-fulfillment of the suspensive condition rendered the contract to sell ineffective and unperfected.

Petitioners admit that they have not paid a single centavo to the Gloriosos. However, petitioners argue that their nonpayment of the purchase price was due to the fact that there is yet to be a survey made of the property. But evidence shows, and petitioners do not dispute, that as early as August 12, 1983, or six days after the execution of the Kasunduan, a survey has already been made and the property was subdivided into Lot Nos. 565-B-1 (front portion) and 565-B-2 (rear portion), with Lot No. 565-B-2 measuring 223 square meters as the portion to be bought by petitioners.

Petitioners question the survey made, asserting that it is a table survey made without their knowledge and participation. It should be pointed out that theKasunduan merely provides that the expenses for the survey will be divided between them and that each party should give an amount of no less than P400.00. Nowhere is it stated that the survey is a condition precedent for the payment of the purchase price.

Petitioners further claim that respondents have no cause of action against them because their obligation to pay the purchase price did not yet arise, as the agreement did not provide for a period within which to pay the purchase price. They argue that respondents should have filed an action for specific performance or judicial rescission before they can avail of accion publiciana.

Notably, petitioners never raised these arguments during the proceedings before the RTC. Suffice it to say that issues raised for the first time on appeal and not raised timely in the proceedings in the lower court are barred by estoppel.[16] Matters, theories or arguments not brought out in the original proceedings cannot be considered on review or appeal where they are raised for the first time. To consider the alleged

facts and arguments raised belatedly would amount to trampling on the basic principles of fair play, justice and due process.[17]

Moreover, it would be inutile for respondents to first petition the court to fix a period for the performance of the contract. In the first place, respondents are not parties to the Kasunduan between petitioners and the Gloriosos, and they have no standing whatsoever to seek such recourse. In the second place, such recourse properly pertains to petitioners. It was they who should have sought the courts intercession. If petitioners believed that they have an actionable contract for the sale of the property, prudence and common sense dictate that they should have sought its enforcement forthwith. Instead, petitioners whiled away their time.

Furthermore, there is no need for a judicial rescission of the Kasunduan for the simple reason that the obligation of the Gloriosos to transfer the property to petitioners has not yet arisen. There can be no rescission of an obligation that is nonexistent, considering that the suspensive conditions therefor have not yet happened.[18]

Hence, petitioners have no superior right of ownership or possession to speak of. Their occupation of the property was merely through the tolerance of the owners. Evidence on record shows that petitioners and their predecessors were able to live and build their house on the property through the permission and kindness of the previous owner, Pedro Hipolito, who was their relative,[19] and subsequently, Teresita Glorioso, who is also their relative. They have no title or, at the very least, a contract of lease over the property. Based as it was on mere tolerance, petitioners possession could neither ripen into ownership nor operate to bar any action by respondents to recover absolute possession thereof.[20]

There is also no merit to petitioners contention that respondents are buyers in bad faith. As explained in Coronel vs. Court of Appeals:

In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief

of reconveyance of the property. There is no double sale in such case.  Title to the property will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer.[21] (Emphasis supplied)

A person who occupies the land of another at the latter's forbearance or permission without any contract between them is necessarily bound by an implied promise that he will vacate upon demand.[22]

Considering that petitioners continued possession of the property has already been rendered unlawful, they are bound to pay reasonable rental for the use and occupation thereof, which in this case was appropriately pegged by the RTC at P500.00 per month beginning October 21, 1994 when respondents filed the case against them until they vacate the premises.

Finally, petitioners seek compensation for the value of the improvements introduced on the property. Again, this is the first time that they are raising this point. As such, petitioners are now barred from seeking such relief.[23]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated October 3, 2000 in CA-G.R. CV No. 61247 is AFFIRMED.

SO ORDERED.

[G.R. No. 146997. April 26, 2005]

SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, vs. COURT OF APPEALS & WILLIAM ONG GENATO, respondents.

D E C I S I O N

CORONA, J.:

Before us is a petition for review under Rule 45 of the Rules of Court, seeking to set aside the October 6, 2000 decision[1] of the Court of Appeals in CA-G.R. CV No. 56035.

The facts as outlined by the trial court[2] follow.

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This is an action to declare null and void the mortgage executed by defendant Oakland Development Resources Corp. xxx in favor of defendant William Ong Genato over the house and lot plaintiffs spouses Godofredo and Dominica Flancia purchased from defendant corporation.

In the complaint, plaintiffs allege that they purchased from defendant corporation a parcel of land known as Lot 12, Blk. 3, Phase III-A containing an area of 128.75 square meters situated in Prater Village Subd. II located at Brgy. Old Balara, Quezon City; that by virtue of the contract of sale, defendant corporation authorized plaintiffs to transport all their personal belongings to their house at the aforesaid lot; that on December 24, 1992, plaintiffs received a copy of the execution foreclosing [the] mortgage issued by the RTC, Branch 98 ordering defendant Sheriff Sula to sell at public auction several lots formerly owned by defendant corporation including subject lot of plaintiffs; that the alleged mortgage of subject lot is null and void as it is not authorized by plaintiffs pursuant to Art. 2085 of the Civil Code which requires that the mortgagor must be the absolute owner of the mortgaged property; that as a consequence of the nullity of said mortgage, the execution foreclosing [the] mortgage is likewise null and void; that plaintiffs advised defendants to exclude subject lot from the auction sale but the latter refused. Plaintiffs likewise prayed for damages in the sum of P50,000.00.

Defendant William Ong Genato filed a motion to dismiss the complaint which was opposed by the plaintiffs and denied by the Court in its Order dated February 16, 1993.

Defendant Genato, then filed his answer averring that on May 19, 1989 co-defendant Oakland Development Resources Corporation mortgaged to Genato two (2) parcels of land covered by TCT Nos. 356315 and 366380 as security and guaranty for the payment of a loan in the sum of P2,000,000.00; that it appears in the complaint that the subject parcel of land is an unsubdivided portion of the aforesaid TCT No. 366380 which covers an area of 4,334 square meters more or less; that said real estate mortgage has been duly annotated at the back of TCT No. 366380 on May 22, 1989; that for non-payment of the loan of P2,000,000.00 defendant Genato filed an action for foreclosure of real estate mortgage against co-

defendant corporation; that after [trial], a decision was rendered by the Regional Trial Court of Quezon City, Branch 98 against defendant corporation which decision was affirmed by the Honorable Court of Appeals; that the decision of the Court of Appeals has long become final and thus, the Regional Trial Court, Brach 98 of Quezon City issued an Order dated December 7, 1992 ordering defendant Sheriff Ernesto Sula to cause the sale at public auction of the properties covered by TCT No. 366380 for failure of defendant corporation to deposit in Court the money judgment within ninety (90) days from receipt of the decision of the Court of Appeals; that plaintiffs have no cause of action against defendant Genato; that the alleged plaintiffs Contract to Sell does not appear to have been registered with the Register of Deeds of Quezon City to affect defendant Genato and the latter is thus not bound by the plaintiffs Contract to Sell; that the registered mortgage is superior to plaintiffs alleged Contract to Sell and it is sufficient for defendant Genato as mortgagee to know that the subject TCT No. 366380 was clean at the time of the execution of the mortgage contract with defendant corporation and defendant Genato is not bound to go beyond the title to look for flaws in the mortgagors title; that plaintiffs alleged Contract to Sell is neither a mutual promise to buy and sell nor a Contract of Sale. Ownership is retained by the seller, regardless of delivery and is not to pass until full payment of the price; that defendant Genato has not received any advice from plaintiffs to exclude the subject lot from the auction sale, and by way of counterclaim, defendant Genato prays for P150,000.00 moral damages and P20,000.00 for attorneys fees.

On the other hand, defendant Oakland Development Resources Corporation likewise filed its answer and alleged that the complaint states no cause of action; xxx Defendant corporation also prays for attorneys fees of P20,000.00 in its counterclaim.[3]

After trial, the assisting judge[4] of the trial court rendered a decision dated August 16, 1996, the decretal portion of which provided:

Wherefore, premises considered, judgment is hereby rendered.

1) Ordering defendant Oakland Devt. Resources Corporation to pay plaintiffs:

a) the amount of P10,000.00 representing payment for the option to purchase lot;

b) the amount of P140,000.00 representing the first downpayment of the contract price;

c) the amount of P20,520.80 representing five monthly amortizations for February, March, April, May and June 1990;

d) the amount of P3,000.00 representing amortization for November 1990; all plus legal interest from the constitution of the mortgage up to the time the instant case was filed.

2) Ordering said defendant corporation to pay further to plaintiffs the sum of P30,000.00 for moral damages, P10,000.00 for exemplary damages and P20,000.00 for and as reasonable attorneys fees plus cost;

3) Dismissing defendant corporations counterclaim;

4) Dismissing defendant Genatos counterclaim.[5]

On motion for reconsideration, the regular presiding judge set aside the judgment of the assisting judge and rendered a new one on November 27, 1996, the decretal portion of which read:

WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The decision dated August 16, 1996 is hereby set aside and a new one entered in favor of the plaintiffs, declaring the subject mortgage and the foreclosure proceedings held thereunder as null and void insofar as they affect the superior right of the plaintiffs over the subject lot, and ordering as follows:

1. Defendant Oakland Development Resources to pay to plaintiffs the amount of P20,000.00 for litigation-related expenses;

2. Ordering defendant Sheriff Ernesto L. Sula to desist from conducting further proceedings in the extra-judicial foreclosure insofar as they affect the plaintiffs, or, in the event that title has been consolidated in the name of defendant William O. Genato, ordering said defendant to reconvey to plaintiffs the title corresponding to Lot 12, Blk. 3, Phase III-A of Prater Village [Subd. II], located in

Old Balara, Quezon City, containing an area of 128.75 square meters; and

3. Dismissing the counterclaims of defendants Oakland and Genato and with costs against them.[6]

On appeal, the Court of Appeals issued the assailed order:

Wherefore, foregoing premises considered, the appeal having merit in fact and in law is hereby GRANTED and the decision of the Trial Court dated 27 November 1996 hereby SET ASIDE andREVERSED, and its judgment dated August 16, 1996 REINSTATED and AFFIRMED IN TOTO. No Costs.

SO ORDERED.[7]

Hence, this petition.

For resolution before us now are the following issues:

(1) whether or not the registered mortgage constituted over the property was valid;

(2) whether or not the registered mortgage was superior to the contract to sell; and

(3) whether or not the mortgagee was in good faith.

Under the Art. 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a) that it be constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

All these requirements are present in this case.

FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?

As to the first essential requisite of a mortgage, it is undisputed that the mortgage was executed on May 15, 1989 as security for a loan obtained by Oakland from Genato.

SALES 18

As to the second and third requisites, we need to discuss the difference between a contract of sale and a contract to sell.

In a contract of sale, title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved by the vendor and is not to pass to the vendee until full payment of the purchase price.

Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it unless and until the contract is resolved or rescinded; in a contract to sell, title is retained by the vendor until full payment of the price.[8]

In the contract between petitioners and Oakland, aside from the fact that it was denominated as a contract to sell, the intention of Oakland not to transfer ownership to petitioners until full payment of the purchase price was very clear. Acts of ownership over the property were expressly withheld by Oakland from petitioner. All that was granted to them by the occupancy permit was the right to possess it.

Specifically, the contract between Oakland and petitioners stated:

xxx xxx xxx

7. That the BUYER/S may be allowed to enter into and take possession of the property upon issuance of Occupancy Permit by the OWNER/DEVELOPER exclusively, although title has not yet passed to the BUYER/S, in which case his possession shall be that of a possessor by mere tolerance Lessee, subject to certain restrictions contained in this deed.

xxx xxx xxx

13. That the BUYER/S cannot sell, mortgage, cede, transfer, assign or in any manner alienate or dispose of, in whole or in part, the rights acquired by and the obligations imposed on the BUYER/S by virtue of this contract, without the express written consent of the OWNER/DEVELOPER.

xxx xxx xxx

24. That this Contract to Sell shall not in any way [authorize] the BUYER/S to occupy the assigned house and lot to them.[9]

xxx xxx xxx

Clearly, when the property was mortgaged to Genato in May 1989, what was in effect between Oakland and petitioners was a contract to sell, not a contract of sale. Oakland retained absolute ownership over the property.

Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby.[10] According to Art. 428 of the Civil Code, this means that:

The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law.

xxx xxx xxx

Aside from the jus utendi and the jus abutendi [11] inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi, is the power of the owner to alienate,encumber, transform and even destroy the thing owned.[12]

Because Oakland retained all the foregoing rights as owner of the property, it was entitled absolutely to mortgage it to Genato. Hence, the mortgage was valid.

SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE CONTRACT TO SELL?

In their memorandum, petitioners cite our ruling in State

Investment House, Inc. v. Court of Appeals [13] to the effect that an unregistered sale is preferred over a registered mortgage over the same property. The citation is misplaced.

This Court in that case explained the rationale behind the rule:

The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner xxx had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing as to be able to mortgage it again.

State Investment House is completely inapplicable to the case at bar. A contract of sale and a contract to sell are worlds apart. State Investment House clearly pertained to a contract of sale, not to a contract to sell which was what Oakland and petitioners had. In State Investment House, ownership had passed completely to the buyers and therefore, the former owner no longer had any legal right to mortgage the property, notwithstanding the fact that the new owner-buyers had not registered the sale. In the case before us, Oakland retained absolute ownership over the property under the contract to sell and therefore had every right to mortgage it.

In sum, we rule that Genatos registered mortgage was superior to petitioners contract to sell, subject to any liabilities Oakland may have incurred in favor of petitioners by irresponsibly mortgaging the property to Genato despite its commitments to petitioners under their contract to sell.

THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?

The third issue involves a factual matter which should not be raised in this petition. Only questions of law may be raised in a Rule 45 petition. This Court is not a trier of facts. The resolution of factual issues is the function of the lower courts. We therefore adopt the factual findings of the Court of Appeals and uphold the good faith of the mortgagee Genato.

RELIANCE ON WHAT APPEARS IN THE TITLE

Just as an innocent purchaser for value may rightfully rely on what appears in the certificate of title, a mortgagee has the right to rely on what appears in the title presented to him. In the absence of anything to arouse suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of the said certificate. [14]

We agree with the findings and conclusions of the trial court regarding the liabilities of Oakland in its August 16, 1996 decision, as affirmed by the Court of Appeals:

Anent [plaintiffs] prayer for damages, the Court finds that defendant corporation is liable to return to plaintiffs all the installments/payments made by plaintiffs consisting of the amount ofP10,000.00 representing payment for the option to purchase lot; the amount of P140,000.00 which was the first downpayment; the sum of P20,520.80 representing five monthly amortizations for February, March, April, May and June 1990 and the amount of P3,000.00 representing amortization for November 1990 plus legal interest from the time of the mortgage up to the time this instant case was filed. Further, considering that defendant corporation wantonly and fraudulently mortgaged the subject property without regard to [plaintiffs] rights over the same, said defendant should pay plaintiffs moral damages in the reasonable amount of P30,000.00. xxx Furthermore, since defendant [corporations] acts have compelled the plaintiffs to litigate and incur expenses to protect their interest, it should likewise be adjudged to pay plaintiffs attorneys fees of P20,000.00 under Article 2208 paragraph two (2) of the Civil Code.[15]

WHEREFORE, the petition for review is hereby DENIED. The decision of the Court of Appeals reinstating the August 16, 1996 decision of the trial court is hereby AFFIRMED.

SO ORDERED.

[G.R. No. 103577. October 7, 1996]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

D E C I S I O N

SALES 19

MELO, J.:

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price ofP1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred to as Coronels) executed a document entitled Receipt of Down Payment (Exh. A) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 - Total amount

50,000.00 - Down payment

------------------------------------------

P1,190,000.00 - Balance

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

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

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

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon execution of the document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).

On February 6, 1985, the property originally registered in the name of the Coronels father was transferred in their names under TCT No. 327043 (Exh. D; Exh 4)

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)

For this reason, Coronels canceled and rescinded the contract (Exh. A) with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. F; Exh. 6).

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. G; Exh. 7).

On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. H; Exh. 8).

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits A through J, inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits 1 through 10, likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereto, after which, the case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and

declared to be without force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs claim for damages and attorneys fees, as well as the counterclaims of defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioners before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve cases submitted

SALES 20

to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully agreeing with the trial court.

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial courts decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled Receipt of Down Payment

which was offered in evidence by both parties. There is no dispute as to the fact that the said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the Receipt of Down Payment embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract of absolute sale.

Plainly, such variance in the contending parties contention is brought about by the way each interprets the terms and/or conditions set forth in said private instrument.Withal, based on whatever relevant and admissible evidence may be available on record, this Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed.

The Civil Code defines a contract of sale, thus:

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

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and 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.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor of the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while

expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer.

SALES 21

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if there had been previous delivery of the subject property, the sellers ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the sellers title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents.

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said Receipt of Down Payment that they --

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property.

When the Receipt of Down payment is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioners father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new

certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land.Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title change to their names and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer if the documents were then in order. It just so happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the ones who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale.

What is clearly established by the plain language of the subject document is that when the said Receipt of Down Payment was prepared and signed by petitioners Romulo A. Coronel, et. al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners father, Constancio P. Coronel, to their names.

The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the Receipt of Down Payment.

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,

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.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the

happening of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:

3. The petitioners-sellers Coronel bound themselves to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that:

. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.)

(Ibid.)

not aware that they have set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein

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referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. D; Exh. 4).

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties entered into a contract of sale subject to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their fathers name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. D; Exh. 4).

We, therefore, hold that, in accordance with Article 1187 which pertinently provides -

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . .

In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.

Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property.

We cannot sustain this argument.

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by

operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedents name to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners rescission, are mere allegations found only

in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).

Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioners-sellers act of unilaterally and extrajudicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal Check (Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcions authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramonas corresponding obligation to pay the balance of the

purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

x x x

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the

SALES 23

issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyers rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citingCarbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).

(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

Petitioners point out that the notice of lis pendens in the case at bar was annotated on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is a buyer in good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners title to the property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.

Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed

between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts ruling on this point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.

[G.R. No. 125531. February 12, 1997]

JOVAN LAND, petitioner, vs. COURT OF APPEALS and EUGENIO QUESADA, INC., respondents.

D E C I S I O N

HERMOSISIMA, JR. J.:

This is a petition for review on certiorari to reverse and set aside the decision of the Court of Appeals in C.A.-G.R. CV No. 47515.

Petitioner Jovan Land, Inc. is a corporation engaged in the real estate business. Its President and Chairman of the Board of Directors is one Joseph Sy.

Private respondent Eugenio Quesada is the owner of the Q Building located on an 801 sq. m. lot at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila.The property is covered by TCT No. 77796 of the Registry of Deeds of Manila.

Petitioner learned from co-petitioner Consolacion P. Mendoza that private respondent was selling the aforesaid Mayhaligue property. Thus, petitioner through Joseph Sy made a written offer, dated July 27, 1987 for P10.25 million. This first offer was not accepted by Conrado Quesada, the General Manager of private respondent. Joseph Sy sent a second written offer dated July 31, 1989 for the same price but inclusive of an undertaking to pay the documentary stamp tax, transfer tax, registration fees and notarial charges. Check No. 247048, dated July 31, 1989, for one million pesos drawn against the Philippine Commercial and Industrial Bank (PCIB) was enclosed therewith as earnest money. This second offer, with earnest money, was again rejected by Conrado Quesada. Undaunted, Joseph Sy, on August 10, 1989, sent a third written offer for twelve million pesos with

a similar check for one million pesos as earnest money. Annotated on this third letter-offer was the phrase "Received original, 9-4-89" beside which appears the signature of Conrado Quesada.

On the basis of this annotation which petitioner insists is the proof that there already exists a valid, perfected agreement to sell the Mayhaligue property, petitioner filed with the trial court, a complaint for specific performance and collection of sum of money with damages. However, the trial court held that:

"x x x the business encounters between Joseph Sy and Conrado Quesada had not passed the negotiation stage relating to the intended sale by the defendant corporation of the property in question. x x x As the court finds, there is nothing in the record to point that a contract was ever perfected. In fact, there is nothing in writing which is indispensably necessary in order that the perfected contract could be enforced under the Statute of Frauds."[1]

Since the trial court dismissed petitioner's complaint for lack of cause of action, petitioner appealed[2] to respondent Court of Appeals before which it assigned the following errors:

"1. The Court a quo failed to appreciate that there was already a perfected contract of sale between Jovan Land, Inc. and the private respondent];

2. The Court a quo erred in its conclusion that there was no implied acceptance of the offer by appellants to appellee [private respondent];

3. The Court a quo was in error where it concluded that the contract of sale was unenforceable;

4.The Court a quo failed to rule that appellant [petitioner] Mendoza is entitled to her broker's commission."[3]

Respondent court placed petitioner to task on their assignment of errors and concluded that not any of them justifies a reversal of the trial court decision.

We agree.

In the case of Ang Yu Asuncion v. Court of Appeals,[4] we held that:

SALES 24

"xxx [A] contract (Art. 1157, Civil Code), x x x is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service xxx. A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded xxx. The perfection of the contract takes place upon the concurrence of the essential elements thereof."

Moreover, it is a fundamental principle that before contract of sale can be valid, the following elements must be present, viz: (a) consent or meeting of the minds; (b) determinate subject matter; (3) price certain in money or its equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.

In the case at bench, petitioner, anchors its main argument on the annotation on its third letter-offer of the phrase "Received original, 9-4-89," beside which appears the signature of Conrado Quesada. It also contends that the said annotation is evidence to show that there was already a perfected agreement to sell as respondent can be said to have accepted petitioner's payment in the form of a check which was enclosed in the third letter.

However, as correctly elucidated by the Court of Appeals:

"Sy insisted in his testimony that this offer of P12M was accepted by Conrado Quesada but there is nothing written or documentary to show that such offer was accepted by Conrado Quesada. While Sy claimed that the acceptance could be gleaned from the notation in the third written offer, the court is not impressed thereon however because the notation merely states as follows: "Received Original, (S)-Conrado Quesada" and below this signature is "9-4-89". As explained by Conrado Quesada in his testimony what was received by him was the original of the written offer.

The court cannot believe that this notation marked as Exhibit D-2 would signify the acceptance of the offer. Neither does it signify, as Sy had testified that

the check was duly received on said date. If this were true Sy, who appears to be an intelligent businessman could have easily asked Conrado Quesada to indicate on Exhibit D the alleged fact of acceptance of said check. And better still, Sy could have asked Quesada the acceptance in writing separate of the written offer if indeed there was an agreement as to the price of the proposed sale of the property in question."[5]

Clearly then, a punctilious examination of the receipt reveals that the same can neither be regarded as a contract of sale nor a promise to sell. Such an annotation by Conrado Quesada amounts to neither a written nor an implied acceptance of the offer of Joseph Sy. It is merely a memorandum of the receipt by the former of the latter's offer.The requisites of a valid contract of sale are lacking in said receipt and therefore the "sale" is neither valid nor enforceable.

Although there was a series of communications through letter-offers and rejections as evident from the facts of this case, still it is undeniable that no written agreement was reached between petitioner and private respondent with regard to the sale of the realty. Hence, the alleged transaction is unenforceable as the requirements under the Statute of Frauds have not been complied with. Under the said provision, an agreement for the sale of real property or of an interest therein, to be enforceable, must be in writing and subscribed by the party charged or by an agent thereof

Petitioner also asseverates that the failure of Conrado Quesada to return the check for one million pesos, translates to implied acceptance of its third letter-offer. It, however, does not rebut the finding of the trial court that private respondent was returning the check but petitioner refused to accept the same and that when Conrado Quesada subsequently sent it back to petitioner through registered mail, the latter failed to claim its mail from the post office.

Finally, we fittingly apply here the oft-repeated doctrine that the factual findings of the trial court, especially as regards the credibility of witnesses, are conclusive upon this court, unless the case falls under the jurisprudentially established exceptions. But this is a case that tenders no exceptional circumstance; rather, we find the observations of the trial court to be legally sound and valid:

"x x x Joseph Sy's testimony is not impressive because of several inconsistencies herein pointed out. On the matter of earnest money, the same appears to be the idea solely of the [petitioner], assuming that he had intended to bind the [petitioner] corporation. In the written second offer x x x he had stated that the check of P1M had been enclosed (attached) therewith. The same check x x x was again mentioned to be enclosed (attached) in the third written offer under date August 10, 1989 x x x. Sy testified in his direct examination that he had personally given this check to Conrado Quesada. But on cross examination, he reversed himself by saying that the check was given thru his [co-petitioner] Mendoza. Examining the third written offer, it appears that when it was first typewritten, this P11M was noted to have been corrected, and that as per his testimony, Sy had increased it to P12M. This is the reason according to Sy why there was a superimposition of the number '12' over the number '11' to mean P12M as the revised consideration for the sale of the property in question."[6]

Respondent court thus concluded that:

"x x x [since] the matter of evaluation of the credibility of witness[es] is addressed to the trial court and unless clearly contrary to the records before Us, the findings of the said court are entitled to great respondent on appeal, x x x it was Joseph Sy's idea to offer the earnest money, and the evidence to show that Joseph Sy accepted the same, is wanting. x x x"[7]

and accordingly affirmed the trial court judgment appealed from.

As shown elucidated above, we agree with the findings and conclusions of the trial court and the respondent court. Neither has petitioner posited any new issues in the instant petition that warrant the further exercise by this court of its review powers.

WHEREFORE, premises considered, this petition is DENIED.

Costs against petitioner.

SO ORDERED.

[G. R. No. 136773. June 25, 2003]

MILAGROS MANONGSONG, joined by her husband, CARLITO MANONGSONG, petitioners, vs. FELOMENA JUMAQUIO ESTIMO, EMILIANA JUMAQUIO, NARCISO ORTIZ, CELESTINO ORTIZ, RODOLFO ORTIZ, ERLINDA O. OCAMPO, PASTOR ORTIZ, JR., ROMEO ORTIZ BENJAMIN DELA CRUZ, SR., BENJAMIN DELA CRUZ, JR., AURORA NICOLAS, GLORIA RACADIO, ROBERTO DELA CRUZ, JOSELITO DELA CRUZ and LEONCIA S. LOPEZ, respondents.

D E C I S I O N

CARPIO, J.:

The Case

Before this Court is a petition for review[1] assailing the Decision[2] of 26 June 1998 and the Resolution of 21 December 1998 of the Court of Appeals in CA-G.R. CV No. 51643. The Court of Appeals reversed the Decision dated 10 April 1995 of the Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-1685, partitioning the property in controversy and awarding to petitioners a portion of the property.

Antecedent Facts

Spouses Agatona Guevarra (Guevarra) and Ciriaco Lopez had six (6) children, namely: (1) Dominador Lopez; (2) Enriqueta Lopez-Jumaquio, the mother of respondents Emiliana Jumaquio Rodriguez and Felomena Jumaquio Estimo (Jumaquio sisters); (3) Victor Lopez, married to respondent Leoncia Lopez; (4) Benigna Lopez-Ortiz, the mother of respondents Narciso, Celestino, Rodolfo, Pastor Jr. and Romeo Ortiz, and Erlinda Ortiz Ocampo; (5) Rosario Lopez-dela Cruz, married to respondent Benjamin dela Cruz, Sr. and the mother of respondents Benjamin Jr., Roberto, and Joselito, all surnamed dela Cruz, and of Gloria dela Cruz Racadio and Aurora dela Cruz Nicolas; and (6) Vicente Lopez, the father of petitioner Milagros Lopez Manongsong (Manongsong).

The contested property is a parcel of land on San Jose Street, Manuyo Uno, Las Pias, Metro Manila with an area of approximately 152 square meters (Property). The records do not show that the Property is registered under the Torrens system. The Property

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is particularly described in Tax Declaration No. B-001-00390[3] as bounded in the north by Juan Gallardo, south by Calle Velay, east by Domingo Lavana and west by San Jose Street. Tax Declaration No. B-001-00390 was registered with the Office of the Municipal Assessor of Las Pias on 30 September 1984 in the name of Benigna Lopez, et al.[4] However, the improvements on the portion of the Property denominated as No. 831 San Jose St., Manuyo Uno, Las Pias were separately declared in the name of Filomena J. Estimo under Tax Declaration No. 90-001-02145 dated 14 October 1991.[5]

Milagros and Carlito Manongsong (petitioners) filed a Complaint[6] on 19 June 1992, alleging that Manongsong and respondents are the owners pro indiviso of the Property.Invoking Article 494 of the Civil Code,[7] petitioners prayed for the partition and award to them of an area equivalent to one-fifth (1/5) of the Property or its prevailing market value, and for damages.

Petitioners alleged that Guevarra was the original owner of the Property. Upon Guevarras death, her children inherited the Property. Since Dominador Lopez died without offspring, there were only five children left as heirs of Guevarra. Each of the five children, including Vicente Lopez, the father of Manongsong, was entitled to a fifth of the Property. As Vicente Lopez sole surviving heir, Manongsong claims her fathers 1/5 share in the Property by right of representation.

There is no dispute that respondents, who are the surviving spouses of Guevarras children and their offspring, have been in possession of the Property for as long as they can remember. The area actually occupied by each respondent family differs, ranging in size from approximately 25 to 50 square meters. Petitioners are the only descendants not occupying any portion of the Property.

Most respondents, specifically Narciso, Rodolfo, Pastor Jr., and Celestino Ortiz, and Erlinda Ortiz Ocampo (Ortiz family), as well as Benjamin Sr., Benjamin Jr., and Roberto dela Cruz, Aurora dela Cruz Nicolas and Gloria Dela Cruz Racadio (Dela Cruz family), entered into a compromise agreement with petitioners. Under the Stipulation of Facts and Compromise Agreement[8] dated 12 September 1992 (Agreement), petitioners and the Ortiz and Dela Cruz

families agreed that each group of heirs would receive an equal share in the Property. The signatories to the Agreement asked the trial court to issue an order of partition to this effect and prayed further that those who have exceeded said one-fifth (1/5) must be reduced so that those who have less and those who have none shall get the correct and proper portion.[9]

Among the respondents, the Jumaquio sisters and Leoncia Lopez who each occupy 50 square meter portions of the Property and Joselito dela Cruz, did not sign the Agreement.[10] However, only the Jumaquio sisters actively opposed petitioners claim. The Jumaquio sisters contended that Justina Navarro (Navarro), supposedly the mother of Guevarra, sold the Property to Guevarras daughter Enriqueta Lopez Jumaquio.

The Jumaquio sisters presented provincial Tax Declaration No. 911[11] for the year 1949 in the sole name of Navarro. Tax Declaration No. 911 described a residential parcel of land with an area of 172.51 square meters, located on San Jose St., Manuyo, Las Pias, Rizal with the following boundaries: Juan Gallardo to the north, I. Guevarra Street to the south, Rizal Street to the east and San Jose Street to the west. In addition, Tax Declaration No. 911 stated that the houses of "Agatona Lopez" and "Enriquita Lopez" stood on the Property as improvements.

The Jumaquio sisters also presented a notarized KASULATAN SA BILIHAN NG LUPA[12] (Kasulatan) dated 11 October 1957, the relevant portion of which states:

AKO SI JUSTINA NAVARRO, sapat ang gulang, may asawa, Pilipino at naninirahan sa LAS PIAS, ay siyang nagma-may-ari at nagtatangkilik ng isang lagay na lupa na matatagpuan sa Manuyo, Las Pias, Rizal, lihis sa anomang pagkakautang lalong napagkikilala sa pamamagitan ng mga sumusunod na palatandaan:

BOUNDARIES:

NORTH: JUAN GALLARDO SOUTH: I. GUEVARRA ST. EAST: RIZAL ST., WEST: SAN JOSE ST.,

na may sukat na 172.51 metros cuadrados na may TAX DECLARATION BILANG 911.

NA DAHIL AT ALANG ALANG sa halagang DALAWANG DAAN LIMANGPUNG PISO (P250.00), SALAPING PILIPINO, na sa akin ay kaliwang iniabot at ibinayad ni ENRIQUETA LOPEZ, may sapat na gulang, Pilipino, may asawa at naninirahan sa Las Pias, Rizal, at sa karapatang ito ay aking pinatutunayan ng pagkakatanggap ng nasabing halaga na buong kasiyahan ng aking kalooban ay aking IPINAGBILI, ISINALIN AT INILIPAT sa nasabing, ENRIQUETA LOPEZ, sa kanyang mga tagapagmana at kahalili, ang kabuuang sukat ng lupang nabanggit sa itaas nito sa pamamagitan ng bilihang walang anomang pasubali. Ang lupang ito ay walang kasama at hindi taniman ng palay o mais.

Simula sa araw na ito ay aking ililipat ang pagmamay-ari at pagtatangkilik ng nasabing lupa kay ENRIQUETA LOPEZ sa kanilang/kanyang tagapagmana at kahalili x x x.

The Clerk of Court of the Regional Trial Court of Manila certified on 1 June 1994 that the KASULATAN SA BILIHAN NG LUPA, between Justina Navarro (Nagbili) and Enriqueta Lopez (Bumili), was notarized by Atty. Ruperto Q. Andrada on 11 October 1957 and entered in his Notarial Register xxx.[13] The certification further stated that Atty. Andrada was a duly appointed notary public for the City of Manila in 1957.

Because the Jumaquio sisters were in peaceful possession of their portion of the Property for more than thirty years, they also invoked the defense of acquisitive prescription against petitioners, and charged that petitioners were guilty of laches. The Jumaquio sisters argued that the present action should have been filed years earlier, either by Vicente Lopez when he was alive or by Manongsong when the latter reached legal age. Instead, petitioners filed this action for partition only in 1992 whenManongsong was already 33 years old.

The Ruling of the Trial Court

After trial on the merits, the trial court in its Decision[14] of 10 April 1995 ruled in favor of petitioners. The trial court held that the Kasulatan was void, even absent evidence attacking its validity. The trial court declared:

It appears that the ownership of the estate in question is controverted. According to defendants Jumaquios, it pertains to them through conveyance by means of a Deed of Sale executed by their common ancestor Justina Navarro to their mother Enriqueta, which deed was presented in evidence as Exhs. 4 to 4-A. Plaintiff Milagros Manongsong debunks the evidence as fake. The document of sale, in the observance of the Court, is however duly authenticated by means of a certificate issued by the RTC of the Manila Clerk of Court as duly notarized public document (Exh. 5). No countervailing proof was adduced by plaintiffs to overcome or impugn the documents legality or its validity.

xxx The conveyance made by Justina Navarro is subject to nullity because the property conveyed had a conjugal character. No positive evidence had been introduced that it was solely a paraphernal property. The name of Justina Navarros spouse/husband was not mentioned and/or whether the husband was still alive at the time the conveyance was made to Justina Navarro.Agatona Guevarra as her compulsory heir should have the legal right to participate with the distribution of the estate under question to the exclusion of others. She is entitled to her legitime. The Deed of Sale [Exhs 4 & 4-1(sic)] did not at all provide for the reserved legitime or the heirs, and, therefore it has no force and effect against Agatona Guevarra and her six (6) legitimate children including the grandchildren, by right of representation, as described in the order of intestate succession. The same Deed of Sale should be declared a nullity ab initio. The law on the matter is clear. The compulsory heirs cannot be deprived of their legitime, except on (sic) cases expressly specified by law like for instance disinheritance for cause. xxx (Emphasis supplied)

Since the other respondents had entered into a compromise agreement with petitioners, the dispositive portion of the trial courts decision was directed against the Jumaquio sisters only, as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the remaining active defendants, Emiliana Jumaquio and Felomena J. Estimo, jointly and severally, ordering:

SALES 26

1. That the property consisting of 152 square meters referred to above be immediately partitioned giving plaintiff Milagros Lopez-Manongsong her lawful share of 1/5 of the area in square meters, or the prevailing market value on the date of the decision;

2. Defendants to pay plaintiffs the sum of P10,000.00 as compensatory damages for having deprived the latter the use and enjoyment of the fruits of her 1/5 share;

3. Defendants to pay plaintiffs litigation expenses and attorneys fee in the sum of P10,000.00; and

4. Defendants to pay the costs of suit.

SO ORDERED.[15] (Emphasis supplied)

When the trial court denied their motion for reconsideration, the Jumaquio sisters appealed to the Court of Appeals.

The Ruling of the Court of Appeals

Petitioners, in their appellees brief before the Court of Appeals, presented for the first time a supposed photocopy of the death certificate[16] of Guevarra, which stated that Guevarras mother was a certain Juliana Gallardo. Petitioner also attached an affidavit[17] from Benjamin dela Cruz, Sr. attesting that he knew Justina Navarro only by name and had never met her personally, although he had lived for some years with Agatona Guevarra after his marriage with Rosario Lopez. On the basis of these documents, petitioners assailed the genuineness and authenticity of the Kasulatan.

The Court of Appeals refused to take cognizance of the death certificate and affidavit presented by petitioners on the ground that petitioners never formally offered these documents in evidence.

The appellate court further held that the petitioners were bound by their admission that Navarro was the original owner of the Property, as follows:

Moreover, plaintiffs-appellees themselves admitted before the trial court that Justina Navarro and not Juliana Gallardo was the original owner of the subject property and was the mother of Agatona Navarro

(sic). Plaintiffs-appellees in their Reply-Memorandum averred:

As regards the existence of common ownership, the defendants clearly admit as follows:

xxx xxx xxx

History of this case tells us that originally the property was owned by JUSTINA NAVARRO who has a daughter by the name of AGATONA GUEVARRA who on the other hand has six children namely: xxx xxx xxx.

which point-out that co-ownership exists on the property between the parties. Since this is the admitted history, facts of the case, it follows that there should have been proper document to extinguish this status of co-ownership between the common owners either by (1) Court action or proper deed of tradition, xxx xxx xxx.

The trial court confirms these admissions of plaintiffs-appellees. The trial court held:

xxx xxx xxx

With the parties admissions and their conformity to a factual common line of relationship of the heirs with one another, it has been elicited ascendant Justina Navarro is the common ancestor   of the heirs herein mentioned, however, it must be noted that the parties failed to amplify who was the husband and the number of compulsory heirs of Justina Navarro. xxx xxx xxx

Therefore, plaintiffs-appellees cannot now be heard contesting the fact that Justina Navarro was their common ancestor and was the original owner of the subject property.

The Court of Appeals further held that the trial court erred in assuming that the Property was conjugal in nature when Navarro sold it. The appellate court reasoned as follows:

However, it is a settled rule that the party who invokes the presumption that all property of marriage belongs to the conjugal partnership, must first prove that the property was acquired during the marriage. Proof of acquisition during the coveture is a

condition sine qua non for the operation of the presumption in favor of conjugal ownership.

In this case, not a single iota of evidence was submitted to prove that the subject property was acquired by Justina Navarro during her marriage. xxx

The findings of the trial court that the subject property is conjugal in nature is not supported by any evidence.

To the contrary, records show that in 1949 the subject property was declared, for taxation purposes under the name of Justina Navarro alone. This indicates that the land is the paraphernal property of Justina Navarro.

For these reasons, the Court of Appeals reversed the decision of the trial court, thus:

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. A new one is hereby rendered DISMISSING plaintiffs-appellees complaint in so far as defendants-appellants are concerned.

Costs against plaintiffs-appellees.

SO ORDERED.[18]

Petitioners filed a motion for reconsideration, but the Court of Appeals denied the same in its Resolution of 21 December 1998.[19]

On 28 January 1999, petitioners appealed the appellate courts decision and resolution to this Court. The Court initially denied the petition for review due to certain procedural defects. The Court, however, gave due course to the petition in its Resolution of 31 January 2000.[20]

The Issues

Petitioners raise the following issues before this Court:

1. WHETHER PETITIONER HAS NO COUNTERVAILING EVIDENCE ON THE ALLEGED SALE BY ONE JUSTINA NAVARRO;

2. WHETHER THERE IS PRETERITION AND THE ISSUES RAISED ARE REVIEWABLE;

3. WHETHER THERE IS CO-OWNERSHIP PRO INDIVISO;

4. WHETHER THE RULE OF THE MAJORITY CO-OWNERS ON THE LAND SHOULD PREVAIL;

5. WHETHER THE ALLEGED SALE IS VALID AND BINDS THE OTHER CO-HEIRS;

6. WHETHER PRESCRIPTION APPLIES AGAINST THE SHARE OF PETITIONERS.[21]

The fundamental question for resolution is whether petitioners were able to prove, by the requisite quantum of evidence, that Manongsong is a co-owner of the Property and therefore entitled to demand for its partition.

The Ruling of the Court

The petition lacks merit.

The issues raised by petitioners are mainly factual in nature. In general, only questions of law are appealable to this Court under Rule 45. However, where the factual findings of the trial court and Court of Appeals conflict, this Court has the authority to review and, if necessary, reverse the findings of fact of the lower courts.[22] This is precisely the situation in this case.

We review the factual and legal issues of this case in light of the general rules of evidence and the burden of proof in civil cases, as explained by this Court in Jison v. Court of Appeals :[23]

xxx Simply put, he who alleges the affirmative of the issue has the burden of proof, and upon the plaintiff in a civil case, the burden of proof never parts. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiff's prima facie case, otherwise, a verdict must be returned in favor of plaintiff. Moreover, in civil cases, the party having the burden of proof must produce a preponderance of evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the weakness of the defendants. The concept of preponderance of evidence refers to evidence which is of greater

SALES 27

weight, or more convincing, that which is offered in opposition to it; at bottom, it means probability of truth.

Whether the Court of Appeals erred in affirming the validity of the

Kasulatan sa Bilihan ng Lupa

Petitioners anchor their action for partition on the claim that Manongsong is a co-owner or co-heir of the Property by inheritance, more specifically, as the heir of her father, Vicente Lopez. Petitioners likewise allege that the Property originally belonged to Guevarra, and that Vicente Lopez inherited from Guevarra a 1/5 interest in the Property. As the parties claiming the affirmative of these issues, petitioners had the burden of proof to establish their case by preponderance of evidence.

To trace the ownership of the Property, both contending parties presented tax declarations and the testimonies of witnesses. However, the Jumaquio sisters also presented a notarized KASULATAN SA BILIHAN NG LUPA which controverted petitioners claim of co-ownership.

The Kasulatan, being a document acknowledged before a notary public, is a public document and prima facie evidence of its authenticity and due execution. To assail the authenticity and due execution of a notarized document, the evidence must be clear, convincing and more than merely preponderant.[24] Otherwise the authenticity and due execution of the document should be upheld.[25] The trial court itself held that (n)o countervailing proof was adduced by plaintiffs to overcome or impugn the documents legality or its validity.[26]

Even if the Kasulatan was not notarized, it would be deemed an ancient document and thus still presumed to be authentic. The Kasulatan is: (1) more than 30 years old, (2) found in the proper custody, and (3) unblemished by any alteration or by any circumstance of suspicion. It appears, on its face, to be genuine.[27]

Nevertheless, the trial court held that the Kasulatan was void because the Property was conjugal at the time Navarro sold it to Enriqueta Lopez Jumaquio. We do not agree.The trial courts conclusion that the Property was conjugal was not

based on evidence, but rather on a misapprehension of Article 160 of the Civil Code, which provides:

All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.

As the Court of Appeals correctly pointed out, the presumption under Article 160 of the Civil Code applies only when there is proof that the property was acquired during the marriage. Proof of acquisition during the marriage is an essential condition for the operation of the presumption in favor of the conjugal partnership.[28]

There was no evidence presented to establish that Navarro acquired the Property during her marriage. There is no basis for applying the presumption under Article 160 of the Civil Code to the present case. On the contrary, Tax Declaration No. 911 showed that, as far back as in 1949, the Property was declared solely in Navarros name.[29] This tends to support the argument that the Property was not conjugal.

We likewise find no basis for the trial courts declaration that the sale embodied in the Kasulatan deprived the compulsory heirs of Guevarra of their legitimes. As opposed to a disposition inter vivos by lucrative or gratuitous title, a valid sale for valuable consideration does not diminish the estate of the seller. When the disposition is for valuable consideration, there is no diminution of the estate but merely a substitution of values,[30] that is, the property sold is replaced by the equivalent monetary consideration.

Under Article 1458 of the Civil Code, the elements of a valid contract of sale are: (1) consent or meeting of the minds; (2) determinate subject matter and (3) price certain in money or its equivalent.[31] The presence of these elements is apparent on the face of the Kasulatan itself. The Property was sold in 1957 for P250.00.[32]

Whether the Court of Appeals erred in not admitting the documents presented by petitioners for the first time on appeal

We find no error in the Court of Appeals refusal to give any probative value to the alleged birth

certificate of Guevarra and the affidavit of Benjamin dela Cruz, Sr. Petitioners belatedly attached these documents to their appellees brief. Petitioners could easily have offered these documents during the proceedings before the trial court. Instead, petitioners presented these documents for the first time on appeal without any explanation. For reasons of their own, petitioners did not formally offer in evidence these documents before the trial court as required by Section 34, Rule 132 of the Rules of Court.[33] To admit these documents now is contrary to due process, as it deprives respondents of the opportunity to examine and controvert them.

Moreover, even if these documents were admitted, they would not controvert Navarros ownership of the Property. Benjamin dela Cruz, Sr.s affidavit stated merely that, although he knew Navarro by name, he was not personally acquainted with her.[34] Guevarras alleged birth certificate casts doubt only as to whether Navarro was indeed the mother of Guevarra. These documents do not prove that Guevarra owned the Property or that Navarro did not own the Property.

Petitioners admitted before the trial court that Navarro was the mother of Guevarra. However, petitioners denied before the Court of Appeals that Navarro was the mother of Guevarra. We agree with the appellate court that this constitutes an impermissible change of theory. When a party adopts a certain theory in the court below, he cannot change his theory on appeal. To allow him to do so is not only unfair to the other party, it is also offensive to the basic rules of fair play, justice and due process.[35]

If Navarro were not the mother of Guevarra, it would only further undermine petitioners case. Absent any hereditary relationship between Guevarra and Navarro, the Property would not have passed from Navarro to Guevarra, and then to the latters children, including petitioners, by succession. There would then be no basis for petitioners claim of co-ownership by virtue of inheritance from Guevarra. On the other hand, this would not undermine respondents position since they anchor their claim on the sale under the Kasulatan and not on inheritance from Guevarra.

Since the notarized Kasulatan is evidence of greater weight which petitioners failed to refute by clear and convincing evidence, this Court holds that petitioners were not able to prove by preponderance of evidence

that the Property belonged to Guevarras estate. There is therefore no legal basis for petitioners complaint for partition of the Property.

WHEREFORE, the Decision of 26 June 1998 of the Court of Appeals in CA-G.R. CV No. 51643, dismissing the complaint of petitioners against Felomena Jumaquio Estimo and Emiliana Jumaquio, is AFFIRMED.

SO ORDERED.

[G.R. No. 137290. July 31, 2000]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review of the decision,[1] dated April 8, 1997, of the Court of Appeals which reversed the decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against petitioner for enforcement of a contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter[2] dated March 24, 1994, Atty. Dauz signified her clients interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments

SALES 28

from May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following terms for the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this purpose, we are enclosing herewith the sum ofP1,000,000.00 representing earnest-deposit money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the necessary Management and Board approvals; and we initiate the documentation if there is mutual agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said amount of P1,000,000.00 shall be refundable to us in full upon demand. . . .

Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate, indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered with an offer of six months within which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to exercise her option to purchase the

property, adding that within that period, "[we] hope to finalize [our] agreement on the matter."[4] Her request was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner, the latter was returning the amount of P1 million given as "earnest-deposit."[5]

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that respondents option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale. The motion was opposed by respondents.

On December 12, 1994, the trial court granted petitioners motion and dismissed the action. Respondents filed a motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a decision[6] reversing the judgment of the trial court. The appellate court held that all the requisites of a perfected contract of sale had been complied with as the offer made on March 29, 1994, in connection with which the earnest money in the amount of P1 million was tendered by respondents, had already been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a contract of sale, it shall be considered as part of the price and as

proof of the perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect the contract as such is not an essential element for its validity. In addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of the properties.[7]

Petitioner moved for reconsideration of the trial courts decision, but its motion was denied. Hence, this petition.

Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the absence of agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority to sell the subject real properties.[8]

Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling 142 days which the Court had given to them, respondents failed to file their comment. They were thus considered to have waived the filing of a comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale.

Respondents in fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:

. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said   P5,000.00 were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share.[10]

In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents offer of March 29, 1994, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter, to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance of the offer; (2) that during the option period, the parties would negotiate the terms and conditions of the purchase; and (3) petitioner would secure the necessary approvals while respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter.[11] All that respondents had was just the option to buy the properties which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.

SALES 29

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period, the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof.[12] In the present case, the parties never got past the negotiation stage. The alleged "indubitable evidence"[13] of a perfected sale cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.

The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,[14] we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price,

the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,[15] agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.[16] In Velasco v. Court of Appeals,[17] the parties to a proposed sale had already agreed on the object of sale and on the purchase price. By the buyers own admission, however, the parties still had to agree on how and when the downpayment and the installments were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question.Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be mutually covenanted.[18]

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents complaint is DISMISSED.

SO ORDERED.

[G.R. No. 119178. June 20, 1997]

LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

D E C I S I O N

PANGANIBAN, J.:

May an employee who, as part of her regular duties, signs blank corporate checks -- with the name of the payee and the amount drawn to be filled later by another signatory -- and, therefore, does so without actual knowledge of whether such checks are funded, be held criminally liable for violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed are dishonored due to insufficiency of funds? Does a notice of dishonor sent to the main office of the corporation constitute a valid notice to the said employee who holds office in a separate branch and who had no actual knowledge thereof? In other words, is constructive knowledge of the corporation, but not of the signatory-employee, sufficient?

These are the questions raised in the petition filed on March 21, 1995 assailing the Decision[1] of Respondent Court of Appeals[2] promulgated on December 9, 1994 in CA-G.R. CR No. 14240 dismissing the appeal of petitioner and affirming the decision dated September 26, 1990 in Criminal Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila, Branch 33. The dispositive portion of the said RTC decision affirmed by the respondent appellate court reads:[3]

WHEREFORE, after a careful consideration of the evidence presented by the prosecution and that of the defense, the Court renders judgment as follows:

In Criminal Case No. 84-26969 where no evidence was presented by the prosecution notwithstanding the fact that there was an agreement that the cases be tried jointly and also the fact that the accused Lina Lim Lao was already arraigned, for failure of the prosecution to adduce evidence against the accused, the Court hereby declares her innocent of the crime charged and she is hereby acquitted with cost de oficio.

For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of insolvency.

For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of of (sic) insolvency.

For the two cases the accused is ordered to pay the cost of suit.

The cash bond put up by the accused for her provisional liberty in Criminal Case No. 84-26969 where she is declared acquitted is hereby ordered cancelled (sic).

With reference to the accused Teodulo Asprec who has remained at large, in order that the cases as against him may not remain pending in the docket for an indefinite period, let the same be archived without prejudice to its subsequent prosecution as soon as said accused is finally apprehended.

Let a warrant issue for the arrest of the accused Teodulo Asprec which warrant need not be returned to this Court until the accused is finally arrested.

SO ORDERED.

The Facts

Version of the Prosecution

The facts are not disputed. We thus lift them from the assailed Decision, as follows:

Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere Investment House (Premiere) in its Binondo Branch. As such officer, she was authorized to sign checks for and in behalf of the corporation (TSN, August 16, 1990, p. 6). In the course of the business, she met complainant Father Artelijo Pelijo, the provincial treasurer of the Society of the Divine Word through Mrs. Rosemarie Lachenal, a trader for Premiere. Father Palijo was authorized to invest donations to the society and had been investing the societys money with Premiere (TSN, June 23, 1987, pp. 5, 9-10). Father Palijo had invested a total of P514,484.04, as evidenced by the Confirmation of Sale No. 82-6994 (Exh A) dated July 8, 1993. Father Palijo was also issued Traders Royal Bank (TRB) checks in payment of interest, as follows:

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Check   Date   Amount

299961 Oct. 7, 1993 (sic) P150,000.00 (Exh. B)

299962 Oct. 7, 1983 P150,000.00 (Exh. C)

323835 Oct. 7, 1983 P 26,010.73

All the checks were issued in favor of Artelijo A. Palijo and signed by appellant (herein petitioner) and Teodulo Asprec, who was the head of operations. Further evidence of the transaction was the acknowledgment of postdated checks dated July 8, 1983 (Exh . D) and the cash disbursement voucher (Exh. F, TSN, supra, at pp. 11-16).

When Father Palijo presented the checks for encashment, the same were dishonored for the reason Drawn Against Insufficient Funds (DAIF). Father Palijo immediately made demands on premiere to pay him the necessary amounts. He first went to the Binondo Branch but was referred to the Cubao Main Branch where he was able to talk with the President, Mr. Cario. For his efforts, he was paid P5,000.00. Since no other payments followed, Father Palijo wrote Premiere a formal letter of demand. Subsequently, Premiere was placed under receivership (TSN, supra, at pp. 16-19).[4]

Thereafter, on January 24, 1984, Private Complainant Palijo filed an affidavit-complaint against Petitioner Lina Lim Lao and Teodulo Asprec for violation of B.P. 22. After preliminary investigation,[5] three Informations charging Lao and Asprec with the offense defined in the first paragraph of Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the trial court on May 11, 1984,[6] worded as follows:

1. In Criminal Case No. 84-26967:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299962 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said

check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: Insufficient Funds; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

2. In Criminal Case No. 84-26968:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 83 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: Insuficient Funds; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

3. And finally in Criminal Case No. 84-26969:

That on or about July 8, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account for value a Traders Royal Bank Check No. 323835 for P26,010.03 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: Insufficient Funds; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of

the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

Upon being arraigned, petitioner assisted by counsel pleaded not guilty. Asprec was not arrested; he has remained at large since the trial, and even now on appeal.

After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao in Criminal Case Nos. 84-26967 and 84-26968 but acquitted her in Criminal Case No. 84-26969.[7]On appeal, the Court of Appeals affirmed the decision of the trial court.

Version of the Defense

Petitioner aptly summarized her version of the facts of the case thus:

Petitioner Lina Lim Lao was, in 1983, an employee of Premiere Financing Corporation (hereinafter referred to as the Corporation), a corporation engaged in investment management, with principal business office at Miami, Cubao, Quezon City. She was a junior officer at the corporation who was, however, assigned not at its main branch but at the corporations extension office in (Binondo) Manila. (Ocampo, T.S.N., 16 August 1990, p. 14)

In the regular course of her duties as a junior officer, she was required to co-sign checks drawn against the account of the corporation. The other co-signor was her head of office, Mr. Teodulo Asprec. Since part of her duties required her to be mostly in the field and out of the office, it was normal procedure for her to sign the checks in blank, that is, without the names of the payees, the amounts and the dates of maturity. It was likewise Mr. Asprec, as head of office, who alone decided to whom the checks were to be ultimately issued and delivered. (Lao, T.S.N., 28 September 1989, pp. 9-11, 17, 19.)

In signing the checks as part of her duties as junior officer of the corporation, petitioner had no knowledge of the actual funds available in the corporate account. (Lao, T.S.N., 28 September 1989, p. 21) The power, duty and responsibility of monitoring and assessing the balances against the checks issued, and funding the checks thus issued,

devolved on the corporations Treasury Department in its main office in Cubao, Quezon City, headed then by the Treasurer, Ms. Veronilyn Ocampo. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1989, pp. 21-23)All bank statements regarding the corporate checking account were likewise sent to the main branch in Cubao, Quezon City, and not in Binondo, Manila, where petitioner was holding office.(Ocampo, T.S.N., 19 July 1990, p. 24; Marqueses, T.S.N., 22 November 1988, p. 8)

The foregoing circumstances attended the issuance of the checks subject of the instant prosecution.

The checks were issued to guarantee payment of investments placed by private complainant Palijo with Premiere Financing Corporation. In his transactions with the corporation, private complainant dealt exclusively with one Rosemarie Lachenal, a trader connected with the corporation, and he never knew nor in any way dealt with petitioner Lina Lim Lao at any time before or during the issuance of the delivery of the checks. (Palijo, T.S.N., 23 June 1987, pp. 28-29, 32-34; Lao, T.S.N., 15 May 1990, p. 6; Ocampo, T.S.N., p. 5) Petitioner Lina Lim Lao was not in any way involved in the transaction which led to the issuance of the checks.

When the checks were co-signed by petitioner, they were signed in advance and in blank, delivered to the Head of Operations, Mr. Teodulo Asprec, who subsequently filled in the names of the payee, the amounts and the corresponding dates of maturity. After Mr. Asprec signed the checks, they were delivered to private complainant Palijo. (Lao, T.S.N., 28 September 1989, pp. 8-11, 17, 19; note also that the trial court in its decision fully accepted the testimony of petitioner [Decision of the Regional Trial Court, p. 12], and that the Court of Appeals affirmed said decision in toto)

Petitioner Lina Lim Lao was not in any way involved in the completion, and the subsequent delivery of the check to private complainant Palijo.

At the time petitioner signed the checks, she had no knowledge of the sufficiency or insufficiency of the funds of the corporate account. (Lao, T.S.N., 28 September 1989, p. 21) It was not within her powers, duties or responsibilities to monitor and assess the balances against the issuance; much less was it within

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her (duties and responsibilities) to make sure that the checks were funded.Premiere Financing Corporation had a Treasury Department headed by a Treasurer, Ms. Veronilyn Ocampo, which alone had access to information as to account balances and which alone was responsible for funding the issued checks. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1990, p. 23) All statements of account were sent to the Treasury Department located at the main office in Cubao, Quezon City. Petitioner was holding office at the extension in Binondo Manila. (Lao, T.S.N., 28 September 1989, p. 24-25) Petitioner Lina Lim Lao did not have knowledge of the insufficiency of the funds in the corporate account against which the checks were drawn.

When the checks were subsequently dishonored, private complainant sent a notice of said dishonor to Premier Financing Corporation at its head office in Cubao, Quezon City. (Please refer to Exh. E; Palijo, T.S.N., 23 June 1987, p. 51) Private complainant did not send notice of dishonor to petitioner. (Palijo, T.S.N., 24 July 1987, p. 10) He did not follow up his investment with petitioner. (Id.) Private complainant never contacted, never informed, and never talked with, petitioner after the checks had bounced. (Id., at p. 29) Petitioner never had notice of the dishonor of the checks subject of the instant prosecution.

The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo testified that it was the head office in Cubao, Quezon City, which received notice of dishonor of the bounced checks.(Ocampo, T.S.N., 19 July 1990, pp. 7-8) The dishonor of the check came in the wake of the assassination of the late Sen. Benigno Aquino, as a consequence of which event a majority of the corporations clients pre-terminated their investments. A period of extreme illiquidity and financial distress followed, which ultimately led to the corporations being placed under receivership by the Securities and Exchange Commission. (Ocampo, T.S.N., 16 August 1990, p. 8, 19; Lao, T.S.N., 28 September 1989, pp. 25-26; Please refer also to Exhibit 1, the order of receivership issued by the Securities and Exchange Commission) Despite the Treasury Departments and (Ms. Ocampos) knowledge of the dishonor of the checks, however, the main office in Cubao, Quezon City never informed petitioner Lina Lim Lao or anybody in the Binondo office for that matter. (Ocampo, T.S.N., 16 August 1990, pp. 9-10) In her testimony, she justified her

omission by saying that the checks were actually the responsibility of the main office (Ocampo, T.S.N., 19 July 1990, p. 6) and that, at that time of panic withdrawals and massive pre-termination of clients investments, it was futile to inform the Binondo office since the main office was strapped for cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the confusion which came in the wake of the Aquino assassination and the consequent panic withdrawals caused them to lose direct communication with the Binondo office. (Ocampo, T.S.N., 16 August 1990, p. 9-10)

As a result of the financial crisis and distress, the Securities and Exchange Commission placed Premier Financing Corporation under receivership, appointing a rehabilitation receiver for the purpose of settling claims against the corporation. (Exh. 1) As he himself admits, private complainant filed a claim for the payment of the bounced check before and even after the corporation had been placed under receivership. (Palijo, T.S.N., 24 July 1987, p. 10-17) A check was prepared by the receiver in favor of the private complainant but the same was not claimed by him. (Lao, T.S.N., 15 May 1990, p. 18)

Private complainant then filed the instant criminal action. On 26 September 1990, the Regional Trial Court of Manila, Branch 33, rendered a decision convicting petitioner, and sentencing the latter to suffer the aggregate penalty of two (2) years and to pay a fine in the total amount of P300,000.00. On appeal, the Court of Appeals affirmed said decision. Hence, this petition for review.[8]

The Issue

In the main, petitioner contends that the public respondent committed a reversible error in concluding that lack of actual knowledge of insufficiency of funds was not a defense in a prosecution for violation of B.P. 22. Additionally, the petitioner argues that the notice of dishonor sent to the main office of the corporation, and not to petitioner herself who holds office in that corporations branch office, does not constitute the notice mandated in Section 2 of BP 22; thus, there can be no prima facie presumption that she had knowledge of the insufficiency of funds.

The Courts Ruling

The petition is meritorious.

Strict Interpretation of Penal Statutes

It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and liberally for the accused, so much so that the scope of a penal statute cannot be extended by good intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Laos acts to be penalized under the Bouncing Checks Law or B.P. 22, they must come clearly within both the spirit and the letter of the statute.[9]

The salient portions of B.P. 22 read:

SECTION 1. Checks without sufficient funds. -- Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.

SECTION 2. Evidence of knowledge of insufficient funds. -- The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such

bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

This Court listed the elements of the offense penalized under B.P. 22, as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.[10]

Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the offense defined in the first paragraph of Section 1 of B.P. 22, thus:

1. That a person makes or draws and issues any check.

2. That the check is made or drawn and issued to apply on account or for value.

3. That the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.

4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.[11]

Crux of the Petition

Petitioner raised as defense before the Court of Appeals her lack of actual knowledge of the insufficiency of funds at the time of the issuance of the checks, and lack of personal notice of dishonor to

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her. The respondent appellate court, however, affirmed the RTC decision, reasoning that the makers knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks for insufficiency of funds. (People vs. Laggui, 171 SCRA 305; Nieras vs. Hon. Auxencio C. Dacuycuy, 181 SCRA 1)[12] The Court of Appeals also stated that her alleged lack of knowledge or intent to issue a bum check would not exculpate her from any responsibility under B.P. Blg. 22, since the act of making and issuing a worthless check is a  malum prohibitum .[13] In the words of the Solicitor General, (s)uch alleged lack of knowledge is not material for petitioners liability under B.P.Blg. 22.[14]

Lack of Actual Knowledge of Insufficiency of Funds

Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense.[15] There is a prima facie presumption of the existence of this element from the fact of drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds.It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the presentation of evidence to the contrary.

In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders the prima facie presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption.[16] Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-existent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds.

After a thorough review of the case at bar, the Court finds that Petitioner Lina Lim Lao did not have actual knowledge of the insufficiency of funds in the

corporate accounts at the time she affixed her signature to the checks involved in this case, at the time the same were issued, and even at the time the checks were subsequently dishonored by the drawee bank.

The scope of petitioners duties and responsibilities did not encompass the funding of the corporations checks; her duties were limited to the marketing department of the Binondo branch.[17] Under the organizational structure of Premiere Financing Corporation, funding of checks was the sole responsibility of the Treasury Department. Veronilyn Ocampo, former Treasurer of Premiere, testified thus:

Q Will you please tell us whose (sic) responsible for the funding of checks in Premiere?

A The one in charge is the Treasury Division up to the Treasury Disbursement and then they give it directly to Jose Cabacan, President of Premiere.[18]

Furthermore, the Regional Trial Court itself found that, since Petitioner Lina Lim Lao was often out in the field taking charge of the marketing department of the Binondo branch, she signed the checks in blank as to name of the payee and the amount to be drawn, and without knowledge of the transaction for which they were issued.[19] As a matter of company practice, her signature was required in addition to that of Teodulo Asprec, who alone placed the name of the payee and the amount to be drawn thereon.This is clear from her testimony:

q x x x Will you please or will you be able to tell us the condition of this check when you signed this or when you first saw this check?

Witness

a I signed the check in blank. There were no payee. No amount, no date, sir.

q Why did you sign this check in blank when there was no payee, no amount and no date?

a It is in order to facilitate the transaction, sir.

x x x x x x x x x

COURT

(to witness)

q Is that your practice?

Witness

a Procedure, Your Honor.

COURT

That is quiet (sic) unusual. That is why I am asking that last question if that is a practice of your office.

a As a co-signer, I sign first, sir.

q So the check cannot be encashed without your signature, co-signature?

a Yes, sir.

Atty. Gonzales

(to witness)

q Now, you said that you sign first, after you sign, who signs the check?

a Mr. Teodoro Asprec, sir.

q Is this Teodoro Asprec the same Teodoro Asprec, one of the accused in all these cases?

a Yes, sir.

q Now, in the distribution or issuance of checks which according to you, as a co-signee, you sign. Who determines to whom to issue or to whom to pay the check after Teodoro Asprec signs the check?

Witness

a He is the one.

Atty. Gonzales

q Mr. Asprec is the one in-charge in . . . are you telling the Honorable Court that it was Teodoro Asprec who determines to whom to issue the check? Does he do that all the time?

Court

q Does he all the time?

(to witness)

a Yes, Your Honor.

q So the check can be negotiated? So, the check can be good only upon his signing? Without his signing or signature the check cannot be good?

a Yes, Your Honor.

Atty. Gonzales

(to witness)

q You made reference to a transaction which according to you, you signed this check in order to facilitate the transaction . . . I withdraw that question. I will reform.

COURT

(for clarification to witness)

Witness may answer.

q Only to facilitate your business transaction, so you signed the other checks?

Witness

a Yes, Your Honor.

q So that when ever there is a transaction all is needed . . . all that is needed is for the other co-signee to sign?

a Yes, Your Honor.

COURT

(To counsel)

Proceed.

Atty. Gonzales

(to witness)

q Why is it necessary for you to sign?

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a Because most of the time I am out in the field in the afternoon, so, in order to facilitate the transaction I sign so if I am not around they can issue the check.[20]

Petitioner did not have any knowledge either of the identity of the payee or the transaction which gave rise to the issuance of the checks. It was her co-signatory, Teodulo Asprec, who alone filled in the blanks, completed and issued the checks. That Petitioner Lina Lim Lao did not have any knowledge or connection with the checks payee, Artelijo Palijo, is clearly evident even from the latters testimony, viz.:

ATTY. GONZALES:

Q When did you come to know the accused Lina Lim Lao?

A I cannot remember the exact date because in their office Binondo, --

COURT: (before witness could finish)

Q More or less?

A It must have been late 1983.

ATTY. GONZALES:

Q And that must or that was after the transactions involving alleged checks marked in evidence as Exhibits B and C?

A After the transactions.

Q And that was also before the transaction involving that confirmation of sale marked in evidence as Exhibit A?

A It was also.

Q And so you came to know the accused Lina Lim Lao when all those transactions were already consummated?

A Yes, sir.

Q And there has never been any occasion where you transacted with accused Lina Lim Lao, is that correct?

A None, sir, there was no occasion.

Q And your coming to know Lina Lim Lao the accused in these cases was by chance when you happened to drop by in the office at Binondo of the Premier Finance Corporation, is that what you mean?

A Yes, sir.

Q You indicated to the Court that you were introduced to the accused Lina Lim Lao, is that correct?

A I was introduced.

x x x x x x x x x

Q After that plain introduction there was nothing which transpired between you and the accused Lina Lim Lao?

A There was none.[21]

Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess under the organizational structure of the corporation, she may not be held liable under B.P. 22. For in the final analysis, penal statutes such as B.P. 22 must be construed with such strictness as to carefully safeguard the rights of the defendant x x x.[22] The element of knowledge of insufficiency of funds having been proven to be absent, petitioner is therefore entitled to an acquittal.

This position finds support in Dingle vs. Intermediate Appellate Court[23] where we stressed that knowledge of insufficiency of funds at the time of the issuance of the check was an essential requisite for the offense penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle owned a family business known as PMD Enterprises.Nestor transacted the sale of 400 tons of silica sand to the buyer Ernesto Ang who paid for the same. Nestor failed to deliver. Thus, he issued to Ernesto two checks, signed by him and his wife as authorized signatories for PMD Enterprises, to represent the value of the undelivered silica sand. These checks were dishonored for having been drawn against insufficient funds. Nestor thereafter issued to Ernesto another check, signed by him and his wife Paz, which was likewise subsequently dishonored. No payment was ever made; hence, the spouses were charged with a violation of B.P. 22

before the trial court which found them both guilty. Paz appealed the judgment to the then Intermediate Appellate Court which modified the same by reducing the penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to this Court insisting on her innocence and contending that she did not incur any criminal liability under B.P. 22 because she had no knowledge of the dishonor of the checks issued by her husband and, for that matter, even the transaction of her husband with Ang. The Court ruled in Dingle as follows:

The Solicitor General in his Memorandum recommended that petitioner be acquitted of the instant charge because from the testimony of the sole prosecution witness Ernesto Ang, it was established that he dealt exclusively with Nestor Dingle. Nowhere in his testimony is the name of Paz Dingle ever mentioned in connection with the transaction and with the issuance of the check. In fact, Ang categorically stated that it was Nestor Dingle who received his two (2) letters of demand. This lends credence to the testimony of Paz Dingle that she signed the questioned checks in blank together with her husband without any knowledge of its issuance, much less of the transaction and the fact of dishonor.

In the case of Florentino Lozano vs. Hon. Martinez, promulgated December 18, 1986, it was held that an essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds.

WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate Appellate Court (now the Court of Appeals) is hereby SET ASIDE and a new one is hereby rendered ACQUITTING petitioner on reasonable doubt."[24]

In rejecting the defense of herein petitioner and ruling that knowledge of the insufficiency of funds is legally presumed from the dishonor of the checks for insufficiency of funds, Respondent Court of Appeals cited People vs. Laggui[25] and Nierras vs. Dacuycuy.[26] These, however, are inapplicable here. The accused in both cases issued personal -- not corporate -- checks and did not aver lack of knowledge of insufficiency of funds or absence of personal notice of the checks dishonor. Furthermore, in People vs. Laggui[27] the Court ruled mainly on the adequacy of an information which alleged lack of knowledge of

insufficiency of funds at the time the check was issued and not at the time of its presentment. On the other hand, the Court in Nierras vs. Dacuycuy[28] held mainly that an accused may be charged under B.P. 22 and Article 315 of the Revised Penal Code for the same act of issuing a bouncing check.

The statement in the two cases -- that mere issuance of a dishonored check gives rise to the presumption of knowledge on the part of the drawer that he issued the same without funds -- does not support the CA Decision. As observed earlier, there is here only a prima facie presumption which does not preclude the presentation of contrary evidence. On the contrary, People vs. Laggui clearly spells out as an element of the offense the fact that the drawer must have knowledge of the insufficiency of funds in, or of credit with, the drawee bank for the payment of the same in full on presentment; hence, it even supports the petitioners position.

Lack of Adequate Notice of Dishonor

There is another equally cogent reason for the acquittal of the accused. There can be no prima facie evidence of knowledge of insufficiency of funds in the instant case because no notice of dishonor was actually sent to or received by the petitioner.

The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo (t)hat the checks bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to inform them as the corporation was in distress.[29] The Court of Appeals affirmed this factual finding. Pursuant to prevailing jurisprudence, this finding is binding on this Court.[30]

Indeed, this factual matter is borne by the records. The records show that the notice of dishonor was addressed to Premiere Financing Corporation and sent to its main office in Cubao, Quezon City. Furthermore, the same had not been transmitted to Premieres Binondo Office where petitioner had been holding office.

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Likewise no notice of dishonor from the offended party was actually sent to or received by Petitioner Lao. Her testimony on this point is as follows:

Atty. Gonzales

q Will you please tell us if Father Artelejo Palejo (sic) ever notified you of the bouncing of the check or the two (2) checks marked as Exhibit B or C for the prosecution?

Witness

a No, sir.

q What do you mean no, sir?

a I was never given a notice. I was never given notice from Father Palejo (sic).

COURT

(to witness)

q Notice of what?

a Of the bouncing check, Your Honor.[31]

Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply.Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check.

It has been observed that the State, under this statute, actually offers the violator a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated. This was also compared to certain laws[32] allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability.[33] In this light, the full payment of the amount appearing in the check within

five banking days from notice of dishonor is a complete defense.[34] The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution.Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand -- and the basic postulates of fairness require -- that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22.

In this light, the postulate of Respondent Court of Appeals that (d)emand on the Corporation constitutes demand on appellant (herein petitioner),[35] is erroneous. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation, who is the latters agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct and separate from the petitioner, does not constitute notice to the latter.

Epilogue

In granting this appeal, the Court is not unaware of B.P. 22s intent to inculcate public respect for and trust in checks which, although not legal tender, are deemed convenient substitutes for currency. B.P. 22 was intended by the legislature to enhance commercial and financial transactions in the Philippines by penalizing makers and issuers of worthless checks. The public interest behind B.P. 22 is thus clearly palpable from its intended purpose.[36]

At the same time, this Court deeply cherishes and is in fact bound by duty to protect our peoples constitutional rights to due process and to be presumed innocent until the contrary is proven.[37] These rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build

confidence in the issuance of checks. The first is a basic human right while the second is only proprietary in nature.[38] Important to remember also is B.P. 22s requirements that the check issuer must know at the time of issue that he does not have sufficient funds in or credit with the drawee bank and that he must receive notice that such check has not been paid by the drawee. Hence, B.P. 22 must not be applied in a manner which contravenes an accuseds constitutional and statutory rights.

There is also a social justice dimension in this case. Lina Lim Lao is only a minor employee who had nothing to do with the issuance, funding and delivery of checks. Why she was required by her employer to countersign checks escapes us. Her signature is completely unnecessary for it serves no fathomable purpose at all in protecting the employer from unauthorized disbursements. Because of the pendency of this case, Lina Lim Lao stood in jeopardy -- for over a decade -- of losing her liberty and suffering the wrenching pain and loneliness of imprisonment, not to mention the stigma of prosecution on her career and family life as a young mother, as well as the expenses, effort and aches in defending her innocence. Upon the other hand, the senior official -- Teodulo Asprec -- who appears responsible for the issuance, funding and delivery of the worthless checks has escaped criminal prosecution simply because he could not be located by the authorities. The case against him has been archived while the awesome prosecutory might of the government and the knuckled ire of the private complainant were all focused on poor petitioner. Thus, this Court exhorts the prosecutors and the police authorities concerned to exert their best to arrest and prosecute Asprec so that justice in its pristine essence can be achieved in all fairness to the complainant, Fr. Artelijo Palijo, and the People of the Philippines. By this Decision, the Court enjoins the Secretary of Justice and the Secretary of Interior and Local Government to see that essential justice is done and the real culprit(s) duly-prosecuted and punished.

WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao isACQUITTED. The Clerk of Court is hereby ORDERED to furnish the Secretary of Justice and the Secretary of Interior and Local Government with copies of this Decision. No costs.

SO ORDERED.

[G.R. No. 112212. March 2, 1998]

GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents.

D E C I S I O N

ROMERO, J.:

This petition for review on certiorari questions the affirmance by the Court of Appeals of the decision[1] of the Regional Trial Court of San Pablo City, Branch 30, dismissing the complaint that prayed for the nullification of a contract of sale of a 10-hectare property in Tanay, Rizal in consideration of the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts decision disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint for lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the sum of P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages and the sum of P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for attorneys fees and litigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of this case are as follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay property), covered by Transfer Certificate of Title No. 320725 which used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the

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Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but the mortgage was later foreclosed and the property offered for public auction upon his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look for a buyer who might be interested in the Tanay property.The two found one in the person of herein private respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner had shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the same year when his mother examined and appraised them as genuine. Dr. Cruz, however, declined petitioners offer to buy the jewelry for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00 at the exchange rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the Prudential Bank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to thirty minutes, petitioner gave them back to Dr. Cruz who again refused to sell them since the exchange rate of the peso at the time appreciated to P19.00 to a dollar.

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. Cruz requested herein private respondent Atty. Juan Belarmino to check the property who, in turn, found out that no sale or barter was feasible because the one-year period for redemption of the said property had not yet expired at the time.

In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the amount ofP15,987.78, and on even date, Fr. Jacobe sold the property to petitioner for P75,000.00. The haste with which the two deeds were executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, petitioner went to Prudential Bank once again to take a look at the jewelry.

In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latters residence to prepare the documents of sale.[2] Dr. Cruz herself was not around but Atty. Belarmino was aware that she and petitioner

had previously agreed to exchange a pair of emerald-cut diamond earrings for the Tanay property. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the safekeeping of the jewelry.

The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Petitioner signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property. Petitioner also issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale. The disparity between the actual contract price and the one indicated on the deed of absolute sale was purportedly aimed at minimizing the amount of the capital gains tax that petitioner would have to shoulder. Since the jewelry was appraised only at P160,000.00, the parties agreed that the balance of P40,000.00 would just be paid later in cash.

As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but the cashier who kept the other key to the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier and found him having a haircut. As soon as his haircut was finished, the cashier returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit box, the former retrieving a transparent plastic or cellophane bag with the jewelry inside and handing over the same to petitioner.The latter took the jewelry from the bag, went near the electric light at the banks lobby, held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked, Okay na ba iyan? Petitioner expressed his satisfaction by nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however, give them half of the pair of earrings in question which he had earlier promised.

Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at the residence of Atty.

Belarmino complaining that the jewelry given to him was fake. He then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her car so that, with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend her car, Dichoso called up Atty. Belarmino. The latter, however, instructed Dichoso to proceed immediately to his residence because petitioner was there. Believing that petitioner had finally agreed to give them half of the pair of earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner already demonstrating with a tester that the earrings were fake. Petitioner then accused Dichoso and Mendoza of deceiving him which they, however, denied. They countered that petitioner could not have been fooled because he had vast experience regarding jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had given them.

Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, petitioner reported the matter to the police station where Dichoso and Mendoza likewise executed sworn statements.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit.

On October 30, 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On November 20, 1984, however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction.

After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or not the genuine pair of earrings used as consideration

for the sale was delivered by Dr. Cruz to petitioner, the lower court said:

The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised the same nearer to the lights of the lobby of the bank near the door. When asked by Dra. Cruz if everything was in order, plaintiff even nodded his satisfaction (Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time to examine further the jewelries (sic). Being a professional banker and engaged in the jewelry business plaintiff is conversant and competent to detect a fake diamond from the real thing. Plaintiff was accorded the reasonable time and opportunity to ascertain and inspect the jewelries (sic) in accordance with Article 1584 of the Civil Code. Plaintiff took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he went at 8:00 p.m. that same day to the residence of Atty. Belarmino already with a tester complaining about some fake jewelries (sic), there was already undue delay because of the lapse of a considerable length of time since he got hold of subject jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained is considered by the Court as unreasonable delay.[3]

The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil Code were present, namely: (a) consent or meeting of the minds; (b) determinate subject matter, and (c) price certain in money or its equivalent. The same elements, according to the lower court, were present despite the fact that the agreement between petitioner and Dr. Cruz was principally a barter contract. The lower court explained thus:

x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh. D). On the other hand, the ownership of Dra. Cruz over the subject jewelries (sic) transferred to the plaintiff upon her actual personal delivery to him at the lobby of the Prudential Bank. It is expressly provided by law that the thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic) was transmitted immediately before 6:00 p.m. of

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October 24, 1984. Plaintiff signified his approval by nodding his head. Delivery or tradition, is one of the modes of acquiring ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property in favor of Dra. Cruz. The execution of the public instrument (Exh. D) operates as a formal or symbolic delivery of the Tanay property and authorizes the buyer, Dra. Cruz to use the document as proof of ownership (Florendo v. Foz, 20 Phil. 399).More so, since Exhibit D does not contain any proviso or stipulation to the effect that title to the property is reserved with the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276).[4]

Aside from concluding that the contract of barter or sale had in fact been consummated when petitioner and Dr. Cruz parted ways at the bank, the trial court likewise dwelt on the unexplained delay with which petitioner complained about the alleged fakery. Thus:

x x x. Verily, plaintiff is already estopped to come back after the lapse of considerable length of time to claim that what he got was fake. He is a Business Management graduate of La Salle University, Class 1978-79, a professional banker as well as a jeweler in his own right. Two hours is more than enough time to make a switch of a Russian diamond with the real diamond. It must be remembered that in July 1984 plaintiff made a sketch of the subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then did he not bring it out when he was examining the subject jewelries (sic) at about 6:00 p.m. in the banks lobby? Obviously, he had no need for it after being satisfied of the genuineness of the subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully performed their respective prestations. Once a contract is shown to have been consummated or fully performed by the parties thereto, its existence and binding effect can no longer be disputed. It is irrelevant and immaterial to dispute the due execution of a contract if both of them have in fact performed their obligations thereunder and their

respective signatures and those of their witnesses appear upon the face of the document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987).[5]

Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show that the Tanay property is worth P25,000.00. However, also on that same day it was executed, the propertys worth was magnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value would (sic) triple under normal circumstances? Plaintiff, with the assistance of his agents, was able to exchange the Tanay property which his bank valued only at P25,000.00 in exchange for a genuine pair of emerald cut diamond worth P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and jewelries (sic) from his agents. But he was not satisfied in being able to get subject jewelries for a song. He had to file a malicious and unfounded case against Dra. Cruz and Atty. Belarmino who are well known, respected and held in high esteem in San Pablo City where everybody practically knows everybody. Plaintiff came to Court with unclean hands dragging the defendants and soiling their clean and good name in the process. Both of them are near the twilight of their lives after maintaining and nurturing their good reputation in the community only to be stunned with a court case. Since the filing of this case on October 26, 1984 up to the present they were living under a pall of doubt. Surely, this affected not only their earning capacity in their practice of their respective professions, but also they suffered besmirched reputations. Dra. Cruz runs her own hospital and defendant Belarmino is a well respected legal practitioner.

The length of time this case dragged on during which period their reputation were (sic) tarnished and their names maligned by the pendency of the case, the Court is of the belief that some of the damages they prayed for in their answers to the complaint are reasonably proportionate to the sufferings they underwent (Art. 2219, New Civil Code).Moreover, because of the falsity, malice and baseless nature of the complaint defendants were compelled to litigate. Hence, the award of attorneys fees is

warranted under the circumstances (Art. 2208, New Civil Code).[6]

From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On October 20, 1992, the Court of Appeals, however, rendered a decision[7]affirming in toto the lower courts decision. His motion for reconsideration having been denied on October 19, 1993, petitioner now files the instant petition alleging that:

I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;

II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND AGAINST THE PLAINTIFF IN THIS CASE; and

III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF THE PLAINTIFF.[8]

As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it invites us to examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay property. This, of course, we cannot do without unduly transcending the limits of our review power in petitions of this nature which are confined merely to pure questions of law. We accord, as a general rule, conclusiveness to a lower courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of both parties.[9] We find nothing,

however, that warrants the application of any of these exceptions.

Consequently, this Court upholds the appellate courts findings of fact especially because these concur with those of the trial court which, upon a thorough scrutiny of the records, are firmly grounded on evidence presented at the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are glaringly erroneous as to constitute serious abuse of discretion.[11]

Nonetheless, this Court has to closely delve into petitioners allegation that the lower courts decision of March 7, 1989 is a ready-made one because it was handed down a day after the last date of the trial of the case.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12-page single-spaced decision, type it and release it on March 7, 1989, less than a day after the last hearing on March 6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de Guzman and heard only his rebuttal testimony.

This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the lower courts findings of fact in order to convince this Court to review the same. It is noteworthy that Atty. Belarmino clarified that Judge Jaramillo had issued the first order in the case as early as March 9, 1987 or two years before the rendition of the decision. In fact, Atty. Belarmino terminated presentation of evidence on October 13, 1987, while Dr. Cruz finished hers on February 4, 1989, or more than a month prior to the rendition of the judgment. The March 6, 1989 hearing was conducted solely for the presentation of petitioner's rebuttal testimony.[13] In other words, Judge Jaramillo had ample time to study the case and write the decision because the rebuttal evidence would only serve to confirm or verify the facts already presented by the parties.

The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more than Judge Jaramillos compliance with his duty

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as a judge to dispose of the courts business promptly and decide cases within the required periods.[14] The two-year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as soon as these were presented to court. In fact, this Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that no malice or any wrongful conduct attends its adoption.[15] The practice serves the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge Jaramillo be made administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or bad faith.[16] Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for his close attention to duty.

Having disposed of petitioners first contention, we now come to the core issue of this petition which is whether the Court of Appeals erred in upholding the validity of the contract of barter or sale under the circumstances of this case.

The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[17] A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.[18] Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience,[19] and registration of the instrument only adversely affects third parties.[20] Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the

contract nor the contractual rights and obligations of the parties thereunder.

It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As such, they are bound by the contract unless there are reasons or circumstances that warrant its nullification. Hence, the problem that should be addressed in this case is whether or not under the facts duly established herein, the contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest.[21]

Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.[22] Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief that the pair of emerald-cut diamond earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on the ground that it was, in fact, tainted with fraud[23] such that his consent was vitiated.

There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.[24] The records, however, are bare of any evidence manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioners proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioners property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have

parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property.

Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even assuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract, mistake must refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.[25] An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another.[26] In his allegations in the complaint, petitioner insinuated that an inferior one or one that had only Russian diamonds was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution.

Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the mistake. On account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. The fact that he had seen the jewelry before October 24, 1984 should not have precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the present situation that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act.[27] As the Civil Code provides, (t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.[28]

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfied with the same.[29] By taking the jewelry outside the bank, petitioner executed an act which was more consistent with his exercise of ownership over

it. This gains credence when it is borne in mind that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he later claimed that the jewelry was not the one he intended in exchange for his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude its return after that supervening period within which anything could have happened, not excluding the alteration of the jewelry or its being switched with an inferior kind.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery thereof.[30] Said contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.[31] Such stipulations are not manifest in the contract of sale.

While it is true that the amount of P40,000.00 forming part of the consideration was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable.[32]

Neither may such failure to pay the balance of the purchase price result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee for the period between the delivery of the thing and the payment of the price in the following cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;

(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.

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Not one of these cases obtains here. This case should, of course, be distinguished from De la Cruz v. Legaspi,[33] where the court held that failure to pay the consideration after the notarization of the contract as previously promised resulted in the vendees liability for payment of interest. In the case at bar, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale.

All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating the amount of damages awarded to both private respondents which petitioner considers as exorbitant. He contends that private respondents do not deserve at all the award of damages. In fact, he pleads for the total deletion of the award as regards private respondent Belarmino whom he considers a mere nominal party because no specific claim for damages against him was alleged in the complaint. When he filed the case, all that petitioner wanted was that Atty. Belarmino should return to him the owners duplicate copy of TCT No. 320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and the check alloted for expenses. Petitioner alleges further that Atty. Belarmino should not have delivered all those documents to Dr. Cruz because as the lawyer for both the seller and the buyer in the sale contract, he should have protected the rights of both parties. Moreover, petitioner asserts that there was no firm basis for damages except for Atty. Belarminos uncorroborated testimony.[34]

Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances obtaining in the case and assess damages according to its discretion.[35] To warrant the award of damages, it must be shown that the person to whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate of the amount of damages.[36] Statements of facts should establish such data rather than mere conclusions or opinions of witnesses.[37] Thus:

x x x. For moral damages to be awarded, it is essential that the claimant must have satisfactorily proved

during the trial the existence of the factual basis of the damages and its causal connection with the adverse partys acts. If the court has no proof or evidence upon which the claim for moral damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the party acted in a wanton, oppressive or malevolent manner.[38]

In this regard, the lower court appeared to have awarded damages on a ground analogous to malicious prosecution under Article 2219(8) of the Civil Code[39] as shown by (1) petitioners wanton bad faith in bloating the value of the Tanay property which he exchanged for a genuine pair of emerald-cut diamond worth P200,000.00; and (2) his filing of a malicious and unfounded case against private respondents who were well known, respected and held in high esteem in San Pablo City where everybody practically knows everybody and whose good names in the twilight of their lives were soiled by petitioners coming to court with unclean hands, thereby affecting their earning capacity in the exercise of their respective professions and besmirching their reputation.

For its part, the Court of Appeals affirmed the award of damages to private respondents for these reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the genuine jewelry of Dra. Cruz, Fule now wishes to return a fake jewelry to Dra. Cruz and, more than that, get back the real property, which his bank owns. Fule has obtained a genuine jewelry which he could sell anytime, anywhere and to anybody, without the same being traced to the original owner for practically nothing. This is plain and simple, unjust enrichment.[40]

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound policy to place a penalty on the right to litigate,[41] the same, however, cannot apply in the case at bar. The factual findings of the courts a quo to the effect that petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry

businesses; and that he filed the action for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a sincere attempt to protect his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24, 1984 itself would amply demonstrate that petitioner was not simply negligent in failing to exercise due diligence to assure himself that what he was taking in exchange for his property were genuine diamonds. He had rather placed himself in a situation from which it preponderantly appears that his seeming ignorance was actually just a ruse. Indeed, he had unnecessarily dragged respondents to face the travails of litigation in speculating at the possible favorable outcome of his complaint when he should have realized that his supposed predicament was his own making. We, therefore, see here no semblance of an honest and sincere belief on his part that he was swindled by respondents which would entitle him to redress in court. It must be noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to accord with what an ordinary prudent man would have done in the same situation. Being an experienced banker and a businessman himself who deliberately skirted a legal impediment in the sale of the Tanay property and to minimize the capital gains tax for its exchange, it was actually gross recklessness for him to have merely conducted a cursory examination of the jewelry when every opportunity for doing so was not denied him. Apparently, he carried on his person a tester which he later used to prove the alleged fakery but which he did not use at the time when it was most needed. Furthermore, it took him two more hours of unexplained delay before he complained that the jewelry he received were counterfeit. Hence, we stated earlier that anything could have happened during all the time that petitioner was in complete possession and control of the jewelry, including the possibility of substituting them with fake ones,

against which respondents would have a great deal of difficulty defending themselves. The truth is that petitioner even failed to successfully prove during trial that the jewelry he received from Dr. Cruz were not genuine. Add to that the fact that he had been shrewd enough to bloat the Tanay propertys price only a few days after he purchased it at a much lower value. Thus, it is our considered view that if this slew of circumstances were connected, like pieces of fabric sewn into a quilt, they would sufficiently demonstrate that his acts were not merely negligent but rather studied and deliberate.

We do not have here, therefore, a situation where petitioners complaint was simply found later to be based on an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moral and exemplary damages.[42] Instead, the cause of action of the instant case appears to have been contrived by petitioner himself. In other words, he was placed in a situation where he could not honestly evaluate whether his cause of action has a semblance of merit, such that it would require the expertise of the courts to put it to a test. His insistent pursuit of such case then coupled with circumstances showing that he himself was guilty in bringing about the supposed wrongdoing on which he anchored his cause of action would render him answerable for all damages the defendant may suffer because of it. This is precisely what took place in the petition at bar and we find no cogent reason to disturb the findings of the courts below that respondents in this case suffered considerable damages due to petitioners unwarranted action.

WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the balance of the purchase price of P40,000.00 within ten (10) days from the finality of this decision. Costs against petitioner.

G.R. No. L-11827             July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee, vs.ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

SALES 39

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the "24,000

tons of iron ore, more or less" that the former had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the

mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety

and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if true, does not make these appellants guilty of contempt, because what is under litigation in this

SALES 40

appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand

as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. The

desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period granted them for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had

insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-

SALES 41

delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress two things:first, that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlañgit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any

fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants