SALES CASE DIGEST

A. BASIC CONCEPT

I. DEFINITION OF CONTRACT

Acap v. CA [G.R. No. 118114.December 7, 1995.]First Division, Padilla (J): 4 concur

Facts: The title to Lot 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT R-12179. The lot has an area of13,720 sq. m.

The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto

inherited the lot. In 1975, Felixberto executed a duly notarized document entitled “Declaration of Heirship and Deed of Absolute Sale” in favor of Cosme

Pido. Since 1960, Teodoro Acap hadbeen the tenant of a portion of the said land, covering an area of 9,500sq. m. When ownership was transferred in

1975 by Felixberto to CosmePido, Acap continued to be the registered tenant thereof and religiouslypaid his leasehold rentals to Pido and thereafter,

upon Pido’s death, to his widow Laurenciana. The controversy began when Pido died interstate and on 27 November 1981, his surviving heirs executed a

notarized document denominated as “Declaration of Heirship andWaiver of Rights of Lot 1130 Hinigaran Cadastre,” wherein they declared to have

adjudicated upon themselves the parcel of land in equal share, and that they waive, quitclaim all right, interests and participation over the parcel of land

in favor of Edy de los Reyes. The document was signed by all of Pido’s heirs. Edy de los Reyes did not sign said document. It will be noted that at the time

of Cosme Pido’s death, title to the property continued to be registered in the name of the Vasquezspouses. Upon obtaining the Declaration of Heirship

with Waiver of Rights in his favor, de los Reyes filed the same with the Registry ofDeeds as part of a notice of an adverse claim against the original

certificate of title.

Thereafter, delos Reyes sought for Acap to personally inform him that he had become the new owner of the land and that the lease rentals thereon

should be paid to him. Delos Reyes alleged that he and Acap entered into an oral lease agreement wherein Acap agreed to pay 10cavans of palay per

annum as lease rental. In 1982, Acap allegedlycomplied with said obligation. In 1983, however, Acap refused to pay any further lease rentals on the land,

prompting delos Reyes to seek theassistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran,Negros Occidental. The MAR invited Acap, who

sent his wife, to a conference scheduled on 13 October 1983. The wife stated that the sheand her husband did not recognize delos Reyes’s claim of

ownership over the land. On 28 April 1988, after the lapse of four (4) years, delosReys field a complaint for recovery of possession and damages against

Acap, alleging that as his leasehold tenant, Acap refused and failed to pay the agreed annual rental of 10 cavans of palay despite repeated demands. On

20 August 1991, the lower court rendered a decision in favor of delos Reyes, ordering the forfeiture of Acap’s preferred right of a Certificate of Land

Transfer under PD 27 and his farm holdings, there turn of the farmland in Acap’s possession to delos Reyes, and Acap topay P5,000.00 as attorney’s fees,

the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages.

Aggrieved, petitioner appealed to the Court of Appeals. Subsequently, the CA affirmed the lower court’s decision, holding that de los Reyes had acquired

ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled “Declaration of Heirship and Waiver of

Rights”, and ordering the dispossession of Acap as leasehold tenant of the land for failure to pay rentals. Hence, the petition for review on certiorari.

The Supreme Court granted the petition, set aside the decision of the RTC Negros Occidental, dismissed the complaint for recovery of possession and

damages against Acap for failure to properly state a cause of action, without prejudice to private respondent taking theproper legal steps to establish the

legal mode by which he claims to have acquired ownership of the land in question.

1. Asserted right or claim to ownership not sufficient per se to give rise to ownership over the res

An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to

ownership over the res. That right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are

acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition transfer of ownership

over a thing in question.

2. Classes of modes of acquiring ownership

Under Article 712 of the Civil Code, the modes of acquiring ownershipare generally classified into two (2) classes, namely, the original mode(i.e, through

occupation, acquisitive prescription, law or intellectualcreation) and the derivative mode (i.e., through succession mortis causaor tradition as a result of

certain contracts, such as sale, barter,donation, assignment or mutuum).

3.Contract of Sale; “Declaration of Heirship and Waiver of Rights” anextrajudicial settlement between heirs under Rule 74 of the Rules of Court

In a Contract of Sale, one of the contracting parties obligates himself totransfer the ownership of and to deliver a determinate thing, and theother party

to pay a price certain in money or its equivalent. On theother hand, a declaration of heirship and waiver of rights operates as apublic instrument when

filed with the Registry of Deeds whereby theintestate heirs adjudicate and divide the estate left by the decedentamong themselves as they see fit. It is in

effect an extrajudicialsettlement between the heirs under Rule 74 of the Rules of Court. In thepresent case, the trial court erred in equating the nature

and effect of the Declaration of Heirship and Waiver of Rights the same with a contract (deed) of sale.4. Sale of hereditary rights and waiver of hereditary rights distinguished

There is a marked difference between a sale of hereditary rights and awaiver of hereditary rights. The first presumes the existence of acontract or deed

of sale between the parties. The second is, technicallyspeaking, a mode of extinction of ownership where there is anabdication or intentional

relinquishment of a known right withknowledge of its existence and intention to relinquish it, in favor of otherpersons who are co-heirs in the succession.

In the present case, de losReyes, being then a stranger to the succession of Cosme Pido, cannotconclusively claim ownership over the subject lot on the

sole basis of thewaiver document which neither recites the elements of either a sale, ora donation,or any other derivative mode of acquiring ownership.5.Summon of Ministry of Agrarian Reform does not conclude actualityof sale nor notice of such sale

The conclusion, made by the trial and appellate courts, that a “sale”transpired between Cosme Pido’s heirs and de los Reyes and that Acapacquired

actual knowledge of said sale when he was summoned by theMinistry of Agrarian Reform to discuss de los Reyes’ claim over the lot inquestion, has no

basis both in fact and in law.

6. A notice of adverse claim does not prove ownership over the lot;Adverse claim not sufficient to cancel the certificate of tile and foranother to be issued in his name

A notice of adverse claim, by its nature, does not however prove privaterespondent’s ownership over the tenanted lot. “A notice of adverseclaim is

nothing but a notice of a claim adverse to the registered owner,the validity of which is yet to be established in court at some futuredate, and is no better

than a notice of lis pendens which is a notice of acase already pending in court.” In the present case, while the existenceof said adverse claim was duly

proven (thus being filed with the Registryof Deeds which contained the Declaration of Heirship with Waiver ofrights an was annotated at the back of the

Original Certificate of Title tothe land in question), there is no evidence whatsoever that a deed ofsale was executed between Cosme Pido’s heirs and de

los Reyestransferring the rights of the heirs to the land in favor of de los Reyes.De los Reyes’ right or interest therefore in the tenanted lot remains

anadverse claim which cannot by itself be sufficient to cancel the OCT tothe land and title to be issued in de los Reyes’ name.7. Transaction between heirs and de los Reyes binding betweenparties, but cannot affect right of Acap to tenanted land withoutcorresponding proof thereof While the transaction between Pido’s heirs and de los Reyes may bebinding on both parties, the right of Acap as a registered tenant to theland cannot be perfunctorily forfeited on a mere allegation of de losReyes’ ownership without the corresponding proof thereof. Acap hadbeen a registered tenant in the subject land since 1960 and religiouslypaid lease rentals thereon. In his mind, he continued to be theregistered tenant of Cosme Pido and his family (after Pido’s death), evenif in 1982, de los Reyes allegedly informed Acap that he had become thenew owner of the land.8. No unjustified or deliberate refusal to pay the lease rentals to thelandowner / agricultural lessor De los Reyes never registered the Declaration of Heirship with Waiver ofRights with the Registry of Deeds or with the MAR, but instead, he filed anotice of adverse claim on the said lot to establish ownership thereof(which cannot be done). It stands to reason, therefore, to hold that therewas no unjustified or deliberate refusal by Acap to pay the lease rentalsor amortizations to the landowner/agricultural lessor which, in this case,de los Reyes failed to established in his favor by clear and convincingevidence. This notwithstanding the fact that initially, Acap may have, ingood faith, assumed such statement of de los Reyes to be true and mayhave in fact delivered 10 cavans of palay as annual rental for 1982 tolatter. For in 1983, it is clear that Acap had misgivings over de losReyes’ claim of ownership over the said land because in the October1983 MAR conference, his wife Laurenciana categorically denied all ofde los Reyes’ allegations. In fact, Acap even secured a certificate fromthe MAR dated 9 May 1988 to the effect that he continued to be theregistered tenant of Cosme Pido and not of delos Reyes.9. Sanction of forfeiture of tenant’s preferred right and possession offarmholdings should not be applied The sanction of forfeiture of his preferred right to be issued a Certificateof Land Transfer under PD 27 and to the possession of his farmholdingsshould not be applied against Acap, since de los Reyes has notestablished a cause of action for recovery of possession against Acap.

II. NO CONTRACT OF SALE

Toyota Shaw v. CA [G.R. No. 116650.May 23, 1995.]First Division, Davide Jr (J): 3 concur, 1 on leave

Facts: Sometime in June 1989, Luna L. Sosa wanted to purchase aToyota Lite Ace. It was then a seller’s market and Sosa had difficultyfinding a dealer with

an available unit for sale. But upon contractingToyota Shaw, Inc., he was told that there was an available unit. So on 14June 1989, Sosa and his son,

Gilbert, went to the Toyota ShawBoulevard, Pasig, Metro Manila. They met Popong Bernardo, a salesrepresentative of Toyota. Sosa emphasized to

Bernardo that he neededthe Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go

Marinduque, hishome province, where he would celebrate his birthday on 19 June. Headded that if he does not arrive in his hometown with the new car,

hewould become a “laughing stock.” Bernardo assured Sosa that a unitwould be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed a

document entitled “Agreements Between Mr. Sosa &Popong Bernardo of Toyota Shaw, Inc,” stipulating that all necessarydocuments will be submitted to

Toyota Shaw (Popong Bernardo) a weekafter, upon arrival of Mr. Sosa from the Province (Marinduque) where theunit will be used on the 19 June; that

the downpayment of P100,000.00will be paid by Mr. Sosa on 15 June 1989; and that the Toyota Shaw, Inc.will be released a yellow Lite Ace unit.It was

also agreed upon by theparties that the balance of the purchase price would be paid by creditfinancing through B.A. Finance, and for this Gilbert, on

behalf of hisfather, signed the documents of Toyota and B.A. Finance pertaining tothe application for financing. The next day, Sosa and Gilbert went

toToyota to deliver the downpayment of P100,000.00. They met Bernardowho then accomplished a printed Vehicle Sales Proposal (VSP)928, onwhich

Gilbert signed under the subheading “conforme”. This documentshows that the customer’s name is “Mr. Luna Sosa” with home addressat 2316 Guijo

Street, United Parañaque II; that the model series of thevehicle is a “Lite Ace 1500″ described as “4 Dr minibus”; that paymentis by “installment,” to be

financed by “B.A.,” with the initial cash outlayof P100,000.00 (downpayment: P53,148.00; insurance: P13,970.00; BLTregistration fee: P1,067.00; CHMO

fee: P2,715.00; Service fee: P500.00;and accessories: P29,000.00) and the balance to be financed isP274,137.00. The spaces provided for “delivery terms”

were not filled-up. It also contains conditions of sales providing that the sale is subjectto the availability of the unit, and that the stated price is subject

tochange without prior notice, and that the price prevailing and in effectat time of selling will apply. Rodrigo Quirante, the Sales Supervisor ofBernardo,

checked and approved the VSP.

On 17 June (9:30 a.m.), Bernardo called Gilbert to inform him that thevehicle would not be ready for pick up at 10:00 a.m. as previouslyagreed upon but

at 2:00 p.m. that same day. At 2:00 p.m., Sosa andGilbert met Bernardo at the latter’s office. According to Sosa, Bernardoinformed them that the Lite Ace

was being readied for delivery. Afterwaiting for about an hour, Bernardo told them that the car could not bedelivered because it was acquired by a more

influential person. Toyotacontends, however, that the Lite Ace was not delivered to Sosa becauseof the disapproval of B.A. Finance of the credit financing

application ofSosa. It further alleged that a particular unit had already been reversedand earmarked for Sosa but could not be released due to

theuncertainty of payment of the balance of the purchase price. Toyotathen gave Sosa the option to purchase the unit by paying the fullpurchase price in

cash but Sosa refused.After it became clear that theLite Ace would not be delivered to him, Sosa asked that hisdownpayment be refunded. Toyota did so

on the very same day byissuing a Far East Bank check for the full amount of P100,000.00, thereceipt of which was shown by a check voucher of Toyota,

which Sosasigned with the reservation, “without prejudice to our future claims fordamages.” Thereafter, Sosa sent two letters to Toyota: one on 27

June1989 demanding the refund, within 5 days from receipt, of thedownpayment of P100,000.00 plus interest from the time he paid it andthe payment

of damages with a warning that in case of Toyota’s failureto do so he would be constrained to take legal action; and the other on 4November 1989

(signed by M.O. Caballes, Sosa’s counsel) demandingP1M representing interest and damages, again, with a warning that legalaction would be taken if

payment was not made within 3 days. Toyota’scounsel answered through as letter dated 27 November 1989 8 refusingto accede to the demands of Sosa.

But even before the answer was made and received by Sosa, the latterfiled on 20 November 1989 with the RTC Marinduque (Branch 38) acomplaint

against Toyota for damages under Articles 19 and 21 of theCivil Code in the total amount of P1,230,000.00.After trial on the issueagreed upon during the

pre-trial session, the trial court rendered on 18February 1992 a decision in favor of Sosa. It ruled that the “Agreementbetween Mr. Sosa and Popong

Bernardo,” was a valid perfected andcontract of sale between Sosa and Toyota which bound Toyota to deliverthe vehicle to Sosa, and further agreed

with Sosa that Toyota acted inbad faith in selling to another the unit already reserved for him; thatBernardo, as an authorized sales executive of Toyota

Shaw, was thelatter’s agent and thus bound Toyota Shaw; that Luna Sosa proved hissocial standing in the community and suffered besmirched

reputation,wounded feelings and sleepless nights for which he ought to becompensated; and thus rendered judgment ordering Toyota Shaw to paySosa

the sum of P75,000 as moral damages, P10,000 as exemplarydamages, P30,000 as attorney’s fees plus P2,000 lawyer’stransportation fare per trip in

attending to the hearing of the case,P2,000 for Sosa’s transportation fare per trip in attending the hearing ofthe case, and to pay the cost of the suit.

Dissatisfied with the trial court’s judgment, Toyota appealed to theCourt of Appeals (CA-GR CV 40043). In its decision promulgated on 29July 1994, the

Court of Appeals affirmed in toto the appealed decision.Hence the petition for review by certiorari by Toyota Shaw.

The Supreme Court granted the petition, and dismissed the challengeddecision of the Court of Appeals and that of Branch 38 of the RegionalTrial Court

of Marinduque, and the counterclaim therein; withoutpronouncement as to costs.

1.Contract of sale defined; Kinds

Article 1458 of the Civil Code defines a contract of sale as “By thecontract of the sale one of the contracting parties obligates himself totransfer the

ownershipof and to deliver a determinate thing, and theother to pay therefor a price certain in money or its equivalent. Acontract of sale may be

absolute or conditional.

2.Contract of sale, when perfected; Effect

Article 1475 of the Civil Code specifically provides when the contract ofsale is deemed perfected, i.e. “The contract of sale is perfected at themoment

there is a meeting of minds upon the thing which is the objectof 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.

3.“Agreement between Mr. Sosa & Popong Bernardo of Toyota Shaw,

Inc.” not a contract of sale

The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,Inc.” executed on 4 June 1989, is not a contract of sale. No obligation onthe part

of Toyota to transfer ownership of a determinate thing to Sosaand no correlative obligation on the part of the latter to pay therefor aprice certain

appears therein. The provision on the downpayment ofP100,000.00 made no specific reference to a sale, it could only refer to asale on installment basis,

as the VSP executed the following dayconfirmed. But nothing was mentioned about the full purchase price andthe manner the installments were to be

paid. Neither logic nor recourseto one’s imagination can lead to the conclusion that such agreement is aperfected contract of sale.

4.Definitive price is an essential element in the formation of a binding and enforceable contract of sale

A definite agreement on the manner of payment of the price is anessential element in the formation of a binding and enforceable contractof sale. This is

so because the agreement as to the manner of paymentgoes into the price such that a disagreement on the manner of paymentis tantamount to a failure

to agree on the price. Definiteness as to theprice is an essential element of a binding agreement to sell personalproperty.

5.No meeting of the minds

The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,Inc.” shows the absence of a meeting of minds between Toyota andSosa. Sosa

did not even sign it. Further, Sosa was well aware from itstitle, written in bold letters, and thus knew that he was not dealing withToyota but with Popong

Bernardo and that the latter did notmisrepresent that he had the authority to sell any Toyota vehicle.

6.Prudence and reasonable diligence in inquiring authority of agent

Sosa knew that Bernardo was only a sales representative of Toyota andhence a mere agent of the latter. It was incumbent upon Sosa to actwith ordinary

prudence and reasonable diligence to know the extent ofBernardo’s authority as an agent in respect of contracts to sell Toyota’svehicles. A person

dealing with an agent is put upon inquiry and mustdiscover upon his peril the authority of the agent.

7.Three stages in the contract of sale

There are three stages in the contract of sale, namely (a) preparation,conception, or generation, which is the period of negotiation andbargaining, ending

at the moment of agreement of the parties; (b)perfection of birth of the contract, which is the moment when the partiescome to agree on the terms of

the contract; and (c) consummation ordeath, which is the fulfillment or performance of the terms agreed uponin the contract. In the present case, the

“Agreements between Mr. Sosa& Popong Bernardo of Toyota Shaw, Inc.” may be considered as part ofthe initial phase of the generation of negotiation

stage of a contractsale. The second phase of the generation or negotiation stage was theexecution of the VSP (the downpayment of the purchase price

wasP53,148.00 while the balance to be paid on installment should befinanced by B.A. Finance. It is assumed that B.A Finance was acceptableto Toyota).

8.Financing companies defined

Financing companies are defined in Section 3(a) of RA 5980, asamended by PDs 1454 and 1793, as “corporations or partnerships,except those regulated

by the Central Bank of the Philippines, theInsurance Commission and the and the Cooperatives AdministrationOffice, which are primarily organized for

the purpose of extending creditfacilities to consumers and to industrial, commercial, or agriculturalenterprises, either by discounting or factoring

commercial papers oraccounts receivable, or by buying and selling contracts, leases, chattelmortgages, or other evidence of indebtedness, or by leasing

of motorvehicles, heavy equipment and industrial machinery, business and officemachines and equipment, appliances and other movable property.”

9. Parties in a sale on installment basis financed by a financingcompany; No meeting of minds as financing application was disapproved

In a sale on installment basis which is financed by a financing company,3 parties are thus involved: (1) the buyer who executes a note or notesfor the

unpaid balance of the price of the thing purchased oninstallment, (2) the seller who assigns the notes or discounts them witha financing company, and

(3) the financing company which issubrogated in the place of the seller, as the creditor of the installmentbuyer. Since B.A. Finance did not approve Sosa’s

application, there wasthen no meeting of minds on the sale on installment basis.

10. Toyota’s version of circumstances leading to non-release of vehicle more credible

Toyota’s version that B.A. Finance disapproved Sosa’s application forwhich reason it suggested to Sosa that he pay the full purchase price ismore

credible. When the latter refused, Toyota cancelled the VSP andreturned to him his P100,000.00. Sosa’s version, that the VSP wascancelled because the

vehicle was delivered to another because of amore influential client, is contradicted by paragraph 7 of his complaintwhich states that Bernardo “for

reasons known only to itsrepresentatives, refused and/or failed to release the vehicle to theplaintiff . Plaintiff demanded for an explanation, but nothing

was given.”

11.VSP mere proposal and did not create demandable right in favor of Sosa when it was aborted

The VSP was a mere proposal which was aborted in lieu of subsequent events. Thus, 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.

12.Award of moral damages without legal basis

The award of moral damages is without legal basis. The only groundupon which Sosa claimed moral damages is that since it was known tohis friends,

townmates, and relatives that he was buying a Toyota LiteAce which they expected to see on his birthday, he suffered humiliation,shame, and sleepless

nights when the van was not delivered. The vanbecame the subject matter of talks during his celebration that he maynot have paid for it, and this

created an impression against his businessstanding and reputation created an impression against his businessstanding and reputation. At the bottom of

this claim is nothing butmisplaced pride and ego. He should not have announced his plan to buyToyota Lite Ace knowing that he might not be able to pay

the fullpurchase price. It was he who brought embarrassment upon himself bybragging about a thing which he did not own yet.13.Award of exemplary damages without basis; Purpose of exemplary damages

Since Sosa is not entitled to moral damages and there being no awardfor temperate, liquidated, or compensatory damages, he is likewise notentitled to

exemplary damages. Under Article 2229 of the Civil Code,exemplary or corrective damages are imposed by way of example orcorrection for the public

good, in addition to moral, temperate,liquidated, or compensatory damages.14.Award of attorney’s fees without basis

For attorney’s fees to be granted the court must explicitly state in thebody of the decision, and not only in the dispositive portion thereof, thelegal reason

for the award of attorney’s fees. No such explicitdetermination thereon was made in the body of the decision of the trialcourt. Thus, no reason exists for

such award.

B. ESSENTIAL CHARACTERISTICS OF CONTRACT OF SALE

1. NOMINATE AND PRINCIPAL

Romero v. CA250 SCRA 15

Facts: Virgilio Romero and his foreign partners decided to put up acentral warehouse in Metro Manila. Alfonso Flores, in behalf of EnriquetaChua vda. De

Ongsiong, proposed the latter’s lot to Romero as the sitefor the said warehouse. A contract denominated as “Deed of ConditionalSale” was executed

between Romero and Ongsiong where the amountof P50,000 was received from Romero for the purpose of taking up amejectment case against the

squatters found therein. Ongsiong sought toreturn the amount she received from Romero as she claimed she isunable to rid the land of squatters,

notwithstanding the favorablejudgment already promulgated by the court in the ejectment case.Romero’s counsel refused the tender and expressed

willingness tounderwrite the expense of executing the judgment chargeable to thepurchase price of the land. Ongsiong filed a case with the trial court

forthe rescission of the deed of “conditional” sale, and for the consignationof the amount of P50,000. The trial court rendered a decision in favor

ofRomero, which was reversed by the Court of Appeals.Issue: Whether the “Deed of Conditional Sale” is a perfected contract of sale

Held: The deed of sale, even if denominated as a deed of conditionalsale, may be treated as absolute in nature, especially if title to theproperty sold is

not reserved in the vendor or if the vendor is notgranted the right to unilaterally rescind the contract predicated on thefulfillment or non-fulfillment of

the prescribed condition. In determiningthe real character of contract, the substance and not the title given bythe party is more significant. Upon

perfection, i.e. where the sellerobligates himself, for a price certain, to deliver and to transferownership of a specific thing or right to the buyer over

which the latteragrees, the parties are bound not only to the fulfillment of what wasexpressly stipulated but also the consequences which may be in

keepingwith good faith, usage and law. Being a perfected contract of sale, norescission can be had. The proper action is an action for damages.Arguendo

that rescission is available as a remedy, as provide by Article1191 in reciprocal obligations, it may only be availed of by the injured party.

2.CONSENSUAL

Quijada v. CA [G.R. No. 126444.December 4, 1998.]Second Division, Martinez (J): 3 concur

Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria,Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. deQuijada.

Trinidad was one of the heirs of the late Pedro Corvera andinherited from the latter the 2-hectare parcel of land subject of the case,situated in the barrio

of San Agustin, Talacogon, Agusan del Sur. On 5April1956, Trinidad Quijada together with her sisters Leonila CorveraVda. de Sequeña and Paz Corvera

Cabiltes and brother EpapiaditoCorvera executed a conditional deed of donation of the 2-hectare parcelof land in favor of the Municipality of Talacogon,

the condition being thatthe parcel of land shall be used solely and exclusively as part of thecampus of the proposed provincial high school in Talacogon.

Apparently,Trinidad remained in possession of the parcel of land despite thedonation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcelof

land to Regalado Mondejar. Subsequently, Trinidad verbally sold theremaining 1 hectare to Mondejar without the benefit of a written deed ofsale and

evidenced solely by receipts of payment. In 1980, the heirs ofTrinidad, who at that time was already dead, filed a complaint forforcible entry against

Mondejar, which complaint was, however,dismissed for failure to prosecute. In 1987, the proposed provincial high

school having failed to materialize, the Sangguniang Bayan of themunicipality of Talacogon enacted a resolution reverting the 2 hectaresof land donated

back to the donors. In the meantime, Mondejar soldportions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden,and Ernesto Goloran.

On 5 July 1988, the petitioners filed a complaint against privaterespondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso,Bautista, Macasero

and Maguisay) for quieting of title, recovery ofpossession and ownership of parcels of land with claim for attorney’sfees and damages. The trial court

rendered judgment in favor of thepetitioners, holding that Trinidad Quijada did not have legal title or rightto sell the land to Mondejar as it belongs to the

Municipality ofTalacogon at that time, and that the deed of sale in favor of Mondejardid not carry the conformity and acquiescence of her

childrenconsidering that Trinidad was already 63 years old and a widow. Thetrial court ordered the defendants (private respondents), and any

personacting in defendants’ behalf to return and vacate the 2 hectares of landto the plaintiff, and to remove their improvements constructed on thelot;

ordered the cancellation of the deed of sale executed by Trinidad toMondejar, as well as the deeds of sale/relinquishments executed byMondejar to the

other defendants; and ordered the defendants to paythe plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000as attorney’s fees, expenses

of litigation and moral damages, respectively.

On appeal, the Court of Appeals reversed and set aside the judgment aquo ruling that the sale made by Trinidad Quijada to respondentMondejar was

valid as the former retained an inchoate interest on thelots by virtue of the automatic reversion clause in the deed of donation.Thereafter, petitioners

filed a motion for reconsideration. When the CAdenied their motion, petitioners instituted a petition for review to theSupreme Court.The Supreme Court affirmed the assailed decision of the Court of Appeals.1. Condition valid in donation if not contrary to law, morals, good customs, public order or public policy

The donation made on April 5, 1956 by Trinidad Quijada and her brotherand sisters was subject to the condition that the donated property shallbe “used

solely and exclusively as a part of the campus of the proposedProvincial High School in Talacogon.” The donation further provides thatshould “the

proposed Provincial High School be discontinued or if thesame shall be opened but for some reason or another, the same may inthe future be closed”

the donated property shall automatically revert tothe donor. Such condition, not being contrary to law, morals, goodcustoms, public order or public

policy was validly imposed in the donation.2. Donation as mode of acquiring ownership

When the Municipality’s acceptance of the donation was made known tothe donor, the former became the new owner of the donated

property,donation being a mode of acquiring and transmitting ownership,notwithstanding the condition imposed by the donee. The donation isperfected

once the acceptance by the donee is made known to thedonor. Accordingly, ownership is immediately transferred to the latterand that ownership will

only revert to the donor if the resolutorycondition is not fulfilled.3. Condition to construct school is a resolutory condition

The resolutory condition, in the present case, is the construction of theschool. It has been ruled that when a person donates land to another onthe

condition that the latter would build upon the land a school, thecondition imposed is not a condition precedent or a suspensivecondition but a resolutory

one. So long as the resolutory conditionsubsists and is capable of fulfillment, the donation remains effective andthe donee continues to be the owner

subject only to the rights of thedonor or his successors-in-interest under the deed of donation. Since noperiod was imposed by the donor on when must

the donee comply withthe condition, the latter remains the owner so long as he has tried tocomply with the condition within a reasonable period. Such

period,however, became irrelevant herein when the donee manifested that itcannot comply with the condition and the same was made known to

thedonor. Only then, when the non-fulfillment of the resolutory conditionwas brought to the donor’s knowledge, that ownership of the donatedproperty

reverted to the donor as provided in the automatic reversionclause of the deed of donation.

4. Inchoate interest may be subject of contract including a contract ofsale; Interest over property under conditional deed of donation, not theland itself

The donor may have an inchoate interest in the donated property duringthe time that ownership of the land has not reverted to her. Suchinchoate

interest may be the subject of contracts including a contract ofsale. In the present case, however, what the donor sold was the landitself which she no

longer owns. It would have been different if thedonor-seller sold her interests over the property under the deed ofdonation which is subject to the

possibility of reversion of ownershiparising from the non-fulfillment of the resolutory condition.5. Laches, elements

Laches presupposes failure or neglect for an unreasonable andunexplained length of time, to do that which, by exercising duediligence, could or should

have been done earlier; “it is negligence oromission to assert a right within a reasonable time, thus, giving rise to apresumption that the party entitled to

assert it either has abandoned ordeclined to assert it.” Its essential elements of (a) Conduct on the partof the defendant, or of one under whom he

claims, giving rise to thesituation complained of; (b) Delay in asserting complainant’s right afterhe had knowledge of the defendant’s conduct and after

he has an opportunity to sue; (c) Lack of knowledge or notice on the part of thedefendant that the complainant would assert the right on which hebases

his suit; and, (d) Injury or prejudice to the defendant in the eventrelief is accorded to the complainant” are absent in this case. In thepresent case,

petitioners’ cause of action to quiet title commenced onlywhen the property reverted to the donor and/or his successors-in-interest in 1987, not in the

1960’s when they had no interest over theproperty at that time except under the deed of donation to whichprivate respondents were not privy.

Moreover, petitioners hadpreviously filed an ejectment suit against private respondents only thatit did not prosper on a technicality.6. Sale, being a consensual contract, is perfected by mere consent;Seller need not own property when sold but when delivered

Sale, being a consensual contract, is perfected by mere consent, whichis manifested the moment there is a meeting of the minds as to theoffer and

acceptance thereof on three (3) elements: subject matter,price and terms of payment of the price. Ownership by the seller on thething sold at the time

of the perfection of the contract of sale is not anelement for its perfection. What the law requires is that the seller hasthe right to transfer ownership at

the time the thing sold is delivered.Perfection per se does not transfer ownership which occurs upon theactual or constructive delivery of the thing sold.

A perfected contract ofsale cannot be challenged on the ground of non-ownership on the partof the seller at the time of its perfection; hence, the sale is

still valid.7.Seller’s title passes by operation of law to the buyer

The consummation of the perfected contract is another matter. It occursupon the constructive or actual delivery of the subject matter to thebuyer when

the seller or her successors-in-interest subsequentlyacquires ownership thereof.In the present case, such circumstancehappened in this case when

petitioners (Trinidad’s heirs) became theowners of the subject property upon the reversion of the ownership ofthe land to them. Consequently,

ownership is transferred to Mondejarand those who claim their right from him. Article 1434 of the New CivilCode supports the ruling that the seller’s

“title passes by operation oflaw to the buyer.” This rule applies not only when the subject matter ofthe contract of sale is goods, but also to other kinds

of property,including real property.8. Article 1409 (4) does not provide that the properties of amunicipality are outside the commerce of man; Objects outside of thecommerce of man are those which cannot be appropriated

Nowhere in Article 1409 (4) is it provided that the properties of amunicipality, whether it be those for public use or its patrimonialproperty, are outside

the commerce of men; so as to render the contractinvolving the same inexistent and void from the beginning when sold. Inthe present case, the lots

were conditionally owned by the municipality.To rule that the donated properties are outside the commerce of menwould render nugatory the

unchallenged reasonableness and justness ofthe condition which the donor has the right to impose as owner thereof.Moreover, the objects referred to

as outside the commerce of man arethose which cannot be appropriated, such as the open seas and theheavenly bodies.9. No factual or legal basis for the award of fees and damages

There is neither factual nor legal basis for the trial court’s award ofattorney’s fees, litigation expenses and moral damages. Attorney’s feesand expenses

of litigation cannot, following the general rule in Article2208 of the New Civil Code, be recovered in the present case, therebeing no stipulation to that

effect and the case does not fall under anyof the exceptions. It cannot be said that private respondents hadcompelled petitioners to litigate with third

persons. Neither can it beruled that the former acted in “gross and evident bad faith” in refusingto satisfy the latter’s claims considering that private

respondents wereunder an honest belief that they have a legal right over the property byvirtue of the deed of sale. Moral damages cannot likewise be

justified asnone of the circumstances enumerated under Articles 2219 27 and 222028 of the New Civil Code concur in this case.

Fule v. CA [G.R. No. 112212.March 2, 1998.]Third division, Romero (J): 3 concur

Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property inTanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos,Laguna to secure

a loan in the amount of P10,000. Said mortgage waslater foreclosed and the property offered for public auction upon hisdefault. In June 1984, Gregorio

Fule, as corporate secretary of the bank,asked Remelia Dichoso and Olivia Mendoza to look for a buyer whomight be interested in the Tanay property.

The two found one in theperson of Ninevetch Cruz. It so happened that in January of said year,Gregorio Fule, also a jeweler, has shown interest in buying

a pair ofemerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declinedFule’s offer to buy said jewelry for P100,000; and a subsequent bid byFule

to buy them for US$6,000 at $1 to P25 while making a sketch ofsaid jewelry during an inspection at the lobby of Prudential Bank (thelatter instance was

declined, since the exchange rate appreciated to P19per dollar). Subsequently, however, negotiations for the barter of thejewelry and the Tanay property

ensued. Atty. Belarmino was requestedby Dr. Cruz to check the property and found out that no sale or barterwas feasible as the 1-year period of

redemption has not expired.In aneffort to cut through any legal impediment, Fule executed on 19 October1984, a deed of redemption on behalf of Fr.

Jacobe purportedly in theamount of P15,987.78, and on even date, Fr. Jacobe sold the property toFule for P75,000.00. The haste with which the two

deeds were executedis shown by the fact that the deed of sale was notarized ahead of thedeed of redemption. As Dr. Cruz had already agreed to the

proposedbarter, Fule went to Prudential Bank to take a look at the jewelry. On 23 October 1984, Fule met Atty. Belarmino at the latter’s residence to

prepare the documents of sale. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while Fule and Dr. Cruzattended to the

safekeeping of the jewelry. The following day, Fule,together with Dichoso and Mendoza, arrived at the residence of Atty.Belarmino to finally execute a

deed of absolute sale. Fule signed thedeed and gave Atty. Belarmino the amount of P13,700.00 for necessaryexpenses in the transfer of title over the

Tanay property; and issued acertification to the effect that the actual consideration of the sale wasP200,000.00 and not P80,000.00 as indicated in the

deed of absolutesale (the disparity purportedly aimed at minimizing the amount of thecapital gains tax that Fule would have to shoulder). Since the

jewelrywas appraised only at P160,000.00, the parties agreed that the balanceof P40,000.00 would just be paid later in cash. Thereafter, at the bank,as

pre-arranged, Dr. Cruz and the cashier opened the safety depositbox, and delivered the contents thereof to Fule. Fule inspected thejewelry, near the

electric light at the bank’s lobby, for 10-15 minutes.Fule expressed his satisfaction by nodding his head when asked by Dr.Cruz if the jewelry was okay.

For services rendered, Fule paid theagents, Dichoso and Mendoza, the amount of US$300.00 and somepieces of jewelry. He did not, however, give them

half of the pair ofearrings in question, which he had earlier promised. Later in theevening, Fule arrived at the residence of Atty. Belarmino

complainingthat the jewelry given him was fake. Dichoso, who borrowed the car ofDr. Cruz, called up Atty. Belarmino. Informed that Fule was at

thelawyer’s house, went there posthaste thinking that Fule had finallyagreed to give them half of the pair of earrings, only to find Fuledemonstrating

with a tester that the earrings were fake. Fule thenaccused Dichoso and Mendoza of deceiving him which they, however,denied. They countered that

Fule could not have been fooled becausehe had vast experience regarding jewelry. Fule nonetheless took backthe US$300.00 and jewelry he had given

them. Thereafter, the groupdecided to go to the house of a certain Macario Dimayuga, a jeweler, tohave the earrings tested. Dimayuga, after taking one

look at theearrings, immediately declared them counterfeit. At around 9:30 p.m.,Fule went to one Atty. Reynaldo Alcantara residing at

LakesideSubdivision in San Pablo City, complaining about the fake jewelry. Uponbeing advised by the latter, Fule reported the matter to the policestation

where Dichoso and Mendoza likewise executed sworn statements.

On 26 October 1984, Fule filed a complaint before the RTC San PabloCity against private respondents praying, among other things, that thecontract of

sale over the Tanay property be declared null and void onthe ground of fraud and deceit. On 30 October 1984, the lower courtissued a temporary

restraining order directing the Register of Deeds ofRizal to refrain from acting on the pertinent documents involved in thetransaction. On 20 November

1984, however, the same court lifted itsprevious order and denied the prayer for a writ of preliminary injunction.After trial, the lower court rendered its

decision on 7 March 1989;holding that the genuine pair of earrings used as consideration for thesale was delivered by Dr. Cruz to Fule, that the contract

was valid evenif the agreement between the parties was principally a barter contract,that the agreement has been consummated at the time the

principalparties parted ways at the bank, and that damages are due to thedefendants. From the trial court’s adverse decision, petitioner elevatedthe

matter to the Court of Appeals. On 20 October 1992, the Court ofAppeals, however, rendered a decision affirming in toto the lower court’sdecision. His

motion for reconsideration having been denied on 19October 1993. Hence, the petition for review on certiorari.

The Supreme Court affirmed in toto the decision of the Court of Appeals,but ordered Dr. Cruz to pay Fule the balance of the purchase price ofP40,000

within 10 days from the finality of the decision; with costsagainst petitioner.1.New factual issues cannot be examined as it unduly transcends thelimits of the Supreme Court’s review power

The Supreme Court cannot entertain a factual issue, and thus examineand weigh anew the facts regarding the genuineness of the earringsbartered in

exchange for the Tanay property, as this would undulytranscend the limits of the Court’s review power in petitions of thisnature which are confined

merely to pure questions of law. As a generalrule, the Supreme Court accords conclusiveness to a lower court’sfindings of fact unless it is shown, inter

alia, that: (1) the conclusion is afinding grounded on speculations, surmises or conjectures; (2) theinference is manifestly mistaken, absurd and

impossible; (3) when thereis a grave abuse of discretion; (4) when the judgment is based on amisapprehension of facts; (5) when the findings of fact are

conflicting;and (6) when the Court of Appeals, in making its findings, went beyondthe issues of the case and the same is contrary to the admission of

bothparties.To reiterate, the Supreme Court’s jurisdiction is only limited toreviewing errors of law in the absence of any showing that the

findingscomplained of are totally devoid of support in the record or that they areglaringly erroneous as to constitute serious abuse of discretion.2.Immediate rendition of decision not anomalous

No proof has been adduced that Judge Jaramillo was motivated by amalicious or sinister intent in disposing of the case with dispatch.Neither is there

proof that someone else wrote the decision for him. Theimmediate rendition of the decision was no more than Judge Jaramillo’scompliance with his duty

as a judge to “dispose of the court’s businesspromptly and decide cases within the required periods.” The two-yearperiod within which Judge Jaramillo

handled the case provided him withall the time to study it and even write down its facts as soon as thesewere presented to court. In fact, the Supreme

Court does not seeanything wrong in the practice of writing a decision days before thescheduled promulgation of judgment and leaving the dispositive

portionfor typing at a time close to the date of promulgation, provided that nomalice or any wrongful conduct attends its adoption. The practice

servesthe dual purposes of safeguarding the confidentiality of draft decisionsand rendering decisions with promptness. Neither can Judge Jaramillo

bemade administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain to his judicial functions arenot subject

to disciplinary power unless they are committed with fraud,dishonesty, corruption or bad faith.Hence, in the absence of sufficientproof to the contrary,

Judge Jaramillo is presumed to have performed hisjob in accordance with law and should instead be commended for hisclose attention to duty.

3.Contract perfected by mere consent, binds parties to stipulation andall the consequences; Contract of sale perfected upon meeting of mindsupon the

thing object of the contract and upon price; Embodiment ofcontract in public instrument only for convenience, and registration onlyto affect third

parties; Lack of formal requirements does not invalidatethe contract

The Civil Code provides that contracts are perfected by mere consent.From this moment, the parties are bound not only to the fulfillment ofwhat has

been expressly stipulated but also to all the consequenceswhich, according to their nature, may be in keeping with good faith,usage and law.A contract

of sale is perfected at the moment there is ameeting of the minds upon the thing which is the object of the contractand upon the price. Being

consensual, a contract of sale has the force oflaw between the contracting parties and they are expected to abide ingood faith by their respective

contractual commitments.

Article 1358 of the Civil Code which requires the embodiment of certaincontracts in a public instrument, is only for convenience, andregistration of the

instrument only adversely affects third parties.Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not

adversely affect the validity of thecontract nor the contractual rights and obligations of the partiesthereunder.4. Voidable or annullable contracts

Contracts that are voidable or annullable, even though there may havebeen no damage to the contracting parties are: (1) those where one ofthe parties

is incapable of giving consent to a contract; and (2) thosewhere the consent is vitiated by mistake, violence, intimidation, undueinfluence or fraud. The

contract can be voided in accordance with law soas to compel the parties to restore to each other the things that havebeen the subject of the contract

with their fruits, and the price with interest.5. Fraud; No inducement made by the private respondents

There is fraud when, through the insidious words or machinations of oneof the contracting parties, the other is induced to enter into a contractwhich,

without them, he would not have agreed to. In the present case,the records, are bare of any evidence manifesting that privaterespondents employed

such insidious words or machinations to enticepetitioner into entering the contract of barter. Neither is there anyevidence showing that Dr. Cruz induced

petitioner to sell his Tanayproperty or that she cajoled him to take the earrings in exchange forsaid property. On the contrary, Dr. Cruz did not initially

accede topetitioner’s proposal to buy the said jewelry. Rather, it appears that itwas petitioner, through his agents, who led Dr. Cruz to believe that

theTanay property was worth exchanging for her jewelry as he representedthat its value was P400,000.00 or more than double that of the jewelrywhich

was valued only at P160,000.00. If indeed petitioner’s propertywas truly worth that much, it was certainly contrary to the nature of abusinessman-banker

like him to have parted with his real estate for halfits price. In short, it was in fact petitioner who resorted to machinationsto convince Dr. Cruz to

exchange her jewelry for the Tanay property.7. Mistake; Mistake caused by manifest negligence cannot invalidate a judicial act

To invalidate a contract, mistake must “refer to the substance of thething that is the object of the contract, or to those conditions which haveprincipally

moved one or both parties to enter into the contract.”Anexample of mistake as to the object of the contract is the substitution ofa specific thing

contemplated by the parties with another. In the presentcase, the petitioner failed to prove the fact that prior to the delivery ofthe jewelry to him,

private respondents endeavored to make suchsubstitution of an inferior one or one with Russian diamonds for thejewelry he wanted to exchange with

his 10-hectare land. Further, onaccount of his work as a banker-jeweler, it can be rightfully assumedthat he was an expert on matters regarding gems. He

had theintellectual capacity and the business acumen as a banker to takeprecautionary measures to avert such a mistake, considering the valueof both

the jewelry and his land. A mistake caused by manifestnegligence cannot invalidate a juridical act. As the Civil Code provides,“(t)here is no mistake if the

party alleging it knew the doubt,contingency or risk affecting the object of the contract.”8. Contract of sale absolute if no stipulation that title to property isreserved to seller until full payment; Ownership transferred upon actualor constructive delivery

A contract of sale being absolute in nature, title passed to the vendeeupon delivery of the thing sold since there was no stipulation in thecontract that

title to the property sold has been reserved in the selleruntil full payment of the price or that the vendor has the right tounilaterally resolve the contract

the moment the buyer fails to paywithin a fixed period. Such stipulations are not manifest in the contractof sale. In the present case, both the trial and

appellate courts,therefore, correctly ruled that there were no legal bases for thenullification of the contract of sale. Ownership over the parcel of

landand the pair of emerald-cut diamond earrings had been transferred toDr. Cruz and Fule, respectively, upon the actual and constructivedelivery

thereof.9. Contract silent when balance is due and demandable; non-payment does not invalidate the contract

While it is true that the amount of P40,000.00 forming part of theconsideration was still payable to Fule, its nonpayment by Dr. Cruz is nota sufficient

cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the factthat their contract is silent as to when it becomes due and demandable.10. No interest due if it is not stipulated

Failure to pay the balance of the purchase price does not result in thepayment of interest thereon. Article 1589 of the Civil Code prescribesthe payment

of interest by the vendee “for the period between thedelivery of the thing and the payment of the price” in cases “(1) Shouldit have been so stipulated;

(2) Should the thing sold and deliveredproduce fruits or income; (3) Should he be in default, from the time ofjudicial or extrajudicial demand for the

payment of the price.”11. Case distinguished from de la Cruz v Legaspi

The present case should be distinguished from De la Cruz v. Legaspi,where the court held that failure to pay the consideration after thenotarization of the

contract as previously promised resulted in thevendee’s liability for payment of interest. In the present, there is nostipulation for the payment of interest

in the contract of sale nor proofthat the Tanay property produced fruits or income. Neither did petitionerdemand payment of the price as in fact he filed

an action to nullify thecontract of sale.12. Award of moral and exemplary damages

Moral and exemplary damages may be awarded without proof ofpecuniary loss. In awarding such damages, the court shall take intoaccount the

circumstances obtaining in the case and assess damagesaccording to its discretion.To warrant the award of damages, it must beshown that the person to

whom these are awarded has sustained injury.He must likewise establish sufficient data upon which the court canproperly base its estimate of the

amount of damages. Statements offacts should establish such data rather than mere conclusions oropinions of witnesses. Thus, for moral damages to be

awarded, it isessential that the claimant must have satisfactorily proved during thetrial the existence of the factual basis of the damages and its

causalconnection with the adverse party’s acts. If the court has no proof orevidence upon which the claim for moral damages could be based,

suchindemnity could not be outrightly awarded. The same holds true withrespect to the award of exemplary damages where it must be shownthat the

party acted in a wanton, oppressive or malevolent manner.13. Rule that moral damages cannot be recovered from person who filed a complaint does not apply in present case

While, as a rule, moral damages cannot be recovered from a person whohas filed a complaint against another in good faith because it is notsound policy

to place a penalty on the right to litigate, the same,however, cannot apply in the present case. This is not a situation wherepetitioner’s complaint was

simply found later to be based on anerroneous ground which, under settled jurisprudence, would not havebeen a reason for awarding moral and

exemplary damages. Instead, thecause of action of the instant case appears to have been contrived bypetitioner himself. The factual findings of the

courts a quo to the effectthat petitioner filed this case because he was the victim of fraud; that hecould not have been such a victim because he should

have examinedthe jewelry in question before accepting delivery thereof, consideringhis exposure to the banking and jewelry businesses; and that he

filedthe action for the nullification of the contract of sale with unclean hands,all deserve full faith and credit to support the conclusion that petitionerwas

motivated more by ill will than a sincere attempt to protect hisrights in commencing suit against respondents. It must be noted thatbefore petitioner was

able to convince Dr. Cruz to exchange her jewelryfor the Tanay property, petitioner took pains to thoroughly examine saidjewelry, even going to the

extent of sketching their appearance. Why atthe precise moment when he was about to take physical possessionthereof he failed to exert extra efforts to

check their genuinenessdespite the large consideration involved has never been explained at allby petitioner. His acts thus failed to accord with what an

ordinaryprudent man would have done in the same situation.

4. ONEROUS

Gaite v. Fonacier [G.R. No. L-11827.July 31, 1961.]En Banc, Reyes JBL (J): 9 concur

Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lodemineral claims (Dawahan Group), situated in Jose Panganiban,Camarines Norte.By a

“Deed of Assignment” dated 29 September1952, Fonacier constituted and appointed Fernando A. Gaite as his trueand lawful attorney-in-fact to enter

into a contract with any individual orjuridical person for the exploration and development of the miningclaims on a royalty basis of not less than P0.50

per ton of ore that mightbe extracted therefrom. On 19 March 1954, Gaite in turn executed ageneral assignment conveying the development and

exploitation of saidmining claims unto the Larap Iron Mines, owned solely by him.Thereafter Gaite embarked upon the development and exploitation

ofthe mining claims, opening and paving roads within and outside theirboundaries, making other improvements and installing facilities thereinfor use in

the development of the mines, and in time extractedtherefrom what he claimed and estimated to be approximately 24,000metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke theauthority granted by him to Gaite, and Gaite assented thereto subject tocertain

conditions. As a result, a document entitled “Revocation ofPower of Attorney and Contract” was executed on 8 December 1954,wherein Gaite

transferred to Fonacier, for the consideration of P20,000,plus 10% of the royalties that Fonacier would receive from the miningclaims, all his rights and

interests on all the roads, improvements, andfacilities in or outside said claims, the right to use the business name“Larap Iron Mines” and its goodwill,

and all the records and documentsrelative to the mines. In the same document, Gaite transferred toFonacier all his rights and interests over the “24,000

tons of iron ore, more or less” that the former had already extracted from the mineralclaims, in consideration of the sum of P75,000, P10,000, of which

waspaid upon the signing of the agreement, and the balance to be paid outof the first letter of credit covering the first shipment of iron ores or thefirst

amount derived from the local sale of iron ore made by the LarapMines & Smelting Co. To secure the payment of the balance, Fonacierpromised to

execute in favor of Gaite a surety bond; delivered on 8December 1954 with Fonacier as principal and the Larap Mines andSmelting Co. and its

stockholders as sureties. A second bond wasexecuted by the parties to the first bond, on the same day, with the FarEastern Surety and Insurance Co. as

additional surety, but it providedthat the liability of the surety company would attach only when therehad been an actual sale of iron ore by the Larap

Mines & Smelting Co.for an amount of not less than P65,000. Both bond were attached andmade integral parts of the “Revocation of Power of Attorney

andContract.” On the same day that Fonacier revoked the power ofattorney, Fonacier entered into a “Contract of Mining Operation” withLarap Mines

and Smelting Co., Inc. to grant it the right to develop,exploit, and explore the mining claims, together with the improvementstherein and the use of the

name “Larap Iron Mines” and its goodwill, inconsideration of certain royalties. Fonacier likewise transferred, in thesame document, the complete title to

the approximately 24,000 tons ofiron ore which he acquired from Gaite, to the Larap Mines & SmeltingCo., in consideration for the signing by the

company and itsstockholders of the surety bonds delivered by Fonacier to Gaite. On 8December 1955,the bond with respect to the Far Eastern Surety

andInsurance Company expired with no sale of the approximately 24,000tons of iron ore, nor had the 65,000 balance of the price of said ore beenpaid to

Gaite by Fonacier and his sureties. Whereupon, Gaite demandedfrom Fonacier and his sureties payment of said amount.

When Fonacier and his sureties failed to pay as demanded by Gaite, thelatter filed a complaint against them in the CFI Manila (Civil Case 29310)for the

payment of the P65,000 balance of the price of the ore,consequential damages, and attorney’s fees. Judgment was,accordingly, rendered in favor of

plaintiff Gaite ordering defendants topay him, jointly and severally, P65,000 with interest at 6% per annumfrom 9 December 1955 until full payment, plus

costs. From thisjudgment, defendants jointly appealed to the Supreme Court as theclaims involved aggregate to more than P200,000.The Supreme Court affirmed the decision appealed from, with costsagainst appellants.1. Shipment or local sale of ore not a condition precedent but a suspensive period or term

The shipment or local sale of the iron ore is not a condition precedent(or suspensive) to the payment of the balance of P65,000, but was onlya suspensive

period or term. What characterizes a conditional obligationis the fact that its efficacy or obligatory force (as distinguished from itsdemandability) is

subordinated to the happening of a future anduncertain event; so that if the suspensive condition does not take place,the parties would stand as if the

conditional obligation had never existed.2. The words of the contract express no contingency in the buyer’s obligation to pay.

The contract stipulates that “the balance of Sixty-Five Thousand Pesos(P65,000) will be paid out of the first letter of credit covering the firstshipment of

iron ore . . .” etc. There is no uncertainty that the paymentwill have to be made sooner or later; what is undetermined is merely theexact date at which it

will be made. By the very terms of the contract,therefore, the existence of the obligation to pay is recognized; only itsmaturity or demandability is

deferred.3. Contract of sale commutative and onerous; Each party assume correlative obligation and anticipate performance from the other

A contract of sale is normally commutative and onerous: not only doeseach one of the parties assume a correlative obligation (the seller todeliver and

transfer ownership of the thing sold and the buyer to pay theprice), but each party anticipates performance by the other from thevery start. While in a

sale the obligation of one party can be lawfullysubordinated to an uncertain event, so that the other understands thathe assumes the risk of receiving

nothing for what he gives (as in thecase of a sale of hopes or expectations, emptio spei), it is not in theusual course of business to do so; hence, the

contingent character of theobligation must clearly appear. In the present case, nothing is found inthe record to evidence that Gaite desired or assumed

to run the risk oflosing his rights over the ore without getting paid for it, or that Fonacierunderstood that Gaite assumed any such risk. The fact that

appellantsdid put up such bonds indicates that they admitted the definiteexistence of their obligation to pay the balance of P65,000.4. To consider sale as a condition precedent leaves the payment at the discretion o fthe debtor

To subordinate the obligation to pay the remaining P65,000 to the saleor shipment of the ore as a condition precedent, would be tantamountto leaving

the payment at the discretion of the debtor, for the sale orshipment could not be made unless the appellants took steps to sell theore. Appellants would

thus be able to postpone payment indefinitely.Such construction of the contract should be avoided.5. Interpretation incline in favor of the “greatest reciprocity of interests”

Assuming that there could be doubt whether by the wording of thecontract the parties intended a suspensive condition or a suspensiveperiod (dies ad

quem) for the payment of the P65,000, the rules ofinterpretation would incline the scales in favor of “the greatestreciprocity of interests”, since sale is

essentially onerous. The Civil Codeof the Philippines, Article 1378, paragraph 1, in fine, provides “if thecontract is onerous, the doubt shall be settled in

favor of the greatest reciprocity of interests” and there can be no question that greaterreciprocity obtains if the buyer’s obligation is deemed to be

actuallyexisting, with only its maturity (due date) postponed or deferred, than ifsuch obligation were viewed as non-existent or not binding until the

orewas sold.

6. Sale of ore to Fonacier was a sale on credit, not an aleatory contractThe sale of the ore to Fonacier was a sale on credit, and not an aleatorycontract

where the transferor, Gaite, would assume the risk of not beingpaid at all; and that the previous sale or shipment of the ore was not asuspensive

condition for the payment of the balance of the agreed price,but was intended merely to fix the future date of the payment.7. Non-renewal of bond impaired the securities given to the creditor

Appellants have forfeited the right to compel Gaite to wait for the sale ofthe ore before receiving payment of the balance of P65,000, because oftheir

failure to renew the bond of the Far Eastern Surety Company orelse replace it with an equivalent guarantee. The expiration of thebonding company’s

undertaking on 8 December 1955 substantiallyreduced the security of the vendor’s rights as creditor for the unpaidP65,000, a security that Gaite

considered essential and upon which hehad insisted when he executed the deed of sale of the ore to Fonacier.The case squarely comes under paragraphs

2 and 3 of Article 1198 ofthe Civil Code of the Philippines which provides “(2) When he does notfurnish to the creditor the guaranties or securities which

he haspromised. (3) When by his own acts he has impaired said guaranties orsecurities after their establishment, and when through fortuitous eventthey

disappear, unless he immediately gives new ones equallysatisfactory.” Appellants’ failure to renew or extend the suretycompany’s bond upon its

expiration plainly impaired the securities givento the creditor (appellee Gaite), unless immediately renewed or replaced.8. No waiver intended by creditor

Gaite’s acceptance of the surety company’s bond with full knowledgethat on its face it would automatically expire within one year was not awaiver of its

renewal after the expiration date. No such waiver couldhave been intended, for Gaite stood to lose and had nothing to gainthereby; and if there was any,

it could be rationally explained only if theappellants had agreed to sell the ore and pay Gaite before the suretycompany’s bond expired on 8 December

1955. But in the latter case thedefendants- appellants’ obligation to pay became absolute after 1 yearfrom the transfer of the ore to Fonacier by virtue of

the deed.9. No short-delivery made by Gaite

This is a case of a sale of a specific mass of fungible goods for a singleprice or a lump sum, the quantity of “24,000 tons of iron ore, more orless”, stated in

the contract, being a mere estimate by the parties of thetotal tonnage weight of the mass; and second, that the evidence showsthat neither of the

parties had actually measured or weighed the mass,so that they both tried to arrive at the total quantity by making anestimate of the volume thereof in

cubic meters and then multiplying itby the estimated weight per ton of each cubic meter. The sale betweenthe parties is a sale of a specific mass of iron

ore because no provisionwas made in their contract for the measuring or weighing of the ore soldin order to complete or perfect the sale, nor was the

price of P75,000agreed upon by the parties based upon any such measurement (see Art.1480, second par., New Civil Code). The subject-matter of the

sale is,therefore, a determinate object, the mass, and not the actual number ofunits or tons contained therein, so that all that was required of the

sellerGaite was to deliver in good faith to his buyer all of the ore found in themass, notwithstanding that the quantity delivered is less than theamount

estimated by them (Mobile Machinery & Supply Co., Inc. vs.York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of theLuisiana Civil Code). The

contract expressly stated the amount to be24,000 tons, more or less. Applying the tonnage factor provided by thechief of Mines and Metallurgical

Division of the Bureau of Mines whichwas between 3 metric tons minimum to 5 metric tons maximum, whichwas near the 3.3 metric ton tonnage factor

adopted by Engr. Gamatero(at the request of Krakower, a stockholder of Larap), and if appellant’switness is correct in his estimate of 6,609 cubic meters

of ore, theproduct is 21,809.7 tons which is not far from the 24,000 tons estimate.(cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46,

L.Ed. 1164). Thus, there was no short-delivery as would entitle appellantsto the payment of damages, nor could Gaite have been guilty of anyfraud in

making any misrepresentation to appellants as to the totalquantity of ore in the stockpiles of the mining claims in question sinceGaite’s estimate appears

to be substantially correct.

6. SALES IS TITLE, NOT MODE

Equatorial Realty vs. Mayfair Theater [G.R. No. 106063. November 21, 1996.]

En Banc, Hermosisima Jr. (J): 13 concur, 1 took no part

Facts: Carmelo & Bauermann Inc. (Carmelo) owned a parcel of land,together with two 2-storey buildings constructed thereon located atClaro M Recto

Avenue, Manila (TCT 18529, Register of Deeds of Manila).On 1 June 1967, Carmelo entered into a contract of lease with MayfairTheater for the latter’s

lease of a portion of Carmelo’s property, i.e. aportion of the 2/F of the two-storey building with floor area of 1610sq.ms. and the second floor and

mezzanine of the two-storey buildingsituated at CM Recto Avenue, Manila with a floor area of 150 sq.ms. foruse by Mayfair as a motion picture theater

and for a term of 20 years.Mayfair thereafter constructed on the leased property a movie houseknown as Maxim Theatre. On 31 March 1969, Mayfair

entered into asecond contract of lease with Carmelo for the lease of another portion ofCarmelo’s property, i.e. a portion of the 2/F of the two-storey

buildingwith floor area of 1064 sq.ms. and two store spaces at the ground floorand mezzanine of the two-storey building situated at CM Recto

Avenue,Manila with a floor area of 300 sq.ms. and bearing street numbers 1871and 1875 for similar use as a movie theater and for a similar term of

20years. Mayfair put up another movie house known as ‘Miramar Theatre’on this leased property. Both contracts of lease provide identicallyworded

paragraph 8, which reads “That if the LESSOR should desire tosell the leased premises, the lessee shall be given 30-days exclusiveoption to purchase the

same. In the event, however, that the leasedpremises is sold to someone other than the Lessee, the lessor is boundand obligated, as it hereby binds and

obligates itself, to stipulate in theDeed of Sale thereof that the purchaser shall recognize this lease andbe bound by all the terms and conditions thereof.”

Sometime in August1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, Presidentof Mayfair, through a telephone conversation that Carmelo

was desirousof selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yangthat a certain Jose Araneta was offering to buy the whole property

forUS$1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing tobuy the property for P6 million to P7 million. Mr. Yang replied that hewould let

Mr. Pascal know of his decision. On 23 August 1974, Mayfairreplied through a letter confirming the correspondence between Pascualand Yang and

reiterating paragraph 8 of the two contracts of lease.Carmelo did no reply to this letter. On 18 September 1974, Mayfair sentanother letter to Carmelo

purporting to express interest in acquiring notonly the leased premises but the entire building and otherimprovements if the price is reasonable.

However, both Carmelo andEquatorial questioned the authenticity of the second letter. Four yearslater, on 30 July 1978, Carmelo sold its entire CM.

Recto Avenue landand building, which included the leased premises housing the ‘Maxim’and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of

AbsoluteSale, for the total sum of P1,300,000.

In September 1978, Mayfair instituted the action for specificperformance and annulment of the sale of the leased premises toEquatorial. In its Answer,

Carmelo alleged as special and affirmativedefense that it had informed Mayfair of its desire to sell the entire CM.Recto Avenue property and offered the

same to Mayfair, but the latteranswered that it was interested only in buying the areas under lease,which was impossible since the property was not a

condominium; andthat the option to purchase invoked by Mayfair is null and void for lackof consideration. Equatorial, in its Answer, pleaded as special

andaffirmative defense that the option is void for lack of consideration andis unenforceable by reason of its impossibility of performance becausethe

leased premises could not be sold separately from the other portionsof the land and building. It counterclaimed for cancellation of thecontracts of lease,

and for increase of rentals in view of allegedsupervening extraordinary devaluation of the currency. Equatoriallikewise cross-claimed against codefendant

Carmelo for indemnificationin respect of Mayfair’s claims. After assessing the evidence, the courtrendered decision dismissing the complaint with costs

against Mayfair;ordering Mayfair to pay Carmelo & Bauermann P40,000.00 by way ofattorneys’s fees on its counterclaim; and ordering Mayfair to

payEquatorial Realty P35,000.00 per month as reasonable compensation forthe use of areas not covered by the contracts of lease from 31 July 1979until

Mayfair vacates said areas plus legal interest from 31 July 1978;P70,000.00 per month as reasonable compensation for the use of thepremises covered

by the contracts of lease dated (1 June 1967 from 1June 1987 until Mayfair vacates the premises plus legal interest from 1June 1987; P55,000.00 per

month as reasonable compensation for theuse of the premises covered by the contract of lease dated 31 March1969 from 30 March 1989 until Mayfair

vacates the premises plus legalinterest from 30 March 1989; and P40,000.00 as attorney’s fees; anddismissing Equatorial’s crossclaim against Carmelo &

Bauermann. Thetrial court adjudged the identically worded paragraph 8 found in bothlease contracts to be an option clause which however cannot

bedeemed to be binding on Carmelo because of lack of distinctconsideration therefor.

Mayfair taking exception to the decision of the trial court, appealed tothe Court of Appeals. The appellate court reversed the trial court andrendered

judgment reversing and setting aside the appealed Decision;directing Mayfair to pay and return to Equatorial the amount ofP11,300,000.00 within 15

days from notice of this Decision, andordering Equatorial to accept such payment; directing Equatorial, uponpayment of the sum of P11,300,000, to

execute the deeds anddocuments necessary for the issuance and transfer of ownership toMayfair of the lot registered under TCT 17350, 118612, 60936,

and52571; and should Mayfair be unable to pay the amount as adjudged,declaring the Deed of Absolute Sale between Carmelo and Equatorial asvalid

and binding upon an the parties. Hence, the petition for review.

The Supreme Court denied the petition for review of the decision of theCourt of Appeals (23 June 1992, in CA-GR CV 32918), declaring the Deedof

Absolute Sale between Equatorial and Carmelo as deemed rescinded;ordering Carmelo to return to Equatorial the purchase price; directingEquatorial to

execute the deeds and documents necessary to returnownership to Carmelo of the disputed lots; and ordering Carmelo toallow Mayfair to buy the lots

for P11,300,000.1. Issue on irregularities in Court of Appeals passed upon so as not topreempt the administrative proceedings related thereto

It was raised that the Court of Appeals violated its own internal rules inthe assignment of appealed cases when it allowed the same Division

XII,particularly Justice Manuel Herrera, to resolve all the motions in the“Completion Process” and to still resolve the merits of the case in the“Decision

Stage.” This was related to letter complaint written by thecounsel for Equatorial on 20 September 1992 to the Supreme Courtalleging certain

irregularities and infractions committed by certainlawyers, and Justices of the Court of Appeals and of the Supreme Courtin connection with case CA-GR

CV 32918 (GR 106063). This partakes ofthe nature of an administrative complaint for misconduct, againstmembers of the judiciary. While the letter-

complaint arose as anincident in said case, the disposition thereof should be separate andindependent from case GR 106063. It would be correct,

prudent and

consistent course of action not to pre-empt the administrativeproceedings to be undertaken respecting the said irregularities. Adiscussion of such in the

present case would entail a finding on themerits as to the real nature of the questioned procedures and the trueintentions and motives of the players

therein.2. Paragraph 8 of lease contracts provides for a right of first refusal, andis not an option clause nor an option contract

The contractual stipulation (Paragraph 8) provides for a right of firstrefusal in favor of Mayfair. It is not an option clause or an option contact.It is a

contract of a right of first refusal. The true nature of the paragraph8 is ascertained to be that of a contractual grant of the right of firstrefusal to Mayfair.3. Option contract; Validity based on a separate and distinctconsideration

As early as 1916, in the case of Beaumont vs. Prieto, unequivocal wasour characterization of an option contract as one necessarily invokingthe choice

granted to another for a distinct and separate considerationas to whether or not to purchase a determinate thing at apredetermined fixed price. T he

deed of option or option clause in acontract, in order to be valid and enforceable, must, among otherthings, indicate the definite price at which the

person granting theoption, is willing to sell.4. Option contract, according to Bouvier Law Dictionary

Bouvier, in his Law Dictionary (edition of 1897) defines an option as acontract, “a contract by virtue of which A, in consideration of thepayment of a

certain sum to B, acquires the privilege of buying from, orselling to B, certain securities or properties within a limited time at aspecified price. (Story vs

Salamon, 71 N.Y. 420.)”

5. Option contract, according to “Words and Phrases”

An agreement in writing to give a person the option to purchase landswithin a given time at a named price is neither a sale nor an agreementto sell. It is

simply a contract by which the owner of property agrees withanother person that he shall have the right to buy his property at a fixedprice within a

certain time. He does not sell his land, he does not thenagree to sell it; but he does sell something; that is, the right or privilegeto buy at the election or

option of the other party. The second party getsin praesenti, not lands, nor an agreement that he shall have lands, buthe does get something of value,

that is, the right to call for and receivelands if he elects The owner parts with his right to sell his lands, exceptto the second party, for a limited period The

second party receives thisright, or, rather, from his point of view, he receives the right to elect tobuy. (Vol. 6, page 5001, of the work ‘Words and Phrases,

‘ citing thecase of Ide vs. Leiser [24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17]).6. Cases involving option contracts

In Tuason vs. de Asis (107 PHIL 131 [1960]), it was held that the lesseeloses his right to buy the leased property for a named price per squaremeter upon

failure to make the purchase within the time specified. InMendoza vs. Comple (15 SCRA 162), the Court freed the landowner fromher promise to sell her

land if the prospective buyer could raiseP4,500.00 in 3 weeks because such option was not supported by adistinct consideration. In the same vein, in

Sanchez vs. Rigos (45 SCRA368 [1972]), the Court also invalidated an instrument entitled, “Optionto Purchase” a parcel of land for the sum of P1,510.00

because of lackof consideration. And as an exception to the doctrine enumerated in thetwo preceding cases, in Vda de Quirino vs. Palarca (29 SCRA 1

[1969]), itwas ruled that the option to buy the leased premises for P12,000.00 asstipulated in the lease contract, is not without consideration for

inreciprocal contracts, like lease, the obligation or promise of each party isthe consideration for that of the other. In all these cases, the sellingprice of the

object thereof is always predetermined and specified in theoption clause in the contract or in the separate deed of option.Ang Yu Asuncion case:7. Perfection of a contract of sale

In sales, the contract is perfected when a person, called the seller,obligates himself, for a price certain, to deliver and to transferownership of a thing or

right to another, called the buyer, over which thelatter agrees. Article 1458 of the Civil Code provides that “By thecontract of sale one of the contracting

parties obligates himself totransfer the ownership of and to deliver a determinate thing, and theother to pay therefor a price certain in money or its

equivalent. Acontract of sale may be absolute or conditional.”8. Contract to sell is conditional; Effect of breach of condition

When the sale is not absolute but conditional, such as in a “Contract toSell” where invariably the ownership of the thing sold is retained untilthe

fulfillment of a positive suspensive condition (normally, the fullpayment of the purchase price), the breach of the condition will preventthe obligation to

convey title from acquiring an obligatory force.9. Unconditional mutual promise to buy and sell obligatory on theparties

An unconditional mutual promise to buy and sell, as long as the object ismade determinate and the price is fixed, can be obligatory on theparties, and

compliance therewith may accordingly be exacted.10. Perfected contract of optionAn accepted unilateral promise which specifies the thing to be sold andthe price to be paid, when coupled with a valuable consideration distinctand separate from the price, is what may properly be termed aperfected contract of option. This contract is legally binding, and insales, it conforms with the second paragraph of Article 1479 of the CivilCode, which provides that “An accepted unilateral promise to buy or tosell a determinate thing for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price.

(1451a)”11. Option not the contract of sale itself

The option is not the contract of sale itself. The optionee has the right,but not the obligation, to buy. Once the option is exercised timely, i.e.,the offer is

accepted before a breach of the option, a bilateral promiseto sell and to buy ensues and both parties are then reciprocally bound tocomply with their

respective undertakings.12. Offer

A negotiation is formally initiated by an offer. An imperfect promise(policitacion) is merely an offer. Public advertisements or solicitationsand the like are

ordinarily construed as mere invitations to make offersor only as proposals. These relations, until a contract is perfected, arenot considered binding

commitments. Thus, at any time prior to theperfection of the contract, either negotiating party may stop thenegotiation. The offer, at this stage, may be

withdrawn; the withdrawalis effective immediately after its manifestation, such as by its mailingand not necessarily when the offeree learns of the

withdrawal (Laudicovs. Arias, 43 Phil. 270).13. Offer with a period; Effects of withdrawal

(1) If the period is not itself founded upon or supported by aconsideration, the offeror is still free and has the right to withdrawal theoffer before its

acceptance, or, if an acceptance has been made, beforethe offeror’s coming to know of such fact, by communicating thatwithdrawal to the offeree (see

Art. 1324, Civil Code; see also Atkins,Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to aunilateral promise to sell under Art. 1479,

modifying the previousdecision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see alsoArt. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs.

Remolado, 135SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,however, must not be exercised whimsically or arbitrarily; otherwise,

itcould give rise to a damage claim under Article 19 of the Civil Codewhich ordains that “every person must, in the exercise of his rights andin the

performance of his duties, act with justice, give everyone his due,and observe honesty and good faith.” (2) If the period has a separateconsideration, a

contract of “option” is deemed perfected, and it wouldbe a breach of that contract to withdraw the offer during the agreedperiod. The option, however,

is an independent contract by itself, and itis to be distinguished from the projected main agreement (subjectmatter of the option) which is obviously yet

to be concluded. If, in fact,the optioner-offeror withdraws the offer before its acceptance (exerciseof the option) by the optionee-offeree, the latter may

not sue for specificperformance on the proposed contract (”object” of the option) since ithas failed to reach its own stage of perfection. The optioner-

offeror,however, renders himself liable for damages for breach of the option. Inthese cases, care should be taken of the real nature of the

considerationgiven, for if, in fact, it has been intended to be part of the considerationfor the main contract with a right of withdrawal on the part of

theoptionee, the main contract could be deemed perfected; a similarinstance would be an “earnest money” in a contract of sale that canevidence its

perfection (Art. 1482, Civil Code).14. Requirement for separate consideration has no applicability asparagraph 8 is not an option contract but a right of first refusal

No option to purchase in contemplation of the second paragraph ofArticle 1479 of the Civil Code, has been granted to Mayfair under thesaid lease

contracts. Paragraph 8 grants the right of first refusal toMayfair and is not an option contract. The requirement of a separateconsideration for the option,

thus, has no applicability in the case. Thereis nothing in paragraph “8″ of the contracts which would bring them intothe ambit of the usual offer or option

requiring an independentconsideration.15. Option and Right of First Refusal distinguished

An option is a contract granting a privilege to buy or sell within anagreed time and at a determined price. It is a separate and distinctcontract from that

which the parties may enter into upon theconsummation of the option. It must be supported by consideration. Inthe instant case, the right of first refusal

is an integral part of thecontracts of lease. The consideration is built into the reciprocalobligations of the parties.16. Right of First Refusal inutile if governed by Article 1324 onwithdrawal of the offer on Article 1479 on promise to buy and sell

To rule that a contractual stipulation such as that found in paragraph 8of the contracts is governed by Article 1324 on withdrawal of the offeron Article

1479 on promise to buy and sell would render ineffectual or“inutile” the provisions on right of first refusal so commonly inserted inleases of real estate

nowadays. Paragraph 8 was incorporated into thecontracts of lease for the benefit of Mayfair which wanted to be assuredthat it shall be given the first

crack or the first option to buy theproperty at the price which Carmelo is willing to accept.17. Consideration in an agreement of right of first refusal: Considerationfor lease

It is not correct to say that there is no consideration in an agreement ofright of first refusal. The stipulation is part and parcel of the entirecontract of

lease. The consideration for the lease includes theconsideration for the right of first refusal.18. Consideration in an agreement of right of first refusal: Considerationis obligation or promise (reciprocal contract)

Mayfair is in effect stating that it consents to lease the premises and topay the price agreed upon provided the lessor also consents that,should it sell the

leased property, then, Mayfair shall be given the rightto match the offered purchase price and to buy the property at thatprice. As stated in Vda. De

Quirino vs. Palarca, in reciprocal contract, theobligation or promise of each party is the consideration for that of theother.19. Difference to Ang Yu Asuncion case: Equatorial Realty and Carmelo acted in bad faith

Carmelo and Equatorial Realty acted in bad faith to render Paragraph 8“inutile.” What Carmelo and Mayfair agreed to, by executing the twolease

contracts, was that Mayfair will have the right of first refusal in theevent Carmelo sells the leased premises. It is undisputed that Carmelodid recognize

this right of Mayfair, for it informed the latter of itsintention to sell the said property in 1974. There was an exchange ofletters evidencing the offer and

counter-offers made by both parties.Carmelo, however, did not pursue the exercise to its logical end. While itinitially recognized Mayfair’s right of first

refusal, Carmelo violated suchright when without affording its negotiations with Mayfair the fullprocess to ripen to at least an interface of a definite offer

and a possiblecorresponding acceptance within the “30-day exclusive option” timegranted Mayfair, Carmelo abandoned negotiations, kept a low profile

forsome time, and then sold, without prior notice to Mayfair, the entireClaro M. Recto property to Equatorial.20. Rescission lies when the purchase is in bad faith

Equatorial (being aware of the lease contracts because its lawyers had,prior to the sale, studied the said contracts) is a buyer in bad faith, andthus

renders the sale to it of the property in question rescissible.Guzman, Bocaling & Co. vs. Bonnevie case21. Rescission as remedy

Rescission is a remedy granted by law to the contracting parties andeven to third persons, to secure reparation for damages caused to themby a

contract, even if this should be valid, by means of the restoration ofthings to their condition at the moment prior to the celebration of saidcontract. It is a

relief allowed for the protection of one of the contractingparties and even third persons from all injury and damage the contractmay cause, or to protect

some incompatible and preferential rightcreated by the contract. Rescission implies a contract which, even ifinitially valid, produces a lesion or pecuniary

damage to someone thatjustifies its invalidation for reasons of equity.22. Purchaser not considered a third party

It is true that the acquisition by a third person of the property subject ofthe contract is an obstacle to the action for its rescission where it isshown that

such third person is in lawful possession of the subject of thecontract and that he did not act in bad faith. However, this rule is notapplicable in the case

before us because the petitoner is not considereda third party in relation to the Contract of Sale nor may its possession ofthe subject property be

regarded as acquired lawfully and in good faith.23. Purchaser in good faith defined

A purchaser in good faith and for value who buys the property ofanother without notice that some other person has a right to or interestin such property

and pays a full and fair price for the same at the timeof such purchase or before he has notice of the claim or interest of someother person in the

property. Good faith connotes an honest intention toabstain from taking unconscientious advantage of another. Tested bythese principles, the petitioner

cannot tenably claim to be a buyer ingood faith as it had notice of the lease of the property and suchknowledge should have cautioned it to look deeper

into the agreementto determine if it involved stipulations that would prejudice its owninterests.24. Purchaser required to know term of lease contract when buyingproperty under lease

Having known that the property it was buying was under lease, itbehooved it as a prudent person to have required the owner of theproperty or the

broker to show to it the Contract of Lease in which theright of first refusal is contained.25. Indivisibility of the property

Common sense and fairness dictate that instead of nullifying theagreement on the basis that the entire property is indivisible property,the stipulation

should be given effect by including the indivisibleappurtenances in the sale of the dominant portion under the right offirst refusal. A valid and legal

contract where the ascendant or the moreimportant of the two parties is the landowner should be given effect, ifpossible, instead of being nullified on a

selfish pretext posited by theowner. Following the arguments of petitioners and the participation ofthe owner in the attempt to strip Mayfair of its rights;

the right of firstrefusal should include not only the property specified in the contractsbut also the appurtenant portions sold to Equatorial which are

claimedby petitioners to be indivisible.26. Boundaries of the property sold

Mayfair is authorized to exercise its right of first refusal under thecontract to include the entirety of the indivisible property. Theboundaries of the

property sold should be the boundaries of the offerunder the right of first refusal.

27. Doctrine in Ang Yu Asuncion deemed modified

As to the remedy to enforce Mayfair’s right, the Court disagrees to acertain extent with the concluding part of the dissenting opinion ofJustice Vitug. The

doctrine enunciated in Ang Yu Asuncion vs. Court ofAppeals should be modified, it not amplified under the peculiar facts ofthe present case.28. Multiplicity of suits frowned upon by Court; Relief: (1) Contract

between Equatorial and Carmelo rescinded, (2) Price fixed The Supreme Court has always been against multiplicity of suits whereall remedies according

to the facts and the law can be included. SinceMayfair has a right of first refusal, it can exercise the right only if thefraudulent sale is first set aside or

rescinded. All of these matters arenow before us and so there should be no piecemeal determination ofthis case and leave festering sores to deteriorate

into endless litigation.Since Carmelo sold the property for P11,300,000 to Equatorial, the priceat which Mayfair could have purchased the property is,

therefore, fixed.The damages which Mayfair suffered are in terms of actual injury andlost opportunities. The fairest solution would be to allow Mayfair

toexercise its right of first refusal at the price which it was entitled toaccept or reject which is P11,300,000. To follow an alternative solutionthat Carmelo

and Mayfair may resume negotiations for the sale to thelatter of the disputed property would be unjust and unkind to Mayfairbecause it is once more

compelled to litigate to enforce its right.29. Present case covered by law on contracts, not merely by codalprovisions on human relations

Under the Ang Yu Asuncion vs. Court of Appeals decision, the Courtstated that there was nothing to execute because a contract over theright of first

refusal belongs to a class of preparatory juridical relationsgoverned not by the law on contracts but by the codal provisions onhuman relations. This may

apply if the contract is limited to the buyingand selling of the real property. However, the obligation of Carmelo tofirst offer the property to Mayfair is

embodied in a contract. It isParagraph 8 on the right of first refusal which created the obligation. Itshould be enforced according to the law on contracts

instead of thepanoramic and indefinite rule on human relations. The latter remedyencourages multiplicity of suits. There is something to execute and

thatis for Carmelo to comply with its obligation to the property under theright of the first refusal according to the terms at which they shouldhave been

offered then to Mayfair, at the price when that offer shouldhave been made. Also, Mayfair has to accept the offer. This juridicalrelation is not amorphous

nor is it merely preparatory. Paragraphs 8 ofthe two leases can be executed according to their terms.30. No interest due

Carmelo and Equatorial cannot avail of considerations based on equitywhich might warrant the grant of interests. The vendor received aspayment from

the vendee what, at the time, was a full and fair price forthe property. It has used the P11,300,000.00 all these years earningincome or interest from the

amount. Equatorial, on the other hand, hasreceived rents and otherwise profited from the use of the propertyturned over to it by Carmelo. In fact,

during all the years that thiscontroversy was being litigated, Mayfair paid rentals regularly to thebuyer who had an inferior right to purchase the

property. Mayfair isunder no obligation to pay any interests arising from this judgment toeither Carmelo or Equatorial.

Aznar vs. Yapdiangco [G.R. No. L-18536.March 31, 1965.]En Banc, Regala (J): 10 concurring

Facts: In May 1959, Teodoro Santos advertised in two metropolitanpapers the sale of his Ford Fairlane 500. In the afternoon of 28 May1959, a certain L.

De Dios, claiming to be a nephew of Vicente Marella,went to the Santos residence to answer the ad. However, Teodoro wasout during this call and only

the latter’s son, Irineo received and talkedwith De Dios. The latter told the young Santos that he had come inbehalf of his uncle, Marella, who was

interested to buy the advertisedcar. On being informed of the above, Teodoro instructed his son to seeMarella the following day at his given address:

1642 Crisostomo Street,Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went tosaid address. At this meeting, Marella agreed to buy the

car forP14,700.00 on the understanding that the price would be paid only afterthe car had been registered in his name. Irineo then fetched his

fatherwho, together with De Dios, went to the office of a certain Atty. JosePadolina where the deed of sale for the car was executed in Marella’sfavor.

The parties to the contract thereafter proceeded to the MotorVehicles’ Office in Quezon City where the registration of the car inMarella’s name was

effected. Up to that stage of the transaction, thepurchase price had not been paid. From the Motor Vehicles Office,Teodoro returned to his house. He

gave the registration papers and acopy of the deed of sale to his son and instructed him not to part withthem until Marella shall have given the full

payment for the car. Irineoand De Dios then proceeded to 1642 Crisostomo Street, Sampaloc inManila where the former demanded for the payment

from Marella.Marella said that the amount he had on hand then was short by someP2,000.00 and begged off to be allowed to secure the shortage from

asister supposedly living somewhere in Azcarraga Street, also in Manila.Thereafter, he ordered De Dios to go to the said sister and suggestedthat Irineo

to go with him. At the same time, he requested for theregistration papers and the deed of sale from Ireneo on the pretext thathe would like to show

them to his lawyers. Trusting the good faith ofMarella, Ireneo handed over the same to the latter and thereupon, in thecompany of De Dios and another

unidentified person, proceeded to thealleged house of Marella’s sister. At a place in Azcarraga, Irineo and DeDios alighted from the car and entered a

house, while their unidentifiedcompanion remained in the car. Once inside, De Dios asked Irineo towait at the sala while he went inside a room. That was

the last thatIreneo saw of him. For, after a considerable length of time waiting invain for De Dios to return, Ireneo went down to discover that neither

thecar nor their unidentified companion was there anymore. Going back tothe house, he inquired from a woman he saw for De Dios and he wastold that

no such name lived or was even known therein. Whereupon,Ireneo rushed to 1642 Crisostomo to see Marella. He found the houseclosed and Marella

gone. Finally, he reported the matter to his fatherwho promptly advised the police authorities. That very same day,Marella was able to sell the car in

question to Jose B. Aznar, forP15,000.00. Aznar acquired the said car from Marella in good faith, for avaluable consideration and without notice of the

defect appertaining tothe vendor’s title. While the car was thus in the possession of Aznar and

while he was attending to its registration in his name, agents of thePhilippine Constabulary seized and confiscated the same inconsequence of the report

to them by Teodoro that the said car wasunlawfully taken from him.

Aznar filed a complaint for replevin before the CFI Quezon City (BranchIV) against Captain Rafael Yapdiangco, the head of the PhilippineConstabulary unit

which seized the car. Claiming ownership of thevehicle, he prayed for its delivery to him. In the course of the litigation,however, Teodoro Santos moved

and was allowed to intervene by thelower court. At the end of the trial, the lower court rendered a decisionawarding the disputed motor vehicle to

Santos. From the decision, Aznarappealed.The Supreme Court dismissed the appeal and affirmed the decision ofthe lower court in full; with costs against Aznar.1.Article 559 of the Civil Code; Santos entitled to recovery of personalproperty

Santos had been unlawfully deprived of his personal property byMarella, from whom Aznar traces his right. Consequently, althoughAznar acquired the

car in good faith and for a valuable considerationfrom Marella, the said decision concluded, still Santos was entitled to itsrecovery on the mandate of

Article 559 of the New Civil Code whichprovides: ” The possession of movable property acquired in good faith isequivalent to title. Nevertheless, one who

has lost any movable or hasbeen unlawfully deprived thereof, may recover it from the person inpossession of the same. If the possessor of a movable

lost or of whichthe owner has been unlawfully deprived, has acquired it in good faith ata public sale, the owner cannot obtain its return without

reimbursing theprice paid therefor.” Under Article 559, the rule is to the effect that if theowner has lost the thing, or if he has been unlawfully deprived

of it, hehas a right to recover it, not only from the finder, thief or robber, butalso from the third person who may have acquired it in good faith fromsuch

finder, thief or robber.2.Seller’s title, voidable at least, essential in Article 1506; Article 559applies

Article 1506 provides:” Where the seller of goods has a voidable titlethereto, but his title has not been voided at the time of the sale, thebuyer acquires a

good title to the goods, provided he buys them in goodfaith, for value, and without notice of the seller’s defect of title.” Underthe provision, it is essential

that the seller should have a voidable title atleast. It is very clearly inapplicable where the seller had no title at all.3.Ownership or title acquired only by tradition or delivery; Article 712 of the Civil Code

Under Article 712 of the Civil Code, “ownership and other real rightsover property are acquired and transmitted by law, by donation, bytestate and

intestate succession, and in consequence of certaincontracts, by tradition.” As interpreted by this Court in a host of cases,by this provision, ownership is

not transferred by contract merely but bytradition or delivery. Contracts only constitute titles or rights to thetransfer or acquisition of ownership, while

delivery or tradition is themode of accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51;Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631;

Fidelity andDeposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke &Chandler, 14 Phil. 610; Easton vs. Diaz & Co., 32 Phil. 180). For the

legalacquisition and transfer of ownership and other property rights, thething transferred must be delivered, inasmuch as, according to

settledjurisprudence the tradition of the thing is a necessary and indispensablerequisite in the acquisition of said ownership by virtue of a contract.

(Walter Easton vs. E. Diaz & Co. & the Provincial Sheriff of Albay, supra.)So long as property is not delivered, the ownership over it is nottransferred by

contract merely but by delivery. Contracts only constitutetitles or rights to the transfer or acquisition of ownership, while deliveryor tradition is the

method of accomplishing the same, the title and themethod of acquiring it being different in our law.” (Gonzales vs. Rojas,16 Phil. 51) In the present case,

the car was never delivered to thevendee by the vendor as to complete or consummate the transfer ofownership by virtue of the contract. It should be

recalled that whilethere was indeed a contract of sale between Vicente Marella andTeodoro Santos, the former, as vendee, took possession of the

subjectmatter thereof by stealing the same while it was in the custody of thelatter’s son.4. Delivery of key not delivery contemplated by Article 712; Intent must be present

There is no adequate evidence on record as to whether Irineo Santosvoluntarily delivered the key to the car to the unidentified person whowent with

him and L. De Dios to the place in Azcarraga where a sister ofMarella allegedly lived. But even if Irineo Santos did, it was not thedelivery contemplated by

Article 712 of the Civil Code. For then, it wouldbe indisputable that he turned it over to the unidentified companiononly so that he may drive Irineo

Santos and De Dios to the said place inAzcarraga and not vest the title to the said vehicle to him as agent ofVicente Marella. Article 712 above

contemplates that the act be coupledwith the intent of delivering the thing. (10 Manresa 132)5. Article 559 establishes exception to the general rule or irrevindicability

Article 559 establishes two exceptions to the general rule ofirrevindicability to wit: when the owner (1) has lost the thing, or (2) hasbeen unlawfully

deprived thereof. In these cases, the possessor cannotretain the thing as against the owner, who may recover it withoutpaying any indemnity, except

when the possessor acquired it in a publicsale. (Del Rosario vs. Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482;Varela vs. Matute, 9 Phil. 479; Arenas vs.

Raymundo, 19 Phil. 46.Tolentino, id., Vol II, p. 261.)6.Cruz vs. Pahati on Article 559

In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that“Under Article 559 of the new Civil Code, a Person illegally deprived ofany movable

may recover it from the person in possession of the sameand the only defense the latter may have is if he has acquired it in goodfaith at a public sale, in

which case, the owner cannot obtain its returnwithout reimbursing the price paid therefor. In the present case, plaintiffhas been illegally deprived of his

car through the ingenious scheme ofdefendant B to enable the latter to dispose of it as if he were the ownerthereof. Plaintiff, therefore, can still recover

possession of the car even ifit is in the possession of a third party who had acquired it in good faithfrom defendant B. The maxim that “no man can

transfer to another abetter title than he has himself’ obtains in the civil as well as in thecommon law.” (U.S. vs. Sootelo, 28 Phil. 147)7.Common law principle yields to statutory provision

The right of the owner to recover personal property acquired in goodfaith by another, is based on his being dispossessed without his consent.The

common law principle that where one of two innocent persons mustsuffer by a fraud perpetrated by another, the law imposes the loss uponthe party

who, by his misplaced confidence, has enabled the fraud to becommitted, cannot be applied in a case which is covered by an expressprovision of the new

Civil Code, specifically Article 559. Between acommon law principle and a statutory provision, the latter must prevailin this jurisdiction. (Cruz vs. Pahati,

supra).

C. DISTINGUISHED FROM OTHER TRANSACTIONAL CONTRACT

3. CONTRACT FOR PIECE OF WORK

Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506.August 31, 1956.]

First Division, Bengzon (J): 7 concur

Facts: Celestino Co & Company is a duly registered generalcopartnership doing business under the trade name of “Oriental SashFactory”. From 1946 to

1951 it paid percentage taxes of 7% on thegross receipts of its sash, door and window factory, in accordance withsection 186 of the National Revenue

Code imposing taxes on sales ofmanufactured articles. However in 1952 it began to claim liability only tothe contractor’s 3% tax (instead of 7%) under

section 191 of the sameCode; and having failed to convince the Bureau of Internal Revenue, itbrought the matter to the Court of Tax Appeals, where it

also failed.Hence, the appeal.The Supreme Court affirmed the appealed decision.1.Business name and income militates against claim as ordinarycontractor

The company has taken all the trouble and expense of registering aspecial trade name for its sash business and has ordered companystationery carrying

the bold print “Oriental Sash Factory (Celestino Co &Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076,Manufacturers of all kinds of doors,

windows, sashes, furnitures, etc.used season-dried and kiln-dried lumber, of the best qualityworkmanship.” It is unlikely that these act were made solely

for thepurpose of supplying the needs for doors, windows and sash of itsspecial and limited customers. Further, the Company has chosen for

itstradename and has offered itself to the public as a “Factory”, whichmeans it is out to do business, in its chosen lines on a big scale.Moreover, as shown

from the investigation of the Company’s books ofaccounts (for transactions covering the period of 1 January 1952 to 30September 1952), it sold sash,

doors and windows worth P188,754.69. Itwill be difficult to believe that such amount that ran to six figures wasderived entirely from its few customers

who made special orders. Thus,Celestino Co & Company habitually makes sash, windows and doors, asit has represented in its stationery and

advertisements to the public,and it has admitted by the appellant itself that the company“manufactures.”2.Construction work contractors defined

Construction work contractors are those who alter or repair buildings,structures, streets, highways, sewers, street railways, railroads, loggingroads,

electric, steam or water plants telegraph and telephone plantsand lines, electric lines or power lines, and includes any other work forthe construction,

altering or repairing for which machinery driven bymechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878,880, 179 Okl. 68).3. Nature of business does not fall in any of the occupation that maybe classified as contractor within the purview of Section 191 of theNational Internal Revenue Code

Even if it were to believe that the company does not manufacture ready-made sash, doors and windows for the public and that it makes thesearticles

only upon special order of its customers, that does not make it acontractor within the purview of section 191 of the National InternalRevenue Code.

There are no less than fifty occupations enumerated inthe said section of the National Internal Revenue Code subject topercentage tax, not one under

which the business enterprise ofpetitioner could appropriately fall. It would require a stretch of the law tomake the business of manufacturing sash,

doors and windows uponspecial order of customers fall under the category of ‘road, building,navigation, artesian well, water works and other

construction workcontractors.

4.Percentage tax imposed under Section 191 of the Tax Code a tax onsales of service, while tax imposed by Section 186 a tax on original salesof articles

The percentage tax imposed in section 191 of the Tax Code is generallya tax on the sales of services, in contradiction with the tax imposed insection 186

of the same Code which is a tax on the original sales ofarticles by the manufacturer, producer or importer. (Formilleza’s

Commentaries and Jurisprudence on the National Internal RevenueCode, Vol II, p. 744). The fact that the articles sold are manufactured bythe seller does

not exchange the contract from the purview of section186 of the National Internal Revenue Code as a sale of articles.5. Custom specifications required by customer does not altercharacter of business, the company does not become an employee orservant of the customer

Nobody will say that when a sawmill cuts lumber in accordance with thepeculiar specifications of a customer, sizes not previously held in stockfor sale to

the public, it thereby becomes an employee or servant of thecustomer, not the seller of lumber. The same consideration applies tothis sash

manufacturer. The Sash Factory does nothing more than sellthe goods that it mass-produces or habitually makes; sash, panels,mouldings, frames, cutting

them to such sizes and combining them insuch forms as its customers may desire.6. Installation of window panels not construction work in common parlance

Petitioner’s idea of being a contractor doing construction jobs isuntenable. Nobody would regard the doing of two window panels asconstruction work in

common parlance.7.Contract of sale distinguished from a contract for a piece of work

Article 1467 of the New Civil Code provides that “a contract for thedelivery at a certain price of an article which the vendor in the ordinarycourse 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, butif the goods are to be

manufactured specially for the customer and uponhis special order, and not for the general market, it is contract for apiece of work.” In the present case,

it is apparent that the Factory didnot merely sell its services to Teodoro & Co. because it also sold thematerials. When it sold materials ordinarily

manufactured by it (sash,panels, mouldings), although in such form or combination as suited thefancy of the purchaser, such new form does not divest

the Factory of itscharacter as manufacturer. Neither does it take the transaction out ofthe category of sales under Article 1467 because although the

Factorydoes not, in the ordinary course of its business, manufacture and keepon stock doors of the kind sold to Teodoro, it could stock and/orprobably

had in stock the sash, mouldings and panels it used therefor.8. Contract for a piece of work in Factory happens if the use ofextraordinary or additional equipment is required or if it involvesservices not generally performed by it

When the Factory accepts a job that requires the use of extraordinary oradditional equipment, or involves services not generally performed by it,it

thereby contracts for a piece of work, i.e. filling special orders withinthe meaning of Article 1467. In the present case, however, the ordersexhibited were

not shown to be special. They were merely orders forwork, regular work.9.Transfers under Section 186 of the Tax Code

If all the work of appellant is only to fill orders previously made, suchorders should not be called special work, but regular work; andsupposing for the

moment that the transactions were not sales, theywere neither lease of services nor contract jobs by a contractor. Still, asthe doors and windows had

been admittedly “manufactured” by theSash Factory, such transactions could be, and should be taxed as“transfers” thereof under section 186 of the

National Revenue Code.

Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24, 1996.]

Third Division, Panganiban (J): 3 concur

Facts: Pursuant to the contract dated 10 September 1962 between theEngineering and Machinery Corporation (the Corporation) and Almeda,the former

undertook to fabricate, furnish and install the air-conditioningsystem in the latter’s building along Buendia Avenue, Makati inconsideration of P12,000.00.

The Corporation was to furnish thematerials, labor, tools and all services required in order to so fabricateand install said system. The system was

completed in 1963 andaccepted by Almeda, who paid in full the contract price. On 2 September1965, Almeda sold the building to the National

Investment andDevelopment Corporation (NIDC). The latter took possession of thebuilding but on account of NIDC’s noncompliance with the terms

andconditions of the deed of sale, Almeda was able to secure judicialrescission thereof. The ownership of the building having been decreedback to

Almeda, he re-acquired possession sometime in 1971. It wasthen that he learned from some NIDC employees of the defects of theair-conditioning

system of the building. Acting on this information,Almeda commissioned Engineer David R. Sapico to render a technicalevaluation of the system in

relation to the contract with the Corporation.In his report, Sapico enumerated the defects of the system andconcluded that it was “not capable of

maintaining the desired roomtemperature of 76ºF — 2ºF.”

On the basis of this report, Almeda filed on 8 May 1971 an action fordamages against the Corporation with the then CFI Rizal (Civil Case14712). The

complaint alleged that the air-conditioning system installedby the Corporation did not comply with the agreed plans andspecifications, hence, Almeda

prayed for the amount of P210,000.00representing the rectification cost, P100,000.00 as damages andP15,000.00 as attorney’s fees. The Corporation

moved to dismissed thecase, alleging prescription, but which was denied by the Court.Thereafter, Almeda filed an ex-parte motion for preliminary

attachmenton the strength of the Corporation’s own statement to the effect that ithad sold its business and was no longer doing business in Manila.

Thetrial court granted the motion and, upon Almeda’s posting of a bond ofP50,000.00, ordered the issuance of a writ of attachment. In due course, and

on 15 April 1974, the trial court rendered a decision,which ordered the Corporation to pay Almeda the amount needed torectify the faults and

deficiencies of the air-conditioning system installedby the Corporation in Almeda’s building, plus damages, attorney’s feesand costs). Petitioner appealed

to the Court of Appeals, which affirmedon 28 November 1978 the decision of the trial court. Hence, it instituteda petition for review on certiorari under

Rule 45 of the Rules of Court.The Supreme Court denied the petition and affirmed the decisionassailed; without costs.1.The Court’s power to review

The Supreme Court reviews only errors of law in petitions for review oncertiorari under Rule 45. It is not the function of this Court to re-examinethe

findings of fact of the appellate court unless said findings are notsupported by the evidence on record or the judgment is based on amisapprehension of

facts. The Court has consistently held that thefactual findings of the trial court, as well as the Court of Appeals, arefinal and conclusive and may not be

reviewed on appeal. Among theexceptional circumstances where a reassessment of facts found by thelower courts is allowed are when the conclusion is

a finding groundedentirely on speculation, surmises or conjectures; when the inferencemade is manifestly absurd, mistaken or impossible; when there is

graveabuse of discretion in the appreciation of facts; when the judgment ispremised on a misapprehension of facts; when the findings went beyondthe

issues of the case and the same are contrary to the admissions ofboth appellant and appellee. After a careful study of the case at bench,we find none of

the above grounds present to justify the re-evaluation ofthe findings of fact made by the courts below.2.Contract of a piece of work defined

Article 1713 of the Civil Code defines a contract for a piece of work as“by the contract for a piece of work the contractor binds himself toexecute a piece

of work for the employer, in consideration of a certainprice or compensation. The contractor may either employ only his laboror skill, or also furnish the

material.”3.Contract for a piece of work distinguished from a contract of sale

A contract for a piece of work, labor and materials may be distinguishedfrom a contract of sale by the inquiry as to whether the thing transferredis one

not in existence and which would never have existed but for theorder of the person desiring it . In such case, the contract is one for apiece of work, not a

sale. On the other hand, if the thing subject of thecontract would have existed and been the subject of a sale to someother person even if the order had

not been given, then the contract isone of sale.

“A contract for the delivery at a certain price of an article which thevendor in the ordinary course of his business manufactures or procuresfor the general

market whether the same is on hand at the time or not isa contract of sale, but if the goods are to be manufactured specially forthe customer and upon

his special order, and not for the generalmarket, it is a contract for a piece of work (Art. 1467, Civil Code). Themere fact alone that certain articles are

made upon previous orders ofcustomers will not argue against the imposition of the sales tax if sucharticles are ordinarily manufactured by the taxpayer

for sale to thepublic.” (Celestino Co. vs. Collector, 99 Phil. 8411).

To Tolentino, the distinction between the two contracts depends on theintention of the parties. Thus, if the parties intended that at some futuredate an

object has to be delivered, without considering the work or laborof the party bound to deliver, the contract is one of sale. But if one ofthe parties accepts

the undertaking on the basis of some plan, takinginto account the work he will employ personally or through another,there is a contract for a piece of

work.4.Contract in question is one for a piece of work

The contract in question is one for a piece of work. It is not theCorporation’s line of business to manufacture air-conditioning systemsto be sold “off-the-

shelf.” Its business and particular field of expertise isthe fabrication and installation of such systems as ordered by customersand in accordance with the

particular plans and specifications providedby the customers. Naturally, the price or compensation for the systemmanufactured and installed will depend

greatly on the particular plansand specifications agreed upon with the customers.5.Obligations of a contractor for a piece of work

The obligations of a contractor for a piece of work are set forth inArticles 1714 and 1715 of the Civil Code. Article 1714 provides that “ifthe contractor

agrees to produce the work from material furnished byhim, he shall deliver the thing produced to the employer and transferdominion over the thing. —

This contract shall be governed by thefollowing articles as well as by the pertinent provisions on warranty oftitle and against hidden defects and the

payment of price in a contractof sale.”Article 1715 provides that “the contractor shall execute thework in such a manner that it has the qualities agreed

upon and has nodefects which destroy or lessen its value or fitness for its ordinary orstipulated use. Should the work be not of such quality, the

employermay require that the contractor remove the defect or execute anotherwork. If the contractor fails or refuses to comply with this obligation,

theemployer may have the defect removed or another work executed, atthe contractor’s cost.”6.Provisions on warranty against hidden defects

The provisions on warranty against hidden defects, referred to in Article1714, are found in Articles 1561 and 1566. Article 1561 provides that“the vendor

shall be responsible for warranty against the hidden defectswhich the thing sold may have, should they render it unfit for the use forwhich it is intended,

or should they diminish its fitness for such use tosuch an extent that, had the vendee been aware thereof, he would nothave acquired it or would have

given a lower price for it; but said vendorshall not be answerable for patent defects or those which may bevisible, or for those which are not visible if the

vendee is an expert who, by reason of his trade or profession, should have known them.”Article1566 provides that “the vendor is responsible to the

vendee for anyhidden faults or defects in the thing sold, even though he was not awarethereof,” and provides further that the provision “shall not apply

if thecontrary has been stipulated, and the vendor was not aware of thehidden faults or defects in the thing sold.”7.Remedy against violation of the warranty against hidden defects

The remedy against violations of the warranty against hidden defects iseither to withdraw from the contract (rehibitory action) or to demand

aproportionate reduction of the price (accion quanti minoris), withdamages in either case.

8. Prescriptive period as specified in express warranty, or in theabsence of which, 4 years; Prescriptive period of 6 months for rehibitoryaction is applicable only in implied warranties

While it is true that Article 1571 of the Civil Code provides for aprescriptive period of six months for a rehibitory action, a cursoryreading of the ten

preceding articles to which it refers will reveal thatsaid rule may be applied only in case of implied warranties; and wherethere is an express warranty in

the contract, the prescriptive period isthe one specified in the express warranty, and in the absence of suchperiod, the general rule on rescission of

contract, which is four years(Article 1389, Civil Code) shall apply. (Villostas v. CA)9. Original complaint is one for arising from breach of a writtencontact and not a suit to enforce warranty against hidden defects;Article 1715 in relation to Article 1144 apply, prescription in 10 years;Action not prescribed

The lower courts opined and so held that the failure of the defendant tofollow the contract specifications and said omissions and deviationshaving

resulted in the operational ineffectiveness of the system installedmakes the defendant liable to the plaintiff in the amount necessary torectify to put the

air conditioning system in its proper operationalcondition to make it serve the purpose for which the plaintiff enteredinto the contract with the

defendant. Thus, having concluded that theoriginal complaint is one for damages arising from breach of a writtencontract, and not a suit to enforce

warranties against hidden defects,the governing law therefore is Article 1715. However, inasmuch as thisprovision does not contain a specific

prescriptive period, the general lawon prescription, which is Article 1144 of the Civil Code, will apply. Saidprovision states, inter alia, that actions “upon a

written contract”prescribe in 10 years. Since the governing contract was executed on 10September 1962 and the complaint was filed on 8 May 1971, it is

clearthat the action has not prescribed.10. Acceptance of the work by the employer does not relieve the contractor of liability for any defect in the work

The mere fact that Almeda accepted the work does not, ipso facto,relieve the Corporation from liability for deviations from and violations ofthe written

contract, as the law gives him 10 years within which to filean action based on breach thereof. As held by the Court of Appeals, “asthe breach of contract

consisted in appellant’s omission to install theequipment [sic], parts and accessories not in accordance with the planand specifications provided for in the

contract and the deviations madein putting into the air-conditioning system parts and accessories not inaccordance with the contract specifications, it is

evident that the defectin the installation was not apparent at the time of the delivery andacceptance of the work, considering further that Almeda is not

an expertto recognize the same. From the very nature of things, it is impossible todetermine by the simple inspection of air conditioning system

installedin an 8-floor building whether it has been furnished and installed as peragreed specifications.”

4. AGENCY TO SELL

Quiroga v. CA38 Phil 501

Facts: A contract was entered between Quiroga and Parsons for theexclusive sale of Quiroga beds in the Visayas Islands, specifically Iloilo.Quiroga

furnishes the beds to Parson, who in turn pay the price in themanner stipulated. Quiroga provided a discount of 20 to 25% for thebeds, depending on

their class. Later, Quiroga filed a case againstParsons for violation of its obligation not to sell the beds at higher pricethan those of the invoices, etc.

(which are not expressly stipulated in thecontract, except for the manner the beds are ordered by the dozen).Quiroga maintains that Parson is his agent

for the sale of his beds inIloilo, and that the contract is that of commercial agency.Issue: Whether the contact is that of sale or of commercial agency.

Held: The contract between the parties is a contract of purchase andsale as Parson, by receiving the bed, was necessarily obliged to paytheir price within

the term fixed, without any other consideration andregardless as to whether he had or had not sold the bed. The words“commission on sales” in the

contract is nothing elsethan a merediscount on the invoice price. Further, the word “agency” used thereononly expresses that Parson was the sole seller

of Quiroga beds in theVisayas. None of the other clauses of the contract are not incompatiblewith the contract of purchase and sale.

Puyat & Sons v. Arco Amusement72 Phil 402

Facts: Gonzalo Puyat & Sons is the exclusive agent of Starr PianoCompany of Richmond, Indiana USA, in the Philippines. Teatro Arco, orArco Amusement

Company, desiring to equip its cinematograph withsound reproducing devices, approached Puyat. It was agreed by theparties that Puyat would in behalf

of Arco order equipment from StarrPiano and that Arco would pay Puyat in addition to price of the

equipment, 10% commission plus all expenses such as freight,insurance, banking charges, cables, etc. Puyat informed Arco that theprice of the

equipment was $1,700, to which Arco agreed. Later, asimilar arrangement was made by Arco for the purchase of similarequipment for $1,600 with 10%

commission, with Puyat charging anadditional flat charge of $160 for all expenses and charges. 3 yearslater, Arco learned that the price quoted by Puyat

on the 2 orders werenot the net price but the list price for the equipment. Arco filed acomplaint with the trial court (CFI) demanding reimbursement

from said“overpriced” sales. The trial court ruled in favor of Puyat, but the Courtof Appeals reversed such decision and declared Puyat an agent of

ArcoAmusement in the purchase of said equipment.

Issue: Whether the agreement made between Puyat and Arco Amusement is that of purchase and sale or that of agency.

Held: Gonzalo Puyat & Sons cannot be the agent of Arco Amusement inthe purchase of equipment from Starr Piano Company as Puyat & Sonsis already

the exclusive agent of Starr Piano in the Philippines. Puyatcannot be the agent of both vendor and purchaser. The fact that acommission was offered to

the other does not necessarily mean that thelatter has become the agent of the former, as this was only anadditional price which Arco bound itself to pay

and which is notincompatible with the contract of purchase and sale. Puyat is not boundto reimburse the profit acquired in the transaction, as this is the

veryessence of commerce involving middlemen and merchants. The contractis the law between the parties. What does not appear on the face of

thecontract should be regarded as “dealer’s or trader’s talk” which cannotbind either party. Not every concealment is fraud, short of fraud, andsuch as

that in this case, is considered as business acumen.

6. LEASE

Filinvest Credit vs. CA [G.R. No. 82508.September 29, 1989.]Second Division, Sarmiento (J): 3 concur, 1 on leave

Facts: The spouses Jose Sy Bang and Iluminada Tan were engaged in thesale of gravel produced from crushed rocks and used for constructionpurposes. In

order to increase their production, they engaged theservices of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales inLucena City, to look for a

rock crusher which they could buy. Mr.Mercurio referred the spouses to the Rizal Consolidated Corporationwhich then had for sale one such machinery

(Lippman portable crushingplant, reconditioned; Jaw crusher, 10 x 16, Double roll crusher, 16 x 16;3 units product conveyor, 75 HP electric motor, 8 pcs.

Brand new tires;Chassis 19696, Good running condition). Oscar Sy Bang, a brother ofJose Sy Bang, went to inspect the machine at the Rizal

Consolidated’splant site. Apparently satisfied with the machine, Sy Bang signified theirintent to purchase the same. They were confronted with a

problem, therock crusher carried a cash price tag of P550,000.00. Bent on acquiringthe machinery, the spouses applied for financial assistance

fromFilinvest Credit Corporation. Filinvest agreed to extend to the spousesfinancial aid on the following conditions: that the machinery bepurchased in

Filinvest’s name; that it be leased (with option to purchaseupon the termination of the lease period) to the spouses; and that thespouses execute a real

estate mortgage in favor of Filinvest as securityfor the amount advanced by the latter. Accordingly, on 18 May 1981, acontract of lease of machinery

(with option to purchase) was enteredinto by the parties whereby the spouses agreed to lease from thepetitioner the rock crusher for two years starting

from 5 July 1981payable at P10,000.00 for first 3 months, P23,000.00 for the next 6months, and P24,800.00 for the next 15 months. The contract

likewisestipulated that at the end of the two-year period, the machine would beowned by the spouses. Thus, the spouses issued in favor of Filinvest

acheck for P150,550.00, as initial rental (or guaranty deposit), and 24postdated checks corresponding to the 24 monthly rentals. In addition,to guarantee

their compliance with the lease contract, the spousesexecuted a real estate mortgage over two parcels of land in favor ofFilinvest. The rock crusher was

delivered to the spouses on 9 June 1981.Three months from the date of delivery, or on 7 September 1981,however, the spouses, claiming that they had

only tested the machinethat month, sent a letter-complaint to Filinvest, alleging that contrary tothe 20 to 40 tons per hour capacity of the machine as

stated in thelease contract, the machine could only process 5 tons of rocks andstones per hour. They then demanded that Filinvest make good

thestipulation in the lease contract. They followed that up with similarwritten complaints to Filinvest, but the latter did not, however, act onthem.

Subsequently, the spouses stopped payment on the remainingchecks they had issued to Filinvest. As a consequence of the non-payment by the spouses

of the rentals on the rock crusher as they felldue despite the repeated written demands, Filinvest extrajudiciallyforeclosed the real estate mortgage. On

18 April 1983, the spousesreceived a Sheriff a Notice of Auction Sale informing them that theirmortgaged properties were going to be sold at a public

auction on 25May 1983, 10:00 a.m., at the Office of the Provincial Sheriff in LucenaCity to satisfy their indebtedness to Filinvest.

To thwart the impending auction of their properties, the spouses filedbefore the RTC Quezon (Branch LIX, Lucena City), on 4 May 1983, acomplaint

against Filinvest for the rescission of the contract of lease,annullment of the real estate mortgage, and for injunction anddamages, with prayer for the

issuance of a writ of preliminary injunction.On 23 May 1983, 3 days before the scheduled auction sale, the trialcourt issued a temporary restraining order

commanding the ProvincialSheriff of Quezon, and Filinvest, to refrain and desist from proceedingwith the public auction. Two years later, on 4 September

1985, the trialcourt rendered a decision in favor of the spouses, making the injunctionpermanent, rescinding the contract of lease of the machinery

andequipment and ordering the spouses to return to the Filinvest themachinery subject of the lease contract, and Filinvest to return to thespouses the

sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fullyrestituted; annulling

the real estate mortgage constituted over theproperties of the spouses covered by TCTs T-32480 and T-5779 of theRegistry of Deeds of Lucena City; and

ordering the Filinvest to pay thespouses P30,000.00 as attorney’s fees and the costs of the suit.

Dissatisfied with the trial court’s decision, Filinvest elevated the case tothe Court of Appeals. On 17 March 1988, the appellate court, finding noerror in

the appealed judgment, affirmed the same in toto.Hence, thepetition for review on certiorari by Filinvest.

The Supreme Court granted the petition, reversed and set aside the 17March 1988 Decision of the Court of Appeals, and rendered another onedismissing

the complaint; with costs against the spouses.1. Financial institution not immune from recourse of the spouses; Filinvest owns crusher

While it is accepted that Filinvest Credit Corporation is a financinginstitution, it is not, however, immune from any recourse by the privaterespondents.

Notwithstanding the testimony of Jose Sy Bang that he didnot purchase the rock crusher from Filinvest, the fact that the rockcrusher was purchased from

Rizal Consolidated Corporation in the nameand with the funds of Filinvest proves beyond doubt that the ownershipthereof was effectively transferred to

it. It is precisely this ownershipwhich enabled Filinvest to enter into the “Contract of Lease ofMachinery and Equipment” with the spouses2. Nomenclature of agreement cannot change its true essence; saleon installment

The real intention of the parties should prevail. The nomenclature of theagreement cannot change its true essence, i.e., a sale on installments. Itis basic

that a contract is what the law defines it and the parties intendit to be, not what it is called by the parties. It is apparent that the intentof the parties to

the subject contract is for the so-called rentals to be theinstallment payments. Upon the completion of the payments, then therock crusher, subject

matter of the contract, would become the propertyof the spouses. This form of agreement has been criticized as a leaseonly in name.3. Payment in contract of lease with option to buy are installmentpayments

In Vda. de Jose v. Barrueco,it was stated that “Sellers desirous ofmaking conditional sales of their goods, but who do not wish openly tomake a bargain in

that form, for one reason or another, have frequentlyresorted to the device of making contracts in the form of leases eitherwith options to the buyer to

purchase for a small consideration at theend of term, provided the so-called rent has been duly paid, or withstipulations that if the rent throughout the

term is paid, title shallthereupon vest in the lessee. It is obvious that such transactions areleases only in name. The so-called rent must necessarily be

regarded aspayment of the price in installments since the due payment of theagreed amount results, by the terms of bargain, in the transfer of title tothe

lessee.”

4. Article 1484

Article 1484 of the new Civil Code, which provides for the remedies of anunpaid seller of movables in installment basis, states “In a contract ofsale of

personal property the price of which is payable in installments,the vendor may exercise any of the following remedies: (1) Exactfulfillment of the

obligation, should the vendee fail to pay; (2) Cancel thesale, should the vendee’s failure to pay cover two or more installments;(3) Foreclose the chattel

mortgage or the thing sold, if one has beenconstituted, should the vendee’s failure to pay cover two or moreinstallments. In this case, he shall have no

further action against thepurchaser to recover any unpaid balance of the price. Any agreement tothe contrary shall be void.”5.Remedies under Article 1484 alternative and not cumulative

Under Article 1484, the seller of movables in installments, in case thebuyer fails to pay two or more installments, may elect to pursue eitherof the

following remedies: (1) exact fulfillment by the purchaser of theobligation; (2) cancel the sale; or (3) foreclose the mortgage on thepurchased property if

one was constituted thereon. It is now settled thatthe said remedies are alternative and not cumulative and therefore, theexercise of one bars the

exercise of the others.6. Contract of lease with option to buy a device to circumvent Article 1484

The device — contract of lease with option to buy — is at times resortedto as a means to circumvent Article 1484, particularly paragraph (3)thereof.

Through the set-up, the vendor, by retaining ownership over theproperty in the guise of being the lessor, retains, likewise, the right torepossess the

same, without going through the process of foreclosure, inthe event the vendee-lessee defaults in the payment of the installments.There arises therefore

no need to constitute a chattel mortgage over themovable sold. More important, the vendor, after repossessing theproperty and, in effect, canceling the

contract of sale, gets to keep allthe installments-cum-rentals already paid.7. Article 1485 places contract of lease with option to buy within theapplicability of Article 1484

Article 1485 of the new Civil Code provides that “The preceding articleshall be applied to contracts purporting to be leases of personalproperty with

option to buy, when the lessor has deprived the lessee ofpossession or enjoyment of the thing.”8. No reason to hold Filinvest liable for failure of rock crusher toproduce in accordance with its capacity

The Court failed to find any reason to hold the petitioner liable for therock crusher’s failure to produce in accordance with its describedcapacity. It was

the spouses who chose, inspected, and tested the

subject machinery. It was only after they had inspected and tested themachine, and found it to their satisfaction, that the spouses soughtfinancial aid

from Filinvest. These allegations of the petitioner had neverbeen rebutted by the spouses, but in fact, evenbeen admitted in thecontract they signed

(“LESSEE’S SELECTION, INSPECTION ANDVERIFICATION. — The LESSEE hereby confirms and acknowledges thathe has independently inspected and

verified the leased property andhas selected and received the same from the Dealer of his own choosingin good order and excellent running and

operating condition and on thebasis of such verification, etc. the LESSEE has agreed to enter into thisContract.”)9. Spouses presumed knowledgeable on machinery subject of thecontract; Spouses negligent

Considering that between the parties, it is the spouses, by reason oftheir business, who are presumed to be more knowledgeable, if notexperts, on the

machinery subject of the contract, they should nottherefore be heard now to complain of any alleged deficiency of the saidmachinery. It is their failure or

neglect to exercise the caution andprudence of an expert, or, at least, of a prudent man, in the selection,testing, and inspection of the rock crusher that

gave rise to theirdifficulty and to this conflict. A well-established principle in law is thatbetween two parties, he, who by his negligence caused the loss,

shallbear the same.10. Spouses precluded from imputing liability on Filinvest; Express waiver of warranties

Even if the spouses could not be adjudged as negligent, they still areprecluded from imputing any liability on Filinvest. One of the stipulationsin the

contract they entered into with Filinvest is an express waiver ofwarranties in favor of the latter. By so signing the agreement, thespouses absolved

Filinvest from any liability arising from any defect ordeficiency of the machinery they bought. The stipulation on themachine’s production capacity being

“typewritten” and that of thewaiver being “printed” does not militate against the latter’s effectivity.As such, whether “a capacity of 20 to 40 tons per

hour” is a condition ora description is of no moment. What stands is that the spouses hadexpressly exemptd Filinvest from any warranty whatsoever.

TheirContract of Lease Of Machinery And Equipment states “WARRANTY —LESSEE absolutely releases the lessor from any liability whatsoever as toany

and all matters in relation to warranty in accordance with theprovisions hereinafter stipulated.”11.Common sense dictates buyer inspects product before purchasing it; Caveat emptor

Common sense dictates that a buyer inspects a product beforepurchasing it (under the principle of caveat emptor or “buyer beware”)and does not

return it for defects discovered later on, particularly if thereturn of the product is not covered by or stipulated in a contract orwarranty.12.Declaration of waiver as non-effective would impair obligations of contracts

Taking into account that due to the nature of its business and its modeof providing financial assistance to clients, Filinvest deals in goods overwhich it has

no sufficient know-how or expertise, and the selection of aparticular item is left to the client concerned, the latter, therefore,shoulders the responsibility

of protecting himself against productdefects. This is where the waiver of warranties is of paramountimportance. In the present case, to declare the

waiver as non-effectivewould impair the obligation of contracts. Certainly, the waiver inquestion could not be considered a mere surplusage in the

contractbetween the parties. Moreover, nowhere is it shown in the records of thecase that the spouses has argued for its nullity or illegality.13.No ambiguity in the language of the waiver

In any event, there is no ambiguity in the language of the waiver or therelease of warranty. There is therefore no room for any interpretation asto its

effect or applicability vis-a-vis the deficient output of the rockcrusher. Suffice it to say that the spouses have validly excused Filinvestfrom any warranty

on the rock crusher. Hence, they should bear the lossfor any defect found therein.