raw cases on sales

8/12/2019 raw cases on sales

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

TOYOTA SHAW, INC., petitioner,vs.COURT OF APPALS a!" LUNA L. SOSA, respondents.

#A$I#, %R., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1for the private respondent,which was signed by a sales representative of Toyota Shaw, nc. named !opong ernardo. The documentreads as follows#$ %une &'('

A)*EE+ETS ET-EE +*. SSA/ !!) E*A*0 1 T2TA

S3A-, 4.

&. all necessary documents will be submitted to T2TA S3A-, 4. 5!!)

E*A*06 a week after, upon arrival of +r. Sosa from the !rovince 5+arindu7ue6 wherethe unit will be used on the &'th of %une.

8. the downpayment of !&99,999.99 will be paid by +r. Sosa on %une &:, &'('.

;. the T2TA S3A-, 4. sic? and released byT2TA S3A-, 4. on the &@th of %une at &9 a.m.ery truly yours,

5Sgd.6 !!)E*A*0.

-as this document, executed and signed by the petitionerBs sales representative, a perfected contract ofsale, binding upon the petitioner, breach of which would entitle the private respondent to damages andattorneyBs feesC The trial court and the 4ourt of Appeals took the affirmative view. The petitioner disagrees.3ence, this petition for review oncertiorari.

The antecedents as disclosed in the decisions of both the trial court and the 4ourt of Appeals, as well as inthe pleadings of petitioner Toyota Shaw, nc. 5hereinafter Toyota6 and respondent


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The next day, &: %une &'(', Sosa and )ilbert went to Toyota to deliver the downpayment of !&99,999.99.They met ernardo who then accomplished a printed ehicle Sales !roposal 5S!6 o. '8(, 2on which)ilbert signed under the subheading 41*+E. This document shows that the customerBs name is "+*.


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before this answer was made and received by Sosa, the latter filed on 89 ovember &'(' with ranch ;(of the *egional Trial 4ourt 5*T46 of +arindu7ue a complaint against Toyota for damages under Articles &'and 8& of the 4ivil 4ode in the total amount of !&,8;9,999.99. 93e alleges, inter alia, that#

'. As a result of defendantBs failure andLor refusal to deliver the vehicle to plaintiff, plaintiffsuffered embarrassment, humiliation, ridicule, mental anguish and sleepless nightsbecause# 5i6 he and his family were constrained to take the public transportation from +anila

to


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$. ordering the defendant to pay the plaintiff the sum of !8,999.99transportation fare per trip of the plaintiff in attending the hearing of this caseIand

:. ordering the defendant to pay the cost of suit.

S *0E*E0.

0issatisfied with the trial courtBs Gudgment, Toyota appealed to the 4ourt of Appeals. The case wasdocketed as 4A=).*. 4 o. $99$;. n its decision promulgated on 8' %uly &''$,1'the 4ourt of Appealsaffirmed in totothe appealed decision.

Toyota now comes before this 4ourt via this petition and raises the core issue stated at the beginning oftheponenciaand also the following related issues# 5a6 whether or not the standard S! was the true anddocumented understanding of the parties which would have led to the ultimate contract of sale, 5b6 whetheror not Sosa has any legal and demandable right to the delivery of the vehicle despite the non=payment ofthe consideration and the non=approval of his credit application by .A. 1inance, 5c6 whether or not Toyotaacted in good faith when it did not release the vehicle to Sosa, and 5d6 whether or not Toyota may be heldliable for damages.

-e find merit in the petition.

either logic nor recourse to oneBs imagination can lead to the conclusion that Exhibit "A" is a perfectedcontract of sale.

Article &$:( of the 4ivil 4ode defines a contract of sale as follows#

Art. &$:(. y the contract of sale one of the contracting parties obligates himself to transferthe ownership of and to deliver a determinate thing, and the other to pay therefor a pricecertain in money or its e7uivalent.

A contract of sale may be absolute or conditional.

and Article &$@: specifically provides when it is deemed perfected#

Art. &$@:. The contract of sale is perfected at the moment there is a meeting of minds uponthe thing which is the obGect of the contract and upon the price.

1rom that moment, the parties may reciprocally demand performance, subGect to theprovisions of the law governing the form of contracts.

-hat is clear from Exhibit "A" is not what the trial court and the 4ourt of Appeals appear to see. t is not a

contract of sale. o obligation on the part of Toyota to transfer ownership of a determinate thing to Sosaand no correlative obligation on the part of the latter to pay therefor a price certain appears therein. Theprovision on the downpayment of !&99,999.99 made no specific reference to a sale of a vehicle. f it wasintended for a contract of sale, it could only refer to a sale on installment basis, as the S! executed thefollowing day confirmed. ut nothing was mentioned about the full purchase price and the manner theinstallments were to be paid.

This 4ourt had already ruled that a definite agreement on the manner of payment of the price is anessential element in the formation of a binding and enforceable contract of sale. 1(This is so because theagreement as to the manner of payment goes into the price such that a disagreement on the manner ofpayment is tantamount to a failure to agree on the price. 0efiniteness as to the price is an essentialelement of a binding agreement to sell personal property. 19


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+oreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. 1or one thing,Sosa did not even sign it. 1or another, Sosa was well aware from its title, written in bold letters, viz.,

A)*EE+ETS ET-EE +*. SSA / !!) E*A*0 1T2TA S3A-, 4.

that he was not dealing with Toyota but with !opong ernardo and that the latter did not misrepresent that

he had the authority to sell any Toyota vehicle. 3e knew that ernardo was only a sales representative ofToyota and hence a mere agent of the latter. t was incumbent upon Sosa to act with ordinary prudenceand reasonable diligence to know the extent of ernardoBs authority as anagent20in respect of contracts to sell ToyotaBs vehicles. A person dealing with an agent is put upon in7uiryand must discover upon his peril the authority of the agent.21

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

5a6 preparation, conception, or generation, which is the period of negotiation and bargaining,ending at the moment of agreement of the partiesI

5b6 perfection or birth of the contract, which is the moment when the parties come to agreeon the terms of the contractI and

5c6 consummation or death, which is the fulfillment or performance of the terms agreed uponin the contract.22

The second phase of the generation or negotiation stage in this case was the execution of the S!. t mustbe emphasiDed that thereunder, the downpayment of the purchase price was !:;,&$(.99 while the balanceto be paid on installment should be financed by .A. 1inance 4orporation. t is, of course, to be assumedthat .A. 1inance 4orp. was acceptable to Toyota, otherwise it should not have mentioned .A. 1inance inthe S!.

1inancing companies are defined in Section ;5a6 of *.A. o. :'(9, as amended by !.0. o. &$:$ and !.0.o. &@';, as "corporations or partnerships, except those regulated by the 4entral ank of the !hilippines,the nsurance 4ommission and the 4ooperatives Administration ffice, which are primarily organiDed forthe purpose of extending credit facilities to consumers and to industrial, commercial, or agriculturalenterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying andselling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motorvehicles, heavy e7uipment and industrial machinery, business and office machines and e7uipment,appliances and other movable property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thusinvolved# the buyer who executes a note or notes for the unpaid balance of the price of the thing purchasedon installment, the seller who assigns the notes or discounts them with a financing company, and thefinancing company which is subrogated in the place of the seller, as the creditor of the installmentbuyer. 2&Since .A. 1inance did not approve SosaBs application, there was then no meeting of minds on thesale on installment basis.

-e are inclined to believe ToyotaBs version that .A. 1inance disapproved SosaBs application for whichreason it suggested to Sosa that he pay the full purchase price. -hen the latter refused, Toyota cancelledthe S! and returned to him his !&99,999.99. SosaBs version that the S! was cancelled because,according to ernardo, the vehicle was delivered to another who was "mas malakas" does not inspire beliefand was obviously a delayed afterthought. t is claimed that ernardo said, "Pasensiya kayo, nasulot angunit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehiclein the afternoon of &@ %une &'('. 3owever, in paragraph @ of his complaint, Sosa solemnly states#


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n %une &@, &'(' at around '#;9 oBclock in the morning, defendantBs sales representative,+r. !opong ernardo, called plaintiffBs house and informed the plaintiffBs son that the vehiclewill not be ready for pick=up at &9#99 a.m. of %une &@, &'(' but at 8#99 p.m. of that dayinstead. Plaintiff and his son went to defendant's office on June 1 1!"! at #$%% p&m& inorder to pickup the vehicle but the defendant for reasons known only to its representatives,refused and(or failed to release the vehicle to the plaintiff& Plaintiff demanded for ane)planation, but nothing was givenI . . . 5Emphasis supplied6. 25

The S! was a mereproposal which was aborted in lieu of subse7uent events. t follows that the S!created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non=delivery didnot cause any legally indemnifiable inGury.

The award then of moral and exemplary damages and attorneyBs fees and costs of suit is without legalbasis. esides, the only ground upon which Sosa claimed moral damages is that since it was known to hisfriends, townmates, and relatives that he was buying a Toyota


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;. pon the transfer in their names of the subGect property, the 4oronels will execute thedeed of absolute sale in favor of *amona and the latter will pay the former the wholebalance of ne +illion ne 3undred inety Thousand 5!&,&'9,999.996 !esos.

n the same date 5%anuary &:, &'(:6, plaintiff=appellee 4oncepcion 0. AlcaraD 5hereinafterreferred to as 4oncepcion6, mother of *amona, paid the down payment of 1ifty Thousand5!:9,999.996 !esos 5Exh. "", Exh. "8"6.

n 1ebruary F, &'(:, the property originally registered in the name of the 4oronelsB fatherwas transferred in their names under T4To. ;8@9$; 5Exh. "0"I Exh. "$"6

n 1ebruary &(, &'(:, the 4oronels sold the property covered by T4T o. ;8@9$; tointervenor=appellant 4atalina . +abanag 5hereinafter referred to as 4atalina6 for ne+illion 1ive 3undred Eighty Thousand 5!&,:(9,999.996 !esos after the latter has paid Three3undred Thousand 5!;99,999.996 !esos 5Exhs. "1=;"I Exh. "F=4"6

1or this reason, 4oronels canceled and rescinded the contract 5Exh. "A"6 with *amona bydepositing the down payment paid by 4oncepcion in the bank in trust for *amona Patricia

+lcaraz.

n 1ebruary 88, &'(:, 4oncepcion, et al., filed a complaint for specific performance againstthe 4oronels and caused the annotation of a notice of lis pendens at the back of T4T o.;8@$9; 5Exh. "E"I Exh. ":"6.

n April 8, &'(:, 4atalina caused the annotation of a notice of adverse claim covering thesame property with the *egistry of 0eeds of KueDon 4ity 5Exh. "1"I Exh. "F"6.

n April 8:, &'(:, the 4oronels executed a 0eed of Absolute Sale over the subGect propertyin favor of 4atalina 5Exh. ")"I Exh. "@"6.

n %une :, &'(:, a new title over the subGect property was issued in the name of 4atalinaunder T4T o. ;:&:(8 5Exh. "3"I Exh. "("6.

5*ollo, pp. &;$=&;F6

n the course of the proceedings before the trial court 5ranch (;, *T4, KueDon 4ity6 the parties agreed tosubmit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein 5nowprivate respondents6 proffered their documentary evidence accordingly marked as Exhibits "A" through "%",inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants5now petitioners6 accordingly offered and marked them as Exhibits "&" through "&9", likewise inclusive oftheir corresponding submarkings. pon motion of the parties, the trial court gave them thirty 5;96 days

within which to simultaneously submit their respective memoranda, and an additional &: days within whichto submit their corresponding comment or reply thereof, after which, the case would be deemed submittedfor resolution.

n April &$, &'((, the case was submitted for resolution before %udge *eynaldo *oura, who was thentemporarily detailed to preside over ranch (8 of the *T4 of KueDon 4ity. n +arch &, &'(', Gudgmentwas handed down by %udge *oura from his regular bench at +acabebe, !ampanga for the KueDon 4itybranch, disposing as follows#

-3E*E1*E, Gudgment for specific performance is hereby rendered ordering defendant toexecute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced inand covered by Transfer 4ertificate of Title o. ;8@$9; 5now T4T o. ;;&:(86 of the


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*egistry of 0eeds for KueDon 4ity, together with all the improvements existing thereon freefrom all liens and encumbrances, and once accomplished, to immediately deliver the saiddocument of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffsand upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance ofthe purchase price amounting to !&,&'9,999.99 in cash. Transfer 4ertificate of Title o.;;&:(8 of the *egistry of 0eeds for KueDon 4ity in the name of intervenor is herebycanceled and declared to be without force and effect. 0efendants and intervenor and all

other persons claiming under them are hereby ordered to vacate the subGect property anddeliver possession thereof to plaintiffs. !laintiffsB claim for damages and attorneyBs fees, aswell as the counterclaims of defendants and intervenors are hereby dismissed.

o pronouncement as to costs.

So rdered.

+acabebe, !ampanga for KueDon 4ity, +arch &, &'('.

5*ollo, p. &9F6

A motion for reconsideration was filed by petitioner before the new presiding Gudge of the KueDon 4ity *T4but the same was denied by %udge Estrella T. Estrada, thusly#

The prayer contained in the instant motion, i.e., to annul the decision and to render anewdecision by the undersigned !residing %udge should be denied for the following reasons# 5&6The instant case became submitted for decision as of April &$, &'(( when the partiesterminated the presentation of their respective documentary evidence and when the!residing %udge at that time was %udge *eynaldo *oura. The fact that they were allowed tofile memoranda at some future date did not change the fact that the hearing of the case wasterminated before %udge *oura and therefore the same should be submitted to him fordecisionI 586 -hen the defendants and intervenor did not obGect to the authority of %udge*eynaldo *oura to decide the case prior to the rendition of the decision, when they met for

the first time before the undersigned !residing %udge at the hearing of a pending incident in4ivil 4ase o. K=$F&$: on ovember &&, &'((, they were deemed to have ac7uiescedthereto and they are now estopped from 7uestioning said authority of %udge *oura afterthey received the decision in 7uestion which happens to be adverse to themI 5;6 -hile it istrue that %udge *eynaldo *oura was merely a %udge=on=detail at this ranch of the 4ourt,he was in all respects the !residing %udge with full authority to act on any pending incidentsubmitted before this 4ourt during his incumbency. -hen he returned to his fficial Stationat +acabebe, !ampanga, he did not lose his authority to decide or resolve such casessubmitted to him for decision or resolution because he continued as %udge of the *egionalTrial 4ourt and is of co=e7ual rank with the undersigned !residing %udge. The standing ruleand supported by Gurisprudence is that a %udge to whom a case is submitted for decisionhas the authority to decide the case notwithstanding his transfer to another branch or region

of the same court 5Sec. ', *ule &;:, *ule of 4ourt6.

4oming now to the twin prayer for reconsideration of the 0ecision dated +arch &, &'('rendered in the instant case, resolution of which now pertains to the undersigned !residing%udge, after a meticulous examination of the documentary evidence presented by theparties, she is convinced that the 0ecision of +arch &, &'(' is supported by evidence and,therefore, should not be disturbed.

E- 1 T3E 1*E)), the "+otion for *econsideration andLor to Annul 0ecisionand *ender Anew 0ecision by the ncumbent !residing %udge" dated +arch 89, &'(' ishereby 0EE0.


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S *0E*E0.

KueDon 4ity, !hilippines, %uly &8, &'('.

5*ollo, pp. &9(=&9'6

!etitioners thereupon interposed an appeal, but on 0ecember &F, &''&, the 4ourt of Appeals 5uena,

)onDaga=*eyes, Abad Santos 5!6, %%.6 rendered its decision fully agreeing with the trial court.

3ence, the instant petition which was filed on +arch :, &''8. The last pleading, private respondentsB *eply+emorandum, was filed on September &:, &'';. The case was, however, re=raffled toundersignedponente only on August 8(, &''F, due to the voluntary inhibition of the %ustice to whom thecase was last assigned.

-hile we deem it necessary to introduce certain refinements in the dis7uisition of respondent court in theaffirmance of the trial courtBs decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at baris the precise determination of the legal significance of the document entitled "*eceipt of 0own !ayment"

which was offered in evidence by both parties. There is no dispute as to the fact that said documentembodied the binding contract between *amona !atricia AlcaraD on the one hand, and the heirs of4onstancio !. 4oronel on the other, pertaining to a particular house and lot covered by T4T o. &&'F8@,as defined in Article &;9: of the 4ivil 4ode of the !hilippines which reads as follows#

Art. &;9:. A contract is a meeting of minds between two persons whereby one bindshimself, with respect to the other, to give something or to render some service.

-hile, it is the position of private respondents that the "*eceipt of 0own !ayment" embodied a perfectedcontract of sale, which perforce, they seek to enforce by means of an action for specific performance,petitioners on their part insist that what the document signified was a mere executory contract to sell,subGect to certain suspensive conditions, and because of the absence of *amona !. AlcaraD, who left forthe nited States of America, said contract could not possibly ripen into a contract absolute sale.

!lainly, such variance in the contending partiesB contentions is brought about by the way each interpretsthe terms andLor conditions set forth in said private instrument. -ithal, based on whatever relevant andadmissible evidence may be available on record, this, 4ourt, as were the courts below, is now called uponto adGudge what the real intent of the parties was at the time the said document was executed.

The 4ivil 4ode defines a contract of sale, thus#

Art. &$:(. y the contract of sale one of the contracting parties obligates himself to transferthe ownership of and to deliver a determinate thing, and the other to pay therefor a price

certain in money or its e7uivalent.

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

a6 4onsent or meeting of the minds, that is, consent to transfer ownership in exchange forthe priceI

b6 0eterminate subGect matterI and

c6 !rice certain in money or its e7uivalent.


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nder this definition, a 4ontract to Sell may not be considered as a 4ontract of Sale because the firstessential element is lacking. n a contract to sell, the prospective seller explicity reserves the transfer of titleto the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transferownership of the property subGect of the contract to sell until the happening of an event, which for presentpurposes we shall take as the full payment of the purchase price. -hat the seller agrees or obliges himselfto do is to fulfill is promise to sell the subGect property when the entire amount of the purchase price isdelivered to him. n other words the full payment of the purchase price partakes of a suspensive condition,

the non=fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained bythe prospective seller without further remedies by the prospective buyer. n *oue vs. -apuz 5'F S4*A@$& >&'(9?6, this 4ourt had occasion to rule#

3ence, -e hold that the contract between the petitioner and the respondent was a contractto sell where the ownership or title is retained by the seller and is not to pass until the fullpayment of the price, such payment being a positive suspensive condition and failure ofwhich is not a breach, casual or serious, but simply an event that prevented the obligation ofthe vendor to convey title from ac7uiring binding force.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchaseprice, the prospective sellerBs obligation to sell the subGect property by entering into a contract of sale with

the prospective buyer becomes demandable as provided in Article &$@' of the 4ivil 4ode which states#

Art. &$@'. A promise to buy and sell a determinate thing for a price certain is reciprocallydemandable.

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

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, whileexpressly reserving the ownership of the subGect property despite delivery thereof to the prospective buyer,binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition

agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of salewhere the seller may likewise reserve title to the property subGect of the sale until the fulfillment of asuspensive condition, because in a conditional contract of sale, the first element of consent is present,although it is conditioned upon the happening of a contingent event which may or may not occur. f thesuspensive condition is not fulfilled, the perfection of the contract of sale is completely abated 5 cf& 3omesiteand housing 4orp. vs. 4ourt of Appeals, &;; S4*A @@@ >&'($?6. 3owever, if the suspensive condition isfulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery ofthe property subGect of the sale to the buyer, ownership thereto automatically transfers to the buyer byoperation of law without any further act having to be performed by the seller.

n a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of thepurchase price, ownership will not automatically transfer to the buyer although the property may have beenpreviously delivered to him. The prospective seller still has to convey title to the prospective buyer byentering into a contract of absolute sale.

t is essential to distinguish between a contract to sell and a conditional contract of sale specially in caseswhere the subGect property is sold by the owner not to the party the seller contracted with, but to a thirdperson, as in the case at bench. n a contract to sell, there being no previous sale of the property, a thirdperson buying such property despite the fulfillment of the suspensive condition such as the full payment ofthe purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannotseek the relief of reconveyance of the property. There is no double sale in such case. Title to the property


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will transfer to the buyer after registration because there is no defect in the owner=sellerBs title per se, butthe latter, of course, may be used for damages by the intending buyer.

n a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the salebecomes absolute and this will definitely affect the sellerBs title thereto. n fact, if there had been previousdelivery of the subGect property, the sellerBs ownership or title to the property is automatically transferred tothe buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article

&:$$ of the 4ivil 4ode, such second buyer of the property who may have had actual or constructiveknowledge of such defect in the sellerBs title, or at least was charged with the obligation to discover suchdefect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyerBs title. n casea title is issued to the second buyer, the first buyer may seek reconveyance of the property subGect of thesale.

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

t is a canon in the interpretation of contracts that the words used therein should be given their natural andordinary meaning unless a technical meaning was intended 5Tan vs. 4ourt of Appeals , 8&8 S4*A :(F>&''8?6. Thus, when petitioners declared in the said "*eceipt of 0own !ayment" that they J

*eceived from +iss *amona !atricia AlcaraD of &$F Timog, KueDon 4ity, the sum of 1iftyThousand !esospurchase price of our inherited house and lot, covered by T4T o.&&''F8@ of the *egistry of 0eeds of KueDon 4ity, in the total amount of !&,8$9,999.99.

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

-hen the "*eceipt of 0own !ayment" is considered in its entirety, it becomes more manifest that therewas a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate oftitle was still in the name of petitionerBs father, they could not fully effect such transfer although the buyerwas then willing and able to immediately pay the purchase price. Therefore, petitioners=sellers undertook

upon receipt of the down payment from private respondent *amona !. AlcaraD, to cause the issuance of anew certificate of title in their names from that of their father, after which, they promised to present saidtitle, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall,in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no e)pressreservation of ownership or title to the sub.ect parcel of land. 1urthermore, the circumstance whichprevented the parties from entering into an absolute contract of sale pertained to the sellers themselves5the certificate of title was not in their names6 and not the full payment of the purchase price. nder theestablished facts and circumstances of the case, the 4ourt may safely presume that, had the certificate oftitle been in the names of petitioners=sellers at that time, there would have been no reason why an absolutecontract of sale could not have been executed and consummated right there and then.

+oreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell theproperly to private respondent upon the fulfillment of the suspensive condition. n the contrary, havingalready agreed to sell the subGect property, they undertook to have the certificate of title changed to theirnames and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by thebuyer with certain terms and conditions, promised to sell the property to the latter. -hat may be perceivedfrom the respective undertakings of the parties to the contract is that petitioners had already agreed to sellthe house and lot they inherited from their father, completely willing to transfer full ownership of the subGecthouse and lot to the buyer if the documents were then in order. t Gust happened, however, that the transfer


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certificate of title was then still in the name of their father. t was more expedient to first effect the change inthe certificate of title so as to bear their names. That is why they undertook to cause the issuance of a newtransfer of the certificate of title in their names upon receipt of the down payment in the amount of!:9,999.99. As soon as the new certificate of title is issued in their names, petitioners were committed toimmediately execute the deed of absolute sale. nly then will the obligation of the buyer to pay theremainder of the purchase price arise.

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

-hat is clearly established by the plain language of the subGect document is that when the said "*eceipt of0own !ayment" was prepared and signed by petitioners *omeo A. 4oronel, et al., the parties had agreedto a conditional contract of sale, consummation of which is subGect only to the successful transfer of thecertificate of title from the name of petitionersB father, 4onstancio !. 4oronel, to their names.

The 4ourt significantly notes this suspensive condition was, in fact, fulfilled on 1ebruary F, &'(: 5Exh. "0"IExh. "$"6. Thus, on said date, the conditional contract of sale between petitioners and private respondent*amona !. AlcaraD became obligatory, the only act re7uired for the consummation thereof being thedelivery of the property by means of the execution of the deed of absolute sale in a public instrument,which petitioners une7uivocally committed themselves to do as evidenced by the "*eceipt of 0own!ayment."

Article &$@:, in correlation with Article &&(&, both of the 4ivil 4ode, plainly applies to the case at bench.Thus,

Art. &$@:. The contract of sale is perfected at the moment there is a meeting of minds uponthe thing which is the obGect of the contract and upon the price.

1rom the moment, the parties may reciprocally demand performance, subGect to theprovisions of the law governing the form of contracts.

Art. &&(&. n conditional obligations, the ac7uisition of rights, as well as the extinguishmentor loss of those already ac7uired, shall depend upon the happening of the event whichconstitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitionersBnames was fulfilled on 1ebruary F, &'(:, the respective obligations of the parties under the contract of salebecame mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificateof title already in their names to private respondent *amona !. AlcaraD, the buyer, and to immediatelyexecute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance ofthe purchase price amounting to !&,&'9,999.99.

t is also significant to note that in the first paragraph in page ' of their petition, petitioners conclusivelyadmitted that#

;. The petitioners=sellers 4oronel bound themselves "to effect the transfer in our namesfrom our deceased father 4onstancio !. 4oronel, the transfer certificate of title immediatelyupon receipt of the downpayment above=stated". The sale was still sub.ect to thissuspensive condition. 5Emphasis supplied.6


14/98

5*ollo, p. &F6

!etitioners themselves recogniDed that they entered into a contract of sale subGect to a suspensivecondition. nly, they contend, continuing in the same paragraph, that#

. . . 3ad petitioners=sellers not complied with this condition of first transferring the title to theproperty under their names, there could be no perfected contract of sale. 5Emphasis

supplied.6

5/bid.6

not aware that they set their own trap for themselves, for Article &&(F of the 4ivil 4ode expresslyprovides that#

Art. &&(F. The condition shall be deemed fulfilled when the obligor voluntarily prevents itsfulfillment.

esides, it should be stressed and emphasiDed that what is more controlling than these mere hypotheticalarguments is the fact that the condition herein referred to was actually and indisputably fulfilled on

0ebruary , 1!"2, when a new title was issued in the names of petitioners as evidenced by T4T o.;8@$9; 5Exh. "0"I Exh. "$"6.

The inevitable conclusion is that on %anuary &', &'(:, as evidenced by the document denominated as"*eceipt of 0own !ayment" 5Exh. "A"I Exh. "&"6, the parties entered into a contract of sale subGect only tothe suspensive condition that the sellers shall effect the issuance of new certificate title from that of theirfatherBs name to their names and that, on 1ebruary F, &'(:, this condition was fulfilled 5Exh. "0"I Exh. "$"6.

-e, therefore, hold that, in accordance with Article &&(@ which pertinently provides J

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

n obligation to do or not to do, the courts shall determine, in each case, the retroactiveeffect of the condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale becamemutually due and demandable as of the time of fulfillment or occurrence of the suspensive conditionon 1ebruary F, &'(:. As of that point in time, reciprocal obligations of both seller and buyer arose.

!etitioners also argue there could been no perfected contract on %anuary &', &'(: because they were thennot yet the absolute owners of the inherited property.

-e cannot sustain this argument.

Article @@$ of the 4ivil 4ode defines Succession as a mode of transferring ownership as follows#

Art. @@$. Succession is a mode of ac7uisition by virtue of which the property, rights andobligations to be extent and value of the inheritance of a person are transmitted through hisdeath to another or others by his will or by operation of law.

!etitioners=sellers in the case at bar being the sons and daughters of the decedent 4onstancio !.4oronel are compulsory heirs who were called to succession by operation of law. Thus, at the pointtheir father drew his last breath, petitioners stepped into his shoes insofar as the subGect property is


15/98

concerned, such that any rights or obligations pertaining thereto became binding and enforceableupon them. t is expressly provided that rights to the succession are transmitted from the moment ofdeath of the decedent 5Article @@@, 4ivil 4odeI 4uison vs. illanueva, '9 !hil. (:9 >&':8?6.

e it also noted that petitionersB claim that succession may not be declared unless the creditors have beenpaid is rendered moot by the fact that they were able to effect the transfer of the title to the property fromthe decedentBs name to their names on 1ebruary F, &'(:.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into anagreement at that time and they cannot be allowed to now take a posture contrary to that which they tookwhen they entered into the agreement with private respondent *amona !. AlcaraD. The 4ivil 4odeexpressly states that#

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

3aving represented themselves as the true owners of the subGect property at the time of sale,petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

!etitioners also contend that although there was in fact a perfected contract of sale between them and*amona !. AlcaraD, the latter breached her reciprocal obligation when she rendered impossible theconsummation thereof by going to the nited States of America, without leaving her address, telephonenumber, and Special !ower of Attorney 5!aragraphs &$ and &:, Answer with 4ompulsory 4ounterclaim tothe Amended 4omplaint, p. 8I *ollo, p. $;6, for which reason, so petitioners conclude, they were correct inunilaterally rescinding rescinding the contract of sale.

-e do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case.-e note that these supposed grounds for petitionersB rescission, are mere allegations found only in theirresponsive pleadings, which by express provision of the rules, are deemed controverted even if no reply isfiled by the plaintiffs 5Sec. &&, *ule F, *evised *ules of 4ourt6. The records are absolutely bereft of anysupporting evidence to substantiate petitionersB allegations. -e have stressed time and again that

allegations must be proven by sufficient evidence 5g 4ho 4io vs. g 0iong, &&9 !hil. ((8 >&'F&?I *ecarovs. Embisan, 8 S4*A :'( >&'F&?. +ere allegation is not an evidence 5


16/98

execute the deed of absolute sale in accordance with their agreement. *amonaBs corresponding obligationto pay the balance of the purchase price in the amount of !&,&'9,999.99 5as buyer6 never became due anddemandable and, therefore, she cannot be deemed to have been in default.

Article &&F' of the 4ivil 4ode defines when a party in a contract involving reciprocal obligations may beconsidered in default, to wit#

Art. &&F'. Those obliged to deliver or to do something, incur in delay from the time theobligee Gudicially or extraGudicially demands from them the fulfillment of their obligation.

xxx xxx xxx

n reciprocal obligations, neither party incurs in delay if the other does not comply or is notready to comply in a proper manner with what is incumbent upon him. 1rom the momentone of the parties fulfill his obligation, delay by the other begins. 5Emphasis supplied.6

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

-ith the foregoing conclusions, the sale to the other petitioner, 4atalina . +abanag, gave rise to a case ofdouble sale where Article &:$$ of the 4ivil 4ode will apply, to wit#

Art. &:$$. f the same thing should have been sold to different vendees, the ownership shallbe transferred to the person who may have first taken possession thereof in good faith, if itshould be movable property.

Should if be immovable property, the ownership shall belong to the person ac7uiring it whoin good faith first recorded it in *egistry of !roperty.

Should there be no inscription, the ownership shall pertain to the person who in good faithwas first in the possessionI and, in the absence thereof to the person who presents theoldest title, provided there is good faith.

The record of the case shows that the 0eed of Absolute Sale dated April 8:, &'(: as proof of the secondcontract of sale was registered with the *egistry of 0eeds of KueDon 4ity giving rise to the issuance of anew certificate of title in the name of 4atalina . +abanag on %une :, &'(:. Thus, the second paragraph of

Article &:$$ shall apply.

The above=cited provision on double sale presumes title or ownership to pass to the first buyer, theexceptions being# 5a6 when the second buyer, in good faith, registers the sale ahead of the first buyer, and5b6 should there be no inscription by either of the two buyers, when the second buyer, in good faith,ac7uires possession of the property ahead of the first buyer. nless, the second buyer satisfies these

re7uirements, title or ownership will not transfer to him to the preGudice of the first buyer.

n his commentaries on the 4ivil 4ode, an accepted authority on the subGect, now a distinguished memberof the 4ourt, %ustice %ose 4. itug, explains#

The governing principle isprius tempore,potior .ure 5first in time, stronger in right6.Mnowledge by the first buyer of the second sale cannot defeat the first buyerBs rights exceptwhen the second buyer first registers in good faith the second sale 5livares vs. )onDales,&:' S4*A ;;6. 4onversely, knowledge gained by the second buyer of the first sale defeatshis rights even if he is first to register, since knowledge taints his registration with bad faith5see also Astorga vs. 4ourt of Appeals, ).*. o. :(:;9, 8F 0ecember &'($6. n 3ruzvs. 3abana 5).*. o. :F8;8, 88 %une &'($, &8' S4*A F:F6, it has held that it is essential,


17/98

to merit the protection of Art. &:$$, second paragraph, that the second realty buyer must actin good faith in registering his deed of sale 5citing 4arbonell vs. 4ourt of Appeals, F' S4*A'', 4risostomo vs. 4A, ).*. o. ':($;, 98 September &''86.5J. 4itug 3ompendium of 3ivil -aw and Jurisprudence, 1!!5 6dition, p& %76.

!etitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subGectproperty only on 1ebruary 88, &'(:, whereas, the second sale between petitioners 4oronels and petitioner

+abanag was supposedly perfected prior thereto or on 1ebruary &(, &'(:. The idea conveyed is that at thetime petitioner +abanag, the second buyer, bought the property under a clean title, she was unaware ofany adverse claim or previous sale, for which reason she is buyer in good faith.

-e are not persuaded by such argument.

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

As clearly borne out by the evidence in this case, petitioner +abanag could not have in good faith,registered the sale entered into on 1ebruary &(, &'(: because as early as 1ebruary 88, &'(:, a notice

of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereaspetitioner +abanag registered the said sale sometime in April, &'(:. At the time of registration, therefore,petitioner +abanag knew that the same property had already been previously sold to private respondents,or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property.!etitioner +abanag cannot close her eyes to the defect in petitionersB title to the property at the time of theregistration of the property.

This 4ourt had occasions to rule that#

f a vendee in a double sale registers that sale after he has ac7uired knowledge that therewas a previous sale of the same property to a third party or that another person claims saidproperty in a pervious sale, the registration will constitute a registration in bad faith and will

not confer upon him any right. 5Salvoro vs. Tanega, (@ S4*A ;$' >&'@(?I citing !alarca vs.0irector of


18/98

G.R. No. L-2&'32 A74 30, 196(

PIO SIAN MLLI/A,petitioner,vs.CITY OF ILOILO, UNI$RSITY OF TH PHILIPPINS a!" TH COURT APPALS,respondents.

3ornelio P& *avena for petitioner&

8ffice of the Solicitor 9eneral for respondents&

NG/ON, %.P., J.:

%uliana +elliDa during her lifetime owned, among other properties, three parcels of residential land in loilo4ity registered in her name under riginal 4ertificate of Title o. ;$F8. Said parcels of land were known as


19/98

n August 8$, &'$' the 4ity of loilo, which succeeded to the +unicipality of loilo, donated the city hall sitetogether with the building thereon, to the niversity of the !hilippines 5loilo branch6. The site donatedconsisted of


20/98

municipality for avenues, parks and city hall site "according to the Arellano !lan", since the Arellano planwas then already in existence.

The appeal before s calls for the interpretation of the public instrument dated ovember &:, &';8. Andinterpretation of such contract involves a 7uestion of law, since the contract is in the nature of law asbetween the parties and their successors=in=interest.

At the outset, it is well to mark that the issue is whether or not the conveyance by %uliana +elliDa to loilomunicipality included that portion of


21/98

The Arellano plan was in existence as early as &'8(. As stated, the previous donation of land for city hallsite on ovember 8@, &';& was revoked on +arch F, &';8 for being inade7uate in area under said

Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed until&';:, and thus it could not be a basis for determining the lots sold on ovember &:, &';8. Appellanthowever fails to consider that theareaneeded under that plan for city hall site was then already knownI thatthe specific mention of some of the lots covered by the sale in effect fixed the corresponding location of thecity hall site under the planI that, therefore, considering the said lots specifically mentioned in the public

instrument Exhibit "0", and the proGected city hall site, with its area, as then shown in the Arellano plan5Exhibit 86, it could be determined which, and how much of the portions of land contiguous to thosespecifically named, were needed for the construction of the city hall site.

And, moreover, there is no 7uestion either that


22/98

G.R. No. L-36902 %a!ay 30, 19(2

LUIS PICHL, petitioner,vs.PRU#NCIO ALON/O, respondent.

GURRRO, J.

This is a petition to review on certiorari the decision of the 4ourt of 1irst nstance of asilan 4ity dated%anuary :, &'@; in 4ivil 4ase o. (89 entitled "!rudencio AlonDo, plaintiff, vs.


23/98

consideration of the sale, in the sum of !;,F:9.99, was to be paid by defendant directly to*amon Sua so as to release the land from the clutches of the latter. !ending said paymentplaintiff refused to snow the defendant to make any harvest.

n %uly &'@8, defendant for the first time since the execution of the deed of sale in his favor,caused the harvest of the fruit of the coconut trees in the land.

xxx xxx xxx

4onsidering the foregoing, two issues appear posed by the complaint and the answer whichmust needs be tested in the crucible of a trial on the merits, and they are#

1irst.J -hether or nor defendant actually paid to plaintiff the full sum of !$,899.99 uponexecution of the deed of sale.

Second.J s the deed of sale, Exhibit BAB, the prohibited encumbrance contemplated inSection ( of *epublic Act o. $@@C 2

Anent the first issue, counsel for plaintiff AlonDo subse7uently Bstipulated and agreed that his client ...

admits fun payment thereof by defendant. 3The remaining issue being one of law, the 4ourt belowconsidered the case submitted for summary Gudgment on the basis of the pleadings of the parties, and theadmission of facts and documentary evidence presented at the pre=trial conference.

The lower court rendered its decision now under review, holding that although the agreement in 7uestion isdenominated by the parties as a deed of sale of fruits of the coconut trees found in the vendorBs land, itactually is, for all legal intents and purposes, a contract of lease of the land itself. According to the 4ourt#

... the sale aforestated has given defendant complete control and enGoyment of theimprovements of the land. That the contract is consensualI that its purpose is to allow theenGoyment or use of a thingI that it is onerous because rent or price certain is stipulatedI andthat the enGoyment or use of the thing certain is stipulated to be for a certain and definiteperiod of time, are characteristics which admit of no other conclusion. ... The provisions ofthe contract itself and its characteristics govern its nature. &

The 4ourt, therefore, concluded that the deed of sale in 7uestion is an encumbrance prohibited by*epublic Act o. $@@ which provides thus#

Sec. (. Except in favor of the )overnment or any of its branches, units, or institutions, landac7uired under the provisions of this Act or any permanent improvements thereon shall notbe thereon and for a term of ten years from and after the date of issuance of the certificateof title, nor shall they become liable to the satisfaction of any debt contracted prior to theexpiration of such period.

Any occupant or applicant of lands under this Act who transfers whatever rights he hasac7uired on said lands andLor on the improvements thereon before the date of the award orsignature of the contract of sale, shall not be entitled to apply for another piece ofagricultural land or urban, homesite or residential lot, as the case may be, from the ational

Abaca and ther 1ibers 4orporationI and such transfer shall be considered null and void. 5

The dispositive portion of the lower 4ourtBs decision states#

-3E*E1*E, it is the Gudgment of this 4ourt that the deed of sale, Exhibit BAB, should be,as it is, hereby declared nun and voidI that plaintiff be, as he is, ordered to pay back todefendant the consideration of the sale in the sum of !$,899.99 the same to bear legal


24/98

interest from the date of the filing of the complaint until paidI that defendant shall pay to theplaintiff the sum of !:99.99 as attorneyBs fees.

4osts against the defendant. 6

efore going into the issues raised by the instant !etition, the matter of whether, under the admitted factsof this case, the respondent had the right or authority to execute the "0eed of Sale" in &'F(, his award over


25/98

perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to thereal intention of the contracting parties. The terms of the agreement are clear and une7uivocal, hence theliteral and plain meaning thereof should be observed. Such is the mandate of the 4ivil 4ode of the!hilippines which provides that#

Art. &;@9. f the terms of a contract are clear and leave no doubt upon the intention of thecontracting parties, the literal meaning of its stipulation shall control ... .

!ursuant to the afore=7uoted legal provision, the first and fundamental duty of the courts is the applicationof the contract according to its express terms, interpretation being resorted to only when such literalapplication is impossible. 9

Simply and directly stated, the "0eed of Sale dated August &$, &'F( is precisely what it purports to be. t isa document evidencing the agreement of herein parties for the saleof coconut fruits of


26/98

between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership,while in lease no such transfer of ownership results as the rights of the lessee are limited to the use andenGoyment of the thing leased.

n *odriguez vs& :orromeo,$; !hil. $@', $'9, the Supreme 4ourt held#

Since according to article &:$; of the same 4ode the contract of lease is defined as the

giving or the concession of the enGoyment or use of a thing for a specified time and fixedprice, and since such contract is a form of enGoyment of the property, it is evident that it mustbe regarded as one of the means of enGoyment referred to in said article ;'(, inasmuch asthe terms enGoyment, use, and benefit involve the same and analogous meaning relative tothe general utility of which a given thing is capable. 5&9$ %urisprudencia 4ivil, $$;6

n concluding that the possession and enGoyment of the coconut trees can therefore be said to be thepossession and enGoyment of the land itself because the defendant=lessee in order to enGoy his right underthe contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits ofthe coconut trees in the land, and gain exclusive use thereof without the interference or intervention of theplaintiff=lessor such that said plaintiff=lessor is excluded in fact from the land during the period aforesaid,the trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred

and conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting himself of allownership or dominion over the fruits during the seven=year period. The possession and enGoyment of thecoconut trees cannot be said to be the possession and enGoyment of the land itself because these rightsare distinct and separate from each other, the first pertaining to the accessory or improvements 5coconuttrees6 while the second, to the principal 5the land6. A transfer of the accessory or improvement is not atransfer of the principal. t is the other way around, the accessory follows the principal. 3ence, the sale ofthe nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further toinclude the lease of the land itself.

The real and pivotal issue of this case which is taken up in petitionerBs sixth assignment of error and asalready stated above, refers to the validity of the "0eed of Sale", as such contract of sale, vis=a=vis theprovisions of Sec. (, *.A. o. $@@. The lower 4ourt did not rule on this 7uestion, having reached the

conclusion that the contract at bar was one of lease. t was from the context of a lease contract that the4ourt below determined the applicability of Sec. (, *.A. o. $@@, to the instant case.

*esolving now this principal issue, -e find after a close and careful examination of the terms of the firstparagraph of Section ( hereinabove 7uoted, that the grantee of a parcel of land under *.A. o. $@@ is notprohibited from alienating or disposing of the natural andLor industrial fruits of the land awarded to him.-hat the law expressly disallows is the encumbrance or alienation of the land itself or any of thepermanent improvements thereon. !ermanent improvements on a parcel of land are things incorporated orattached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted orsown on the land which is characteriDed by fixity, immutability or immovability. 3ouses, buildings,machinery, animal houses, trees and plants would fall under the category of permanent improvements, thealienation or encumbrance of which is prohibited by *.A. o. $@@. -hile coconut trees are permanent

improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severedfrom the trees, to be used, enGoyed, sold or otherwise disposed of by the owner of the land. 3ereinrespondents, as the grantee of


27/98

opportunists who prey on their misery and poverty." t is there to insure that the grantees themselvesbenefit from their respective lots, to the exclusion of other persons.

The purpose of the law is not violated when a grantee sells the produce or fruits of his land. n thecontrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be moreindustrious and productive, thus making it possible for him and his family to be economically self=sufficientand to lead a respectable life. At the same time, the )overnment is assured of payment on the annual

installments on the land. -e agree with herein petitioner that it could not have been the intention of thelegislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, itwould lead to an absurd situation wherein the grantee would not be able to receive and enGoy the fruits ofthe property in the real and complete sense.

*espondent through counsel, in his Answer to the !etition contends that even granting arguendothat heexecuted a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as 5an6implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." 3eclaims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner.5sic6. 10*espondentBs counsel either misapplies the law or is trying too hard and going too far to defend hisclientBs hopeless cause. Suffice it to say that respondent=grantee, after having received the considerationfor the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into,

to the preGudice of petitioner who contracted in good faith and for a consideration.

The issue raised by the seventh assignment of error as to the propriety of the award of attorneyBs feesmade by the lower 4ourt need not be passed upon, such award having been apparently based on theerroneous finding and conclusion that the contract at bar is one of lease. -e shall limit urselves to the7uestion of whether or not in accordance with ur ruling in this case, respondent is entitled to an award ofattorneyBs fees. The 4ivil 4ode provides that#

Art. 889(. n the absence of stipulation, attorneyBs fees and expenses of litigation, other thanGudicial costs, cannot be recovered, except#

5&6 -hen exemplary damages are awardedI

586 -hen the defendantBs act or omission has compelled the plaintiff to litigate with thirdpersons or to incur expenses to protect his interestI

5;6 n criminal cases of malicious prosecution against the plaintiffI

5$6 n case of a clearly unfounded civil action or proceeding against the plaintiffI

5:6 -here the defendant acted in gross and evident bad faith in refusing to satisfy theplaintiffBs plainly valid, Gust and demandable claimI

5F6 n actions for legal supportI

5@6 n actions for the recovery of wages of household helpers, laborers and skilled workersI

5(6 n actions for indemnity under workmenBs compensation and employerBs liability lawsI

5'6 n a separate civil action to recover civil liability arising from a crimeI

5&96 -hen at least double Gudicial costs are awardedI


28/98

5&&6 n any other case where the court deems it Gust and e7uitable that attorneyBs fees andexpenses of litigation should be recovered.

n all cases, the attorneyBs fees and expenses of litigation must be reasonable.

-e find that none of the legal grounds enumerated above exists to Gustify or warrant the grant of attorneyBsfees to herein respondent.

E- 1 T3E 1*E)), the Gudgment of the lower 4ourt is hereby set aside and another one isentered dismissing the 4omplaint. -ithout costs.

S *0E*E0.


29/98

G.R. No. L-36902 %a!ay 30, 19(2

LUIS PICHL, petitioner,vs.PRU#NCIO ALON/O, respondent.

GURRRO, J.

This is a petition to review on certiorari the decision of the 4ourt of 1irst nstance of asilan 4ity dated%anuary :, &'@; in 4ivil 4ase o. (89 entitled "!rudencio AlonDo, plaintiff, vs.


30/98


31/98

interest from the date of the filing of the complaint until paidI that defendant shall pay to theplaintiff the sum of !:99.99 as attorneyBs fees.

4osts against the defendant. 6

efore going into the issues raised by the instant !etition, the matter of whether, under the admitted factsof this case, the respondent had the right or authority to execute the "0eed of Sale" in &'F(, his award over


32/98

perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to thereal intention of the contracting parties. The terms of the agreement are clear and une7uivocal, hence theliteral and plain meaning thereof should be observed. Such is the mandate of the 4ivil 4ode of the!hilippines which provides that#

Art. &;@9. f the terms of a contract are clear and leave no doubt upon the intention of thecontracting parties, the literal meaning of its stipulation shall control ... .

!ursuant to the afore=7uoted legal provision, the first and fundamental duty of the courts is the applicationof the contract according to its express terms, interpretation being resorted to only when such literalapplication is impossible. 9

Simply and directly stated, the "0eed of Sale dated August &$, &'F( is precisely what it purports to be. t isa document evidencing the agreement of herein parties for the saleof coconut fruits of


33/98

between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership,while in lease no such transfer of ownership results as the rights of the lessee are limited to the use andenGoyment of the thing leased.

n *odriguez vs& :orromeo,$; !hil. $@', $'9, the Supreme 4ourt held#

Since according to article &:$; of the same 4ode the contract of lease is defined as the

giving or the concession of the enGoyment or use of a thing for a specified time and fixedprice, and since such contract is a form of enGoyment of the property, it is evident that it mustbe regarded as one of the means of enGoyment referred to in said article ;'(, inasmuch asthe terms enGoyment, use, and benefit involve the same and analogous meaning relative tothe general utility of which a given thing is capable. 5&9$ %urisprudencia 4ivil, $$;6

n concluding that the possession and enGoyment of the coconut trees can therefore be said to be thepossession and enGoyment of the land itself because the defendant=lessee in order to enGoy his right underthe contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits ofthe coconut trees in the land, and gain exclusive use thereof without the interference or intervention of theplaintiff=lessor such that said plaintiff=lessor is excluded in fact from the land during the period aforesaid,the trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred

and conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting himself of allownership or dominion over the fruits during the seven=year period. The possession and enGoyment of thecoconut trees cannot be said to be the possession and enGoyment of the land itself because these rightsare distinct and separate from each other, the first pertaining to the accessory or improvements 5coconuttrees6 while the second, to the principal 5the land6. A transfer of the accessory or improvement is not atransfer of the principal. t is the other way around, the accessory follows the principal. 3ence, the sale ofthe nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further toinclude the lease of the land itself.

The real and pivotal issue of this case which is taken up in petitionerBs sixth assignment of error and asalready stated above, refers to the validity of the "0eed of Sale", as such contract of sale, vis=a=vis theprovisions of Sec. (, *.A. o. $@@. The lower 4ourt did not rule on this 7uestion, having reached the

conclusion that the contract at bar was one of lease. t was from the context of a lease contract that the4ourt below determined the applicability of Sec. (, *.A. o. $@@, to the instant case.

*esolving now this principal issue, -e find after a close and careful examination of the terms of the firstparagraph of Section ( hereinabove 7uoted, that the grantee of a parcel of land under *.A. o. $@@ is notprohibited from alienating or disposing of the natural andLor industrial fruits of the land awarded to him.-hat the law expressly disallows is the encumbrance or alienation of the land itself or any of thepermanent improvements thereon. !ermanent improvements on a parcel of land are things incorporated orattached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted orsown on the land which is characteriDed by fixity, immutability or immovability. 3ouses, buildings,machinery, animal houses, trees and plants would fall under the category of permanent improvements, thealienation or encumbrance of which is prohibited by *.A. o. $@@. -hile coconut trees are permanent

improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severedfrom the trees, to be used, enGoyed, sold or otherwise disposed of by the owner of the land. 3ereinrespondents, as the grantee of


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opportunists who prey on their misery and poverty." t is there to insure that the grantees themselvesbenefit from their respective lots, to the exclusion of other persons.

The purpose of the law is not violated when a grantee sells the produce or fruits of his land. n thecontrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be moreindustrious and productive, thus making it possible for him and his family to be economically self=sufficientand to lead a respectable life. At the same time, the )overnment is assured of payment on the annual

installments on the land. -e agree with herein petitioner that it could not have been the intention of thelegislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, itwould lead to an absurd situation wherein the grantee would not be able to receive and enGoy the fruits ofthe property in the real and complete sense.

*espondent through counsel, in his Answer to the !etition contends that even granting arguendothat heexecuted a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as 5an6implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." 3eclaims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner.5sic6. 10*espondentBs counsel either misapplies the law or is trying too hard and going too far to defend hisclientBs hopeless cause. Suffice it to say that respondent=grantee, after having received the considerationfor the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into,

to the preGudice of petitioner who contracted in good faith and for a consideration.

The issue raised by the seventh assignment of error as to the propriety of the award of attorneyBs feesmade by the lower 4ourt need not be passed upon, such award having been apparently based on theerroneous finding and conclusion that the contract at bar is one of lease. -e shall limit urselves to the7uestion of whether or not in accordance with ur ruling in this case, respondent is entitled to an award ofattorneyBs fees. The 4ivil 4ode provides that#

Art. 889(. n the absence of stipulation, attorneyBs fees and expenses of litigation, other thanGudicial costs, cannot be recovered, except#

5&6 -hen exemplary damages are awardedI

586 -hen the defendantBs act or omission has compelled the plaintiff to litigate with thirdpersons or to incur expenses to protect his interestI

5;6 n criminal cases of malicious prosecution against the plaintiffI

5$6 n case of a clearly unfounded civil action or proceeding against the plaintiffI

5:6 -here the defendant acted in gross and evident bad faith in refusing to satisfy theplaintiffBs plainly valid, Gust and demandable claimI

5F6 n actions for legal supportI

5@6 n actions for the recovery of wages of household helpers, laborers and skilled workersI

5(6 n actions for indemnity under workmenBs compensation and employerBs liability lawsI

5'6 n a separate civil action to recover civil liability arising from a crimeI

5&96 -hen at least double Gudicial costs are awardedI


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5&&6 n any other case where the court deems it Gust and e7uitable that attorneyBs fees andexpenses of litigation should be recovered.

n all cases, the attorneyBs fees and expenses of litigation must be reasonable.

-e find that none of the legal grounds enumerated above exists to Gustify or warrant the grant of attorneyBsfees to herein respondent.

E- 1 T3E 1*E)), the Gudgment of the lower 4ourt is hereby set aside and another one isentered dismissing the 4omplaint. -ithout costs.

S *0E*E0.


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G.R. No. L-11&91 A:* 23, 191(

AN#RS ;UIROGA,plaintiff=appellant,vs.PARSONS HAR#WAR CO.,defendant=appellee.

+lfredo 3hicote, Jose +rnaiz and Pascual :& +zanza for appellant&

3rossfield ; 8':rien for appellee&

A$ANC


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A*T. ;. +r. !arsons may sell, or establish branches of his agency for the sale of "Kuiroga" beds inall the towns of the Archipelago where there are no exclusive agents, and shall immediately reportsuch action to +r. Kuiroga for his approval.

A*T. $. This contract is made for an unlimited period, and may be terminated by either of thecontracting parties on a previous notice of ninety days to the other party.

f the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subGectmatter of this appeal and both substantially amount to the averment that the defendant violated thefollowing obligations# not to sell the beds at higher prices than those of the invoicesI to have an openestablishment in loiloI itself to conduct the agencyI to keep the beds on public exhibition, and to pay for theadvertisement expenses for the sameI and to order the beds by the doDen and in no other manner. As maybe seen, with the exception of the obligation on the part of the defendant to order the beds by the doDenand in no other manner, none of the obligations imputed to the defendant in the two causes of action areexpressly set forth in the contract. ut the plaintiff alleged that the defendant was his agent for the sale ofhis beds in loilo, and that said obligations are implied in a contract of commercial agency. The whole7uestion, therefore, reduced itself to a determination as to whether the defendant, by reason of the contracthereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

n order to classify a contract, due regard must be given to its essential clauses. n the contract in 7uestion,what was essential, as constituting its cause and subGect matter, is that the plaintiff was to furnish thedefendant with the beds which the latter might order, at the price stipulated, and that the defendant was topay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff forthe sale of these beds in +anila, with a discount of from 89 to 8: per cent, according to their class.!ayment was to be made at the end of sixty days, or before, at the plaintiffBs re7uest, or in cash, if thedefendant so preferred, and in these last two cases an additional discount was to be allowed for promptpayment. These are precisely the essential features of a contract of purchase and sale. There was theobligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price.These features exclude the legal conception of an agency or order to sell whereby the mandatory or agentreceived the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains fromthe sale of the thing to a third person, and if he does not succeed in selling it, he returns it. y virtue of the

contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obligedto pay their price within the term fixed, without any other consideration and regardless as to whether hehad or had not sold the beds.

t would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff isone of purchase and sale, in order to show that it was not one made on the basis of a commission onsales, as the plaintiff claims it was, for these contracts are incompatible with each other. ut, besides,examining the clauses of this contract, none of them is found that substantially supports the plaintiffBscontention. ot a single one of these clauses necessarily conveys the idea of an agency. Thewords commission on sales used in clause 5A6 of article & mean nothing else, as stated in the contractitself, than a mere discount on the invoice price. The word agency, also used in articles 8 and ;, onlyexpresses that the defendant was the only one that could sell the plaintiffBs beds in the isayan slands.

-ith regard to the remaining clauses, the least that can be said is that they are not incompatible with thecontract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto idal, a former vice=president of the defendantcorporation and who established and managed the latterBs business in loilo. t appears that this witness,prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit againstit, and had even accused one of its partners, )uillermo !arsons, of falsification. 3e testified that it was hewho drafted the contract Exhibit A, and, when 7uestioned as to what was his purpose in contracting withthe plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales . 3owever,according to the defendantBs evidence, it was +ariano


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was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained inExhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale,and not one of commercial agency. This only means that Ernesto idal was mistaken in his classification ofthe contract. ut it must be understood that a contract is what the law defines it to be, and not what it iscalled by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sellI that,

without previous notice, it forwarded to the defendant the beds that it wantedI and that the defendantreceived its commission for the beds sold by the plaintiff directly to persons in loilo. ut all this, at the mostonly shows that, on the part of both of them, there was mutual tolerance in the performance of the contractin disregard of its termsI and it gives no right to have the contract considered, not as the parties stipulatedit, but as they performed it. nly the acts of the contracting parties, subse7uent to, and in connection with,the execution of the contract, must be considered for the purpose of interpreting the contract, when suchinterpretation is necessary, but not when, as in the instant case, its essential agreements are clearly setforth and plainly show that the contract belongs to a certain kind and not to another. 1urthermore, thereturn made was of certain brass beds, and was not effected in exchange for the price paid for them, butwas for other beds of another kindI and for the letter Exhibit


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G.R. No. L-65(& O)*o+ 16, 1911

INCHAUSTI AN# CO.,plaintiff=appellant,vs.LLIS CROMWLL, Co44)*o o I!*!a4 R=!,defendant=appellee.


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here, there were n services performed by him for his vendee. There was agreement that services shouldbe performed. ndeed, at the time of such sales it was not known by the vendee whether the hemp wasthen actually baled or not. All that he knew and all that concerned him was that the hemp should bedelivered to him baled. 3e did not ask the plaintiff to perform services for him, nor did the plaintiff agree todo so. The contract was single and consisted solely in the sale and purchase of hemp. The purchasercontracted for nothing else and the vendor agreed to deliver nothing else.

The word "price" signifies the sum stipulated as the e7uivalent of the thing sold and also every incidenttaken into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him. t is7uite possible that the plaintiff, in this case in connection with the hemp which he sold, had himself alreadypaid the additional expense of baling as a part of the purchase price which he paid and that he himself hadreceived the hemp baled from his vendor. t is 7uite possible also that such vendor of the plaintiff may havereceived the same hemp from his vendor in baled form, that he paid the additions cost of baling as a part ofthe purchase price which he paid. n such case the plaintiff performed no service whatever for his vendee,nor did the plaintiffBs vendor perform any service for him.

The distinction between a contract of sale and one for work, labor, and materials is tested by the in7uirywhether the thing transferred is one no in existence and which never would have existed but for the orderof the party desiring to ac7uire it, or a thing which would have existed and been the subGect of sale to some

other person, even if the order had not been given. 5)roves vs&uck, ; +aule / S., &@(ITowers vs&sborne, & Strange, :9FI enGamin on Sales, '9.6 t is clear that in the case at bar the hempwas in existence in baled form before the agreements of sale were made, or, at least, would have been inexistence even if none of the individual sales here in 7uestion had been consummated. t would have beenbaled, nevertheless, for sale to someone else, since, according to the agreed statement of facts, it iscustomary to sell hemp in bales. -hen a person stipulates for the future sale of articles which he ishabitually making, and which at the time are not made or finished, it is essentially a contract of sale and nota contract for labor. t is otherwise when the article is made pursuant to agreement. 5


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who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessitytat the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and inno sense indicates in this case the real transaction between the parties. t is undisputable that, if theplaintiff had brought the hemp in 7uestion already baled, and that was the hemp the sale which formed thesubGect of this controversy, then the plaintiff would have performed no service for his vendee and could not,therefore, lawfully charge for the rendition of such service. t is, nevertheless, admitted that in spite of thatfact he would still have made the double entry in his invoice of sale to such vendee. This demonstrates the

nature of the transaction and discloses, as we have already said, that the entry of a separate charge forbaling does not accurately describe the transaction between the parties.

Section &;' >Act o. &&('? of the nternal *evenue


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G.R. No. L-(506 A:* 31, 1956

CLSTINO CO > COMPANY,petitioner,vs.COLLCTOR OF INTRNAL R$NU,respondent.

8ffice of the Solicitor 9eneral +mbrosio Padilla, 0isrt +ssistant Solicitor 9eneral 9uillermo 6& Torres and

Solicitor 0ederico 4& Sian for respondent&

NG/ON, J.

Appeal from a decision of the 4ourt of Tax Appeals.

4elestino 4o / 4ompany is a duly registered general copartnership doing business under the trade nameof "riental Sash 1actory". 1rom &'$F to &':& it paid percentage taxes of @ per cent on the gross receiptsof its sash, door and window factory, in accordance with section one hundred eighty=six of the ational*evenue 4ode imposing taxes on sale of manufactured articles. 3owever in &':8 it began to claim liabilityonly to the contractorBs ; per cent tax 5instead of @ per cent6 under section &'& of the same 4odeI andhaving failed to convince the ureau of nternal *evenue, it brought the matter to the 4ourt of Tax Appeals,

where it also failed. Said the 4ourt#

To support his contention that his client is an ordinary contractor . . . counsel presented . . .duplicate copies of letters, sketches of doors and windows and price 7uotations supposedly sent bythe manager of the riental Sash 1actory to four customers who allegedly made special orders todoors and window from the said factory. The conclusion that counsel would like us to deduce fromthese few exhibits is that the riental Sash 1actory does not manufacture ready=made doors, sashand windows for the public but only upon special order of its select customers. . . . cannot believethat petitioner company would take, as in fact it has taken, all the trouble and expense of registeringa special trade name for its sash business and then orders company stationery carrying the boldprint =8riental Sash 0actory54elestino 4o / 4ompany, !rop.6 '8F *aon St. Kuiapo, +anila, Tel.o. ;;9@F, >anufacturers of all kinds of doors, windows, sashes, furniture, etc& used seasondried

and kilndried lumber, of the best uality workmanships= solely for the purpose of supplying theneeds for doors, windows and sash of its special and limited customers. ne ill note that petitionerhas chosen for its tradename and has offered itself to the public as a "1actory", which means it isout to do business, in its chosen lines on a big scale. As a general rule, sash factories receiveorders for doors and windows of special design only in particular cases but the bulk of their sales isderived from a ready=made doors and windows of standard siDes for the average home. +oreover,as shown from the investigation of petitionerBs book of accounts, during the period from %anuary &,&':8 to September ;9, &':8, it sold sash, doors and windows worth !&((,@:$.F'. find it difficult tobelieve that this amount which runs to six figures was derived by petitioner entirely from its fewcustomers who made special orders for these items.

Even if we were to believe petitionerBs claim that it does not manufacture ready=made sash, doors

and windows for the public and that it makes these articles only special order of its customers, thatdoes not make it a contractor within the purview of section &'& of the national nternal *evenue4ode. there are no less than fifty occupations enumerated in the aforesaid section of the nationalnternal *evenue 4ode subGect to percentage tax and after reading carefully each and every one ofthem, we cannot find under which the business of manufacturing sash, doors and windows uponspecial order of customers fall under the category of "road, building, navigation, artesian well, waterworkers and other construction work contractors" are those who alter or repair buildings, structures,streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, andincludes any other work for the construction, altering or repairing for which machinery driven bymechanical power is used. 5!ayton vs. 4ity of Anadardo F$ !. 8d (@(, ((9, &@' kl. F(6.


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3aving thus eliminated the feasibility off taxing petitioner as a contractor under &'& of the nationalnternal *evenue 4ode, this leaves us to decide the remaining issue whether or not petitioner couldbe taxed with lesser strain and more accuracy as seller of its manufactured articles under section&(F of the same code, as the respondent 4ollector of nternal *evenue has in fact been doing theriental Sash 1actory was established in &'$F.

The percentage tax imposed in section &'& of our Tax 4ode is generally a tax on the sales of

services, in contradiction with the tax imposed in section &(F of the same 4ode which is a tax onthe original sales of articles by the manufacturer, producer or importer. 51ormilleDaBs 4ommentariesand %urisprudence on the ational nternal *evenue 4ode, ol. , p. @$$6. The fact that the articlessold are manufactured by the seller does not exchange the contract from the purview of section &(Fof the ational nternal *evenue 4ode as a sale of articles.

There was a strong dissentI but upon careful consideration of the whole matter are inclines to accept theabove statement of the facts and the law. The important thing to remember is that 4elestino 4o /4ompany habitually makessash, windows and doors, as it has represented in its stationery andadvertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. Thefact that windows and doors are made by it only when customers place their orders, does not alter thenature of the establishment, for it is obvious that it only accepted such orders as called for the employment

of such material=moulding, frames, panels=as it ordinarily manufactured or was in a position habitually tomanufacture.

!erhaps the following paragraph represents in brief the appellantBs position in this 4ourt#

Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash,windows and doors only for special customers and upon their special orders and in accordance withthe desired specifications of the persons ordering the same and not for the general market# sincethe doors ordered by 0on Toribio Teodoro / Sons, nc., for instance, are not in existence and whichnever would have existed but for the order of the party desiring itI and since petitionerBs contractualrelation with his customers

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