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PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAYPULIDO, petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THEPHILIPPINES,respondents .

D E C I S I O N

GONZAGA-REYES, J .:

Before Us for review on certiorari is the decision of the respondent Court of Appeals in CA G.R. CV No. 27861,promulgated on April 23, 1992 ,[1] affirming in toto the decision of the Regional Trial Court of Makat i[2] to awardrespondent banks deficiency claim, arising from a loan secured by chattel mortgage.

The antecedents of the case are as follows:On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of

US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan, petitionerPAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note for the said amount,promising to pay the loan by installment. As security for the said loan, a chattel mortgage was also executed overPAMECAs properties in Dumaguete City, consisting of inventories, furniture and equipment, to cover the wholevalue of the loan.

On January 18, 1984, and upon petitioner PAMECAs failure to pay, respondent bank extrajudiciallyforeclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed properties fora sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for the collection of the balance ofP4,366,332.46 [3] with Branch 132 of the Regional Trial Court of Makati City against petitioner PAMECA and privatepetitioners herein, as solidary debtors with PAMECA under the promissory note.

On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which wereproduce as follows:

WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1)sum of P4,366,332.46 representing the deficiency claim of the latter as of March 31, 1984, plus 21% interest perannum and other charges from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit. SOORDERED.[4]

The Court of Appeals affirmed the RTC decision. Hence, this Petition.The petition raises the following grounds:

1. Respondent appellate court gravely erred in not reversing the decision of the trial court, and in not holding thatthe public auc tion sale of petitioner PAMECAs chattels were tainted with fraud, as the chattels of the saidpetitioner were bought by private respondent as sole bidder in only 1/6 of the market value of the property, henceunconscionable and inequitable, and therefore null and void.2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the CivilCode by reading the spirit of the law, and taking into consideration the fact that the contract of loan was a contractof adhesion.3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria Teves and Hiram Diday R.Pulido solidarily liable with PAMECA Wood Treatment Plant, Inc. when the intention of the parties was that theloan is only for the cor porations benefit.

Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent bankbid for and purchased the mortgaged properties was unconscionable and inequitable considering that, at the timeof the public sale, the mortgaged properties had a total value of more than P2,000,000.00. According topetitioners, this is evident from an inventory dated March 31, 198 0[5], which valued the properties atP2,518,621.00, in accordance with the terms of the chattel mortgage contrac t [6] between the parties that requiredthat the invent ories be maintained at a level no less than P2 million. Petitioners argue that respondent banks
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act of bidding and purchasing the mortgaged properties for P322,350.00 or only about 1/6 of their actual value in apublic sale in which it was the sole bidder was fraudulent, unconscionable and inequitable, and constitutessufficient ground for the annulment of the auction sale.

To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were not infact submitted as evidence before the RTC of Makati, and that these documents were first produced by petitionersonly when the case was brought to the Court of Appeals .[7] The Court of Appeals, in turn, disregarded these

documents for petitioners failure to present them in evidence, or to even allude to them in their testimoniesbefore the lower court .[8] Instead, respondent court declared that it is not at all unlikely for the chattels to havesufficiently deteriorated as to have fetched such a low price at the time of the auction sale .[9] Neither didrespondent court find anything irregular or fraudulent in the circumstance that respondent bank was the solebidder in the sale, as all the legal procedures for the conduct of a foreclosure sale have been complied with, thusgiving rise to the presumption of regularity in the performance of public duties .[10]

Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners,officers and stockholders of petitioner PAMECA, liable with PAMECA for the obligation under the loan obtainedfrom respondent bank, contrary to the doctrine of separate and distinct corporate personality .[11] Privatepetitioners contend that they became signatories to the promissory note only as a matter of practice by therespondent bank, that the promissory note was in the nature of a contract of adhesion, and that the loan was forthe benefit of the corporation, PAMECA, alone .[12]

Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484 [13] and2115 [14] of the Civil Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim .[15]

Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattelmortgage. In the leading case of Ablaza vs. Ignacio [16], the lower court dismissed the complaint for collection ofdeficiency judgment in view of Article 2141 of the Civil Code, which provides that the provisions of the Civil Codeon pledge shall also apply to chattel mortgages, insofar as they are not in conflict with the Chattel MortgageLaw. It was the lower courts opinion that, by virtue of Article 2141, the provisions of Article 2115 which deny thecreditor-pledgee the right to recover deficiency in case the proceeds of the foreclosure sale are less than theamount of the principal obligation, will apply.

This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Lawregarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of Article 2115, Article2115 in relation to Article 2141, may not be applied to the case.

Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:

x x x The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file thesame in the office of the Registry of Deeds where the mortgage is recorded, and the Register of Deeds shall recordthe same. The fees of the officer for selling the property shall be the same as the case of sale on execution asprovided in Act Numbered One Hundred and Ninety, and the amendments thereto, and the fees of the Register ofDeeds for registering the officers return shall be taxed as a part of the costs of sale, which the officer shall pay tothe Register of Deeds. The return shall particularly describe the articles sold, and state the amount received foreach article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of suchsale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the paymentof the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequentmortgages in their order, and the balance, after paying the mortgage, shall be paid to the mortgagor or personsholding under him on demand. (Emphasis supplied)

It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law runinconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledgedextinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale inexcess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly entitles themortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceedsthere is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in
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the price at public auction. As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co .[17], cited inAblaza vs. Ignacio,supra :

While it is true that section 3 of Act No. 1508 provides that a chattel mortgage is a conditional sale, it furtherprovides that it is a conditional sale of personal property as security for the payment of a debt, or for theperformance of some other obligation specified therein. The lower court overlooked the fact that the chattels

included in the chattel mortgage are only given as security and not as a payment of the debt, in case of a failure ofpayment.The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage,given as security, should sell for more than the amount of the indebtedness secured, that the creditor would beentitled to the full amount for which it might be sold, even though that amount was greatly in excess of theindebtedness. Such a result certainly was not contemplated by the legislature when it adopted Act No.1508. There seems to be no reason supporting that theory under the provision of the law. The value of thechattels changes greatly from time to time, and sometimes very rapidly. If, for example, the chattels shouldgreatly increase in value and a sale under that condition should result in largely overpaying the indebtedness, andif the creditor is not permitted to retain the excess, then the same token would require the debtor to pay thedeficiency in case of a reduction in the price of the chattels between the date of the contract and a breach of thecondition.Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattelmortgages, have said, that in case of a sale under a foreclosure of a chattel mortgage, there is no question thatthe mortgagee o r creditor may maintain an action for the deficiency, if any should occur. And the fact that Act No.1508 permits a private sale, such sale is not, in fact, a satisfaction of the debt, to any greater extent than the valueof the property at the time of the sale. The amount received at the time of the sale, of course, always requiringgood faith and honesty in the sale, is only a payment, pro tanto , and an action may be maintained for a deficiencyin the debt.

We find no reason to disturb the ruling in Ablaza vs. Ignacio, and the cases reiterating i t [18] Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case. As

correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal propertythe price of which is payable in installments. Although Article 1484, paragraph (3) expressly bars any further actionagainst the purchaser to recover an unpaid balance of the price, where the vendor opts to foreclose the chattelmortgage on the thing sold, should the vendees failure to pay cover two or more installments, this provision isspecifically applicable to a sale on installments.

To accommodate petitioners prayer even on the basis of equity would be to expand the application of theprovisions of Article 1484 to situations beyond its specific purview, and ignore the language and intent of theChattel Mortgage Law. Equity, w hich has been aptly described as justice outside legality, is applied only in theabsence of, and never against, statutory law or judicial rules of procedure .[19]

We are also unable to find merit in petitioners submission that the public auction sale is void on grounds offraud and inadequacy of price. Petitioners never assailed the validity of the sale in the RTC, and only in the Courtof Appeals did they attempt to prove inadequacy of price through the documents, i.e. , the Open -End Mortgage onInventory and inventory dated March 31, 1980, likewise attached to their Petition before this Court. Basic is therule that parties may not bring on appeal issues that were not raised on trial.

Having nonetheless examined the inventory and chattel mortgage document as part of the records, We are

not convinced that they effectively prove that the mortgaged properties had a market value of atleastP2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel mortgage contractonly indicates the obligation of the mortgagor to maintain the inventory at a value of at least P2,000,000.00, butdoes not evidence compliance therewith. The inventory, in turn, was as of March 31, 1980, or even prior to April17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage, and is far from beingan accurate estimate of the market value of the properties at the time of the foreclosure sale four yearsthereafter. Thus, even assuming that the inventory and chattel mortgage contract were duly submitted asevidence before the trial court, it is clear that they cannot suffice to substantiate petitioners allegation ofinadequacy of price.
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Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in thepublic sale does not warrant the conclusion that the transaction was attended with fraud. Fraud is a seriousallegation that requires full and convincing evidence ,[20] and may not be inferred from the lone circumstance that itwas only respondent bank that bid in the sale of the foreclosed properties. The sparseness of petitioners evidencein this regard leaves Us no discretion but to uphold the presumption of regularity in the conduct of the public sale.

We likewise affirm private petitioners joint and several liability with petitioner corporatio n in the loan. As

found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably set forth thesolidary nature of private petitioners commitment. Thus:

On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, INC., a corporation organizedand existing under the laws of the Philippines, with principal office at 304 El Hogar Filipina Building, San Juan,Manila, promise to pay to the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at cornerBuendia and Makati Avenues, Makati, Metro Manila, the principal sum of TWO HUNDRED SIXTY SEVEN THOUSANDEIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of three percent (3%) per annum over DBPs borrowing rate for these funds. Before the date of maturity, we hereby bindourselves, jointly and severally, to make partial payments as follows:

xxx

In case of default in the payment of any installment above, we bind ourselves to pay DBP for advances xxx

xxx

We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereofin arrears as follows:

xxx

"In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes xxx

xxx

"We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreigncurrency borrowings from where the loan shall be drawn xxx

xxx

In case of non-payment of the amount of this note or any portion of it on demand, when due, or any otheramount or amounts due on account of this note, the entire obligation shall become due and demandable, and if,for the enforcement of the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained toentrust the case to its attorneys, we jointly and severally bind ourselves to pay for attorneys fees as provided for inthe mortgage contract, in addition to the legal fees and other incidental expenses. In the event of foreclosure of

the mortgage securing this note, we further bind ourselves jointly and severally to pay the deficiency, ifany. (Emphasis supplied )[21]

The promissory note was signed by private petitioners in the following manner:

PAMECA WOOD TREATMENT PLANT, INC. By:(Sgd) HERMINIO G. TEVES(For himself & as President of above-named corporation)
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(Sgd) HIRAM DIDAY PULIDO(Sgd) VICTORIA V. TEVES[22]

From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with petitionerPAMECA in the loan. As correctly submitted by respondent bank, private petitioners are not made to answer forthe corporate act of petitioner PAMECA, but are made liable because they made themselves co-makers with

PAMECA under the promissory note.IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April 23,

1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Romero (Chairman), Vitug, Panganiban, and Purisima, JJ., concur .

[G.R. No. 150673. February 28, 2003]

SUPERLINES TRANSPORTATION COMPANY, INC., and MANOLET LAVIDES, petitioners, vs . ICC LEASING &FINANCING CORPORATION,respondent .

D E C I S I O N

CALLEJO, SR., J .:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of

the Decision[1]

of the Court of Appeals in CA-G.R. No. 65126 reversing on appeal the Decisio n[2]

of Branch 142 ofthe Regional Trial Court of Makati City in Civil Case No. 97-816.

The Antecedents

In 1995, Superlines Transportation Co., Inc. (Superlines, for brevity) decided to acquire five new buses fromthe Diamond Motors Corporation for the price of P10,873,582.00. However, Superlines lacked financial resourcesfor the purpose. By virtue of a board resolution, Superlines authorized its President and General Manager,Manolet Lavides, a graduate of the Ateneo de Manila School of Law and a businessman for twenty years, to lookfor and negotiate with a financing corporation for a loan for the purchase of said buses.

Lavides negotiated with ICC Leasing & Financing Corporation (ICC, for brevity) through the latters AssistantVice-President for Operations Aida F. Albano, for a financial scheme for the planned purchase. ICC agreed tofinance the purchase of the new buses via a loan and proposed a three-year term for the payment thereof at afixed interest rate of 22% per annum. The new buses to be purchased were to be used by Superlines as securityfor the loan. ICC required Superlines to submit certificates of registration of the said buses under the name ofSuperlines before the appropriate document was executed by the parties and their transactionsconsummated. On October 19, 1995, Diamond Motors Corporation sold to Superlines five new buses underVehicle Invoice Nos. 9225 to 9229 .[3] Superlines, through Lavides, acknowledged receipt of the buses.

On November 22, 1995, the vehicle invoices were filed with the Land Transportation Office which then issuedcertificates of registration covering the five buses under the name of Superlines .[4] With the buses now registered
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under its name, Superlines, through Lavides, executed two documents, namely: a deed of chattel mortgage overthe said buses as security for the purchase price of the buses in the amount of P13,114,287.0 0[5] loaned by ICC toSuperlines, which deed was annotated on the face of said certificates of registration, and a promissory note infavor of ICC binding and obliging itself to pay to the latter the amount of P10,873,582.00 in monthly installmentsof P415,290.00, the first installment to start on December 23, 1995, with interest thereon at the rate of 22% perannum until full payment of said amoun t [6] in favor of Superlines and ICC covenanted in said deed that:

Effective upon the breach of any condition of this mortgage, and in case of loss or damage of the mortgagedproperty/ies and in addition to the remedies herein stipulated, the MORTGAGEE is hereby appointed attorney-in-fact of the MORTGAGOR with full power and authority, by the use of force if necessary, to take actual possessionof the mortgaged property/ies without the necessity of any judicial order or any other permission or power, toremove, sell or dispose of the mortgaged property/ies, and collect rents therefor, to execute bill of sale, lease oragreements that may be deemed convenient; to make repairs or improvements in the mortgaged property/ies andpay the same and perform any other act which the MORTGAGEE may deem convenient for the properadministration of the mortgaged property/ies; and to file, prove, justify, prosecute, compromise or settleinsurance claims with the insurance company, without the participation of the MORTGAGOR, under such termsand conditions as the Mortgagee as attorney-in-fact may consider fair and reasonable. The payment of anyexpenses advanced by the MORTGAGEE or its assigns in connection with the purpose indicated herein is alsoguaranteed by this mortgage. Any amount received from the sale, disposal or administration abovementionedmay be executed by the MORTGAGEE by virtue of this power and applied to the satisfaction of the obligationshereby secured, which act is hereby ratified.The MORTGAGEE shall have the option of selling the property/ies either at public or private sale at themunicipality or at the capital of the province where it may be situated at the time; or at any municipality where theMORTGAGEE may have a branch, office, or at Metro Manila, the MORTGAGOR hereby waiving all rights to anynotice of such sale.The MORTGAGOR hereby expressly waives the term of thirty (30) days or any other term granted or which mayhereafter be granted him/it by law as the period which must elapse before the MORTGAGEE or its assigns shall beentitled to foreclose this mortgage, it being expressly understood and agreed that the MORTGAGEE may foreclosethis mortgage at any time after the breach of any condition hereof.It is further agreed that in case of the sale at public auction under foreclosure proceedings of the property/iesherein mortgaged, or of any part thereof, the MORTGAGEE shall be entitled to bid for the properties so sold, or for

any part thereof, to buy the same, or any part thereof, and to have the amount of his/its bid applied to thepayment of the obligations secured by this mortgage without requiring payment in cash of the amount of such bid.The remedies of the MORTGAGEE under the powers hereby conferred upon him/it shall be and are in addition toand cumulative with such right of action as the said MORTGAGEE or the assigns may have in accordance with thepresent or any future laws of the Philippines .[7]

Superlines and Lavides executed a Continuing Guaranty to pay jointly and severally in favor of ICC theamount of P13,114,285.00 .[8] ICC drew and delivered to Superlines Metrobank Check No. 0661909113, datedNovember 23, 1995, payable to the account of Superlines in the amount of P10,873,582.00 ,[9] representing the netproceeds of the loan. The latter acknowledged receipt of the check in Cash Voucher No. 0.0769 .[10] Superlinesremitted the said check to Diamond Motors Corporation in full payment of the purchase price of the new buses.

After paying only seven monthly amortizations for the period of December 1995 to June 1996, Superlines

defaulted in the payment of its obligation to ICC .[11]

On April 2, 1997, ICC wrote Superlines demanding fullpayment of its outstanding obligation, which as of March 31, 1997 amounted to P12,606,020.55 .[12] However,Superlines failed to heed said demand.

ICC filed a complaint [13] for collection of sum of money with prayer for a writ of replevin on April 21, 1997with Branch 142 of the Regional Trial Court of Makati City against Superlines and Lavides. The case was entitledICC Leasing & Finance Corporation vs. Superlines Transportation Co., Inc., et al. and docketed as Civil Case No.97-816. ICC alleged, by way of alternative cause of action, that:

.... .... ...
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13. In the event that the Plaintiff fails to locate and/or seize the above-described mortgaged vehicles fromDefendant, its agents and/or assigns, or any such person other than said Defendant or its representatives,Defendant is obligated to pay Plaintiff the sum of P12,072,895.59, and an amount equivalent to 5% of the totalamount due from Defendant as and for attorneys fees, plus expenses of collection, the costs of suit and cost ofReplevin Bond.

ICC prayed that after due proceedings, judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that:1. A Writ of Replevin be issued, ordering the Court Sheriff and/or any of his deputies, to seize from Defendant,its agents and/or assigns, or any such person other than said Defendant or its representatives in possessionthereof at present, the above-described vehicles wherever they may be found, to take and keep the same incustody and, to dispose of them in accordance with Section 6, Rule 60 of the Revised Rules of Court.2. Judgment be rendered in favor of the Plaintiff and against the Defendant, as follows:

a) Declaring that Plaintiff is entitled to the possession of the subject properties in accordance with theterms and conditions of the Chattel Mortgage ;

b) Ordering Defendant, in case the amount realized from the sale of the mortgaged properties shall be

insufficient to cover its total indebtedness, to pay the Plaintiff the deficiency ;c) Ordering Defendant to pay Plaintiff the expenses of litigation and costs of suit, including the costs ofthe Replevin Bond, plus the stipulated attorn eys fees.

As to the

ALTERNATIVE CAUSE OF ACTION

Ordering Defendants to pay the outstanding principal balance of P12,072,895.59, to pay the costs of suit, expensesof litigation and the costs of the Replevin Bond, plus an amount equivalent to 5% of the total amount due as andfor attorneys fees.

In the meantime, the trial court issued a writ of seizure for the five mortgaged buses .[14] On May 29, 1997,the sheriff took possession of the five buses in compliance with the writ of seizure issued by the trialcourt .[15] Thereafter, ICC instituted extra-judicial foreclosure proceedings over the subject buses. An auction salewas held on July 2, 1997. ICC offered a bid of P7,200,000.00 for the motor vehicles and was declared the winningbidder, resulting in a deficiency of P5,406,029.55. In addition, ICC incurred necessary expenses in the amountof P920,524.62. Superlines thus still owed ICC the amount of P6,326,556.17.

In their Answer with Counterclaim, Superlines and Lavides asserted that the real agreement of the partieswas one of financing a sale of personal property, the prices for which shall be payable on installments. Relying onArticle 1484(3) of the Civil Code, Superlines and Lavides claimed that since the chattel mortgage on subject buseswas already foreclosed by ICC, the latter had no further action against Superlines and Lavides for the unpaidbalance of the price. They interposed compulsory damages in the total amount of P750,000.00 excluding costs ofsuit.

Leonardo Serrano, Jr., the Executive Vice-President and Chief Operations Officer of ICC, testified that thetransaction forged by ICC and Superlines was an amortized commercial loan and not a consumer loan, becauseunder the latter transaction, ICC should have paid the price of the purchase of its customers (Superlines) directly tothe suppliers. However, ICC did not do business directly with Diamond Motors Corporation; it transacted directlywith Superlines. ICC remitted the purchase price of the buses directly to Superlines and not to Diamond MotorsCorporation. ICC had no contract with Diamond Motors Corporation.

On the other hand, Lavides testified that he and ICCs Assistant Vice -President for Operations Aida Albanoagreed on a consumer loan for the financing of the purchase of the buses, with ICC as the vendor, and Superlines
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as the vendee, of said buses; and that ICC had a special arrangement with Diamond Motors Corporation on thepurchase by Superlines of the buses.

On June 1, 1999, the trial court rendered a decision ordering the dismissal of the case and for ICC to paydamages and litigation expenses to Superlines and Lavides, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered DISMISSING the instant complaint and

ORDERING plaintiff to pay defendants the following:

1. The sum of P150,000.00 as and for attorneys fees; 2. The sum of P300,000.00 as moderate damages;3. The sum of P50,000.00 as litigation expenses and4. The costs of suit.

SO ORDERED.[16]

The trial court found that, as testified to by Lavides, ICC and Superlines forged a consumer loan agreementand not an amortized commercial loan. It further declared that, as testified to by Lavides, there was a specialarrangement for the purchase by ICC of said buses. The trial court finally stated that Superlines purchased the

buses from ICC, the purchase price therefor payable in monthly installments. ICC appealed the trial courtsdecision to the Court of Appeals. On July 30, 2001, the appellate court rendered a decision reversing the decisionof the RTC and ordering Superlines and Lavides to pay the deficiency claim of ICC. The decretal portionthereof reads:

In view of the foregoing, it is Our conclusion that plaintiff-appellant is entitled to the deficiency claimof P5,376,543.96 (Exh. F-1, p. 155 Record), plus costs of P71,807.22 for the Replevin Bond (Exh. H, p. 156,Record) and attorneys fees of P508,000.00 (Exh. G, p. 156, Record). WHEREFORE, the appealed Decision is REVERSED and SET ASIDE and a new one is rendered ordering defendants topay jointly and severally the sum of P5,956,351.18 to the plaintiff.SO ORDERED.[17]

The Court of Appeals stated that ICC and Superlines entered into an amortized commercial loan agreementwith ICC as creditor-mortgagee and Superlines as debtor-mortgagor, and ordered Superlines and Lavides to pay toICC jointly and severally the sum of P5,956,351.18 as deficiency .[18]

It further declared that it was Diamond Motors Corporation and not ICC which sold the subject buses toSuperlines. It held that no evidence had been presented by Superlines to show that ICC bought the said busesfrom Diamond Motors Corporation under a special arrangement and that ICC sold the buses to Superlines. Theappellate court also ruled that Article 1484(3) is applicable only where there is vendor-vendee relationshipbetween the parties and since ICC did not sell the buses to Superlines, the latter cannot invoke said law.

Hence, this petition.Petitioners contend that the appellate court committed serious errors of law and/or grave abuse of discretion

amounting to excess or lack of jurisdiction:

1. In concluding that Article 1484 (3) of the Civil Code is inapplicable to the instant transaction between

the parties, and in holding that said transactio n was an amortized commercial loan, the samebeing patently contrary to the unrebutted evidence as well as the admissions of the respondentssole witness that the parties may verbally agree as regards the financial scheme applied for andthat the chattel mortgage, promissory note and other documents executed in the case of acommercial loan are no different from those documents executed in the case of a consumerloan.

2. In concluding that the respondent is in any event entitled to deficiency judgment as it is deemed tohave chosen the remedy of exacting fulfillment of the obligation under paragraph (1) of Article 1484of the Civil Code, the same being patently contrary to incontestable fact that what respondent
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availed of in the instant case is foreclosure of the chattel mortgage and not the alternative prayercontained in the relief portion of its complaint .[19]

Anent the first assignment of error, petitioners aver that the findings of the Court of Appeals that thetransaction forged by petitioners and private respondent was an amortized commercial loan and not a consumerloan are belied by the evidence on record, more specifically the testimony of L avides and that of respondentswitness Leonardo Serrano, Jr. The Promissory Note and Chattel Mortgage executed by petitioner Superlines andthe Continuing Guaranty executed by both petitioners are not conclusive of the nature of the transactionconcluded by them, private respondent and Diamond Motors Corporation. Petitioners further claim that theappellate court also ignored the unrebutted testimony of Lavides that respondent and Diamond MotorsCorporation forged a special arrangement under which the latter will expedite the issuance of the certificates ofregistration over the buses under the name of Superlines. Petitioners also argue that the word vendee in Article1484(3) of the New Civil Code is used in its generic term, and hence, it may mean an assignee or a mortgagee suchas respondent.

For its part, respondent contends that the findings and conclusions of the Court of Appeals were buttressedby the documentary and testimonial evidence on record which should prevail over those of the trial court:

We do not agree with the lower court that Art. 1484 (3) of the New Civil Code is applicable to the instantcase. DIAMOND is the seller of the five units of buses and not the plaintiff. No convincing evidence, except theself-serving testimony of defendant Manolet Lavides, was presented to prove that there was an internalarrangement between the plaintiff, as financing agent, and Diamond, as seller of the buses. In fact, defendantLavides admitted under oath that DIAMOND and plaintiff did not enter into transaction over the sale of the buses(TSN, February 26, 1999, p. 12). The conclusion of the lower court that the parties entered into a financing schemecovered by Article 1484 (3) of the New Civil Code is therefore unsubstantiated.The evidence sho ws that the transaction between the parties was an amortized commercial loan to be paid ininstallments. Defendants failed to prove that a special arrangement regarding the nature of the transaction wasagreed upon between the plaintiff and the defendants. Aida Albano, plaintiffs employee who allegedly agreedwith the request of defendant Manolet Lavides for a special arrangement, was not presented. It bearsemphasizing that whoever alleges fraud or mistake affecting a transaction must substantiate his allegation, since itis presumed that a person takes ordinary care of his concerns and private transactions have been fair and regular(Mangahas vs. CA, 304 SCRA 375). If indeed defendant Manolet Lavides, a law graduate from a prestigious law

school (TSN, February 26, 1999, p. 3) and a successful businessman for twenty (20) years ...., who admits to havingmeticulously examined the subject documents ... intended a financing scheme covered by Art. 1484 of the NewCivil Code, he should have objected to the contents of the documents and incorporated therein his true intent .[20]

At the core of petitioners case is their claim that the findings of facts of the Court of Appeals and itsconclusions anchored thereon are belied by the evidence on record in contrast to those of the trial court. It bearsstressing, however, that in a petition for review on certiorari, only questions of law may be raised in saidpetition. The jurisdiction of this Court in cases brought to it from the Court of Appeals is confined to reviewing andreversing the errors of law ascribed to it, findings of facts being conclusive on this Court. The Court is not tasked tocalibrate and assess the probative weight of evidence adduced by the parties during trial all over again .[21] Inthose instances where the findings of facts of the trial court and its conclusions anchored on said findings areinconsistent with those of the Court of Appeals, this Court does not automatically delve into the record todetermine which of the discordant findings and conclusions should prevail and to resolve the disputed facts foritself. This Court is tasked to merely determine which of the findings of the two tribunals are conformable to thefacts at hand .[22] So long as the findings of facts of the Court of Appeals are consistent with or are not palpablycontrary to the evidence on record, this Court shall decline to embark on a review on the probative weight of theevidence of the parties. Indeed, in Tan vs. Lim ,[23] this Court, citing its ruling in Hermo vs. Court of Appeals ,[24] heldthat it is the findings of the Court of Appeals and not those of the trial court which are final and conclusive on thisCourt. The rule is not without exception. This Court may review the findings of facts of the Court of Appeals andits conclusions based thereon if the inference made by the appellate court from its findings of facts is manifestlyerroneous, absurd or impossible, or when the judgment of the said court is premised on a misappreciation offacts.[25]
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In this case, the findings of facts of the Court of Appeals and its conclusions anchored thereon are in terra firma , buttressed as they are by the evidence on record. The Court of Appeals correctly ruled that the findings offacts, deductions, and conclusions of the trial court are not warranted by the evidence on record.

Petitioners failed to adduce a preponderance of evidence to prove that respondents and Diamond MotorsCorporation entered into a special arrangement relative to the issuance of certificates of registration over thebuses under the name of petitioner Superlines. Petitioners were also unable to prove that respondent purchased

from Diamond Motors Corporation the new buses. In contrast, the vehicle invoices of Diamond MotorsCorporatio n[26] irrefragably show that it sold the said buses to petitioner Superlines. The net proceeds of the loanwere remitted by respondent to petitioner Superlines and the latter remitted the same to Diamond MotorsCorporation in payment of the purchase price of the buses. In fine, respondent and Diamond Motors Corporationhad no direct business transactions relative to the purchase of the buses and the payment of the purchase pricethereof.

As aptly observed by the Court of Appeals, petitioner Lavides is a graduate of the Ateneo de ManilaUniversity School of Law. He had been in business for twenty years or so. It is incredible that petitioner Superlinesthrough petitioner Lavides never required respondent and Diamond Motors Corporation to execute a deedevidencing their special agreement or arrangement if indeed they had one.

The trial court indulged in a non sequitur when it quoted part of the testimony of Leonardo Serrano, Jr. outof context and used it as anchor for its finding that respondent and Diamond Motors Corporation forged a specialarrangement. The testimony of Leonardo Serrano, Jr. is as follows:

ATTY. FABIEQ Now, on page 12 of the transcript of stenographic notes of October 9, 1998, to the question of Atty.

Agcaoili, the question is this and I quote:Q - Now, after that visit to the office of Superlines Inc. in Atimonan, Quezon what other

circumstances or events transpired in connection with the evaluation or approval of the loan of thedefendants Superlines?

And your answer was this:A - The regular paper requirements, meaning the way the loan proposal and the approval report

inclusive of credit showing credit checking was presented for approval by our ExecutiveCommittee.

ATTY. FABIEWhat is thi s regular papers requirement you are referring to, Mr. Witness? WITNESSA Those papers that are presented to the Executive Committee, Sir.ATTY. FABIEQ Papers that are presented to the Executive Committee?WITNESSA This will include evaluation report of the corporations financial statement credit checking from his

creditors and this will include evidence of the collaterals being presented for the loan, Sir.ATTY. FABIEQ In this particular case of Superlines Transportation Company, those requirements were complied

with, Mr. Witness?WITNESSA Yes, Sir.

ATTY. FABIEQ By way, in consumer loan, these papers are practically the same, am I correct, Mr. Witness?WITNESSA In consumer loan, sometimes we have additional requirements, Sir.ATTY. FABIEQ What is that, Mr. Witness?WITNESSA Because they are individual applicants, we require them to submit their certificate of employment

with the corresponding amount of their salary, Sir.
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ATTY. FABIEQ You mean to say that consumer loan are specifically for individual and entities are not supposed to

apply in consumer loans, is that what you mean, Mr. Witness?WITNESSA As a matter of practice, we classify them as consumer loan, loans for individuals, Sir.ATTY. FABIE

Q For individuals only?WITNESSA Yes, sir.ATTY. FABIEQ So, you did not extend consumer loans to corporations other than individuals, Mr. Witness?WITNESSA For companies or corporations, we classified them as commercial loan already, Sir.ATTY. FABIEQ Although the scheme adopted on both loans are the same or would be the same, Mr. Witness?WITNESSA In consumer loan, Sir, usually it is for purposes of buying a car or a motor vehicle, Sir.ATTY. FABIEQ That is the normal practice, Mr. Witness?WITNESSA Yes, Sir. That is the normal practice.ATTY. FABIEQ But arrangement can be made by your company regarding the nature of the transaction, am I

correct? Specific arrangement?WITNESSA What do you mean?ATTY. FABIEQ That you may depart from certain requirements between your company and the applicant? Mr.

Witness?WITNESSA When the company ......

ATTY. FABIEQ In special cases?WITNESSA When the company is presented with a loan proposal, we require them to submit documents

depending on the loan proposal, Sir.ATTY. FABIEQ Now, did Superlines Transportation Company or Mr. Lavides present to you a loan proposal and

where is that now, Mr. Witness?WITNESSA The loan proposal of Mr. Lavides, Mr. Witness?ATTY. FABIEQ Yes, in writing?WITNESSA No, not in writing?ATTY. FABIEQ No written loan proposal, Mr. Witness?WITNESSA It was verbally told to us the purpose of his loan, Sir.ATTY. FABIEQ Now, is that normal in your corporation, Mr. Witness?WITNESSA In the practice?


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ATTY. FABIEQ I am asking you whether that is normal in your corporation that you do not require any written loan

proposal from the applicants, Mr. Witness?WITNESSA We do not, Sir.ATTY. FABIE

Q Even in consumer loan, Mr. Witness?WITNESSA We only require when the consumer or individual is applying. Then we require him to submit the

application form.ATTY. FABIEQ So, there is an application form, Mr. Witness?WITNESSA For consumer loan, yes.ATTY. FABIEQ And in commercial loan, you dont require the applicant to submit a written loan proposal, Mr.

Witness?WITNESSA As a matter of (loan) marketing consideration, anybody who wants ....ATTY. FABIEQ I am asking you whether that is normal in your operation like Superlines?WITNESSA This .....ATTY. AGCAOILIAlready answered, Your Honor.ATTY. FABIEI am asking him now to specific, Your Honor.COURTWitness may answer.WITNESSA That is not normal. Sorry. That is normal. We do not require them. That is the regular practice.

ATTY. FABIEQ And why not?ATTY. AGCAOILIObjection, misleading. It was already answered that that was the normal practice, Your Honor.ATTY. FABIEQ Why do you not require the applicants to submit papers or written loan proposal, Mr. Witness?WITNESSA Because in our business marketing consideration, we finance companies after evaluation of a

particular account and if this account is credit worthy, we sometimes do away with it, Sir.ATTY. FABIEQ So, what is normal is that you ask for written loan proposal and what is sometimes not normal is

that you do not require them to submit any loan proposal, Mr. Witness?WITNESSA We....ATTY. AGCAOILII think counsel is already (arguing) with the witness, Your Honor. The question has been asked several

times and the witness consistently answered in the same fashion.ATTY. FABIEThe Court will know ....COURT


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The answer he gave was that with marketing considerations, we do not require papers in consumer loanbecause the client is credit worthy risk. Sometimes we do not require submission of papersanymore. That is the answer. Alright, proceed.

ATTY. FABIEI think that is all for the witness, Your Honor .[27]

Leonardo Serrano, Jr. never testified that respondent and Diamond Motors Corporation had a special arrangementrelative to the registration of the new buses. The mere admission of the witness that respondent in the course ofits business transactions allowed special arrangements does not constitute proof that it in fact had a specialarrangement with Diamond Motors Corporation relative to the registration of the new buses.

The evidence on record shows that under the Promissory Note, Chattel Mortgage and Continuing Guaranty,respondent was the creditor-mortgagee of petitioner Superlines and not the vendor of the new buses. Hence,petitioners cannot find refuge in Article 1484(3) of the New Civil Code. As correctly held by the Court of Appeals,what should apply was the Chattel Mortgage executed by petitioner Superlines and respondent in relation to theChattel Mortgage Law .[28] This Court had consistently ruled that if in an extra-judicial foreclosure of a chattelmortgage a deficiency exists, an independent civil action may be instituted for the recovery of said deficiency. Todeny the mortgagee the right to maintain an action to recover the deficiency after foreclosure of the chattelmortgage would be to overlook the fact that the chattel mortgage is only given as security and not as payment forthe debt in case of failure of payment .[29] Both the Chattel Mortgage Law and Act 3135 governing extra-judicial

foreclosure of real estate mortgage, do not contain any provision, expressly or impliedly, precluding the mortgageefrom recovering deficiency of the principal obligation.

In a case of recent vintage, this Court held that if the proceeds of the sale are insufficient to cover the debt inan extra-judicial foreclosure of the mortgage, the mortgagee is still entitled to claim the deficiency from thedebtor:

To begin with, it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicialforeclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when thelegislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of securitygiven to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattelmortgages, while silent as to the mortgagees right to recover, does not, on the other hand, prohibit recovery ofdeficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is

allowed.[30]

In the case of PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals ,[31] this Court declared that underSection 14 of the Chattel Mortgage Law, the mortgagor is entitled to recover the balance of the proceeds, uponsatisfaction of the principal obligation and costs, thus there is a corollary obligation on the part of the debtor-mortgagor to pay the deficiency in case of a reduction in the price at public auction.

In fine then, the Court of Appeals correctly ruled that respondent is entitled to a deficiency judgment againstthe petitioners.

IN LIGHT OF THE FOREGOING , the petition is DENIED. The Decision of the Court of Appeals dated July 30,2001 appealed from is AFFIRMED in toto . With costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur .

G.R. No. 83851. March 3, 1993. VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF APPEALS and RJTRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.Saleto J. Erames and Edilberto V. Logronio for petitioners.
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Eugenio O. Original for private respondent.SYLLABUS1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S FAILURE TO COMPLY WITH POSITIVE SUSPECONDITION; CASE AT BAR. The petitioner corporation's obligation to sell is unequivocally subject to a positivesuspensive condition, i.e., the private respondent's opening, making or indorsing of an irrevocable andunconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the purchase price

by means of an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of salewhere the buyer acquired ownership over the property subject to the resolutory condition that the purchase pricewould be paid after delivery. Thus, there was to be no actual sale until the opening, making or indorsing of theirrevocable and unconditional letter of credit. Since what obtains in the case at bar is a mere promise to sell, thefailure of the private respondent to comply with the positive suspensive condition cannot even be considered abreach casual or serious but simply an event that prevented the obligation of petitioner corporation toconvey title from acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., this Courtstated: ". . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the priceas agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely enforcing itaccording to its express terms. In its suit Myers was not seeking restitution to it of the ownership of the thing sold(since it was never disposed of), such restoration being the logical consequence of the fulfillment of a resolutorycondition, express or implied (Article 1190); neither was it seeking a declaration that its obligation to sell wasextinguished. What it sought was a judicial declaration that because the suspensive condition (full and punctualpayment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and,therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mereincident to its right of ownership. It is elementary that, as stated by Castan, -- 'b) Si la condicion suspensiva llega afaltar, la obligacion se tiene por no existente, y el acreedor pierde todo derecho, incluso el de utilizar las medidasconservativas.'(3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV (1), p. 113).'"2. ID.; ID.; ID.; RESCISSION. The obligation of the petitioner corporation to sell did not arise; it therefore cannotbe compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code doesnot apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation may totallyrescind, as it did in this case, the contract. Said Article provides: "ART. 1597. Where the goods have not beendelivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability toperform his obligations, thereunder, or has committed a breach thereof, the seller may totally rescind the contractof sale by giving notice of his election so to do to the buyer."

3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING UP AND GATHERING OF SCRAP IRON NCONSTRUED AS DELIVERY THEREOF; REASONS THEREFOR. Paragraph 6 of the Complaint reads: "6. That on May17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the stockyard of Visayan Sawmill Co., Inc.at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron and stock the same for weighing." Thispermission or consent can, by no stretch of the imagination, be construed as delivery of the scrap iron in the sensethat, as held by the public respondent, citing Article 1497 of the Civil Code, petitioners placed the privaterespondent in control and possession thereof. In the first place, said Article 1497 falls under the ChapterObligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such, therefore, theobligation imposed therein is premised on an existing obligation to deliver the subject of the contract. In theinstant case, in view of the private respondent's failure to comply with the positive suspensive condition earlierdiscussed, such an obligation had not yet arisen. In the second place, it was a mere accommodation to expeditethe weighing and hauling of the iron in the event that the sale would materialize. The private respondent was notthereby placed in possession of and control over the scrap iron. Thirdly, We cannot even assume the conversion ofthe initial contract or promise to sell into a contract of sale by the petitioner corporation's alleged implied deliveryof the scrap iron because its action and conduct in the premises do not support this conclusion. Indeed, petitionersdemanded the fulfillment of the suspensive condition and eventually cancelled the contract.4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF; EXEMPLARY DAMAGES Incontracts, such as in the instant case, moral damages may be recovered if defendants acted fraudulently and inbad faith, while exemplary damages may only be awarded if defendants acted in a wanton, fraudulent, reckless,oppressive or malevolent manner. In the instant case, the refusal of the petitioners to deliver the scrap iron wasfounded on the non-fulfillment by the private respondent of a suspensive condition. It cannot, therefore, be saidthat the herein petitioners had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or


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malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals needs to be stressed anew: "Atthis juncture, it may not be amiss to remind Trial Courts to guard against the award of exhorbitant (sic) damagesthat are way out of proportion to the environmental circumstances of a case and which, time and again, this Courthas reduced or eliminated. Judicial discretion granted to the Courts in the assessment of damages must always beexercised with balanced restraint and measured objectivity." For, indeed, moral damages are emphatically notintended to enrich a complainant at the expense of the defendant. They are awarded only to enable the injured

party to obtain means, diversion or amusements that will serve to obviate the moral suffering he has undergone,by reason of the defendant's culpable action. Its award is aimed at the restoration, within the limits of the possible,of the spiritual status quo ante, and it must be proportional to the suffering inflicted.ROMERO, J., dissenting:1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. Article 1458 of the Civil Code hasthis definition: "By a contract of sale, one of the contracting parties obligates himself to transfer the ownership ofand to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent." Article1475 gives the significance of this mutual undertaking of the parties, thus: "The contract of sale is perfected at themoment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Fromthat moment, the parties may reciprocally demand performance, subject to the provisions of the law governingthe form of contracts." Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron"on May 1, 1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the objectwhich is the subject matter of the contract and the price which is the consideration. Applying Article 1475 of theCivil Code, from that moment, the parties may reciprocally demand performance of the obligations incumbentupon them, i.e., delivery by the vendor and payment by the vendee.2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. From the time the seller gave access to the buyer toenter his premises, manifesting no objection thereto but even sending 18 or 20 people to start the operation, hehas placed the goods in the control and possession of the vendee and delivery is effected. For according to Article1497, "The thing sold shall be understood as delivered when it is placed in the control and possession of thevendee." Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the CivilCode, "The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any ofthe ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession istransferred from the vendor to the vendee."3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL REQUISITE THEREOF; PROVISION CONSIDERED A SUSPENSIVE CONDITION. a provision in the contract regarding the mode of payment,

like the requirement for the opening of the Letter of Credit in this case, is not among the essential requirements ofa contract of sale enumerated in Articles 1305 and 1474, the absence of any of which will prevent the perfection ofthe contract from happening. Likewise, it must be emphasized that not every provision regarding payment shouldautomatically be classified as a suspensive condition. To do so would change the nature of most contracts of saleinto contracts to sell. For a provision in the contract regarding the payment of the price to be considered asuspensive condition, the parties must have made this clear in certain and unambiguous terms, such as forinstance, by reserving or withholding title to the goods until full payment by the buyer. This was a pivotalcircumstance in the Luzon Brokerage case where the contract in question was replete with very explicit provisionssuch as the following: "Title to the properties subject of this contract remains with the Vendor and shall pass to,and be transferred in the name of the Vendee only upon complete payment of the full price . . .;" 10 the Vendor(Myers) will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full payment of theVendee . . .; and "should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail tocomply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shallautomatically and without any further formality, become null and void." It is apparent from a careful reading ofLuzon Brokerage, as well as the cases which preceded it and the subsequent ones applying its doctrines, that themere insertion of the price and the mode of payment among the terms and conditions of the agreement will notnecessarily make it a contract to sell. The phrase in the contract "on the following terms and conditions" isstandard form which is not to be construed as imposing a condition, whether suspensive or resolutory, in thesense of the happening of a future and uncertain event upon which an obligation is made to depend. There mustbe a manifest understanding that the agreement is in what may be referred to as "suspended animation" pendingcompliance with provisions regarding payment. The reservation of title to the object of the contract in the seller isone such manifestation. Hence, it has been decided in the case of Dignos v. Court of Appeals that, absent a proviso


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in the contract that the title to the property is reserved in the vendor until full payment of the purchase price or astipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to paywithin the fixed period, the transaction is an absolute contract of sale and not a contract to sell.4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF NON-PAYMENPURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF CONTRACT. In a contract of sale, thenon-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and

discharges the obligations created thereunder. On the other hand, "the parties may stipulate that ownership in thething shall not pass to the purchaser until he has fully paid the price." In such a contract to sell, the full payment ofthe price is a positive suspensive condition, such that in the event of non-payment, the obligation of the seller todeliver and transfer ownership never arises. Stated differently, in a contract to sell, ownership is not transferredupon delivery of property but upon full payment of the purchase price. Consequently, in a contract of sale, afterdelivery of the object of the contract has been made, the seller loses ownership and cannot recover the sameunless the contract is rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure topay cannot even be considered a breach, whether casual or substantial, but an event that prevented the seller'sduty to transfer title to the object of the contract.5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. L-6618, APRIL 28, 19DISTINGUISHED FROM CASE AT BAR. Worthy of mention before concluding is Sycip v. National CoconutCorporation, et al. since, like this case, it involves a failure to open on time the Letter of Credit required by theseller. In Sycip, after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19,1946 to the buyer accepting the offer but on condition that the latter opens a Letter of Credit within 48 hours. Itwas not until December 26, 1946, however, that the Letter of Credit was opened. The Court, speaking throughJustice Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller was not obliged todeliver the goods. Two factors distinguish Sycip from the case at bar. First, while there has already been aperfected contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation process.The seller's qualified acceptance in Sycip served as a counter offer which prevented the contract from beingperfected. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary toperfect a contract. Second, the Court found in Sycip that time was of the essence for the seller who was anxious tosell to other buyers should the offeror fail to open the Letter of Credit within the stipulated time. In contrast, thereare no indicia in this case that can lead one to conclude that time was of the essence for petitioner as would makethe eleven-day delay a fundamental breach of the contract.6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE; WHEN PR

DELAY IN PAYMENT FOR TWENTY DAYS NOT CONSIDERED A SUBSTANTIAL BREACH OF CONTRACT; CASE The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for slight or casualbreach of the contract. Here, petitioners claim that the breach is so substantial as to justify rescission . . . I am notconvinced that the circumstances may be characterized as so substantial and fundamental as to defeat the objectof the parties in making the agreement. None of the alleged defects in the Letter of Credit would serve to defeatthe object of the parties. It is to be stressed that the purpose of the opening of a Letter of Credit is to effectpayment. The above-mentioned factors could not have prevented such payment. It is also significant to note thatpetitioners sent a telegram to private respondents on May 23, 1983 cancelling the contract. This was before theyhad even received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How couldthey have made a judgment on the materiality of the provisions of the Letter of Credit for purposes of rescindingthe contract even before setting eyes on said document? To be sure, in the contract, the private respondents weresupposed to open the Letter of Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days laterthat they did so. Is the eleven-day delay a substantial breach of the contract as could justify the rescission of thecontract? In Song Fo and Co. v. Hawaiian-Philippine Co., it was held that a delay in payment for twenty (20) dayswas not a violation of an essential condition of the contract which would warrant rescission for non-performance.In the instant case, the contract is bereft of any suggestion that time was of the essence. On the contrary, it isnoted that petitioners allowed private respondents' men to dig and remove the scrap iron located in petitioners'premises between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of theLetter of Credit. Hence, in the absence of any indication that the time was of the essence, the eleven-day delaymust be deemed a casual breach which cannot justify a rescission.D E C I S I O NDAVIDE, JR., J p:


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By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set aside the decisionof public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 promulgated on 16 March 1988, which affirmedwith modification, in respect to the moral damages, the decision of the Regional Trial Court (RTC) of Iloilo in CivilCase No. 15128, an action for specific performance and damages, filed by the herein private respondent againstthe petitioners. The dispositive portion of the trial court's decision reads as follows:"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and against the defendants

ordering the latter to pay jointly and severally plaintiff, to wit:1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as actual damages;2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2The public respondent reduced the amount of moral damages to P25,000.00.The antecedent facts, summarized by the public respondent, are as follows:"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving scrap ironlocated at the stockyard of defendant-appellant corporation at Cawitan, Sta. Catalina, Negros Oriental, subject tothe condition that plaintiff-appellee will open a letter of credit in the amount of P250,000.00 in favor of defendant-appellant corporation on or before May 15, 1983. This is evidenced by a contract entitled `Purchase and Sale ofScrap Iron' duly signed by both parties.On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic) scrap iron at thedefendant-appellant's (sic) premises, proceeding with such endeavor until May 30 when defendants-appellantsallegedly directed plaintiff-appellee's men to desist from pursuing the work in view of an alleged case filed againstplaintiff-appellee by a certain Alberto Pursuelo. This, however, is denied by defendants-appellants who allege thaton May 23, 1983, they sent a telegram to plaintiff-appellee cancelling the contract of sale because of failure of thelatter to comply with the conditions thereof.On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of credit wasopened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but then (sic) the transmittal wasdelayed.On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of the Bank ofthe Philippine Islands dated May 26, 1983, the content of which is quited (sic) as follows:'Please be advised that we have received today cable advise from our Head Office which reads as follows:

'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00 favor ANG TAY c/o VisayanSawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACO-MARSTEEL ALLOY CORPORATION 2nd FloorAlpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro Manila Shipments of about 500 MT of assortedsteel scrap marine/heavy equipment expiring on July 24, 1983 without recourse at sight draft drawn on ArmacoMarsteel Alloy Corporation accompanied by the following documents: Certificate of Acceptance by Armaco-Marsteel Alloy Corporation shipment from Dumaguete City to buyer's warehouse partial shipmentallowed/transhipment (sic) not allowed'.For your information'.On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against him by Pursuelohad been dismissed and demanding that defendants-appellants comply with the deed of sale, otherwise a case willbe filed against them.In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiff-appellee's lawyerthat defendant-appellant corporation is unwilling to continue with the sale due to plaintiff-appellee's failure tocomply with essential pre-conditions of the contract.On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for preliminary attachment. The writof attachment was returned unserved because the defendant-appellant corporation was no longer in operationand also because the scrap iron as well as other pieces of machinery can no longer be found on the premises of thecorporation." 3In his complaint, private respondent prayed for judgment ordering the petitioner corporation to comply with thecontract by delivering to him the scrap iron subject thereof; he further sought an award of actual, moral andexemplary damages, attorney's fees and the costs of the suit. 4


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In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was justified becauseof private respondent's non-compliance with essential pre-conditions, among which is the opening of anirrevocable and unconditional letter of credit not later than 15 May 1983.During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved; these issues weresubsequently embodied in the pre-trial order, to wit:"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by the parties cancelled

and terminated before the Complaint was filed by anyone of the parties; if so, what are the grounds and reasonsrelied upon by the cancelling parties; and were the reasons or grounds for cancelling valid and justified?2. Are the parties entitled to damages they respectively claim under the pleadings?" 6On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was quoted earlier.Petitioners appealed from said decision to the Court of Appeals which docketed the same as C.A.-G.R. CV No.08807. In their Brief, petitioners, by way of assigned errors, alleged that the trial court erred:"1. In finding that there was delivery of the scrap iron subject of the sale;2. In not finding that plaintiff had not complied with the conditions in the contract of sale;3. In finding that defendants-appellants were not justified in cancelling the sale;4. In awarding damages to the plaintiff as against the defendants-appellants;5. In not awarding damages to defendants-appellants." 7Public respondent disposed of these assigned errors in this wise:"On the first error assigned, defendants-appellants argue that there was no delivery because the purchasedocument states that the seller agreed to sell and the buyer agreed to buy 'an undetermined quantity of scrap ironand junk which the seller will identify and designate.' Thus, it is contended, since no identification and designationwas made, there could be no delivery. In addition, defendants-appellants maintain that their obligation to delivercannot be completed until they furnish the cargo trucks to haul the weighed materials to the wharf.The arguments are untenable. Article 1497 of the Civil Code states:'The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.'In the case at bar, control and possession over the subject matter of the contract was given to plaintiff-appellee,the buyer, when the defendants-appellants as the sellers allowed the buyer and his men to enter the corporation'spremises and to dig-up the scrap iron. The pieces of scrap iron then (sic) placed at the disposal of the buyer.Delivery was therefore complete. The identification and designation by the seller does not complete delivery.On the second and third assignments of error, defendants-appellants argue that under Articles 1593 and 1597 ofthe Civil Code, automatic rescission may take place by a mere notice to the buyer if the latter committed a breach

of the contract of sale.Even if one were to grant that there was a breach of the contract by the buyer, automatic rescission cannot takeplace because, as already (sic)

sales after midterms 1

Documents