SALES 2D/2I

ASSIGNMENT IN SALES AND LEASE a. Articles 1458-1478b. Cases:1. DIGNOS VS. CA, 158 SCRA 3752. TAN VS. BENORILAO,
G.R. No. 153820, October 16, 20093. ARTATES VS. URBI, G.R. No. L-29421. January 30, 1971.4. HEIRS OF ENRIQUE
ZAMBALES VS. CA, 120 SCRA 8975. QUIROGA VS. PARSONS, 38 PHIL. 5016. CONCRETE AGGREGATES INC. VS. CTA, 185
SCRA 4617. PEOPLES HOMESITE & HOUSING CORP. VS. CA, 133 SCRA 7778. TOYOTA SHAW, INC. VS CA, 244 SCRA 320
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981,
affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano
G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L.
de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack
of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, LapuLapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant
(respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of
indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the
vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of
P4,000.00 to be paid on or before September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and
Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also
marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the
Office of the Register of Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as
plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiffappellant brought the present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L.
de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and
the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded.
Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00)
to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when
the decision of this case becomes final and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through
their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block
fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to
defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that
nobody shall enrich himself at the expense of another.
The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this
decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the Court of Appeals, which
appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses
incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of
Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to
plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16,
1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of
said resolution was filed on March 16, 1982. In the resolution dated April 26,1982, respondents were required to comment thereon, which
comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On
August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution
of February 10, 1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of
petitioners which was noted on the resolution of September 20, 1982.
Petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF
THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY
IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED
IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE,
DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592
OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS
INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.
III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219
OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S
FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH
UNCLEAN HANDS.
V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE
TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE
QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.
The foregoing assignment of errors may be synthesized into two main issues, to wit:
I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.

II. Whether or not there was a valid rescission thereof.

There is no merit in this petition.
It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of
merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as
advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular
Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before
September 15,1965;
4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned
property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not
an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or
before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further
contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the
suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual sale
until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that
indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a
private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of
ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and
conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property
to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the
mentioned property upon the payment of the balance of four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this Court in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the
contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay
within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give
them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting
of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code
provides that "The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in
the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the
ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private
instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the
possession of the land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach Resort also known
as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1,
1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the
contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the
sale is null and void.
II.
Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the case at bar, the contract of sale being
absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private respondents Jabil by
notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The most that they were able to
show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil
because the latter had no money and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As
correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such extra-judicial
rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights
to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have for their object the
extinguishment of real rights over immovable property must appear in a public document.
Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated date of payment on
September 15,1965 and was able to raise the necessary amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that
private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the
aforecited case that Jabil be given an additional period within which to complete payment of the purchase price.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in toto.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

Dignos vs. Court of Appeals, and Jabil

158 SCRA 378
February 1988
FACTS:
In July 1965, herein petitioners Silvestre T. Dignos and Isabela Lumungsod de Dignos (spouses
Dignos) sold their parcel of land in Opon, LapuLapu to herein private respondent Antonio Jabil
for the sum of P28,000 payable for two installments, with an assumption of indebtedness with
the First Insular Bank of Cebu in the sum of P12,000 and the next installment of P4,000 to be
paid in September 1965. In November 1965, the spouses Dignos sold the same parcel of land for
P35,000 to defendants Luciano Cabigas and Jovita L. de Cabigas (spouses Cabigas) who were
then US citizens, and executed in their favor an Absolute Deed of Sale duly registered in the
Office of the Register of Deeds.
Upon discovery of the 2nd sale of the subject land, Jabil filed the case at bar in the CFI of Cebu
which rendered its Decision in August 1975 declaring the 2nd sale to the spouses Cabigas null
and void ab initio and the 1st sale to Jabil not rescinded. The CFI of Cebu also ordered Jabil to
pay the remaining P16,000 to the spouses Dignos and to reimburse the spouses Cabigas a
reasonable amount corresponding the expenses in the construction of hollow block fences in the

said parcel of land. The spouses Dignos were also ordered to return the P35,000 to the spouses
Cabigas.
Both Jabil and the spouses Dignos appealed to the Court of Appeals, which affirmed in July 1981
the CFI of Cebus Decision except for the part of Jabil paying the expenses of the spouses
Cabigas for building a fence. The spouses Dignos contested that the contract between them and
Jabil was merely a contract to sell and not a deed of sale.
ISSUE:
Is the contract between the parties a contract of sale or a contract to sell?
COURT RULING:
The Supreme Court affirmed the Decision of the Court of Appeals saying stated that all the
elements of a valid contract of sale are present in the document and that the spouses Dignos had
no right to sell the land in question because an actual delivery of its possession has already been
made in favor of Jabil as early as March 1965. It was also found that the spouses Dignos never
notified Jabil by notarial act that they were rescinding the contract, and neither did they file a suit
in court to rescind the sale. There is no showing that Jabil properly authorized a certain Cipriano
Amistad to tell petitioners that he was already waiving his rights to the land in question.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

DELFIN TAN,
Petitioner,

G.R. No. 153820

Present:
*
QUISUMBING, J.,
CARPIO-MORALES,
**
NACHURA,
BRION, and
ABAD, JJ.

- versus -

ERLINDA C. BENOLIRAO,
ANDREW C. BENOLIRAO,
ROMANO C. BENOLIRAO,
DION C. BENOLIRAO,
SPS. REYNALDO TANINGCO
and NORMA D. BENOLIRAO,
EVELYN T. MONREAL, and
ANN KARINA TANINGCO,
Respondents.

Promulgated:
October 16, 2009

x-------------------------------------------------------------------------------------- x
DECISION
BRION, J.:
Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court
(Rules) on a certificate of title covering real property considered an encumbrance
on the property? We resolve this question in the petition for review
on certiorari[1] filed by Delfin Tan (Tan) to assail the decision of the Court of
Appeals (CA) in CA-G.R. CV No. 52033[2] and the decision of the Regional Trial
Court (RTC)[3] that commonly declared the forfeiture of his P200,000.00 down
payment as proper, pursuant to the terms of his contract with the respondents.
THE ANTECEDENTS
The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the
Spouses Reynaldo and Norma Taningco were the co-owners of a 689-square meter
parcel of land (property) located in Tagaytay City and covered by Transfer

Certificate of Title (TCT) No. 26423. On October 6, 1992, the co-owners executed
a Deed of Conditional Sale over the property in favor of Tan for the price
of P1,378,000.00. The deed stated:
a) An initial down-payment of TWO HUNDRED (P200,000.00)
THOUSAND PESOS, Philippine Currency, upon signing of this contract;
then the remaining balance of ONE MILLION ONE HUNDRED
SEVENTY EIGHT THOUSAND (P1,178,000.00) PESOS, shall be payable
within a period of one hundred fifty (150) days from date hereof without
interest;
b) That for any reason, BUYER fails to pay the remaining balance within
above mentioned period, the BUYER shall have a grace period of sixty (60)
days within which to make the payment, provided that there shall be an
interest of 15% per annum on the balance amount due from the SELLERS;
c) That should in case (sic) the BUYER fails to comply with the terms and
conditions within the above stated grace period, then the SELLERS shall
have the right to forfeit the down payment, and to rescind this conditional
sale without need of judicial action;
d) That in case, BUYER have complied with the terms and conditions of this
contract, then the SELLERS shall execute and deliver to the BUYER the
appropriate Deed of Absolute Sale;

Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the coowners/vendors Metrobank Check No. 904407 for P200,000.00 as down payment
for the property, for which the vendors issued a corresponding receipt.
On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao
(his widow and one of the vendors of the property) and her children, as heirs of the
deceased, executed an extrajudicial settlement of Lambertos estate on January 20,
1993. On the basis of the extrajudicial settlement, a new certificate of title over the
property, TCT No. 27335, was issued on March 26, 1993 in the names of the
Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and her
children. Pursuant to Section 4, Rule 74 of the Rules, the following annotation was
made on TCT No. 27335:
x x x any liability to credirots (sic), excluded heirs and other
persons having right to the property, for a period of two (2) years, with

respect only to the share of Erlinda, Andrew, Romano and Dion, all
surnamed Benolirao

As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to
pay the balance of the purchase price. By agreement of the parties, this period was
extended by two months, so Tan had until May 15, 1993 to pay the balance. Tan
failed to pay and asked for another extension, which the vendors again
granted. Notwithstanding this second extension, Tan still failed to pay the
remaining balance due on May 21, 1993. The vendors thus wrote him a letter
demanding payment of the balance of the purchase price within five (5) days from
notice; otherwise, they would declare the rescission of the conditional sale and the
forfeiture of his down payment based on the terms of the contract.
Tan refused to comply with the vendors demand and instead wrote them a
letter (dated May 28, 1993) claiming that the annotation on the title, made pursuant
to Section 4, Rule 74 of the Rules, constituted an encumbrance on the property that
would prevent the vendors from delivering a clean title to him. Thus, he alleged
that he could no longer be required to pay the balance of the purchase price and
demanded the return of his down payment.
When the vendors refused to refund the down payment, Tan, through
counsel, sent another demand letter to the vendors on June 18, 1993. The vendors
still refused to heed Tans demand, prompting Tan to file on June 19, 1993 a
complaint with the RTC of Pasay City for specific performance against the
vendors, including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs
of Lamberto Benolirao, together with Evelyn Monreal and Ann Karina Taningco
(collectively, the respondents). In his complaint, Tan alleged that there was a
novation of the Deed of Conditional Sale done without his consent since the
annotation on the title created an encumbrance over the property. Tan prayed for
the refund of the down payment and the rescission of the contract.
On August 9, 1993, Tan amended his Complaint, contending that if the
respondents insist on forfeiting the down payment, he would be willing to pay the
balance of the purchase price provided there is reformation of the Deed of
Conditional Sale. In the meantime, Tan caused the annotation on the title of a
notice of lis pendens.

On August 21, 1993, the respondents executed a Deed of Absolute Sale over
the property in favor of Hector de Guzman (de Guzman) for the price
of P689,000.00.
Thereafter, the respondents moved for the cancellation of the notice of lis
pendens on the ground that it was inappropriate since the case that Tan filed was a
personal action which did not involve either title to, or possession of, real
property. The RTC issued an order dated October 22, 1993 granting the
respondents motion to cancel the lis pendensannotation on the title.
Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman
registered the property and TCT No. 28104 was issued in his name. Tan then filed
a motion to carry over the lis pendens annotation to TCT No. 28104 registered in
de Guzmans name, but the RTC denied the motion.
On September 8, 1995, after due proceedings, the RTC rendered judgment ruling
that the respondents forfeiture of Tans down payment was proper in accordance
with the terms and conditions of the contract between the parties. [4] The RTC
ordered Tan to pay the respondents the amount of P30,000.00, plus P1,000.00 per
court appearance, as attorneys fees, and to pay the cost of suit.
On appeal, the CA dismissed the petition and affirmed the ruling of the trial
court in toto. Hence, the present petition.
THE ISSUES
Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis
pendens annotation on TCT No. 27335. Due to the unauthorized novation of the
agreement, Tan presented before the trial court two alternative remedies in his
complaint either the rescission of the contract and the return of the down payment,
or the reformation of the contract to adjust the payment period, so that Tan will pay
the remaining balance of the purchase price only after the lapse of the required
two-year encumbrance on the title. Tan posits that the CA erroneously disregarded
the alternative remedy of reformation of contract when it affirmed the removal of
the lis pendens annotation on the title.
Tan further contends that the CA erred when it recognized the validity of the
forfeiture of the down payment in favor of the vendors. While admitting that the
Deed of Conditional Sale contained a forfeiture clause, he insists that this clause
applies only if the failure to pay the balance of the purchase price was through his

own fault or negligence.In the present case, Tan claims that he was justified in
refusing to pay the balance price since the vendors would not have been able to
comply with their obligation to deliver a clean title covering the property.
Lastly, Tan maintains that the CA erred in ordering him to pay the
respondents P30,000.00, plus P1,000.00 per court appearance as attorneys fees,
since he filed the foregoing action in good faith, believing that he is in the right.
The respondents, on the other hand, assert that the petition should be dismissed for
raising pure questions of fact, in contravention of the provisions of Rule 45 of the
Rules which provides that only questions of law can be raised in petitions for
review on certiorari.
THE COURTS RULING
The petition is granted.
No new issues can be raised in the
Memorandum
At the onset, we note that Tan raised the following additional assignment of
errors in his Memorandum: (a) the CA erred in holding that the petitioner could
seek reformation of the Deed of Conditional Sale only if he paid the balance of the
purchase price and if the vendors refused to execute the deed of absolute sale; and
(b) the CA erred in holding that the petitioner was estopped from asking for the
reformation of the contract or for specific performance.
The Courts September 27, 2004 Resolution expressly stated that No new
issues may be raised by a party in his/its Memorandum. Explaining the reason for
this rule, we said that:
The raising of additional issues in a memorandum before the
Supreme Court is irregular, because said memorandum is supposed to be
in support merely of the position taken by the party concerned in his
petition, and the raising of new issues amounts to the filing of a petition
beyond the reglementary period. The purpose of this rule is to provide all
parties to a case a fair opportunity to be heard. No new points of law,
theories, issues or arguments may be raised by a party in the

Memorandum for the reason that to permit these would be offensive to

the basic rules of fair play, justice and due process. [5]

Tan contravened the Courts explicit instructions by raising these additional

errors. Hence, we disregard them and focus instead on the issues previously raised
in the petition and properly included in the Memorandum.
Petition raises a question of law
Contrary to the respondents claim, the issue raised in the present petition defined in
the opening paragraph of this Decision is a pure question of law. Hence, the
petition and the issue it presents are properly cognizable by this Court.
Lis pendens annotation not proper in
personal actions
Section 14, Rule 13 of the Rules enumerates the instances when a notice
of lis pendens can be validly annotated on the title to real property:
Sec. 14. Notice of lis pendens.
In an action affecting the title or the right of possession of real
property, the plaintiff and the defendant, when affirmative relief is
claimed in his answer, may record in the office of the registry of deeds of
the province in which the property is situated a notice of the pendency of
the action. Said notice shall contain the names of the parties and the
object of the action or defense, and a description of the property in that
province affected thereby. Only from the time of filing such notice for
record shall a purchaser, or encumbrancer of the property affected
thereby, be deemed to have constructive notice of the pendency of the
action, and only of its pendency against the parties designated by their
real names.
The notice of lis pendens hereinabove mentioned may be
cancelled only upon order of the court, after proper showing that the
notice is for the purpose of molesting the adverse party, or that it is not
necessary to protect the rights of the party who caused it to be recorded.

The litigation subject of the notice of lis pendens must directly involve a
specific property which is necessarily affected by the judgment.[6]

Tans complaint prayed for either the rescission or the reformation of the
Deed of Conditional Sale. While the Deed does have real property for its object,
we find that Tans complaint is an in personam action, as Tan asked the court to
compel the respondents to do something either to rescind the contract and return
the down payment, or to reform the contract by extending the period given to pay
the remaining balance of the purchase price. Either way, Tan wants to enforce his
personal rights against the respondents, not against the property subject of the
Deed. As we explained in Domagas v. Jensen:[7]
The settled rule is that the aim and object of an action determine
its character. Whether a proceeding is in rem, or in personam, or quasi in
rem for that matter, is determined by its nature and purpose, and by these
only. A proceeding in personam is a proceeding to enforce personal
rights and obligations brought against the person and is based on the
jurisdiction of the person, although it may involve his right to, or the
exercise of ownership of, specific property, or seek to compel him to
control or dispose of it in accordance with the mandate of the court. The
purpose of a proceeding in personam is to impose, through the judgment
of a court, some responsibility or liability directly upon the person of the
defendant. Of this character are suits to compel a defendant to
specifically perform some act or actions to fasten a pecuniary liability on
him.

Furthermore, as will be explained in detail below, the contract between the parties
was merely a contract to sell where the vendors retained title and ownership to the
property until Tan had fully paid the purchase price. Since Tan had no claim of
ownership or title to the property yet, he obviously had no right to ask for the
annotation of a lis pendens noticeon the title of the property.
Contract is a mere contract to sell
A contract is what the law defines it to be, taking into consideration its
essential elements, and not what the contracting parties call it. [8] Article 1485 of the
Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

The very essence of a contract of sale is the transfer of ownership in exchange

for a price paid or promised.[9]
In contrast, a contract to sell is defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the
property despite delivery thereof to the prospective buyer, binds himself to sell
the property exclusively to the prospective buyer upon fulfillment of the
condition agreed, i.e., full payment of the purchase price.[10] A contract to sell 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.[11]
In the present case, the true nature of the contract is revealed by paragraph D
thereof, which states:
xxx
d) That in case, BUYER has complied with the terms and conditions of this
contract, then the SELLERS shall execute and deliver to the BUYER the
appropriate Deed of Absolute Sale;
xxx

Jurisprudence has established that where the seller promises to execute a

deed of absolute sale upon the completion by the buyer of the payment of the price,
the contract is only a contract to sell. [12] Thus, while the contract is denominated as
a Deed of Conditional Sale, the presence of the above-quoted provision identifies
the contract as being a mere contract to sell.
A Section 4, Rule 74 annotation is an
encumbrance on the property
While Tan admits that he refused to pay the balance of the purchase price, he
claims that he had valid reason to do so the sudden appearance of an annotation on
the title pursuant to Section 4, Rule 74 of the Rules, which Tan considered an
encumbrance on the property.

We find Tans argument meritorious.

The annotation placed on TCT No. 27335, the new title issued to reflect the
extrajudicial partition of Lamberto Benoliraos estate among his heirs, states:
x x x any liability to credirots (sic), excluded heirs and other
persons having right to the property, for a period of two (2) years, with
respect only to the share of Erlinda, Andrew, Romano and Dion, all
surnamed Benolirao [Emphasis supplied.]

This annotation was placed on the title pursuant to Section 4, Rule 74 of the
Rules, which reads:
Sec. 4. Liability of distributees and estate. - If it shall appear
at any time within two (2) years after the settlement and
distribution of an estate in accordance with the provisions of
either of the first two sections of this rule, that an heir or
other person has been unduly deprived of his lawful participation
in the estate, such heir or such other person may compel the
settlement of the estate in the courts in the manner hereinafter
provided for the purpose of satisfying such lawful participation.
And if within the same time of two (2) years, it shall appear that
there are debts outstanding against the estate which have not been
paid, or that an heir or other person has been unduly deprived of
his lawful participation payable in money, the court having
jurisdiction of the estate may, by order for that purpose, after
hearing, settle the amount of such debts or lawful participation
and order how much and in what manner each distributee shall
contribute in the payment thereof, and may issue execution, if
circumstances require, against the bond provided in the preceding
section or against the real estate belonging to the deceased, or
both. Such bond and such real estate shall remain charged with a
liability to creditors, heirs, or other persons for the full
period of two (2) years after such distribution, notwithstanding
any transfers of real estate that may have been made. [Emphasis
supplied.]

Senator Vicente Francisco discusses this provision in his book The Revised
Rules of Court in the Philippines,[13] where he states:
The provision of Section 4, Rule 74 prescribes the procedure to be
followed if within two years after an extrajudicial partition or summary
distribution is made, an heir or other person appears to have been
deprived of his lawful participation in the estate, or some outstanding
debts which have not been paid are discovered. When the lawful

participation of the heir is not payable in money, because, for

instance, he is entitled to a part of the real property that has been
partitioned, there can be no other procedure than to cancel the
partition so made and make a new division,unless, of course, the heir
agrees to be paid the value of his participation with interest. But in
case the lawful participation of the heir consists in his share in personal
property of money left by the decedent, or in case unpaid debts are
discovered within the said period of two years, the procedure is not to
cancel the partition, nor to appoint an administrator to re-assemble the
assets, as was allowed under the old Code, but the court, after hearing,
shall fix the amount of such debts or lawful participation in proportion to
or to the extent of the assets they have respectively received and, if
circumstances require, it may issue execution against the real estate
belonging to the decedent, or both. The present procedure is more
expedient and less expensive in that it dispenses with the appointment of
an administrator and does not disturb the possession enjoyed by the
distributees.[14] [Emphasis supplied.]

An annotation is placed on new certificates of title issued pursuant to the

distribution and partition of a decedents real properties to warn third persons on the
possible interests of excluded heirs or unpaid creditors in these properties. The
annotation, therefore, creates a legal encumbrance or lien on the real property
in favor of the excluded heirs or creditors. Where a buyer purchases the real
property despite the annotation, he must be ready for the possibility that the
title could be subject to the rights of excluded parties. The cancellation of the
sale would be the logical consequence where: (a) the annotation clearly appears on
the title, warning all would-be buyers; (b) the sale unlawfully interferes with the
rights of heirs; and (c) the rightful heirs bring an action to question the transfer
within the two-year period provided by law.
As we held in Vda. de Francisco v. Carreon:[15]
And Section 4, Rule 74 xxx expressly authorizes the court to give
to every heir his lawful participation in the real estate notwithstanding
any transfers of such real estate and to issue execution thereon. All this
implies that, when within the amendatory period the realty has been
alienated, the court in re-dividing it among the heirs has the
authority to direct cancellation of such alienation in the same estate
proceedings, whenever it becomes necessary to do so. To require the
institution of a separate action for such annulment would run counter to

the letter of the above rule and the spirit of these summary settlements.
[Emphasis supplied.]

Similarly, in Sps. Domingo v. Roces,[16] we said:

The foregoing rule clearly covers transfers of real property
to any person, as long as the deprived heir or creditor vindicates his
rights within two years from the date of the settlement and distribution of
estate. Contrary to petitioners contention, the effects of this provision
are not limited to the heirs or original distributees of the estate
properties, but shall affect any transferee of the properties.
[Emphasis supplied.]

Indeed, in David v. Malay,[17] although the title of the property had already
been registered in the name of the third party buyers, we cancelled the sale and
ordered the reconveyance of the property to the estate of the deceased for proper
disposal among his rightful heirs.
By the time Tans obligation to pay the balance of the purchase price arose on
May 21, 1993 (on account of the extensions granted by the respondents), a new
certificate of title covering the property had already been issued on March 26,
1993, which contained the encumbrance on the property; the encumbrance would
remain so attached until the expiration of the two-year period. Clearly, at this time,
the vendors could no longer compel Tan to pay the balance of the purchase since
considering they themselves could not fulfill their obligation to transfer a clean
title over the property to Tan.
Contract to sell is not rescinded but
terminated
What then happens to the contract?
We have held in numerous cases[18] that the remedy of rescission
under Article 1191 cannot apply to mere contracts to sell. We explained the reason
for this in Santos v. Court of Appeals,[19] where we said:
[I]n a contract to sell, title remains with the vendor and does not pass on to the
vendee until the purchase price is paid in full. Thus, in a contract to sell, the
payment of the purchase price is a positive suspensive condition. Failure to pay

the price agreed upon is not a mere breach, casual or serious, but a situation
that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. This is entirely different from the situation in a contract of sale,
where non-payment of the price is a negative resolutory condition. The effects in
law are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and set
aside. In a contract to sell, however, the vendor remains the owner for as long
as the vendee has not complied fully with the condition of paying the
purchase price. If the vendor should eject the vendee for failure to meet the
condition precedent, he is enforcing the contract and not rescinding it. x x
x Article 1592 speaks of non-payment of the purchase price as a resolutory
condition. It does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to sales of
immovable property. Neither provision is applicable [to a contract to sell].
[Emphasis supplied.]

We, therefore, hold that the contract to sell was terminated when the vendors
could no longer legally compel Tan to pay the balance of the purchase price as a
result of the legal encumbrance which attached to the title of the property. Since
Tans refusal to pay was due to the supervening event of a legal encumbrance on the
property and not through his own fault or negligence, we find and so hold that the
forfeiture of Tans down payment was clearly unwarranted.
Award of Attorneys fees
As evident from our previous discussion, Tan had a valid reason for refusing
to pay the balance of the purchase price for the property. Consequently, there is no
basis for the award of attorneys fees in favor of the respondents.
On the other hand, we award attorneys fees in favor of Tan, since he was
compelled to litigate due to the respondents refusal to return his down payment
despite the fact that they could no longer comply with their obligation under the
contract to sell, i.e., to convey a clean title. Given the facts of this case, we find the
award of P50,000.00 as attorneys fees proper.
Monetary award is subject to legal interest
Undoubtedly, Tan made a clear and unequivocal demand on the vendors to
return his down payment as early as May 28, 1993. Pursuant to

our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold
that the vendors should return the P200,000.00 down payment to Tan, subject to
the legal interest of 6% per annum computed from May 28, 1993, the date of the
first demand letter.
Furthermore, after a judgment has become final and executory, the rate of legal
interest, whether the obligation was in the form of a loan or forbearance of money
or otherwise, shall be 12% per annum from such finality until its satisfaction.
Accordingly, the principal obligation of P200,000.00 shall bear 6% interest from
the date of first demand or fromMay 28, 1993. From the date the liability for the
principal obligation and attorneys fees has become final and executory, an annual
interest of 12% shall be imposed on these obligations until their final satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
WHEREFORE, premises considered, we hereby GRANT the petition and,
accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of
Appeals in CA-G.R. CV No. 52033. Another judgment is rendered declaring the
Deed of Conditional Sale terminated and ordering the respondents to return
the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest of
6% per annum, computed from May 28, 1993. The respondents are also ordered to
pay, jointly and severally, petitioner Delfin Tan the amount of P50,000.00 as and
by way of attorneys fees. Once this decision becomes final and
executory, respondents are ordered to pay interest at 12% per annum on the
principal obligation as well as the attorneys fees, until full payment of these
amounts. Costs against the respondents.
SO ORDERED.
ARTURO D. BRION
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-29421 January 30, 1971

LINO ARTATES and MANUELA POJAS, plaintiffs-appellants,
vs.
DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad litem,' MARCELA B. SOLIVEN, REMEGIO
BUTACAN and NEMESIO OATE, in their private capacities and/or as Ex-Oficio Provincial Sheriff and Deputy
Sheriff of Cagayan, respectively, and BIENVENIDO CACATIAN, as Deputy Register of Deeds of
Cagayan, defendants-appellees.
Bienvenido J. Jimenez for plaintiffs-appellants.
Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven.
Alfredo J. Donato for defendant-appellant Nemesio Oate.
The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and Deputy Register of Deeds.

REYES, J.B.L., J.:

This is an appeal from the decision of the Court of First Instance of Cagayan (Civil Case No. 116-T), involving the
public sale of a homestead to satisfy a civil judgment against the grantee.
The records show that in an action filed in the Court of First Instance of Cagayan, the spouses Lino Artates and
Manuela Pojas sought annulment of the execution of a homestead1 covered by Patent No. V-12775 issued to

them by the proper land authorities on 23 September 1952, and duly registered in their names (OCT No.
P-572). The public sale, conducted by the Provincial Sheriff of Cagayan on 2 June 1962, was made to
satisfy a judgment against Lino Artates in the amount of P1,476.35, and awarded to Daniel Urbi by the
Justice of the Peace Court of Camilaniugan, Cagayan, in its Civil Case No. 40, for physical injuries
inflicted by Artates upon Urbi on 21 October 1955. In the execution sale, the property was sold to the
judgment creditor, the only bidder, for P1,476.35. In their complaint, the plaintiffs spouses alleged that the
sale of the homestead to satisfy an indebtedness of Lino Artates that accrued on 21 October 1955,
violated the provision of the Public Land law exempting said property from execution for any debt
contracted within five years from the date of the issuance of the patent; that defendant Urbi, with the
intention of defrauding the plaintiffs, executed on 26 June 1961 a deed for the sale of the same parcel of
land to defendant Crisanto Soliven, a minor, supposedly for the sum of P2,676.35; that as a result of the
aforementioned transactions, defendants Urbi and Soliven entered into the possession of the land and
deprived plaintiffs of the owners' share in the rice crops harvested during the agricultural year 1961-1962.
Plaintiffs, therefore, prayed that the public sale of the land to defendant Urbi, as well as the deed of sale
executed by the latter in favor of defendant Soliven, be declared null and void; that defendants be ordered
to deliver to plaintiffs possession of the land; and to pay to plaintiffs compensatory damages at the rate of
P1,000.00 per agricultural year until possession is finally restored to them, the sum of P2,000.00 as
damages for maliciously casting cloud upon plaintiffs' title on the land, plus attorneys' fees and costs.
The defendants2 filed separate answers disputing the averments of the complaint. On 29 March 1953, the

court rendered judgment upholding the regularity and validity of the execution conducted by the defendant
Provincial Sheriff, but finding that the sale of the lands by defendant Urbi to the minor Soliven was
simulated, intended to place the property beyond the reach of the judgment debtor, and that plaintiffs had
offered to redeem the land within the 5-year period allowed by Section 119 of the Public Land law for
reacquisition thereof by the grantee. Consequently, the court declared the sale of the land by defendant
Daniel Urbi to defendant Crisanto Soliven null and void; and Daniel Urbi was ordered to reconvey the
property to the plaintiffs upon the latter's payment (to Urbi) of the sum of P1,476.35 plus the sheriff's fee
incident to the sale at public auction, with interest thereon at the rate of 12% per annum from 2 June 1961
until said amount shall have been fully paid, and the further sum of P783.45 representing the amount paid

by defendant Daniel Urbi to the Philippine National Bank for the release of the real estate mortgage on
the land, contracted by Lino Artates, with legal rate of interest thereon from 29 June 1961.
From this decision, the plaintiffs interposed the present appeal assigning several errors allegedly committed by the
court below, all hinged on the validity or invalidity of the public sale of the lot involved herein.
Section 118 of the Public Land law (Commonwealth Act 141) provides as follows:
SEC. 118. Except in favor of the Government or any of its branches, units, or institution, or legally
constituted banking corporations, lands acquired under free patent or homestead provisions shall
not be subject to encumbrance or alienation from the date of the approval of the application and for
a term of five years from and after the date of issuance of the patent or grant, nor shall they
become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the
improvements or crops on the land may be mortgaged or pledged to qualified persons,
associations or corporations.
xxx xxx xxx
As thus prescribed by law, for a period of five years from the date of the government grant, lands acquired by free or
homestead patent shall not only be incapable of being encumbered or alienated except in favor of the government
itself or any of its institutions or of duly constituted banking corporations, but also, they shall not be liable to the
satisfaction of any debt contracted within the said period,3 whether or not the indebtedness shall mature during

or after the prohibited time.4 This provision against the alienation or encumbrance of public lands granted
within five years from the issuance of the patent, it has been held, is mandatory; 5 a sale made in violation
thereof is null and void 6 and produces no effect whatsoever. Though it may be a limitation on the right of
ownership of the grantee, the salutary purpose of the provision cannot be denied: it is to preserve and
keep for the homesteader or his family the land given to him gratuitously by the State, 7 so that being a
property owner, he may become and remain a contented and useful member of our society.8
In the case at bar, the homestead patent covering the land in question (No.
V-12775) was issued to appellants on 23 September 1952, and it was sold at public auction to satisfy the civil liability
of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March 1956 decision of the Justice of the Peace Court of
Camalaniugan, Cagayan. There can be no doubt that the award of damages to Urbi created for Artates a civil
obligation, an indebtedness, that commenced from the date such obligation was decreed on 14 March 1956.
Consequently, it is evident that it can not be enforced against, or satisfied out of, the sale of the homestead lot
acquired by appellants less than 5 years before the obligation accrued. And this is true even if the sale involved here
is not voluntary. For purposes of complying with the law, it is immaterial that the satisfaction of the debt by the
encumbrancing or alienation of the land grant made voluntarily, as in the case of an ordinary sale, or involuntarily,
such as that effected through levy on the property and consequent sale at public auction. In both instances, the spirit
of the law would have been violated.9
lwph1.t

Doubts have been expressed as to whether the words "debt contracted prior to the expiration of said period" (of 5
years from and after the grant) would include the civil liability arising from a crime committed by the homesteader.
While there is no direct Philippine precedent on this point, there are various reasons why the non-liability of the
homestead grant should be extended to extra-contractual obligations. First and foremost, whether it be viewed as an
exemption or as a condition attached to the grant to encourage people to settle and cultivate public land, the
immunity in question is in consonance with the definite public policy underlying these grants, which is to "preserve
and keep in the family of the homesteader that portion of public land which the State has given to him" so he may
have a place to live with his family and become a happy citizen and a useful member of society, 10 and the

exemption should not be given restrictive application. 11 A levy and sale of the homestead on account of
extra-contractual liability incurred would uproot the homesteader and his family and turn them into
homeless waifs as effectively as a levy for non-payment of a contractual debt. Secondly, the word "debt"
in exemption statutes,
in its wider sense, (it) includes all that is due to a man under any form or obligation or promise, and
covers not only obligations arising under contract, but also those imposed by law without
contract. 12

Considering the protective policy of the law, it becomes apparent that "debt contracted" was used in it in the sense of
"obligation incurred," since Webster gives the verb to "contract" the meaning of "to bring on; incur; acquire." Finally,
our public land laws being copied from American legislation, 13 resort to American precedents reveals that, under

the weight of authority, exemption from "debts contracted" by a homesteader has been held to include
freedom from money liabilities, from torts or crimes committed by him, such as from bigamy (State vs.
O'Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan, 44 Ill. 451, 452), breach
of contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts (In Re Radway, 20 Fed. Cas. 154,
162).
The execution sale in this case being null and void, the possession of the land should be returned to the owners, the
herein appellants. There would even be no need to order appellee Urbi to execute a deed of reconveyance thereof to
the owners. It appears that what was issued here to the judgment creditor/purchaser was only the sheriff's provisional
certificate, under which he derived no definite title or right until the period for redemption has expired, without a
redemption having been made, 14 or issuance of a final deed or certificate of sale. In other words, the

purchaser herein has not acquired an absolute ownership or title in fee over the land that would
necessitate a deed of reconveyance to revert ownership back to the appellant spouses. As things now
stand, title to the property covered by OCT No. P-572 remains with the appellants, but Lino Artates shall
continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35, with
legal interest thereon accruing from the date the writ of execution was first returned unsatisfied. It
appearing also that appellee Daniel Urbi paid to the Philippine National Bank the sum of P783.45 to
release the mortgage on the land, appellants should reimburse him of said amount or of whatever amount
appellants have actually been benefited by the said payment.
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby reversed, and appellants are
declared entitled to the return and possession of the lot covered by Original Certificate of Title No. P-572, without
prejudice to their continuing obligation to pay the judgment debt, and expenses connected therewith. No costs.
Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.

Separate Opinions

MAKALINTAL, J., concurring and dissenting:

I concur in the opinion of Justice Teehankee, and vote for the affirmance of the appealed judgment in toto. The date
of the issuance of the homestead patent to appellants was September 23, 1952. Under Section 118 of the Public
Land Law the homestead could not be held liable for the satisfaction of any debt contracted during a period of five
years thereafter, or up to September 23, 1957. The opinion of the majority holds that since the civil obligation of
appellant Artates was adjudged on March 14, 1956, or within the said period, the homestead cannot be held liable for
its satisfaction. The obvious implication is that if the judgment had been delayed if for instance it had been
rendered on September 24, 1957 the result would have been otherwise. I do not believe that such a difference
should be made to depend upon the more or less fortuitous and irrelevant circumstance of when the judgment
decreeing the obligation was rendered. I am for giving the word "contracted," as used in the law, its ordinary meaning,
for after all one who contracts with a homestead patentee during the five-year period and accepts an obligation from
him does so with full knowledge of the law's exempting provision, which is deemed in effect a part of the agreement.
The same, however, is not true of the victim of a tort or a crime, as in the present case, for here his volition does not
come into play, the obligation being imposed entirely by law.
lwph1.t

TEEHANKEE, J., concurring and dissenting:

I vote for the affirmance in toto of the judgment appealed from. Hence, I concur in that portion of the decision
decreeing that appellants should reimburse appellee Urbi for the sums that Urbi had paid to the Philippine National
Bank to release the mortgage previously executed by appellants on the subject homestead land, but I dissent from
the principal decree thereof that "title to the property .... remains with the appellants, but (appellant) Lino Artates shall
continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35, with legal interest
thereon accruing from the date the writ of execution was first returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by the sheriff of Artates' homestead lot acquired
in 1952 to satisfy a 1956 judgment against Artates in favor of Urbi (for physical injuries inflicted by Artates upon Urbi
in 1955), at which public sale the homestead lot was sold to Urbi as the only bidder for the amount of his judgment
credit in the sum of P1,476.35 should be held null and void, as the majority would now hold, by virtue of the
prohibitory provisions of Section 118 of the Public Land Law. The key provision cited is that providing that such
homesteads "shall not be subject to encumbrance or alienation from the date of the approval of the application
and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to
the satisfaction of any debt contracted prior to the expiration of said period ..".
Under the cited provision, all sales and alienations of the homestead property made by the homesteader within the 5year prohibition are null and void. Similarly, the homestead is held not liable to the satisfaction of any
debtcontracted by the homesteader within the said period, even though it be contracted that the indebtedness shall
mature after the prohibited period. The law's purpose is clear and salutary: to preserve and keep for the homesteader
the land given to him gratuitously by the State and to protect him from his own weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor of Ubi * was not contracted but duly adjudicated by a
competent court in a lawful judgment for injuries inflicted by Artates upon Urbi in 1955, which, gauging the same from the substantial amount
of P1,476.35 awarded, must have been quite serious. The happenstance that Artates' assault on Urbi and the judgment award occurred
within the prohibitory period should not be construed beyond the law's text and intent to favor the wrongdoer Artates as against his victim
Urbi.

We would have the anomalous situation thereby where, while recognizing that Artates has a just and continuing
obligation to pay Urbi the judgment debt, the debt would in effect be nullified. The judgment debt was awarded
since 1956 and would by now have prescribed, but the majority decision would nullify the levy and public sale of the
land to satisfy Urbi's judgment credit conducted in 1966 long after the expiration of the statutory five-year prohibitory
period. The majority decision bars Urbi forever from looking to Artates homestead property for the satisfaction of his
judgment credit. Artates' evasion of his judgment debt to Urbi is thereby made certain. Any later creditor of Artates,
real or simulated, from one day after the expiration on 23 September 1957 of the said five-year prohibitory period is
given sole and exclusive preference to look to the said property for satisfaction as against Urbi beyond whose reach it
is placed, contrary to the priority and preference that Urbi would lawfully be entitled to as a bona fide judgment
creditor.
Finally, pursuant to Artates' offer to redeem the property from Urbi within the 5-year redemption period allowed by
section 119 of the Public Land Law, the lower court in its appealed judgment so ordered such redemption and
reconveyance. This strikes me as an eminently fair and just judgment which should be upheld. Artates, the
homesteader, is thus assured of keeping and preserving his homestead in accordance ** with the spirit of the law and the
lawful judgment credit of Urbi against him is at the same time duly satisfied.

Castro and Villamor, JJ., concur.

BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision of Section 118 of the Public Land Law
which says that "lands acquired under free patent or homestead provisions shall not ... become liable to the
satisfaction of any debt contracted prior to the expiration of five years from and after the date of issuance of the
patent or grant" contemplates inclusively "the civil liability arising from a crime committed by the homesteader" within
said period. Indeed, I do not feel it is necessary to go deep into the Webster's dictionary meaning of the verb "to
contract" or to look for state court decisions in America, which could be isolated and based on statutes not similarly
phrased and oriented as Ours, to resolve the legal issue before Us, it being sufficient, towards that end, to consider
only the basic principles that underlie the disposition of public lands under our own laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the cited provision of the Public Land Law is
to insure the accomplishment of the double purpose of a homestead grant, which is to encourage the development of

arable lands and enhance their productivity in the interest of the national economy and, at the same time, provide
qualified citizens with a piece of land which they and their families may call their own, on which they can live and
which they can work and thereby become useful members of society. Accordingly, the homesteader is safeguarded
against his own weaknesses imprudence and improvidence by making it impossible for him to directly or indirectly, by
his voluntary act, dispose of or lose the land in favor of others. So also do the exceptions make it impossible for him
to allow himself to be utilized as dummy of opportunists. If this understanding of mine is correct, it should follow
necessarily that for these purposes to be achieved, a homesteader must be, during the exempt period, in physical
condition to work the land granted to him. I cannot help wondering how a person who has been convicted of a crime,
the penalty for which is most likely to include a period of incarceration can work on and develop his homestead in the
manner conceived in the law. That such a contingency may not be true in all instances, for there may be punishment
of crimes with imprisonment of insignificantly short duration or even fines only, does not affect the general principle
involved. I consider it implicit in all land grants by the State that the grantees bind themselves to be loyal and useful
members of society, at least, during the period of development thereof that the law contemplates, namely, the first five
years from the grant. Surely, one who commits an offense against the State and his fellow-citizens or other
inhabitants in this country is far from being a useful member of society. To be sure, his act of committing an offense is
voluntary, but this is not the voluntary act of imprudence and improvidence against which the law guards the
homesteader even against himself. Crime is an assault upon the sovereign people and the social order, even if not
always directly against the national security, and it is my considered view that, in principle, one who is guilty thereof
forfeits whatever rights he might have acquired by virtue of the State's generosity, particularly, when, as in this case, it
is a grant of a special privilege under specified circumstances and not generally and commonly enjoyed by all
citizens/inhabitants of the country.
For these reasons, I vote to affirm the judgment of the court a quo which, after all, recognizes the appellants' right to
redeem the land in question under Section 119 of the Public Land Law, which is the most they should expect from the
State, as thus, their right to the land is reinstated without practically depriving the innocent victims of the crime herein
involved of their remedy for the private injury they have suffered. In other words, under the trial court's decision, all
the ends of justice and equity are subserved, whereas it is difficult to say the same of the decision of this Court.
REYES, J.B.L., J.:

Separate Opinions
MAKALINTAL, J., concurring and dissenting:
I concur in the opinion of Justice Teehankee, and vote for the affirmance of the appealed judgment in toto. The date
of the issuance of the homestead patent to appellants was September 23, 1952. Under Section 118 of the Public
Land Law the homestead could not be held liable for the satisfaction of any debt contracted during a period of five
years thereafter, or up to September 23, 1957. The opinion of the majority holds that since the civil obligation of
appellant Artates was adjudged on March 14, 1956, or within the said period, the homestead cannot be held liable for
its satisfaction. The obvious implication is that if the judgment had been delayed if for instance it had been
rendered on September 24, 1957 the result would have been otherwise. I do not believe that such a difference
should be made to depend upon the more or less fortuitous and irrelevant circumstance of when the judgment
decreeing the obligation was rendered. I am for giving the word "contracted," as used in the law, its ordinary meaning,
for after all one who contracts with a homestead patentee during the five-year period and accepts an obligation from
him does so with full knowledge of the law's exempting provision, which is deemed in effect a part of the
agreement. The same, however, is not true of the victim of a tort or a crime, as in the present case, for here his
volition does not come into play, the obligation being imposed entirely by law.
lwph1.t

TEEHANKEE, J., concurring and dissenting:

I vote for the affirmance in toto of the judgment appealed from. Hence, I concur in that portion of the decision
decreeing that appellants should reimburse appellee Urbi for the sums that Urbi had paid to the Philippine National
Bank to release the mortgage previously executed by appellants on the subject homestead land, but I dissent from
the principal decree thereof that "title to the property .... remains with the appellants, but (appellant) Lino Artates shall

continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35, with legal interest
thereon accruing from the date the writ of execution was first returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by the sheriff of Artates' homestead lot acquired
in 1952 to satisfy a 1956 judgment against Artates in favor of Urbi (for physical injuries inflicted by Artates upon Urbi
in 1955), at which public sale the homestead lot was sold to Urbi as the only bidder for the amount of his judgment
credit in the sum of P1,476.35 should be held null and void, as the majority would now hold, by virtue of the
prohibitory provisions of Section 118 of the Public Land Law. The key provision cited is that providing that such
homesteads "shall not be subject to encumbrance or alienation from the date of the approval of the application
and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to
the satisfaction of any debt contracted prior to the expiration of said period ..".
Under the cited provision, all sales and alienations of the homestead property made by the homesteader within the 5year prohibition are null and void. Similarly, the homestead is held not liable to the satisfaction of any
debtcontracted by the homesteader within the said period, even though it be contracted that the indebtedness shall
mature after the prohibited period. The law's purpose is clear and salutary: to preserve and keep for the homesteader
the land given to him gratuitously by the State and to protect him from his own weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor of Ubi * was not contracted but duly adjudicated
by a competent court in a lawful judgment for injuries inflicted by Artates upon Urbi in 1955, which, gauging the same
from the substantial amount of P1,476.35 awarded, must have been quite serious. The happenstance that Artates'
assault on Urbi and the judgment award occurred within the prohibitory period should not be construed beyond the
law's text and intent to favor the wrongdoer Artates as against his victim Urbi.
We would have the anomalous situation thereby where, while recognizing that Artates has a just and continuing
obligation to pay Urbi the judgment debt, the debt would in effect be nullified. The judgment debt was awarded
since 1956 and would by now have prescribed, but the majority decision would nullify the levy and public sale of the
land to satisfy Urbi's judgment credit conducted in 1966 long after the expiration of the statutory five-year prohibitory
period. The majority decision bars Urbi forever from looking to Artates homestead property for the satisfaction of his
judgment credit. Artates' evasion of his judgment debt to Urbi is thereby made certain. Any later creditor of Artates,
real or simulated, from one day after the expiration on 23 September 1957 of the said five-year prohibitory period is
given sole and exclusive preference to look to the said property for satisfaction as against Urbi beyond whose reach it
is placed, contrary to the priority and preference that Urbi would lawfully be entitled to as a bona fide judgment
creditor.
lwph1.t

Finally, pursuant to Artates' offer to redeem the property from Urbi within the 5-year redemption period allowed by
section 119 of the Public Land Law, the lower court in its appealed judgment so ordered such redemption and
reconveyance. This strikes me as an eminently fair and just judgment which should be upheld. Artates, the
homesteader, is thus assured of keeping and preserving his homestead in accordance ** with the spirit of the law and
the lawful judgment credit of Urbi against him is at the same time duly satisfied.
Castro and Villamor, JJ., concur.
BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision of Section 118 of the Public Land Law
which says that "lands acquired under free patent or homestead provisions shall not ... become liable to the
satisfaction of any debt contracted prior to the expiration of five years from and after the date of issuance of the
patent or grant" contemplates inclusively "the civil liability arising from a crime committed by the homesteader" within
said period. Indeed, I do not feel it is necessary to go deep into the Webster's dictionary meaning of the verb "to
contract" or to look for state court decisions in America, which could be isolated and based on statutes not similarly
phrased and oriented as Ours, to resolve the legal issue before Us, it being sufficient, towards that end, to consider
only the basic principles that underlie the disposition of public lands under our own laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the cited provision of the Public Land Law is
to insure the accomplishment of the double purpose of a homestead grant, which is to encourage the development of
arable lands and enhance their productivity in the interest of the national economy and, at the same time, provide
qualified citizens with a piece of land which they and their families may call their own, on which they can live and
which they can work and thereby become useful members of society. Accordingly, the homesteader is safeguarded

against his own weaknesses imprudence and improvidence by making it impossible for him to directly or indirectly, by
his voluntary act, dispose of or lose the land in favor of others. So also do the exceptions make it impossible for him
to allow himself to be utilized as dummy of opportunists. If this understanding of mine is correct, it should follow
necessarily that for these purposes to be achieved, a homesteader must be, during the exempt period, in physical
condition to work the land granted to him. I cannot help wondering how a person who has been convicted of a crime,
the penalty for which is most likely to include a period of incarceration can work on and develop his homestead in the
manner conceived in the law. That such a contingency may not be true in all instances, for there may be punishment
of crimes with imprisonment of insignificantly short duration or even fines only, does not affect the general principle
involved. I consider it implicit in all land grants by the State that the grantees bind themselves to be loyal and useful
members of society, at least, during the period of development thereof that the law contemplates, namely, the first five
years from the grant. Surely, one who commits an offense against the State and his fellow-citizens or other
inhabitants in this country is far from being a useful member of society. To be sure, his act of committing an offense is
voluntary, but this is not the voluntary act of imprudence and improvidence against which the law guards the
homesteader even against himself. Crime is an assault upon the sovereign people and the social order, even if not
always directly against the national security, and it is my considered view that, in principle, one who is guilty thereof
forfeits whatever rights he might have acquired by virtue of the State's generosity, particularly, when, as in this case, it
is a grant of a special privilege under specified circumstances and not generally and commonly enjoyed by all
citizens/inhabitants of the country.
For these reasons, I vote to affirm the judgment of the court a quo which, after all, recognizes the appellants' right to
redeem the land in question under Section 119 of the Public Land Law, which is the most they should expect from the
State, as thus, their right to the land is reinstated without practically depriving the innocent victims of the crime herein
involved of their remedy for the private injury they have suffered. In other words, under the trial court's decision, all
the ends of justice and equity are subserved, whereas it is difficult to say the same of the decision of this Court.
REYES, J.B.L., J., concu.r
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-54070 February 28, 1983
HEIRS OF ENRIQUE ZAMBALES and JOAQUINA ZAMBALES, petitioners,
vs.
COURT OF APPEALS, NIN BAY MINING CORPORATION, ANGELA C. PREYSLER and JOAQUIN B.
PREYSLER, respondents.

MELENCIO-HERRERA, J.:
The Decision of respondent Court of Appeals in the case entitled "Enrique Zambales and Joaquina Zambales,
Plaintiffs-appellees vs. Atty. Perfecto de los Reyes, Nin Bay Mining Corporation and Joaquin B. Preysler, Defendantsappellants" (CA-G.R. No. 59386-R), setting aside the judgment of the Court of First Instance of Palawan in Civil Case
No. 678 for Annulment of a Deed of Sale with Recovery of Possession and Ownership with Damages", is the subject
of this Petition for Review on Certiorari.
Joaquin B. Preysler is now deceased and was substituted by Angela C. Preysler, his widow.
Atty. Perfecto de los Reyes was originally a defendant in Civil Case No. 678 but he did not appeal from the Decision
of the lower Court.
The Zambales spouses (Zambaleses, for brevity) were the homestead patentees of a parcel of land with an area of
17,8474 hectares situated in the Municipality of Del Pilar, Roxas, Palawan, covered by Original Certificate of Title No.

G 1193 of the Registry of Deeds for the Province of Palawan, issued pursuant to Homestead Patent No. V-59502
dated September 6, 1955.
Claiming that the Nin Bay Mining Corporation (Corporation, for short) had removed silica sand from their land and
destroyed the plants and others improvements thereon, the Zambaleses instituted, on November 10, 1958, Civil
Case No. 316 before the Court of First Instance of Palawan claiming damages in the total sum of P48,000.00.
The Corporation denied having caused any damages and claimed that it had excavated and extracted silica sand
only from its own mining claims and on which it had mining lease contracts with the Philippine Government.
On October 29, 1959, the Zambaleses, duly assisted by their counsel, Atty. Perfecto de los Reyes, and the
Corporation, entered into a Compromise Agreement, the portions of which, pertinent to this case, read:
1. DEFENDANT shall pay the PLAINTIFFS a rental of TWENTY (P20.00) PESOS per hectare per
year from September 9, 1955 to September 30, 1960, or a total rental price of ONE THOUSAND
SEVEN HUNDRED EIGHTY-FOUR PESOS AND SEVENTY- FOUR CENTAVOS (P1,784.74),
Philippine currency, in lieu of all damages...
2. The payment to the PLAINTIFFS of the above-mentioned rental price shall be considered full,
absolute and final payment and indemnity for all the alleged damages to PLAINTIFFS' property and
its improvements, or any other actual, moral, exemplary or other damages that PLAINTIFFS may
have suffered or will suffer in connection with the mining operations of DEFENDANT on the
property in question, which property, by virtue of the terms of this Agreement shall be used by
DEFENDANT as occupant thereof until September 30, 1960.
3. PLAINTIFFS hereby agree and bind themselves to sell, transfer and convey, and DEFENDANT
or its assigns, qualified to acquire or hold lands of the public domain, hereby agrees to purchase
and pay for, the aforesaid property of the PLAINTIFFS, containing an area of 17.8474 hectares,
situated in the Municipality of Del Pilar, Roxas, Palawan, and covered by Original Certificate of Title
No. G1193 of the Registry of Deeds of Palawan, at the fixed selling price of FIVE HUNDRED
(P500.00) PESOS per hectare or a total purchase price of EIGHT THOUSAND NINE HUNDRED
TWENTY THREE PESOS and SEVENTY CENTAVOS (P8,923.70), Philippine currency. The
contract to purchase and sell herein provided for, shall be reciprocally demandable and enforceable
by the parties hereto on September 10, 1960. PLAINTIFFS hereby irrevocably constitute and
appoint DEFENDANT, its successors and/or assigns their true and lawful attorney-in-fact with full
power and authority to sell, transfer and convey on September 10, 1960 or at any time thereafter
the whole or any part of PLAINTIFFS' property hereinabove mentioned to the DEFENDANT, its
successors and/or assigns, or to any third party, and to execute and deliver all instruments and
documents whatsoever necessary for the purpose, and all acts done and to be done by
DEFENDANT, its successors and/or assigns in conformity with the powers herein granted are
hereby ratified and confirmed by the PLAINTIFFS. ...
4. In consideration of the payment of the amount of P1,784.74 by DEFENDANT, and of other good
and valuable consideration, PLAINTIFFS, jointly and severally, hereby forever release, fully and
completely, said DEFENDANT, its successors and/or assigns in interest, from any and all liabilities,
whether arising from past, present or future excavation or removal of silica sand from the property
in question or otherwise, and from all the other claims against the DEFENDANT contained in their
Complaint in Civil Case No. 316 of the Court of First Instance of Palawan. 1
The Trial Court rendered judgment on October 29, 1959 based on the Compromise Agreement. The document was
duly annotated an OCT No. G - 1193 (Exhibit " A ") the day after, or on October 30, 1959 (Exhibit " 10 A ").
On September 10, 1960, the Corporation, as attorney-in-fact for the Zambaleses, as Vendors, sold the disputed
property to Joaquin B. Preysler for the sum of P8,923.70 fixed in the Compromise Agreement (Exhibit " 11 "). Transfer
Certificate of Title No. T-970 was issued in the vendee's name on December 19, 1960 (Exhibit " 2 ").
The Deed of Sale to Preysler contained the following proviso:

The VENDORS hereby represent and warrant that the five-year restrictive period on alienation of
lands acquired under the homestead provisions of Commonwealth Act No. 141, as amended,
otherwise known as the Public Land Act, has already expired, the date of issuance of the herein
homestead patent to the VENDORS as aforesaid being September 6, 1955 as shown in Original
Certificate of Title No. G-1193.
On October 18, 1960, the Secretary of Agriculture and Natural Resources approved the sale to Preysler of the subject
property (Exhibit "13 ").
On. December 6, 1969, or ten (10) years after the Trial Court's Decision based on the Compromise Agreement, and
nine (9) years after the sale to Preysler, the Zambaleses filed Civil Case No. 678 before the Court of First Instance of
Palawan for "Annulment of a Deed of Sale with Recovery of Possession and Ownership with Damages". They
contended that it was their lawyer who prevailed upon them to sign the Compromise Agreement; that they are
unschooled and did not understand the contents thereof; that they were made to understand that they would receive
the sum of P10,700.00, only as payment for damages sustained by the land from 1955 to 1960; that through fraud,
deceit and manipulation by their lawyer and the Corporation, they were made to agree to appoint the Corporation as
their attorney-in-fact with full power and authority to sell; that it was never their intention to sell the land; that in
September 1969, they were surprised to learn that the land was already titled in the name of Joaquin B. Preysler; that
the land was acquired and registered in the latter's name through fraud and deceit. The Zambaleses then prayed that
the deed of sale and the title in Preysler's name be annulled on the ground of fraud and that the property be
reconveyed to them.
In their Answer, the Corporation denied all allegations that the Zambaleses had signed the Compromise Agreement
without understanding the contents thereof, the truth being that it was read to them by their counsel, Atty. Perfecto de
los Reyes, who explained thoroughly the full implication and legal consequence of each and every provision, which
was then submitted and approved by then Presiding Judge Juan L. Bocar; and that the Corporation had sold the
property to Preysler as a duly constituted attorney-in-fact pursuant to the Compromise Agreement.
After trial, the lower Court rendered judgment in favor of the Zambaleses, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as
follows:
1) That the deed of sale executed by Nin Bay Mining Corporation through its president, to Joaquin
B. Preysler is hereby declared null and void;
2) That the defendant Joaquin B. Preysler is hereby ordered to reconvey the land subject matter of
this litigation to the plaintiffs;
3) That the defendants Nin Bay Mining Corporation and Joaquin B. Preysler shall pay the plaintiffs
the sum of P85,000.00 as actual damages plus the legal rate of interest from September 30, 1960
up to the time the amount is fully paid;
4) That the defendants to pay the sum of FIVE THOUSAND (P5,000.00) PESOS as attorneys fees;
and
5) The defendants to pay the costs.
On appeal by the Corporation, the Court of Appeals reversed the Trial Court, after finding that the alleged fraud or
misrepresentation in the execution of the Compromise Agreement had not been substantiated by evidence.
The case is now before us on review.
The controversy revolves around the issue of due execution and validity of the Compromise Agreement (Exhibit "8")
dated October 29; 1959, and of the subsequent Deed of Sale (Exhibit "11 "), dated 10 September 1960.
I

The general rule is that whoever alleges fraud or mistake must substantiate his allegation, since the presumption is
that a person takes ordinary care of his concerns and that private transactions have been fair and regular. The rule
admits of an exception in Article 1332 of the Civil Code which provides:
When one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former.
For the proper application of said provision, it has first to be established convincingly that the illiterate or the party at a
disadvantage could not read or understand the language in which the contract was written. 2 The evidence

discloses that the spouses Zambales are unschooled. They cannot read, speak, much less understand
English or write, except to sign their names. 3 The Zambaleses alleged in their Complaint that the
Compromise Agreement (Exhibit "8") was executed through fraud by the Corporation and by their counsel
Atty. Perfecto de los Reyes, whom they included as a defendant. The burden of proof, therefore, shifted to
the Corporation to show that the compromise agreement had been fully explained to the plaintiffs.
In refuting the allegation that plaintiffs were misled into signing the compromise agreement, their former counsel, Atty.
Perfecto de los Reyes, and the notary, Atty. Salomon Reyes, a lawyer for Nin Bay Mining Corporation, established
that the terms and conditions of the Compromise Agreement were thoroughly explained and fully understood by the
spouses Zambales in accordance with their proposal to sell the land at P500.00 a hectare; that before the signing of
the Compromise Agreement, the notary requested Atty. de los Reyes to read and explain each and every provision to
the spouses, and with the help of Ricardo Nunala, Atty. de los Reyes did so in their dialect (Cuyuno). Thereafter, the
parties went to Judge Juan Bocar, who was assured that the spouses Zambales understood and signed the
Compromise Agreement. 4
We sustain the finding of the Court of Appeals that fraud and misrepresentation did not vitiate petitioners' consent to
the Agreement when it observed:
Taking into account the foregoing observations, this Court is not convinced that indeed appellees
were victims of a fraudulent scheme employed upon them by their former counsel by reason of
their alleged illiteracy and ignorance. The evidence discloses that appellees, although unschooled,
are intelligent, well-informed and intelligent people. They are not the kind of persons who could
easily be fooled of their rights and interests. Even as commented by the court a quo, which had a
chance to observe the demeanor of the witness, it had no observation that the witness, Joaquina
Zambales, is ignorant. As correctly observed by appellants, appellees 'are political leaders and
chief campaigners; they speak in the platform during political rallies; and they are widely travelled'
(p. 28, Appellants' Brief). As a matter of fact they are knowledgeable of the right connections in the
government. They had approached former Sen. Rogelio de la Rosa, no less, the congressman and
the governor. Even the lawyers they have retained previous to their present counsel are the Padilla
Law Office and the Diokno Law Office, It is common knowledge that these law offices are among
the established law offices in Manila. It is far convincing that an ignorant couple would have
knowledge of these law firms. All these are obvious manifestations of their being well-informed and
the way they have conducted their way of living apparently is inconsistent with the plea of being
illiterate and/or ignorant. They cannot capitalize on the fact that they are uneducated only because
they had no formal schooling inasmuch as one's knowledge of the facts of life is not dependent on
whether one had formal schooling or not and it does not necessarily follow always that if one is
unschooled he is ignorant.
Furthermore, when plaintiffs-appellees signed the questioned compromise agreement they were
duly assisted and represented by their counsel, Atty. de los Reyes. When Atty. de los Reyes
testified in court he categorically declared that it was to the best interest of his clients that they
compromise Civil Case No. 316. This declaration finds support in Joaquina Zambales' testimony
wherein she stated thus:
ATTY. SEMBRANO:
Q. Except for this present case, would you say to the Court that Atty. de los
Reyes extended to you legal assistance to your satisfaction?

A. Yes, sir, he is good to us.

xxx xxx xxx
Q. So these people never gave their services to you?
A. Nobody was able to help us except Atty. de los Reyes. (Tsn., pp. 29, 31 & 32,
June 19, 1974)
... Thus, it having been established that appellees could not have been misled by their former
counsel into signing the compromise agreement and taking into account the acts of the appellees
and their children subsequent to the execution of the compromise agreement perforce the court a
quo erred in not giving credence to the clear and convincing testimonies of Atty. Perfecto de los
Reyes and Atty. Salomon Reyes anent the execution of the compromise agreement. 5
However, although we find that the Zambaleses were not misled into signing the Compromise Agreement, we hold
that there has been violation of the Public Land Act. The evidence on record shows that the land in question was
awarded t the Zambaleses as a homestead on September 6, 1955 (Exhibit "A"). Before us, the Zambaleses now
argue that the Compromise Agreement executed on October 29, 1959 is in violation of the Public Land Act, which
prohibits alienation and encumbrance of a homestead lot within five years from the issuance of the patent. 6
We sustain that contention. The fact that the issue was not raised in the Courts below is not a deterrent factor
considering that the question affects the validity of the agreement between the parties. The Supreme Court has the
authority to review matters even if they are not assigned as errors in the appeal, if it is found that their consideration
is necessary in arriving at a just decision of the case. 7 Moreover, a party may change his legal theory on

appeal only when the factual bases thereof would not require presentation of any further evidence by the
adverse party in order to enable it to properly meet the issue raised in the new theory. 8 In the case at bar
it is indisputable that Homestead Patent No. V-59502 was issued on September 6, 1955 as shown in
Original Certificate of Title No. 1193 (Exhibit "A ").
The sale of a homestead lot within the five-year prohibitory period is illegal and void. The law does not distinguish
between executory and consummated sales.
The law prohibiting any transfer or alienation of homestead land within five years from the issuance
of the patent does not distinguish between executory and consummated sales; and it would hardly
be in keeping with the primordial aim of this prohibition to preserve and keep in the family of the
homesteader the piece of land that the state had gratuitously given to them, to hold valid a
homestead sale actually perfected during the period of prohibition but with the execution of the
formal deed of conveyance and the delivery of possession of the land sold to the buyer deferred
until after the expiration of the prohibitory period, purposely to circumvent the very law that prohibits
and declares invalid such transaction to protect the homesteader and his family. 9
In the compromise agreement executed between the parties, (1) the Zambaleses promised to sell and the
Corporation agreed to buy the disputed lot at P500.00 per hectare, the contract to be reciprocally demandable and
enforceable on September 10, 1960; and as a substitute procedure, (2) an irrevocable agency was constituted in
favor of the Corporation as attorney- in-fact to sell the land to any third person on September 10, 1960 or any time
thereafter.
Clearly, the bilateral promise to buy and sell the homestead lot at a price certain, which was reciprocally
demandable 10, was entered into within the five-year prohibitory period and is therefore, illegal and void.

Further, the agency to sell the homestead lot to a third party was coupled with an interest inasmuch as a
bilateral contract was dependent on it and was not revocable at will by any of the parties. 11 To all intents
and purposes, therefore, there was an actual executory sale perfected during the period of prohibition
except that it was reciprocally demandable thereafter and the agency to sell to any third party was
deferred until after the expiration of the prohibitory period. That "rentals" were ostensibly to be paid during
the five-year prohibitory period, and the agency to sell made effective only after the lapse of the said
period, was merely a devise to circumvent the prohibition.

To hold valid such an arrangement would be to throw the door wide open to all possible subterfuges that persons
interested in homesteads may devise to defeat the legal prohibition against alienation within five years from the
issuance of the patent.
We hold, therefore, that the bilateral promise to buy and sell, and the agency to sell, entered into within five years
from the date of the homestead patent, was in violation of section 118 of the Public Land Law, although the executed
sale was deferred until after the expiration of the five-year- prohibitory period.
As the contract is void from the beginning, for being expressly prohibited by law 12 the action for the declaration of

its inexistence does not prescribe. 13 Being absolutely void, it is entitled to no authority or respect, the sale
may be impeached in a collateral proceeding by any one with whose rights and interest it conflicts. There
is no presumption of its validity. 14 The approval of the sale by the Secretary of Agriculture and Natural
Resources after the lapse of five years from the date of the patent would neither legalize the sale. 15
The homestead in question should be returned to the Zambaleses, petitioners herein, who are, in turn, bound to
restore to the Corporation the sum of P8,923.70 as the price thereof. The actual damages awarded by the Trial Court
of P85,000.00 have not been adequately substantiated. Moreover, under the agreement, the total rental price of
P1,784.74 was intended to be "in lieu of all damages, or any other actual, moral, exemplary or other damages.
This is without prejudice to the corresponding action on the part of the State for reversion of the property and its
improvements, if any, under Section 124 of the Public Land Act. 16
WHEREFORE, the judgment under review is hereby REVERSED, and another one entered (1) declaring null and
void a) the bilateral promise to buy and sell entered into between Enrique Zambales and Joaquina Zambales, on the
one hand, and the Nin Bay Mining Corporation on the other, and b) the sale executed by Nin Bay Mining Corporation
in favor of Joaquin B. Preysler; (2) ordering Angela C. Preysler to reconvey the land subject matter of this litigation to
petitioners upon refund by the latter to the Nin Bay Mining Corporation of the sum of P8,923.70, all expenses for the
reconveyance to be borne by private respondents; (3) ordering Nin Bay Mining Corporation to pay rentals to
petitioners at the price of P20.00 per hectare per year from December 6, 1969, the date of the institution of the
Complaint, till the date that possession is turned over to petitioners; and (4) ordering the Register of Deeds for the
Province of Palawan to cancel Transfer Certificate of Title No. T-970 of his Registry, and reissue to the Heirs of
Enrique Zambales and Joaquina Zambales the title to the homestead in question.
Let a copy of this Decision be served on the Solicitor General.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.

AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the
plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later
subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS
IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J.
Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo,
and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make
and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr.
Parsons shall order the beds by the dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the
date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance,
and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr.
Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall
be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount
of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to
pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which
he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect
he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the
alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be
increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at
which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties,
Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the
preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not
comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the
towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to
Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting
parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of
this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to
sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order

the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the
defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in
the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his
agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The
whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract
hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was
essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds
which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a
discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or
before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase
and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to
pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the
sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price
within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of
purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff
claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this
contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses
necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean
nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in
articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the
contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and
who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his
testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of
its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and,
when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his
beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the
truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the
agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his
classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it
is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without
previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission
for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of
both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no
right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the
contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the
purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its
essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to
another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid
for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent
with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the
contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record
that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their
return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the
invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was
because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's
beds, such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the
effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his
own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one
of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed
upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 55793 May 18, 1990

CONCRETE AGGREGATES, INC., petitioner,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
Santiago, Tinga & Associates for petitioner.

REGALADO, J.:
This petition for review on certiorari seeks the annulment of the decision of respondent Court of Tax Appeals, 1dated

September 19, 1980, and its resolution denying reconsideration thereof, dated December 3, 1980, both
promulgated in CTA Case No. 2433, entitled "Concrete Aggregates, Inc. vs. Commissioner of Internal
Revenue," the decretal portion of which decision reads:
Having reached the conclusion that petitioner is a manufacturer subject to the 7% sales tax under
Section 186 of the then National Internal Revenue Code, the decision of respondent dated July 24,
1972 should therefore be sustained. Accordingly, petitioner Concrete Aggregates, Inc. is hereby
ordered to pay to respondent Commissioner of Internal Revenue the total amount of P244,022.76
representing sales and ad valorem taxes for the first semester of 1968 inclusive of surcharges, plus
interest at the rate of 14% per centum from January 1, 1973 up to the date of full payment thereof
pursuant to Section 183 (now 193) of the National Internal Revenue Code.
WHEREFORE, the decision appealed from is hereby affirmed at petitioner's costs.
SO ORDERED. 2
The records disclose that petitioner is a domestic corporation, duly organized and existing under the laws of the
Philippines, with business address at Longos, Quezon City. It has an aggregate plant at Montalban, Rizal which
processes rock aggregates mined by it from private lands. Petitioner also maintains and operates a plant at Longos,
Quezon City for the production of ready-mixed concrete and plant-mixed hot asphalt.

Sometime in 1968, the agents of respondent commissioner conducted an investigation of petitioner's tax liabilities. As
a consequence thereof, in a letter dated December 14, 1970 said respondent assessed and demanded payment from
petitioner of the amount of P244,002.76 as sales and ad valorem taxes for the first semester of 1968, inclusive of
surcharges. Petitioner disputed the said assessment in its letter dated February 2, 1971 without, however, contesting
the portion pertaining to the ad valorem tax.
In his letter dated July 24, 1972, respondent reiterated the said assessment of sales and ad valorem taxes which, as
explained in his preceding letter, had been arrived at as follows. 3
Taxable sales P 4,164,092.44

7% sales tax due thereon P 291,486.47

Less: Tax already paid 116,523.55

Deficiency tax due P 174,962.92

Add: 25% surcharge 43,740.73

Total deficiency tax and surcharge P 218,703.65

Add: 1 1/2% ad valorem on P20,239.29
25% surcharge thereon 5,059.82 25,299.11

TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76
Consequently, demand for the payment of the said amount within ten days from receipt of the letter was made by
respondent on petitioner, otherwise the same would be collected thru the summary remedies provided for by law.
Instead of paying, petitioner appealed to respondent court.
As earlier stated, a judgment adverse to petitioner was handed down by respondent court, whereupon he came to
this Court on a petition for review. In its resolution dated September 7, 1981, the Court, through its First Division,
denied the petition for review for lack of merit. 4 Petitioner filed a motion for reconsideration which was likewise

denied in the resolution of October 19, 1981 for lack of merit, the denial being expressly declared to be
final. 5 With leave of court, petitioner filed its second motion for reconsideration which was granted by the
Court in its resolution dated November 23, 1981. 6
The sole issue in this case is whether petitioner is a contractor subject to the 3% contractor's tax under Section 191
of the 1968 National Internal Revenue Code or a manufacturer subject to the 7% sales tax under Section 186 of the
same Code.
Petitioner disclaims liability on the ground that it is a contractor within the meaning of Section 191 of the 1968 Tax
Code, the pertinent portion of which reads:
Sec. 191. Percentage tax on road, building, irrigation, artesian well, waterworks, and other
construction work contractors, proprietors or operators of dockyards, and others. Road, building,
irrigation, artesian well, waterworks, and other construction work contractors; . . . and other
independent contractors, . . . shall pay a. tax equivalent to three per centum of their gross receipts.
xxx xxx xxx

Petitioner contends that its business falls under "other construction work contractors" or "other independent
contractors" and, as such, it was a holder of a license under Republic Act No. 4566, otherwise known as the
"Contractors Licensing Law" and was classified thereunder as a "general engineering contractor" and "specialty
asphalt and concrete contractor. 7 It advances the theory that it produced asphalt and concrete mix only upon

previous orders, which may be proved by its system of requiring the filling of job orders where the
customers specify the construction requirements, and that without such order, it would not do so
considering the highly perishable nature of the asphalt and concrete mix. 8
It emphasizes that the mixing of asphalt and cement, if they were to be sold to the public, is not a simple matter of
putting things together in a rotating bowl but involves a careful selection of components, proper measuring and
weighing of ingredients, calibration of the plant to arrive at the right mixing temperature, and testing of the strength of
the material, altogether using its own means and methods without submitting itself to control by the customers. 9
Thus, it adopts the view that if the article subject of the sale is one which is not ready for delivery, as it is yet to be
manufactured according to the order, the seller thereof is a contractor. However, if the article subject of the sale is one
which is ready for delivery when the order therefor is placed, the seller is a manufacturer. 10 Complementary to this,

it postulates that as a contractor dealing exclusively in the construction of roads, buildings and other
building or construction works, its business consists of rendering service by way of furnishing its
customers with pre-mixed concrete or asphalt, in effect merely doing for the customers what the latter
used to do themselves, that is, to buy the ingredients and then mix the concrete or asphalt. 11 It concludes
that in doing so, it does not become a manufacturer.
We have had the occasion to construe Section 191, now Section 205, of the Tax Code in Commissioner of Internal
Revenue vs. The Court of Tax Appeals, et al. 12 where we reiterated the test as to when one may be

considered a contractor within its context, thus;

The word "contractor" has come to be used with special reference to a person who, in the pursuit of
the independent business, undertakes to do a specific job or piece of work for other persons, using
his own means and methods without submitting himself to control as to the petty details. (Aranas,
Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191(2), 1970
Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring
Co. vs. Trinidad, 43 Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43 Phil. 816,
819, would seem to be that he renders service in the course of an independent
occupation, representing the will of his employer only as to the result of his work, and not as to the
means by which it is accomplished. (Emphasis supplied)
It is quite evident that the percentage tax imposed in Section 191 is generally a tax on the sale of services or labor. In
its factual findings, respondent court found that petitioner was formed and organized primarily as a manufacturer; that
it has an aggregate plant at Montalban, Rizal, which processes rock aggregates mined by it from private lands; it
operates a concrete batching plant at Longos, Quezon City where the specified aggregates from its plant at
Montalban are mixed with sand and cement, after which water is added and the concrete mixture is sold and
delivered to customers; and at its plant site at Longos, Quezon City, petitioner has also an asphalt mixing machinery
where bituminous asphalt mix is manufactured. 13
We see no reason to disturb the findings of respondent court. Petitioner is a manufacturer as defined by Section
194(x), now Section 187(x), of the Tax Code.
Sec. 1 94. Words and phrases defined. In applying the provisions of this Title words and phrases
shall be taken in the sense and extension indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or chemical process alters the exterior
texture or form or inner substance of any raw material or manufactured or partially manufactured
product in such manner as to prepare it for a special use or uses to which it could not have been
put in its original condition, or who by any such process alters the quality of any such raw material
or manufactured or partially manufactured product so as to reduce it to marketable shape or
prepare it for any of the uses of industry, or who by any such process combines any such raw

material or manufactured or partially manufactured products with other materials or products of the
same or different kinds and in such manner that the finished product of such process or
manufacture can be put to a special use or uses to which such raw material or manufactured or
partially manufactured products, in their original condition could not have been put, and who in
addition alters such raw material or manufactured or partially manufactured products, or combines
the same to produce such finished products for the purpose of their sale or distribution to others
and not for his own use or consumption.
As aptly pointed out by the Solicitor General, petitioner's raw materials are processed under a prescribed formula and
thereby changed by means of machinery into a finished product, altering their quality, transforming them into
marketable state or preparing them for any of the specific uses of industry. Thus, the raw materials become a distinct
class of merchandise or "finished products for the purpose of their sales or distribution to others and not for his own
use or consumption." Evidently, without the above process, the raw materials or aggregates could not, in their original
form, perform the uses of the finished product. 14
In a case involving the making of ready-mixed concrete, it was held that concrete is a product resulting from a
combination of sand or gravel or broken bits of limestones with water and cement; a combination which requires the
use of skill and most generally of machinery. Concrete in forms designed for use and supplied to others for buildings,
bridges and other structures is a distinct article of commerce and the making of them would be manufacturing by the
corporation doing so. 15
Selling or distribution is an essential ingredient of manufacturing. The sale of a manufactured product is properly
incident to manufacture. The power to sell is an indispensable adjunct to a manufacturing business. 16 Petitioner, as

a manufacturer, not only manufactures the finished articles but also sells or distributes them to others.
This is inferable from the testimonial evidence of petitioner's witness that, in the marketing of its products,
the company has marketing personnel who visit the client, whether he is a regular or a prospective
customer, and that it is the customer who specifies the requirement according to his needs by filling up a
purchase order, after which a job order is issued. This is followed by the delivery of the finished product to
the job site. 17
Petitioner relies heavily on the case of The Commissioner of Internal Revenue vs. Engineering Equipment and
Supply Co., et al. 18 and on the basis thereof posits that it has passed the test of a contractor under Article

1467 of the Civil Code which provides:

Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary
course of his business manufactures or procures for the general market, whether the same is on
hand at the time or not, is a contract of sale but if the goods are to be manufactured specially for
the customer and upon his special order, and not for the general market, it is a contract for a piece
of work.
It is readily apparent that, in declaring private respondent in the aforesaid Engineering Equipment case as a
contractor, the Court relied on findings of fact distinguishable from those in the case at bar.
. . . We find that Engineering did not manufacture air conditioning units for sale to the general
public, but imported some items (as refrigeration coils, . . .) which were used in executing contracts
entered into by it. Engineering, therefore, undertook negotiations and execution of individual
contracts for the design, supply and installation of air conditioning units of the central type . . .,
taking into consideration in the process such factors as the area of the space to be air conditioned;
the number of persons occupying or would be occupying the premises; the purpose for which the
various air conditioning areas are to be used; and the sources of heat gain or cooling load on the
plant such as the sun load, lighting, and other electrical appliances which are or may be in the plan.
. . . Engineering also testified during the hearing in the Court of Tax Appeals that relative to the
installation of air conditioning system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each had to be engineered separately.
As found by the lower court, which finding We adopt

Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various
customers the central type air conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air conditioning units and spare parts or
accessories thereof used by petitioner are not the window type of air conditioners which are
manufactured, assembled and produced locally for sale to the general market; and the imported air
conditioning units and spare parts or accessories thereof are supplied and installed by petitioner
upon previous orders of its customers conformably with their needs and requirements.
The facts and circumstances aforequoted support the theory that Engineering is a contractor rather
than a manufacturer.
It is still good law that a contract to make is a contract of sale if the article is already substantially in existence at the
time of the order and merely requires some alteration, modification or adaptation to the buyer's wishes or purposes. A
contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for
the general market, whether the same is on hand at the time or not is a contract for the sale of goods. 19
Petitioner insists that it would produce asphalt or concrete mix only upon previous job orders otherwise it would not
do so. It does not and will not carry in stock cement and asphalt mix. 20 But the reason is obvious. What

practically prevents the petitioner from mass production and storage is the nature of its products, that is,
they easily harden due to temperature change and water and cement reaction. 21 Stated differently by
respondent court, "it is self-evident that it is due to the highly perishable nature of asphalt and concrete
mix, as petitioner itself argues, that makes impossible for them to be carried in stock because they cool
and harden with time, and once hardened, they become useless. 22
Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete or asphalt desired and
needed by its various customers and for which it is mechanically equipped to do. It is clear, however, that petitioner
does nothing more than sell the articles that it habitually manufactures. It stocks raw materials, ready at any time, for
the manufacture of asphalt and/or concrete mix. 23 Its marketing system would readily disclose that its products

are available for sale to anyone needing them. Whosoever would need its products, whether builder,
contractor, homeowner or payer with sufficient money, may order aggregates, concrete mix or bituminous
asphalt mix of the kind manufactured by petitioner. 24 The habituality of the production of goods for the
general public characterizes the business of petitioner.
We are likewise persuaded by the submissions of the Solicitor General that the ruling in Celestino Co & Company
vs. Collector of Internal Revenue 25 is applicable to this case in that unless an activity is covered by Section

191 of the Tax Code, one who manufactures articles, although upon a previous order and subject to the
specifications of the buyer, is nonetheless a manufacturer.
We also reject petitioner's theory that, with the amendment of Section 191 of the Tax Code, it can be considered as a
"specialty contractor." As observed by respondent, a specialty contractor is one whose operations pertain to
construction work requiring special skill and involves the use of specialized building trades or crafts. The manufacture
of concrete and cement mix do not involve the foregoing requirements as to put it within such special category.
ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the appealed decision of respondent Court of
Tax Appeals is AFFIRMED.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-61623 December 26, 1984

PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-appellant,
vs.
COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R. MENDOZA, respondents-appellees.
Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC.
Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.

AQUINO, J.:
The question in this case is whether the People's Homesite & Housing Corporation bound itself to sell to the
Mendoza spouses Lot 4 (Road) Pcs- 4564 of the revised consolidation subdivision plan with an area of 2,6,08.7
(2,503.7) square meters located at Diliman, Quezon City.
The PHHC board of directors on February 18, 1960 passed Resolution No. 513 wherein it stated "that subject to the
approval of the Quezon City Council of the above-mentioned Consolidation Subdivision Plan, Lot 4.
containing4,182.2 square meters be, as it is hereby awarded to Spouses Rizalino Mendoza and Adelaida Mendoza,
at a price of twenty-one pesos (P21.00) per square meter" and "that this award shall be subject to the approval of the
OEC (PHHC) Valuation Committee and higher authorities".
The city council disapproved the proposed consolidation subdivision plan on August 20, 1961 (Exh. 2). The said
spouses were advised by registered mail of the disapproval of the plan (Exh. 2-PHHC). Another subdivision plan was
prepared and submitted to the city council for approval. The revised plan, which included Lot 4, with a reduced area
of 2,608.7, was approved by the city council on February 25, 1964 (Exh. H).
On April 26, 1965 the PHHC board of directors passed a resolution recalling all awards of lots to persons who failed
to pay the deposit or down payment for the lots awarded to them (Exh. 5). The Mendozas never paid the price of the
lot nor made the 20% initial deposit.
On October 18, 1965 the PHHC board of directors passed Resolution No. 218, withdrawing the tentative award of Lot
4 to the Mendoza -spouses under Resolution No. 513 and re-awarding said lot jointly and in equal shares to Miguela
Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing PHHC
rules and regulations. The prices would be the same as those of the adjoining lots. The awardees were required to
deposit an amount equivalent to 20% of the total selling price (Exh. F).
The five awardees made the initial deposit. The corresponding deeds of sale were executed in their favor. The
subdivision of Lot 4 into five lots was approved by the city council and the Bureau of Lands.
On March 16, 1966 the Mendoza spouses asked for reconsideration of the withdrawal of the previous award to them
of Lot 4 and for the cancellation of the re-award of said lot to Sto. Domingo and four others. Before the request could
be acted upon, the spouses filed the instant action for specific performance and damages.
The trial court sustained the withdrawal of the award. The Mendozas appealed. The Appellate Court reversed that
decision and declared void the re-award of Lot 4 and the deeds of sale and directed the PHHC to sell to the
Mendozas Lot 4 with an area of 2,603.7 square meters at P21 a square meter and pay to them P4,000 as attorney's
fees and litigation expenses. The PHHC appealed to this Court.
The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozas which they can
enforce against the PHHC by an action for specific performance.
We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awarded to the Mendozas
subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the
award by the valuation committee and higher authorities.

The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the disapproval. In
1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should
have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still
interested in its purchase although the area was reduced and to obviate ally doubt on the matter. They did not do so.
The PHHC board of directors acted within its rights in withdrawing the tentative award.
"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 law
governing the form of contracts." (Art. 1475, Civil Code).
"Son, sin embargo, excepcion a esta regla los casos en que por virtud de la voluntad de las partes o de la ley, se
celebra la venta bajo una condicion suspensiva, y en los cuales no se perfecciona la venta hasta el cumplimiento de
la condicion" (4 Castan Tobenas, Derecho Civil Espaol 8th ed. p. 81).
"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. (Art. 1181, Civil Code). "Se llama
suspensive la condicion de la que depende la perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las
Obligaciones, p. 57).
Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4 with an area of
2,608.7 square meters at P21 a square meter.
The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee in that case applied for
the purchase of the lot, paid the 10% deposit and a conditional contract to sell was executed in his favor. The PHHC
could not re-award that lot to another person.
WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of the trial court is
affirmed. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner,
vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which

was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads
as follows:
4 June 1989

AGREEMENTS BETWEEN MR. SOSA

& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a
week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on
the 19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA
SHAW, INC. on the 17th of June at 10 a.m.
Very truly yours,
(Sgd.)
POPON
G
BERNA
RDO.
Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding
upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial
court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review
oncertiorari.
The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the
pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as
follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market
and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was
told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at
Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and
abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate
his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would
become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June
1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw,
Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing
through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance
pertaining to the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met
Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under

the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with
home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a
"Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by
"B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows:

a)

downpayment

P 53,148.00

b)

insurance

P 13,970.00

c)

BLT registration fee

P 1,067.00

CHMO fee

P 2,715.00

service fee

P 500.00

accessories

P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not
filled-up. It also contains the following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of
selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for
pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met
Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for
delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang
unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of
the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and
earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price.
Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded.
Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the

receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation,
"without prejudice to our future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded
the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it
and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take
legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel,

demanded one million pesos representing interest and damages, again, with a warning that legal action
would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter
dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was
made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial
Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil
Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered
embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his
family were constrained to take the public transportation from Manila to Lucena City on their way to
Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to
avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and
other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never
was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages
in the amount of One Million Pesos (P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had
no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As
special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the
documents required by the financing company, and as a matter of policy, the vehicle could not and would not be
released prior to full compliance with financing requirements, submission of all documents, and execution of the sales
agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa
did not have a sufficient cause of action against it. It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992

a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND
POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound
Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling
to another the unit already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the
extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer
any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover,

"[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the
plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an
authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority
holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the
defendant Toyota Shaw, Inc. and hence bound the defendants." 15
The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched
reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it

disposed as follows:
WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff
and against the defendant:
1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral
damages;
2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary
damages;
3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus
P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this
case;
4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation
fare per trip of the plaintiff in attending the hearing of this case; and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.

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

appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of
the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented
understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any
legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the nonapproval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release
the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of
sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of
sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative
obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment
of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only
refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned
about the full purchase price and the manner the installments were to be paid.
This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element
in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the

manner of payment goes into the price such that a disagreement on the manner of payment is tantamount
to a failure to agree on the price. Definiteness as to the price is an essential element of a binding
agreement to sell personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did
not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA
SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the
authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a
mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know
the extent of Bernardo's authority as an

agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry

and must discover upon his peril the authority of the agent. 21
At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a
contract of sale. There are three stages in the contract of sale, namely:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending
at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the
terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract. 22
The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be
emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on
installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp.
was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793,
as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance
Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending
credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or
factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages,
or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery,
business and office machines and equipment, appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved:
the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the
seller who assigns the notes or discounts them with a financing company, and the financing company which is
subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not

approve Sosa's application, there was then no meeting of minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it
suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and
returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the
vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed
afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas
had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in
paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr.
Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be
ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and
his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but
the defendant for reasons known only to its representatives, refused and/or failed to release the
vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis
supplied). 25
The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no
demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally
indemnifiable injury.
The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis.
Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends,
townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he
suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject

matter of talks during his celebration that he may not have paid for it, and this created an impression against his
business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not
have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It
was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory
damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or
corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate,
liquidated, or compensatory damages.
Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and
not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit

determination thereon was made in the body of the decision of the trial court. No reason thus exists for
such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO.
40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED
and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise
DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Padilla, Bellosillo and Kapunan, JJ., concur.