1182-1187

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FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs.Spouses BERNARDINO NAGUIAT and MARIAPAULINA GERONA-NAGUIAT, respondents.

D E C I S I O N

PANGANIBAN, J.:

The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller theright to rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed only when thebreach of the contract is substantial and fundamental to the fulfillment of the obligation.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the October 31,1997 Decision[2] and theFebruary 23, 1999 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51067. Theassailed Decision disposed as follows:

―WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby AFFIRMED.‖ [4]

The assailed Resolution denied petitioner‘s Motion for Reconsideration.

The Facts

The facts of the case are summarized by the CA as follows:

―Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan,Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.

―On 5 April 1979, Eulalio Mistica entered into a contract to se ll with [Respondent Bernardino Naguiat] over a portionof the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in adocument entitled ‗Kasulatan sa Pagbibilihan‘ which reads as follows:

‗NAGSASALAYSAY:

‗Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa Nayon ng Malhacan,Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga nito gaya ng sumusunod:

x x x x x x x x x

‗Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI aynakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200) METROS PARISUKAT, salupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng sumusunod:

x x x x x x x x x

‗Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG LIBONG PISO (P2,000.00)Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.

‗Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay babayaran ngBUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito.

‗Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay magbabpakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa ito‘y mabayaran tuluyan ng Bumib

‗Sa katunayan ng lahat ay nilagdaan ng Magkabilan g Panig ang kasulatang ito, ngayon ika 5 ng Abril, 1979Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.

(signed) (signed)BERNARDINO NAGUIAT EULALIO MISTICA

Bumibili Nagbibili‘

―Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He madanother partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. EulMistica died sometime in October 1986.

―On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and ref[respondents] to pay the balance of the purchase price constitutes a violation of the contract which entitles hrescind the same; that [respondents] have been in possession of the subject portion and they should be ordvacate and surrender possession of the same to [petitioner] ; that the reasonable amount of rental for t he sland is P200.00 a month; that on account of the unjustified actuations of [respondents], [petitioner] has beeconstrained to litigate where she incurred expenses for attorney‘s fees and litigation expenses in the sumof P20,000.00.

―In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on tground that it clearly stipulates that in case of failure to pay the ba lance as stipulated, a yearly interest of 1be paid. [Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986, during the wake late Eulalio Mistica, he offered to pay the remaining balance to [petit ioner] but the latter refused and hence,no breach or violation committed by them and no damages could yet be incurred by the late Eulalio Mistica,

or assigns pursuant to the said document; that he is presently the owner in fee simple of the subject lot havacquired the same by virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his ownership had already become indefeasible and incontrovertible. As counterclaim, [respondents] pray for modamages in the amount ofP50,000.00; exemplary damages in the amount of P30,000.00; attorney‘s fees in amount of P10,000.00 and other litigation expenses.

―On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29 July 1992motion for reconsideration was likewise denied per its Order of 17 March 1993.

―After the presentation of evidence, the court on 27 January 1995 rendered the now assailed judgment, thedispositive portion of which reads:

‗WHEREFORE, premises considered, judgment is hereby rendered:

‗1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorney‘s fee inamount of P10,000.00 and costs of the suit;

‗2. Ordering the [respondents]:

‗a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase the amount of P17,000.00, with interest thereon at the rate of 12% per annumcomputed from April 5, 1989 until full payment is made, subject to the applicathe consigned amount to such payment;

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‗b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 squaremeters from the land covered by OCT No. 4917 (M), the corresponding price thereforbased on the prevailing market price thereof.‘ ‖ [5] (Citations omitted)

CA’s Decision

Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that theconclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that payment --with interest of 12 percent -- could still be made if respondents failed to pay within the period. According to theappellate court, petitioner did not disprove the allegation of respondents that they had tendered payment of thebalance of the purchase price during her husband‘s funeral, which was well within the ten-year period.

Moreover, rescission would be unjust to respondents, because they had already transferred the land title totheir names. The proper recourse, the CA held, was to order them to pay t he balance of the purchase price, with 12percent interest.

As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer feasible,because it had been included in the title issued to them. The appellate court ruled that the only remedy availablewas to order them to pay petitioner the fair market value of the usurped portion.

Hence, this Petition.[6]

Issues

In her Memorandum,[7] petitioner raises the following issues:

―1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of the NewCivil Code, as it ruled that there is no breach of obligation inspite of the lapse of the stipulatedperiod and the failure of the private respondents to pay.

―2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the contract isno longer feasible considering that a certificate of title had been issued in favor of the privaterespondents.

―3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m. portion inquestion is covered by a certificate of title in the names of private respondents reconveyance isno longer feasible and proper.‖ [8]

The Court’s Ruling

The Petition is without merit.

First Issue:Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, respondents committed a substantial breach when they did not pay the balance of the purchase price withinyear period. She further avers that the proviso on the payment of interest did not extend the period to interpret it in that way would make the obligation purely potestative and, thus, void under Article 1182 of Code.

We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasula

clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulatideed that title to the property sold is reserved to the seller until the full payment of the price; nor a stigiving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay withinperiod.[9]

In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission .[

Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation of the rebetween parties, brought about by a breach of faith by one of them .[11] Rescission, however, is allowed on

the breach is substantial and fundamental to the fulfillment of the obligation.[12]

In the present case, the failure of respondents to pay the balance of the purchase price within ten yethe execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated that could be made even after ten years from the execution of the Contract, provided the vendee paid 12 interest. The stipulations of the contract constitute the law between the parties; thus, courts have no albut to enforce them as agreed upon and written.[13]

Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband nevany demand for the balance of the purchase price. Petitioner even refused the payment tendered by resduring her husband‘s funeral, thus showing that she was not exactly blameless for the lapse of the period. Had she accepted the tender, payment would have been made well within the agreed period.

If petitioner would like to impress upon this Court that the parties intended otherwise, she has tcompetent proof to support her contention. Instead, she argues that the period cannot be extended beyyears, because to do so would convert the buyer‘s obligation to a purely potestative obligation that would acontract under Article 1182 of the Civil Code.

This contention is likewise untenable. The Code prohibits purely potestative, suspensive, coobligations that depend on the whims of the debtor, because such obligations are usually not mean

fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend exclusively on the debtor‘s will wto sanction illusory obligations.[15] The Kasulatan does not allow such thing. First , nowhere is it sthe Deed that payment of the purchase price is dependent upon whether respondents want to pay it or not.the fact that they already made partial payment thereof only shows that the parties intended to be bthe Kasulatan.

Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that findings othe CA are generally binding upon this Court and wil l not be disturbed on appeal, especially when they are tas those of the trial court.[16] Petitioner has not given us sufficient reasons to depart from this rule.

Second Issue:Rescission Unrelated to Registration

The CA further ruled that rescission in this case would be unjust to respondents, because a certificathad already been issued in their names. Petitioner nonetheless argues that the Court is still empowered

rescission.

We clarify. The issuance of a certificate of title in fa vor of respondents does not determine whether pis entitled to rescission. It is a fundamental principle in land registration that such title serves merelevidence of an indefeasible and incontrovertible title to the property in favor of the person whose nametherein.[17]

While a review of the decree of registration is no longer possible after the expiration of the one-yeafrom entry, an equitable remedy is still available to those wrongfully deprived of their property .[18] A certtitle cannot be subject to collateral attack and can only be altered, modified or canceled in direct procee
























































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accordance with law.[19] Hence, the CA correctly held that the propriety of the issuance of title in the name ofrespondents was an issue that was not determinable in these proceedings.

Third Issue:Reconveyance of the Portion Importunately Included

Petitioner argues that it would be reasonable for respondents to pay her the value of the lot, because the CAerred in ruling that the reconveyance of the extra 58-square meter lot, which had been included in the certificate oftitle issued to them, was no longer feasible.

In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership over

immovable property, because it does not create or vest title, but merely confirms one already created orvested.[20] Registration does not give holders any better title than what they actually have .[21] Land erroneouslyincluded in the certificate of title of another must be reconveyed in favor of its true and actual owner.[22]

Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be subject tocollateral attack, alteration, modification, or cancellation except in a direct proceeding.[23] The cancellation orremoval of the extra portion from the title of respondents is not permissible in an action for rescission of thecontract of sale between them and petitioner‘s late husband, because such action is tantamount to allowing acollateral attack on the title.

It appears that an action for cancellation/annulment of patent and title and for reversion was already filed bythe State in favor of petitioner and the heirs of her husband.[24] Hence, there is no need in this case to pass uponthe right of respondents to the registration of the subject land under their names. For the same reason, there is nonecessity to order them to pay petitioner the fair market value of the extra 58-square meter lot importunatelyincluded in the title.

WHEREFORE, the assailed Decision and Resolution are AFFIRMEDwith the MODIFICATION that the paymentfor the extra 58-square meter lot included in respondents‘ title is DELETED.

SO ORDERED.

BRIGIDO R. VALENCIA, petitioner,vs.REHABILITATION FINANCE CORPORATION and COURT OF APPEALS, respondents.

Eligio G. Lagman for petitioner. Jesus A. Avancena for respondent.

CONCEPCION, J.:

Petitioner Brigido R. Valencia seeks a review, by certiorari, of a decision of the Court of Appeals, reversing that ofthe Court of First Instance of Manila, and sentencing him to pay respondent Rehabilitation Finance Corporation sumof P6,200, by way of actual damages, with legal interest thereon, from the date of the institution of this case, apartfrom the sum of P1,000 as attorneys fees, and absolving respondent from the counterclaim of said petitioner, withcosts against the latter.

It appears that, prior to May 15, 1952, respondent issued and advertised to the general public an "invitation to bid"for the construction of a reinforced concrete building at Claveria Street, City of Davao. For the guidance of, andcompliance by, the parties concerned, said invitation to bid was supplemented with "General Specifications,""Instructions to Bidders" and "Index of General Conditions." In response to the invitation, petitioner submitted a bid,dated May 15, 1952, pertinent parts of which read:

In accordance with your advertisement inviting proposals for the Construction of the Office Building ownedby REHABILITATION FINANCE CORPORATION, to be erected at Claveria Street, Davao City, and subject toall conditions and requirements thereof, and of your Plans and Specifications, with al l their agenda, which

so far as they relate to this proposal, are made a part thereof, we (or I) propose to furnish, deliverplace and complete any and all necessary work as called for by the said Plans and Specifications, wwill furnish all necessary plant, tools, appliances, and labor, and complete the work at our (or My) expenses, at the following prices in Philippine currency:

ITEM I:

Stipulated sum proposal for the complete construction of the Office Building as per Plans andSpecifications, including the following:

1. All electrical installations

2. All plumbing installations

Three Hundred Eighty Nine Thousand Nine Hundred Eighty Pesos

LUMP SUM ..................................................... P389,98

ITEM II:

Stipulated sum proposal for the complete construction of the Office Building Only as per Plans andSpecifications.

Three Hundred Fifty Eight Thousand Four Hundred Eighty Pesos

LUMP SUM ...................................................... P358,4

ITEM III:

ELECTRICAL INSTALLATIONS only.

Eighteen Thousand Nine Hundred pesos

LUMP SUM ...................................................... P18 90

ITEM IV:

PLUMBING INSTALLATIONS only.

Twelve Thousand Six Hundred Pesos.

LUMP SUM ....................................................... P12,0

x x x x x x x x x

We (or I) inclose herewith Bidders Bond, in the sum of Thirty Nine Thousand Pesos (P39,000.00) wto be returned if this proposal is rejected or retained if accepted as security until the execution anddelivery of a satisfactory bond in the sum of twenty per centum (20%) of the total contract price ffull and faithful performance of the contract.

























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On or about June 9, 1952, respondent's Board of Governors passed a resolution awarding the contract for theconstruction of the building to Sanchez & Antigua Engineering Co. for P292,000, that for the electrical installations toLorenzo Sarmiento, for P18,340, and that for the plumbing installat ions to petitioner Valencia, for P12,800 By aletter dated June 16, 1952, which was received by petitioner on June 22, 1952, the manager of the Davao branch ofrespondent advised petitioner of said award, and of the fact that the corresponding contract documents were beingprepared in Manila and that he (petitioner) would be notified upon receipt thereof. This notice was given topetitioner through a letter of said Davao Manager, dated July 28, 1952, in which petitioner was, also, requested tocall at the office of the writer for the purpose of affixing his (petitioner's) signature on the aforesaid contract and topost the performance bond for 20% of the contract price of P12,800. Petitioner replied on August 28, 1952,expressing his "thanks and appreciation" for the award, and stating that it would be to the advantage of respondentto award the contract for the plumbing installations to the contractor of the main building, because the presence ofpetitioner's men in the building might give said contractor an excuse to seek extension of time; becausesynchronization of the work, to prevent possible delay, would not be promoted by awarding the different parts of thebuilding to different con-tractors; and because plumbing installations particularly should go hand in hand with theprogress of the work of construction of the building, so that its contractor may have no valid ground to askextension of time. In view of petitioner's failure to sign the aforementioned contract for the plumbing installations,respondent eventually awarded the same f or P19,000 to the contractor for the construction of the building. Soonthereafter, or on December 19, 1962, respondent brought this action in the Court of First Instance of Manila againstpetitioner herein, to recover the sum of P6,200 representing the difference between the amount of the contractawarded to him and the price at which the plumbing installations were awarded to Sanchez and Antigua EngineeringCo. — plus P1,000, as attorney's fees, and the costs.

In his answer, petitioner alleged that, upon being notified of the award in his favor, he "prepared all the necessaryequipments, materials and plumbers to do and perform the plumbing installations" in respondent's building, but,without his knowledge and consent, respondent "entered into a contract with Sanchez and Antigua Engineering Co.for the same plumbing installations which was previously awarded" to petitioner, for which reason he set up acounterclaim of P5,000, for compensatory damages, plus P10,000, for moral damages, and P1,000 for attorney'sfees.

In due course, the Court of First Instance of Manila rendered judgment, absolving petitioner from the complaint,with costs against the respondent, and sentencing the latter to pay petitioner the sum of P1,000, as "liquidatedattorney's fees." On appeal, this decision was re-versed by the Court of Appeals, which rendered judgment forrespondent, as above stated. Hence, this petition for review by petitioner herein, who maintains in his brief, that:

1. La Corte de Apelacioines erro al declarar que exists un contrato valido y obligatorio entre RehabilitationFinance Corporation y Brigido R. Valencia respecto a la instalacion de canerias (plumbing) en el edificio deaquella en la ciudad de Davao.

2. Erro tambien la Corte de Apelaciones al no considerar como contra oferta la resolucion de la junta degovernadores de la Re-habilitation Finance Corporation al adjudicar a Valencia solamente los trabajos deinstalacion de canerias (P12,600.00), en lugar de aceptar o rechazar toda la oferta de P389,980.00.

3. Erro asimismo al declarar que la fianza del postor Brigido R. Valencia debe considerarse eficaz noobstante que en la misma se hace constar claramente que caducaba el 15 de junio de 1952.

4. Erro asimismo la Corte de Apelaciones al no declarar que la aceptacion parcial de la RehabilitationFinance Corporation se ha heche despues de caducada la oferta de Valencia, y por tanto no es valida.

5. Erro finalinente la Corte de Apelaciones al revocar la decisiondel juzgado de primers instancia de Manila

y condenar a Brigido R. Valencia al pago de P6,200.00 como daños y perjuicios, mas P1,000.00 comohonoraries de abogado, y las costas.

The arguments adduced by petitioner, in support of these assignments of error, may be summed up as follows:

1. His offer was for the construction of respondent's building in Davao, with its e lectrical and plumbing installations,whereas respondent awarded to him the con-tract for the plumbing installations only. This award substantially

modified, therefore, the terms of his offer, so that a meeting of minds did not take place, inasmuch as suchmodification was not accepted by petitioner herein.

2. Petitioner's offer was good until June 15, 1952 only, because it was accompanied by a bond that expired odate. The award in his favor came to his knowledge on June 22, 1952, when he received the letter of responrepresentative, dated June 16, 1952, giving notice of the award. Having been effected after the expiration ofpetitioner's offer, said notice of its acceptance did not perfect a contract between the parties herein.

3. Said acceptance by respondent was made subject to a condition, namely, the giving of a performance bontwenty per centum (20%) of the amount of petitioner's offer. Inasmuch as this condition was not fulfilled, nocontract could, or did, exist between the parties.

With respect to the first argument, it is worthy of notice that the proposal submitted by petitioner consisted

several items, among which are: (a ) one for P389,980, for the "complete construction of the office building" question, "including (1) all electrical installations; and (2) all plumbing installations"; (b) another for P358,48the "complete construction of the office building only", excluding, t herefore, the electrical and plumbing insta(e) a third one for P18,900, for the "electrical installations only ", excluding, therefore, the building and its plinstallations; and (d) a fourth item for P12,600, for the "plumbing installations only ", excluding, therefore, thbuilding and its electrical installations.

Each one of these items was complete in itself , and, as such, it was distinct, separate and independent fromother items. The award in favor of petitioner herein, implied, therefore, neither a modification of his offer nopartial acceptance thereof. It was an unqualified acceptance of the fourth item of his bid, which item constituacomplete offer or proposal on the part of petitioner herein. The effect of said acceptance was to perfect a coupon notice of the award to petitioner herein.

Incidentally, said items in petitioner's bid were due, evidently, to the terms of respondent's "instruction to biparagraph 5 of which reads:

Where bids are not qualified by specific limitations, the Rehabilitation Finance Corporation reserve

right of awarding all or any of the items according to its best interest.

Indeed, petitioner's bid stated that it was submitted "in accordance with" respondent's " advertisement invitproposals for the construction" in question "and subject to all conditions and requirements thereof ," one of said paragraph 5 just quoted.

As regards the second argument, petitioner's bid did not specify its duration. It enclosed therewith a bond foper centum (10%) of the amount of said bid, in compliance with paragraph 10 of the instruction to bidders. Athebond itself stated that it expired on June 15, 1952, this does not mean that the bid lapsed on the same dbond merely guaranteed the performance of a principal obligation of petitioner herein. Needless say, this priobligation may stand without said bond, which is merely accessory thereto, although the latter cannot exist the former. Moreover, the bond was given for the benefit, not of petitioner, but of respondent , so that the lacould legally waive said benefit.

Petitioner's brief (p. 4) says that he understood or believed that upon expiration of said bond, on June 15, 19bid, likewise, lapsed. This allegation is refuted by pet itioner's conduct. Upon receipt of notice of the award infavor, petitioner did not object thereto upon any ground whatsoever. He did not even say that his offer had already or had been modified. On the contrary, he replied expressing his "thanks and appreciation" for the aalthough he stated, also, that it would be "to the advantage" of respondent to award the plumbing installatiothe contractor of the main building." What is more, in his answer to respondent's complaint, petitioner allegeway of special defense, that upon notice of the award in his favor, he "prepared all the necessary equipmentmaterials and plumbers to do and perform the plumbing installations" in question. For this reason, he allegein his answer, that he "should be the one entitled to damages" inasmuch as respondent "awarded to SancheAntigua Engineering Co. . . . the contract for plumbing installations . . . without prior notice" to petitioner "wfirst awardee, and set up a counterclaim for damages thus allegedly caused to him. These acts of petitioner show, beyond doubt, that, upon receipt of notice of the award on June 22, 1952, he knew that the contract b

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him and respondent had become perfected, and that he must have felt, accordingly, that his bid was still good atthat time.

Referring now to the third argument, paragraph 10 of the aforementioned instruction to bidders, imposed upon themthe obligation to execute the corresponding documents "within five (5) days after notice of the acceptance of hisbid." Paragraph 15 of said instruction to bidders, further provided:

The contract shall be made and executed in quadruplicate and shall be accompanied by a bond or bondsgiven by the contractor with two or more good and sufficient sureties or with a surety company,satisfactory to the Manager, Industrial Department, RFC in a penal sum equal to twenty (20) per cent ofthe full contract price of the work, conditioned for the faithful performance of the contract according to itstenor and effect and the satisfaction of obligation for materials used and labor employed upon the same.

The obligation to give the performance bond mentioned in this paragraph, as well as to execute the instrumentincorporating the construction contract, within five (5) days from notice of acceptance of the bid, as stated inparagraph 10 of the instruction to bidders, were accepted by petitioner herein, for he submitted his bid "subject toall conditions and requirements" of respondent's invitation for bids. Hence, his (petitioner's) bid explicitly says:

We (or I) make this proposal with a full knowledge of the kind, quantity, and quality of the articles andservices required and said proposal is accepted will, after receiving written notice of such acceptance,enter into contract within five (5) days, with good and sufficient securities for t he faithful performancethereof.

Accordingly, respondent's communication of June 16, 1952, advised petitioners that the contract for plumbinginstallations was awarded to him for P12,800 "with performance bond of 20% thereof." Again, the lette r ofrespondent's manager in Davao, dated July 28, 1952, in-formed petitioner that the contract for the plumbinginstallations had been received from the head office and asked him to call at the writer's office for the purpose ofaffixing his signature on said contract, and requested him to post said performance bond. Petitioner's failure to do sodid not relieve him of the obligation arising from the un-qualified acceptance of his offer. Much less did it affect theexistence of a contract between him and respondent.

Petitioner insists that the giving of a performance bond was a condition precedent. But such condition presupposesthe existence of a contract , which is qualified thereby. Compliance with said condition is essential to the existence ofpetitioner's right to undertake the plumbing installations and collect the price thereof. But, he had a contractual rightto give the performance bond, in the sense that respondent had granted him by agreement the right to post saidbond, and, once this had been done, he could invoke and enforce his other rights by virtue of the award in his favor.At the same time, respondent had a contractual right to demand the posting of the performance bond, and, uponfailure of petitioner to do so, respondent had a similar right to refuse to allow petitioner to under-take the plumbinginstallations and to demand damages for breach of petitioner's obligations. In either case, the existence of thecontractual relation between the parties did not depend upon the posting the performance bond. Although, the latterwas essential to the birth of some of the rights stipulated in favor of petitioner herein, those of respondentwere not conditioned upon the giving of said performance bond.

Being in accordance with the facts and the law, the decision of the Court of Appeals is hereby affirmed, therefore,

with costs against petitioner Brigido R. Valencia. It is so ordered. G.R. No. 29298

REYNALDO LABAYEN, ET AL., plaintiffs.

REYNALDO LABAYEN, appellant,

vs.

TALISAY-SILAY MILLING CO., INC., defendant-appellee.

Angel S. Gamboa for appellant.

R. Nolan for appellee.

MALCOLM, J.:

This is an action for damage in the amount of P28,620 for the alleged breach of a contract to grind sugar ca

1920-1921. After a rehearing, the defendant was absolved from the complaint, andthe plaintiff was condemn

the cross-complaint, to pay the defendant the sum of P12,114, without special pronouncement as to costs.

An examination of the record on appeal discloses that the exhibits are missing. Still this is not in this instanc

great importance. The facts as f ound by the trial judge a re not seriously disputed from the facts which worry

parties.

The plaintiff, along with another, p ossesses the hacienda known as Dos Hermanos of Talisay, Occidental Neg

defendant is a corporation dedicated to the milling of sugar cane. On August 27, 1919, the plaintiff and the

defendant entered into a contract similar to contracts entered into by the defendant and other planters. It is

contract which is the basis of plaintiff's cause of action. Among the clauses in the contract are the following:

COVENANTS OF 'LA CENTRAL'

xxx xxx xxx

Third: That it shall build and after building it shall do or cause to be done all that is necessary for its preserv

good condition, and shall, during the period of this agreement, without charge to the Procedure or Procedure

operate a permanent railroad run by steam or motor, or both, for the use of the plantation or plantations in

transportation of sugar cane, sugar, fertilizer, and a ll such articles as the procedure may need for his estate,

and that of his family and employees, and shall cause the main line or a branch thereof, as the case may be

reach the point of the plantation to be hereafter described not farther than one mile from ay of the boundari

said plantation,whenever the contour of the land, the curves, and elevations permit the same ; it shall provid

railroad with locomotives or motors and wagons in a number sufficient to make the transportation of sugar c

sugar, fertilizer, and the above mentioned articles, and shall likewise build a branch of said railroad in such a

that from the main line, mill and warehouses, it shall reach the wharf above mentioned, and it shall also cau

yard of the factory near the sugar mill to be available for use with switches or otherwise. All the steam locom

shall be provided with safety spark devices. The railroad shall consist of a road or path conveniently and duly

designated so that, so far as possible, all the producers may derive equal benefit from said railroad. The righ

for the main line of the railroad shall be three and a half (3-½) meters wide measured from the center of the

each side, and the branches, switches, or curves shall have more if necessary.

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OBLIGATIONS OF THE PRODUCER

xxx xxx xxx

Fifth: That he shall accept the provisions of clauses 7, 8, and 9 of the covenants of "La Central" and shall deliver the

cane as therein provided; hereby binding himself to plant each year according to the usage and custom of a good

agriculturist not less than one-half of his own lands devoted to sugar cane subject to the approval of the Committee

of Producers leaving the remainder uncultivated.

MUTUAL OBLIGATIONS

xxx xxx xxx

10. In case of . . . inability to secure, under reasonable conditions such rights-of-way as "La Central" may require , . .

. "La Central" shall notify the Committee of Producers and without incurring any liability for the non-fulfillment of the

terms of this contract, its effects shall be suspended in part or in whole during such period of incapacity. . . .

(Emphasis inserted.)

With particular reference to the third paragraph of the clauses obligating the central, it is admitted that the central

has not continued its railroad through to the Hacienda Dos Hermanos. The railroad comes to

the Hacienda Esmeralda No. 2 and there stops. For the railroad to extend to the HaciendaDos Hermanos, a distance

of four kilometers would require a gradual e levation of 4.84 per cent to 7 per cent, would make necessary the

providing of twenty-six curves, and would cost about P80,000. The witness H. W. Corp, a civil engeneer employed in

the construction work of the Manila Railroad Company, the Pampanga Sugar Milling Co., and the Binalbagan Central,

testified that it was possible to construct a railroad to the Hacienda Dos Hermanos but that to do so would be very

dangerous.

Recalling that the contract provided for t he construction of a railroad "whenever the contour of the land, the curves,

and elevations permit the same," and that such construction is possible but very dangerous, the question then arises

if the defendant can excuse itself on this ground, or if the plaintiff can recover from the defendant for damages for

breach of contract, through inability to mill cane.

It is elemental that the law requires parties to do what they have agreed to do. If a party charges himself wi th an

obligation possible to be performed, he must abide by it unless performance is rendered impossible by the act of

God, the law, or t he other party. A showing of mere inconvenience, unexpected impediments, or increased expenses

is not enough. Equity cannot relieve from bad bargains simply because they are such. So one must answer in

damages where the impossibility is only so in fact. (Thornborow vs. Whitacre, 2 Ld. Raym. [1164], 92 E. R.,

Reid vs. Alaska Packing Co. [1903], 43 Or., 429; Columbus Ry. & Power Co. vs. Columbus [1919], 249 U. S.

The foregoing are familiar principles to be found in the American and English law of contracts. The civil law o

subject of obligations is not essentially different. Article 1272 of the Civil Code provides: "Impossible things

services cannot be the subject-matter of contracts." And article 1184 of the same Code provides: "The debto

also be relieved from obligations which consist in the performance of a act if fulfillment of the undertaking be

legally or physically impossible."

May one obligate himself to do something which, when accomplished, will prove to be dangerous to life and

property? We doubt it. Take the contract in question as an example. It was a general contract of the form us

the central and various proprietors of sugar-cane fields. It was intended to be limited in particular application

haciendas where not impeded by physical impossibility. The contract was qualified by an implied condition w

given practical effect, results in absolving the central from its promise. Not to sanction an exception to the g

rule would run counter to public policy and the law by forcing the performance of a contract undesirable and

harmful. (8 Manresa's Codigo Civil Espanol , p. 355.)

There is another aspect to the case which has to do with the tenth paragraph of the mutual obligations of th

contract and which concerned the securing of the right- of-way for the proposed railroad. To get from

the Hacienda Esmeralda No. 2 to the Hacienda Dos Hermanos, the railroad would have to pass through

the haciendas of Esteban de la Rama. But he would not grant permission to use his land for this purpose in 1

and only consented to do so in 1924. Here then was a clear case of such a condition of affairs as was contem

by the contract.

The foregoing points being admitted, it logically follows that the defendant can recover on its cross-complain

defense to the cross-complaint is identical with the theory of the complaint. For the same reasons that the p

cannot recover must be make good for his debt to the defendant.

Accepting, therefore, the facts as found by the trial judge, and nothing no reversible error on any legal quest

judgment appealed from must be as it is hereby affirmed, with the costs of this instance against the appella

JOSEFINA L. VALDEZ and CARLOS L. VALDEZ, JR., petitioners, vs. COURT OF APPEALS anLAGON, respondents.

D E C I S I O N

CALLEJO, SR., J .:

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This is a petition for review on certiorari of the Amended Decision[1]of the Court of Appeals in CA-G.R. CV No.49413 affirming on appeal the Decision of the Regional Trial Court of Isulan, Sultan Kudarat, Branch 19, in Civil CaseNo. 778.

The Antecedents

Carlos Valdez, Sr. and Josefina de Leon Valdez were the owners of a parcel of land with an area of 24,725square meters located in the commercial district of Isulan, Sultan Kudarat. The property was designated as Lot No. 3of Pls-208-D-13 and was covered by Transfer Certificate of Title (TCT) No. T-19529 (T-1902) issued on August 18,1967.[2] When Carlos Valdez, Sr. died intestate on March 26, 1966, he was survived by Josefina and their children,including Carlos Valdez, Jr., a practicing lawyer.

On December 28, 1978, Josefina caused the subdivision survey of the propert y[3] into eight (8) lots, i.e., LotsNos. 3-A to 3-H, all fronting the national road. To enhance the value of the property, she decided to sell a portionthereof to Jose Lagon, a successful businessman in Sultan Kudarat who owned a construction firm as well as realestate and business enterprises: the Lagon Enterprises and the Rural Bank of Isulan. He was also one of the clientsof her son, Carlos, Jr., a practicing lawyer.

On May 1, 1979, Josefina executed a Specia l Power of Attorney authorizing her son, Carlos, Jr. to sell aportion of Lot No. 3-C and Lot. No. 3-D to Lagon. The lots subject of the sale had an area of 4,094 square meters,with a frontage of 64.3 square meters. Part of the consideration of the transaction was the condition that Lagoncause the transfer of the Rural Bank of Isulan to the subject property and construct a commercial building beside thebank.[4] On May 9, 1979, Josefina, through her son and attorney-in-fact, Carlos, Jr., executed a Deed of AbsoluteSale of a portion of Lot No. 3 with a frontage of 64.3 square meters facing the national highway and the NationalGrains Authority office going towards the Buencamino Movie House starting from the corner .[5] However, thecondition imposed by Josefina was not incorporated in the deed; what was appended thereto was the Special Powerof Attorney executed by Josefina. It was indicated in the said deed that the property was to be sold for P80,000cash and that Lagon had already paid the said amount to Carlos, Jr. In reality, however, Lagon purchased the4,094-square-meter property at P40.00 per square meter, or for the amount of P163,760[6] inclusive of Carlos, Jr.‘spersonal account to Lagon in the amount of P73,760. Lagon had not yet remitted to Josefina the said amountof P163,760.

On April 21, 1981, Lagon gave to Carlos, Jr. PCIB Check No. 55007805 in the amount of P8,196.00 dated April21, 1981, and PCIB Check No. 55007806 postdated June 15, 1981 in the amount ofP81,880.00 both checkstotaling P90,076.00 in full payment of the purchase price of the property, after deducting the account of Carlos, Jr.amounting to P73,684.00. Josefina acknowledged the checks, through Carlos, Jr., who signed a cash voucher forthe same.[7] Carlos, Jr. was able to encash PCIB Check No. 55007805, but returned the other check to Lagon‘s wife,Nenita, after the latter paid him P20,000.00 thereby leaving a balance of P61,880.00 of the purchase price.[8]

Carlos, Jr. prepared an Affidavit dated April 27, 1981 signed by Lagon, where the latter undertook to transferthe Rural Bank of Isulan to the property and construct a commercial building thereon, to be in full operation within aperiod of five (5) years from May 9, 1979, the date of the deed of absolute sale, or until May 9, 1984 ,[9] as part ofthe condition of the sale; and that if Lagon failed to do so, the deed of absolute sale shall be declared null and voidwithout need of demand therefor.[10] Lagon also made it clear in the said affidavit that the consideration of the saidDeed of Absolute Sale was not only the P80,000.00 purchase price, but also that the subject property becommercialized.[11]

However, Lagon failed to start the construction of a commercial building and to transfer the rural bankthereon; he, likewise, failed to pay the balance of the purchase price amounting to P61,880.00. Consequently,Josefina and Carlos, Jr. refused to deliver to Lagon a torrens title over the purchased property. On September 4,

1981, Carlos, Jr. wrote Lagon demanding the payment of P61,800.00 within ten days from notice thereof, otherwise,the sale would be considered rescinded.[12] Still, Lagon failed to pay or even respond to the letter. Carlos, Jr. againwrote Lagon on September 25, 1981, and this time proposed the reduction of the area of the property subject of thesale to correspond to the payment so far made by Lagon in the total amount of P90,676.00.[13]There was noresponse from Lagon.

In the meantime, TCT No. T-19529 was cancelled on October 9, 1981 by eight (8) titles bearing the followingparticulars:

TCT No. Lot No. Area

16436 3-A 2,586 sq. meters[14] 16437 3-B 2,802 sq. meters[15] 16438 3-C 2,534 sq. meters[16] 16439 3-D 3,198 sq. meters[17] 16440 3-E 3,359 sq. meters[18] 16441 3-F 2,952 sq. meters[19] 16442 3-G 3,650 sq. meters[20] 16443 3-H 3,644 sq. meters[21]

All the foregoing subdivision titles were under the name of ―Josefina L. Valdez, married to Carlos Vald

On December 31, 1982, Josefina and her children executed a deed of extrajudicial settlement of the eCarlos Valdez, Sr. in which the heirs waived all their rights over the estate in favor of their mother, Josefina.

On December 1, 1983, Geodetic Engineer Santiago C. Alhambra conducted a subdivision survey of Lo

C, covered by TCT No. 16438 into three (3) subdivision lots with the following areas: Lot No. 3-C-1 with 44meters; Lot No. 3-C-2 consisting of 350 square meters; and, Lot No. 3-C-3, 1,735 square meters. Engr. Aprepared a subdivision plan on his survey which he submitted to the Bureau of Lands on December 12, 1983paid for his professional services.

Porfirio L. Cubar, the Bank Manager of the Philippine Commercial Industrial Bank (PCIB) in Isulan tCarlos, Jr. and offered t o buy, in behalf of the PCIB, Lot No. 3 -C-2 for P100.00 per square meter. Cagreed. Josefina executed a deed of absolute sale on May 8, 1984, over Lot No. 3-C -2 for P35,000.00 inPCIB.[22] Carlos, Jr. later learned that Lagon had been saying t hat he was responsible for the sale of Lot No. the PCIB, but the latter informed Carlos, Jr. in a Letter dated September 13, 1984 that Lagon had nothing tothe sale.[23]

On October 3, 1984, the Register of Deeds cancelled TCT No. 16438 and issued TCT No. 18817 over LC-2 in the name of PCIB.[24] The expenses for the issuance of the said title under the name of the bank weraccount of Josefina.[25]

On June 11, 1987, the deed of extrajudicial settlement earlier executed by the heirs of Carlos Valdez,filed and registered in the Office of the Register of Deeds .[26] On June 16, 1987, Josefina executed a Deedover Lot 3-D in favor of Engr. Rolendo Delfin, who was issued TCT No. 20380 for the property.[27]

In the meantime, in August 1987, a question ensued in connection with Lagon‘s failure to pay the bthe purchase price of the property, to cause the construction of a commercial building and the transfer of tBank of Isulan to Lot No. 3, as undertaken by him in his Affidavit dated April 27, 1981. As a reminder, Cfurnished Lagon with a machine copy of the said affidavit on August 12, 1987. OnAugust 13, 1987, Lagon‘sAtty. Ernesto I. Catedral, wrote Carlos, Jr., pointing out that he had earlier sought Lagon‘s consenconstruction of the PCIB Branch in Lot No. 3. Catedral posited that by consenting to the sale of the propertyand the construction thereon of its branch office, Lagon thereby substantially complied with his undertakinthe deed of absolute sale. The lawyer asked Carlos, Jr. to set a conference to thresh out possibilities of an settlement of the matter.[28] On September 21, 1987, Carlos, Jr. furnished Atty. Catedral with copies of docincluding a Special Power of Attorney, executed by Josefina in favor of Carlos, Jr., the deed of absolute sale No. 3 in favor of Lagon and the deed of absolute sale executed by Josefina in favor of PCIB, among others.[

through his counsel, Atty. Rex G. Rico, reiterated his request for a conference on May 23, 1988.[30] HoweveJr. was not available on the said date.

On August 4, 1988, Josefina executed a real estate mortgage over Lot No. 3-C-3 covered by TCT No. favor of the Development Bank of the Philippines (DBP) as security f or a loan of P150,000.00.[31]Josefina exdeed of absolute sale over Lot No. 3-C-1 in favor of her son, Carlos, Jr. on February 21, 1989. The Register thereafter issued TCT No. 21943 in the latter‘s name on February 28, 1989.[32] In the meantime, in 1984, Chad an edifice constructed on the property where he put up his law office, a nipa hut behind the PCIB branIvy Pharmacy, the ―K House‖ and the headquarters of the Nationalista Party.[33]

On September 24, 1990, Lagon filed a Complaint against Josefina, and Carlos, Jr., in his capacity as ain-fact of Josefina, for specific performance and damages with a prayer for a temporary restraining order anpreliminary injunction. He prayed that, after due proceedings, judgment be rendered in his favor, thus:

WHEREFORE, it is respectfully prayed that upon the filing of this complaint, a restraining order be issued enjdefendants from selling, disposing or otherwise encumbering the property subject of this case; after due heawrit of preliminary prohibitory injunction be issued in the same tenor as that of the restraining order; and afton the merits, judgment be rendered in favor of plaintiff and against the defendants:

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a) Making the writ of preliminary prohibitory injunction permanent;

b) Ordering defendants to immediately and without delay, deliver to plaintiff the possession of and the transfercertificate of title over the remaining area of that parcel of land they sold to plaintiff;

c) Ordering defendants to pay plaintiff, jointly and severally, the following sums:

i. P500,000.00 representing opportunity loss;ii. P50,000.00 for and as attorney‘s fees; iii. P20,000.00 for and as expenses of litigation; andiv. P50,000.00 for and as moral, exemplary, temperate and nominal damages.

Other reliefs, just and equitable under the premises, are likewise prayed for.[34]

Lagon testified that Josefina failed to deliver the title to the property he purchased from her, as well as thepossession thereof; hence, he was not certain of the metes and bounds of the property and could not secure abuilding permit for the transfer and construction of the Rural Bank of Isulan, as well as the commercialbuilding. Besides, Carlos, Jr. secured his permission for the construction of the PCIB commercial building on Lot No.3-C-2 which was sold to him by Josefina, and even agreed to the deduction of the purchase price thereof; hence, thebalance was onlyP26,880. Lagon demanded that the title to the property be turned over to him and the occupantsthereof be evicted therefrom so that he could comply with the conditions of the sale for the construction of thecommercial building and the transfer of the Isulan Rural Bank. However, Carlos, Jr. dilly-dallied, saying that theheirs of Carlos, Sr. needed time to execute the extrajudicial settlement of his estate, and thus failed to deliver saidtitle to him. Lagon averred that his consent to the construction by the PCIB of its branch on a portion of the propertyhe had purchased from Josefina constituted substantial compliance of his undertaking under the deed of absolutesale and the affidavit he executed in favor of Josefina. He also alleged that he signed the affidavit prepared byCarlos, Jr. without reading and understanding the same. He pointed out that although Lot No. 3 had already beensold to him by Josefina, she still sold Lot No. 3-C-3 to her son, Carlos, Jr.; Lot No. 3-D to Engr. Rolendo Delfin; andmortgaged Lot No. 3-D to DBP which acquired title over the property.

In their answer to the complaint, Josefina and her son, the defendants therein, alleged that Lagon had no

cause of action against them because he failed to comply with the terms of the deed of absolute sale, hisundertaking under his affidavit, and to pay the purchase price of the property in full. Carlos, Jr. denied securingLagon‘s consent to the construction of the PCIB branch on Lot 3-C-2, and agreeing to deductP35,000 from thebalance of Lagon‘s account for the purchase price of the property. Josefina and Carlos, Jr. interposed counterclaimsfor damages and attorney‘s fees.

Lagon withdrew his petition for the issuance of a writ of preliminary injunction which the trial court granted,per its Order dated February 24, 1993.

On January 20, 1995, the trial court rendered judgment in favor of Lagon. The fallo of the decision reads:

WHEREFORE, upon all the foregoing considerations, judgment is hereby rendered:

1. ORDERING defendant Josefina L. Valdez, by herself, or through her duly authorized attorney-in-fact, defendantCarlos L. Valdez, Jr., to execute the necessary registrable document of deed of absolute sale in favor of the plaintiffover the remaining area of that parcel of land, the defendant sold to plaintiff on May 9, 1979, particularly Lot 3-C-3,Psd-12-005408 covered under Transfer Certificate of Title No. T-18816, in the name of defendant Josefina de LeonVda. de Valdez, and for the latter to deliver to plaintiff the possession of and the transfer certificate of title thereof,

and ORDERING further the defendants to pay, jointly and severally, plaintiff the current fair market value of theremaining area of the land sold to the latter which defendants may not be able to deliver and transfer ownershipthereof to the plaintiff, minus the amount of P26,880.00 representing the unpaid balance of the agreed purchaseprice of the 4,094 square meter-portion of land sold to plaintiff in the total amount of P163,760.00;

2. ORDERING defendants to pay plaintiff, jointly and severally, the sums of:

(a) P50,000.00 representing attorney‘s fees for the legal services of plaintiff‘s counsel, plus P5,000.00, asappearance fee for plaintiff‘s counsel, per hearing, for not less than ten (10) times;

(b) P2,119.00 as filing fees (Exhibits ―W‖, ―W-1‖, ―W-2‖, and ―W-3‖) paid by plaintiff for the filing of this cas

(c) P23,585.50 representing transportation expenses of plaintiff‘s counsel through PAL flights from Manila to court hearings in this Court, and in going back to Manila (Exhibits ―FF‖, ―FF-1‖, ―GG‖, ―HH‖, ―II‖, ―JJ‖, ―KK‖, ―

―MM‖);

(d) P50,000.00 for and as moral and exemplary damages; and, further

ORDERING defendants, jointly and severally, to pay the costs of suit.

For lack of merit, the counterclaim interposed by defendants should be, as it is hereby, dismissed.

IT IS SO ORDERED.[35]

Josefina and Carlos, Jr. appealed the decision to the Court of Appeals, contending that –

I. THE LOWER COURT ERRED IN NOT UPHOLDING THE DEFENSE OF THE DEFENDANTS-APPELLANTS THAT TPLAINTIFF-APPELLEE HAS NO VALID CAUSE OF ACTION AGAINST THEM CONSIDERING THAT HE FAILED TO WITH THE TERMS AND CONDITIONS OF HIS WRITTEN CONTRACTS WITH THE DEFENDANTS-APPELLANTS.

II. THE COURT ERRED IN NOT UPHOLDING THAT EXHIBIT ―3‖ WHICH IS THE AFFIDAVIT OF PLAINTIFF-APPEWAS PART OF THE AGREEMENTS OF THE PARTIES AS IT WAS ADMITTED BY HIM. IT MUST BE ENFORCED APLAINTIFF-APPELLEE IS LIABLE FOR BREACH OF HIS CONTRACT WITH THE DEFENDANTS-APPELLANTS.

III. THE LOWER COURT ERRED WHEN IT RULED THAT THE TERMS AND CONDITIONS IN THE SPECIAL POWEATTORNEY (EXHIBITS ―1-C‖ AND ―A-1‖) WERE NOT PART OF THE DEED OF ABSOLUTE SALE (EXHIBITS ―1‖ AEXECUTED BY THE PARTIES.

IV. THE LOWER COURT ERRED IN NOT DECLARING THAT THE ACT OF THE DEFENDANTS-APPELLANTS INRESCINDING THEIR CONTRACT WITH THE PLAINTIFF-APPELLEE WAS PERFECTLY LEGAL, VALID, EFFECTIVEBINDING ON THE PLAINTIFF-APPELLEE.

V. THE LOWER COURT ERRED IN NOT RENDERING JUDGMENT IN FAVOR OF THE DEFENDANTS-APPELLANTSDESPITE THE OVERWHELMING EVIDENCE OF THE MANIFEST INCREDULITY AND UNWORTHINESS OF THE EVOF THE PLAINTIFF-APPELLEE.

VI. THE LOWER COURT ERRED IN NOT FINDING THAT THE PLAINTIFF-APPELLEE IS GUILTY OF LACHES ORESTOPPEL.

VII. THE COURT ERRED IN AWARDING DAMAGES TO THE PLAINTIFF-APPELLEE AND DISMISSING THECOUNTERCLAIM OF THE DEFENDANTS-APPELLANTS.[36]

The appellate court rendered judgment on January 28, 1998 reversing the decision of the RTC. Ththe decision reads:

IN VIEW WHEREOF, the Decision of the Lower Court dated January 20, 1995is hereby REVERSED and SEASIDE. Appellants are hereby ordered to return to Appellee the sum of P101,880.00 together with 12% intper annum from the finality of this decision. The case filed in the Court a quo is hereby ordered DISMISSE

The appellate court ruled that based on the deed of absolute sale, the Special Power of Attorney exeJosefina, and the affidavit of the respondent, the parties had executed a contract to sell. The respondenmotion for the reconsideration thereof.













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On February 4, 1999, the Court of Appeals reversed itself and rendered an Amended Decision, setting aside itsdecision and affirming that of the RTC. This time, the appellate court held that Josefina had, after all, executed adeed of absolute sale over the 4,094-square-meter portion of Lot No. 3. It declared that the Special Power ofAttorney executed by Josefina and the affidavit did not form part of the deed of absolute sale. It further declaredthat Lagon‘s affidavit could not be considered part of the said deed because it was merely an afterthought contrivedby Carlos, Jr.

The appellate court also held that even if the Special Power of Attorney and affidavit formed integral parts ofthe deed of absolute sale, Lagon was justified in refusing to pay the balance of the purchase price of the propertyand to comply with his undertaking thereon, because Josefina‘s refusal to deliver the title to the property made it

impossible to determine the metes and bounds thereof. According to the appellate court, under Article 1186 of theNew Civil Code, the conditions of the sale are deemed fulfilled. Moreover, the Court of Appeals ruled, the appellantsfailed to comply with the procedure under Article 1592 of the New Civil Code in rescinding the sale.

Josefina and Carlos, Jr., now the petitioners, filed their petition for review on certiorari wherein they raised the

following issues:

I. WHETHER OR NOT THE CONTRACT OF THE PARTIES BEING SUBJECT TO THE SUSPENSIVECONDITIONS AGREED UPON WAS A CONTRACT TO SELL OR A CONTRACT OF SALE ?

II. WHETHER OF (SIC) NOT THE PETITIONERS HAD THE RIGHT TO RESCIND THEIR CONTRACT WITHPRIVATE RESPONDENT?

III. WHETHER OF (SIC) NOT PRIVATE RESPONDENT IS ENTITLED TO HIS CLAIM FOR SPECIFICPERFORMANCE AND DAMAGES CONSIDERING HIS FAILURE TO COMPLY WITH THE SUSPENSIVECONDITIONS AGREED UPON?[38]

The petitioners assert that, the contract agreed upon by the parties was a contract to sell and not a contractof sale. The petitioners contend that the three documents, the deed of absolute sale, the special power of attorneyexecuted by petitioner Josefina and the affidavit of the respondent dated April 27, 1981, formed integral partscontaining the terms and conditions of one and the same transaction. They emphasize that the respondent knewthat his contract with petitioner Josefina was a contract to sell because he did not acquire a torrens title over theproperty nor took possession thereof after the execution of the deed of absolute sale; the respondent even failed toregister the said deed with the Office of the Register of Deeds and to declare the same for taxation purposes underhis name. They aver that the requirements under Article 1592 of the New Civil Code do not apply to a contract to

sell but only to a contract of sale.

The petitioners insist that the Court of Appeals erred in declaring that the conditions of the sale were deemedfulfilled by their failure to deliver the torrens title to the property to the respondent, on its finding thatnotwithstanding such failure, the respondent continued making partial payments of the purchase price of theproperty to the petitioners.

In his comment on the petition, the respondent reiterates that based on the evidence on record, theadmissions of the petitioners, as well as the special power of attorney executed by petitioner Josefina, a deed ofabsolute sale was executed between him and petitioner Josefina, not merely a contract to sell of the portions of Lots3-C and 3-D. He alleges that under Articles 1477 and 1498 of the New Civil Code, he acquired title and possessionof the property upon the execution of the said deed.

The Ruling of the Court

The Subject Property is the

Exclusive Property of Josefina de Leon Valdez

Intricately interwoven with the threshold issue raised by the petitioners is the issue of the nature of Lot No. 3of Pls-208-D-13 covered by TCT No. T-19529 (T-1902).

In the deed of absolute sale executed by petitioner Josefina in favor of the respondent, she declared that shewas the absolute owner of the said property .[39] However, in the deed of extrajudicial settlement of the estate ofCarlos Valdez, Sr. executed by petitioner Josefina and her children on December 31, 1982, the subject property wasdeclared as part of the estate of the deceased.[40] The Court of Appeals, under its Amended Decision, affirmed the

finding of the RTC that it was only after the execution of the said deed of extrajudicial settlement that peJosefina became the absolute owner of the property.[41] However, we find that both the trial and appellaterred in so ruling.

We note that TCT No. T-19529 (T-1902) covering the property was issued on August 18, 1967, dumarriage of the Spouses Carlos Valdez, Sr. and petitioner Josefina, under the name ―Josefina L. Valdez mCarlos Valdez, Sr.‖ The issuance of the title in the name solely of one spouse is not determinative of the

nature of the property, since there is no showing that it was acquired during the marriage of the SpouseValdez, Sr. and Josefina L. Valdez.[42] The presumption under Article 160 of the New Civil Code, that acquired during marriage is conjugal, does not apply where there is no showing as to when the property abe conjugal was acquired. The presumption cannot prevail when the title is in the name of only one spouserights of innocent third parties are involved.[43] Moreover, when the property is registered in the name of ospouse and there is no showing as to when the property was acquired by same spouse, this is an indicationproperty belongs exclusively to the said spouse.[44]

In this case, there is no evidence to indicate when the property was acquired by petitioner Josefina. agree with petitioner Josefina‘s declaration in the deed of absolute sale she executed in favor of the responshe was the absolute and sole owner of the property. We are convinced that the declaration in the extrajudicial settlement of the estate of the late Carlos Valdez, Sr., that the property formed part of his estthat his children waived their rights and claims over the property in favor of their mother, was done mfacilitate the issuance of a torrens title over the property in petitioner Josefina‘s name with her marital widow.

Petitioner Josefina Valdez and the Respondent entered into a Contract of Sale over the Subject Property

The RTC, as well as the Court of Appeals in its Amended Decision, held that petitioner Josefina respondent entered into a contract of sale, not a contract to sell, over the subject property, relying soleldeed of absolute sale executed by her on May 9, 1979. Although it was expressly stated in the Affidavit exethe respondent on April 27, 1981 appended to the deed, the appellate court affirmed the ruling of the RTC tSpecial Power of Attorney executed by petitioner Josefina in favor of her son, petitioner Carlos, Jr., did not fof the said deed. Both tribunals ratiocinated that, indeed, under the Special Power of Attorney, parconsideration of the sale of the subject property was the construction of a commercial building and the tra

the Isulan Rural Bank thereto within five (5) years from the execution of the deed. However, since such cwas not actually incorporated in the said deed, the affidavit prepared by petitioner Carlos, Jr. and signedrespondent was but an afterthought contrived by petitioner Carlos, Jr., thus enabling him to surreptitiously provision or condition in the deed of absolute sale.

We agree with the trial and appellate courts that petitioner Josefina and the respondent enterecontract of sale over the subject property and not merely a contract to sell the same.

It is not disputed by the parties that petitioner Josefina executed a Special Power of Attorney in favoson, petitioner Carlos, Jr., as her attorney-in-fact, authorizing the latter to sell the subject property, and pJosefina, through her son, executed the deed of absolute sale over the subject property. She also acknowreceipt of partial payments of the purchase price of the property on April 21, 1981 through her attorney-in-balance of the purchase price thus stood atP61,880.00 There is, likewise, no dispute that the respondent saffidavit on April 27, 1981. The parties, however, differ on the real nature of their transaction and on whesaid affidavit formed an integral part of the deed of absolute sale executed by petitioner Josefina in favorespondent.

The real nature of a contract may be determined from the express terms of the written agreement athe contemporaneous and subsequent acts of the parties thereto.[45]

In the construction or interpretation of an instrument, the intention of the parties is primordial and pursued.[46] If the terms of a contract are clear and leave no doubt upon the intention of the contracting parliteral meaning of its stipulations shall control.[47] If the contract appears to be contrary to the evident intethe parties, the latter shall prevail over the former.[48] The denomination given by the parties in their contraconclusive of the nature of the contents.[49]

The agreement of the parties may be embodied in only one contract or in two or more separate wrisuch event, the writings of the parties should be read and interpreted together in such a way as to renintention effective.[50]





















































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A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and totransfer ownership of a specified thing or right to another (the buyer) over which the latter agrees.[51] From the timethe contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated butalso to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[52]

In a contract of sale, the title to the property passes to the vendee upon the constructive or actual deliverythereof, as provided for in Article 1477 of the New Civil Code. The vendor loses ownership over the property andcannot recover it until and unless the contract is resolved or rescinded by a notarial deed or by judicial action asprovided for in Article 1540 of the New Civil Code. A contract is one of sale, absent any stipula tion therein reservingtitle over the property to the vendee until full payment of the purchase price nor giving the vendor the right tounilaterally rescind the contract in case of non-payment .[53] In a contract of sale, the non-payment of the price is aresolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligationscreated thereunder.[54] In a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass tothe vendee until full payment of the purchase price. Such payment is a positive suspensive condition, failure ofwhich is not a breach but an event that prevents the obligation of the vendor to convey title from becoming

effective.[55]

In this case, the deed of absolute sale executed by pet itioner Josefina reads:

That the Vendor is the registered owner of Lot 3 Allah Valley Pls-208-D-3, located at Isulan, Sultan Kudarat, coveredby Transfer Certificate of Title No. (T-19529) T-1902 of the Register of Deeds of Cotabato, with eight (8) lotssubdivision duly approved pursuant to R.A. 440 on March 27, 1979.

That for and in consideration of the sum of EIGHTY THOUSAND PESOS (P80,000.00), Philippine Currency, in handpaid by the VENDEE, receipt of which amount in Full is hereby acknowledged by the VENDOR, to the ENTIRE and fullsatisfaction of the VENDOR, and who by these presents do hereby sell, cede, deliver and convey unto the saidVENDEE, his heirs, assigns and successors in interests, a portion of the above-mentioned lot, more particularlydescribed as follows:

TOTAL AREA: FOUR THOUSAND AND NINETY-FOUR (4,094) SQUARE METERS, WITH SIXTY-FOUR POINT THREE(64.3) METERS, FRONTAGE, FACING THE NATIONAL HIGHWAY and the NGA Office, going towards the BUENCAMINOMOVIE HOUSE, starting from the corner.

That the Vendor hereby warrants the peaceful possession and ownership of said vendee against any adverseclaim.[56]

Irrefragably, the deed is one of sale, not a contract to sell. The deed specifically states that the property issold and delivered to the respondent as vendee. Petitioner Josefina even warranted the peaceful possession andownership of the respondent over the property subject of the transaction. She did not reserve the ownership overthe property, as well as any right to unilaterally rescind the contract. There has been, by the execution of the saiddeed, a constructive delivery of the property to the respondent; hence, the latter acquired ownership over thesame.[57]Upon payment of the purchase price, petitioner Josefina was obliged to deliver the torrens title over theproperty to and under the name of the respondent as the new owner and place him, as vendee, in actual possessionthereof; otherwise, the failure or inability to do so constitutes a breach of the contract sufficient to justify itsrescission.[58]

However, we rule that the deed of absolute sale was unenforceable as of the date of its execution, May 9,1979. This is so, because under the Special Power of Attorney petit ioner Josefina executed in favor of her son,petitioner Carlos, Jr., the latter was authorized to sell the property on cash basis only; petitioner Josefina likewiserequired the construction of a commercial building and the transfer of the Rural Bank of Isulan, as part of theconsideration of the sale to be incorporated in the said deed as part of the respondent‘s obligation as vendee, thus:

(a) To sell sixty four point three meters FRONTAGE and the full length of Lot 3, A LLAH VALLEY, Pls-208-D-13 described in TCT No. T-(19529) T-1902, somewhere in the 3 rd and 4th lots of the 8 lotssubdivision, located at Poblacion, Isulan, Sultan Kudarat, registered in my name, consisting of FourThousand Ninety-Four (4,094) Square Meters;

(b) To RECEIVE and SIGN documents and papers necessary in the CONTRACT OF SALE with Mr. JOSELAGON, and to RECEIVE the full PRICE in CASH, to be determined by my son, CARLOS L. CARLOS,JR.;

(c) To IMPOSE in the Contract that aside from the PRICE, another consideration would be for Mr. JOLAGON to transfer the RURAL BANK OF ISULAN to the above-mentioned lot and to put a commercbuilding, different from the building of the Rural Bank of Isulan on the same lot.[59]

Clearly, petitioner Carlos, Jr. acted beyond the scope of his authority when he executed the deed of sale in contravention of petitioner Josefina‘s express instructions. Worse, he falsely declared in the said dthe purchase price was P80,000.00 and that he had already received the said amount, when, in fact, the was sold forP40.00 per square meters, or a total of P163,760.00, and that as of May 9, 1979, he had received the said amount. Under Article 1317 of the New Civil Code, contracts executed by agents who habeyond their powers are unenforceable unless ratified by the principal either expressly or impliedly:

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who hacted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person obehalf it has been executed, before it is revoked by the other contracting party.

Thus, the effectivity of the contract of sale in the case at bar depends upon the ratification thpetitioner Josefina as principal. If she ratifies the deed, the sale is validated from the moment of its commenand not merely from the time of its ratification.[60] In such case, she can no longer maintain an action to asame based upon defects relating to its original validity.[61]

We find that petitioner Josefina ratified the said deed when she received, through her son and attornepetitioner Carlos, Jr., partial payments of the purchase price of the property from the respondent on 1981.[62] Such ratification retroacted to May 9, 1979, the date when petitioner Josefina, through her attofact, executed the deed of sale covering the subject property in favor of the respondent. Moreover, we rulerespondent agreed on to transfer the Rural Bank of Isulan to the subject property, and to cause the construccommercial building within five (5) years reckoned from May 9, 1979 or until May 9, 1984, as evidenceaffidavit.

We reject the findings of the RTC as affirmed by the CA that the affidavit signed by the respondent 27, 1981 was merely an afterthought contrived by petitioner Carlos, Jr., and their conclusion that the said

had no binding effect on petitioner Josefina. The affidavit of the respondent reads:

1. That I am the Vendee of a Deed of Absolute Sa le where the Vendor is Mrs. Josefina L. Valdez, representedCARLOS L. CARLOS, JR., through a Special Power of Attorney;

2. That the above-mentioned Deed of Absolute Sale is dated May 9, 1979 and the Special Power of Attorneyabove-mentioned was dated May 1, 1979, both duly notarized by Notary Public Atty. Bienvenido Noveno undNo. 77; Page No. 16; Book No. XIX; Series of 1979, and Doc. No. 73; Page No. 15; Book No. XIX; Series of respectively;

3. That the subject of the above-mentioned Deed of Absolute Sale is a lot consisting of 4,094 square meterscovered by Transfer Certificate of Title No. T-19529 of the Register of Deed s for the Province of Cotabato, fatheNational Highway and the Isulan NGA Office going towards the Buencamino Movie House, starting from thcorner;

4. That the consideration of the above-mentioned Deed of Absolute Sale is EIGHTY THOUSAND PESOS (P80,and in addition thereto, I hereby declare and manifest that the above-mentioned 4,094 square meters becommercialized by putting up at least one (1) bank and any other commercial building in the said 4,094 squmeters within a period of five (5) years from the time of the execution of the above-mentioned Deed of AbsoSale, in full operation;

5. That should I fail to commercialize the said 4,094 square meters in full operation within a period of five (5as stated above, I hereby declare and manifest that said Deed of Absolute Sale shall be declared null and voiwithout need of demand addressed to me;

















































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6. That the purpose of this Affidavit is to make it clear that the consideration of the said Deed of Absolute Sale is notonly P80,000.00 cash but also the fact that the said 4,094 square meters be commercialized.[63]

The respondent admitted in his complaint that he undertook to construct the said building and transfer theRural Bank of Isulan to the property he had purchased from petitioner Josefina.[64] The respondent affirmed theauthenticity and due execution of his affidavit and his obligations therein, and testified, thus:

ATTY. VALDEZ:

Q Mr. Lagon, you testified that according to you the construction of the same, the PCIB Isulan was acompliance of your obligation under your contract with the Val dezes, do you recall having testifiedon that?

A Yes, Sir.

Q With in (sic ) how many years, by the say (sic ), were you supposed to comply with that condition byputting up a bank or a commercial building in that area?

A Supposed to be five years, Sir.

Q From when?

A According to the affidavit, from the time I purchased the property up to or from May 9, 1979 to1984, Sir.[65]

In his letter to petitioner Carlos, Jr., the respondent, through counsel, admitted the binding effect of hisaffidavit as follows:

It is hereby submitted therefore that there is in effect substantial compliance on the part of Mr. Lagon with regardsto the additional condition laid down in his affidavit herein-referred to. If you deem it that Mr. Lagon has notsatisfactorily complied with all the obligations you imposed upon him to do thereunder, it is made to reasons not ofhis own making but due to factors brought about by circumstances then prevailing, and elaboration on the same canonly be properly stated on the proper to come.[66]

Far from being a mere affidavit, the document embodies the unequivocal undertaking of the respondent toconstruct a fully operational commercial building and to transfer the Rural Bank of Isulan to the subject property aspart of the consideration of the sale within five (5) years from the execution of the deed of sale, or until May 9,1984.

The intractable refusal of the respondent to pay the balance of the purchase price of the property despite thepetitioners‘ demands had no legal basis. As such, petitioner Josefina‘s refusal to deliver the torrens title over thesubject property under the respondent‘s name was justified, precisely because of the respondent‘s refusal to complywith his obligation to pay the balance of the purchase price. Had the respondent paid the purchase price of theproperty, such failure on the part of petitioner Josefina to deliver the torrens title to and under the name of therespondent would have warranted the suspension of the five-year period agreed upon for the construction of a fullyoperational commercial building, as well as the transfer of the aforesaid bank to the property. This is so becauseabsent such torrens title under the name of the respondent, no building permit for the construction of the buildingscould be secured.

Considering all the foregoing, the failure of the respondent to cause the construction of the commercialbuilding and the transfer of the bank to the property sold under the deed of sale executed between him andpetitioner Josefina was due to the respondent‘s own fault.

There was no need for petitioner Josefina to make a notarized demand to the respondent or file an action torescind the deed of absolute sale to enable her to recover the ownership of the property. This is so because thepetitioner and the respondent had agreed that upon the latter‘s failure to construct a new and fully operationalcommercial building and to cause the transfer of the Rural Bank of Isulan to the property on or before May 9, 1984,the deed of absolute sale would be deemed null and void without need of any demand from the petitioners. Suchagreement is evidenced by the affidavit executed by the respondent himself on April 27, 1981.

We do not agree with the respondent‘s contentions that petitioner Josefina, through her son and attorney-in-fact petitioner Carlos, Jr., had agreed to the sale of a portion of the property, the construction of the PCIB branchoffice thereon, and the crediting of the amount paid by the PCIB to the respondent‘s account, and deducted from the

balance of the purchase price. In the first place, the respondent failed to adduce a morsel of evidepetitioner Josefina had knowledge of the said agreement and had agreed thereto. Furthermore, the refailed to adduce documentary evidence that petitioner Josefina authorized her son and attorney-in-fact to esuch an agreement.

It bears stressing that petitioner Josefina specifically and unequivocally required in the special pattorney, as part of the consideration of the sale of the property to the respondent, the latter‘s oblig

construct a new and fully operational commercial building and transfer the Rural Bank of Isulanproperty. Had she agreed to modify the Special Power of Attorney she executed in favor of her son, pCarlos, Jr., for sure, she would have executed a document to that effect. She did not do so. Pet itioner Ccould not lawfully bind petitioner Josefina thereon because he was not so authorized to enter into agreement with the respondent; neither can such authority be implied from the Special Power of Attorney pJosefina executed in favor of her son, pet itioner Carlos, Jr.

In sum, then, the respondent had no cause for specific performance against the petitioners. Howe

petitioners are obliged to refund to the respondent the latter‘s partial payments for the subject property.

[67]

The petitioners failed to adduce sufficient evidence to prove their counterclaims, and, as sucounterclaims must forthwith be dismissed.

IN LIGHT OF ALL THE FOREGOING, the Amended Decision of the Court of Appeals dated Februaryis REVERSED and SET ASIDE. The complaint of the respondent is DISMISSED. The petitioners are dirrefund to the respondent the amount of P101,880.00 with interest thereon at the rate of 12% per annum ffinality of this decision. No costs.

SO ORDERED.

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALherself and on behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A. COFLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE COAPPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ, assisted by GLNOEL as attorney-in-fact, respondents.

D E C I S I O N

MELO, J .:

The petition before us has its roots in a complaint for specific performance to compel herein pe(except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvlocated along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for tofP1,240,000.00.

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

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

RECEIPT OF DOWN PAYMENT

P1,240,000.00 - Total amount

50,000.00 - Down payment

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

P1,190,000.00 - Balance





















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

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

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

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

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

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

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

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

On February 6, 1985, the property originally registered in the name of the Coronel‘s father was transferred in theirnames under TCT No. 327043 (Exh. ―D‖; Exh ―4‖)

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

For this reason, Coronels canceled and re scinded the contract (Exh. ―A‖) with Ramona by depositing the down

payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

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

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

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

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

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed tosubmit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now privaterespondents) proffered their documentary evidence accordingly marked as Exhibits ―A‖ through ―J‖, inclusive of their

corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners)

accordingly offered and marked them as Exhibits ―1‖ through ―10‖, likewise inclusive of their corresubmarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultsubmit their respective memoranda, and an additional 15 days within which to submit their corresponding cor reply thereto, after which, the case would be deemed submitted for resolution.

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

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant t o execute in favor oplaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer CertificateNo. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvemexisting thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the sadocument of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the wholbalance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 Registry of Deeds forQuezon City in the name of intervenor is hereby canceled and declared to be without f oeffect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate tsubject property and deliver possession thereof to plaintiffs. Plaintiffs‘ claim for damages and attorney‘s feewell as the counterclaims of defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

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

(Rollo

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

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by theundersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submdecision as of April 14, 1988 when the parties terminated the presenta tion of their respective documentary eand when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to fimemoranda at some future date did not change the fact that the hearing of the case was terminated before Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervnot object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in CivNo. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they a re now estopfrom questioning said authority of Judge Roura after they received the decision in question which happens toadverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this BrancCourt, he was in all respects the Presiding Judge with full authority to act on any pending incident submittedthis Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did nhis authority to decide or resolve cases submitted to him for decision or resolution because he co ntinued as the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule andsupported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to deccase notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of C

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

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

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SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

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

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

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

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar isthe precise determination of the legal significance of the document entitled ―Receipt of Down Payment‖ which wasoffered in evidence by both parties. There is no dispute as to the fact that the said document embodied the b indingcontract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other,pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code ofthe Philippines which reads as follows:

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

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

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

The Civil Code defines a contract of sale, thus:

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

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

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

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first e ssentialelement is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to theprospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of theproperty subject of the contract to sell until the happening of an event, which for present purposes we shall take asthe full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sellthe subject property when the entire amount of the purchase price is delivered to him. In other words the full

payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevobligation to sell from arising and thus, ownership is retained by the prospective seller without further remthe prospective buyer. InRoque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where theownership or title is retained by the seller and is not to pass until the full payment of the price, such paymena positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event thprevented the obligation of the vendor to convey title from acquiring binding force.

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

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

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is b inding upon the prof the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while ereserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds hisell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, thapayment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sathe seller may likewise reserve tit le to the property subject of the sale until the fulfillment of a suspensive cbecause in a conditional contract of sale, the first element of consent is present, although it is conditioned uhappening of a contingent event which may or may not occur. If the suspensive condition is not fulfiperfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of AppeSCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfectthat if there had already been previous delivery of the property subject of the sale to the buyer, ownershipautomatically transfers to the buyer by operation of law without any further act having to be performed

seller.

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

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

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale absolute and this will definitely affect the seller‘s title thereto. In fact, if there had been previous delivesubject property, the seller‘s ownership or title to the property is automatically transferred to the buyer suthe seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Co

second buyer of the property who may have had actual or constructive knowledge of such defect in t he sellor at least was charged with the obligation to discover such defect, cannot be a registrant in good faisecond buyer cannot defeat the first buyer‘s title. In case a title is issued to the second buyer, the first buseek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real naturcontract entered into by petitioners and privat e respondents.

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It 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 (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus,when petitioners declared in the said ―Receipt of Down Payment‖ that they --

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

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

When the ―Receipt of Down payment‖ is considered in its entirety, it becomes more manifest that there was aclear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was stillin the name of petitioner‘s father, they could not fully effect such transfer although the buyer was then willing and

able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the downpayment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in theirnames from that of their father, after which, they promised to present said title, now in their names, to the latterand to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire ba lance of the purchaseprice.

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

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

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer

with certain terms and conditions, promised to sell the property to the latter. What may be perceived from therespective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lotthey inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer ifthe documents were then in order. It just so happened, however, that the transfer certificate of title was then stillin the name of their father. It was more expedient to first effect the change in the certificate of title so as to beartheir names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in theirnames upon receipt of the down payment in the amount ofP50,000.00. As soon as the new certificate of title isissued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then willthe obligation of the buyer to pay the remainder of the purchase price arise.

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

What is clearly established by the plain language of the subject document is that when the said ―Receipt ofDown Payment‖ was prepared and signed by petitioners Romulo A. Coronel, et. al., the parties had agreed to a

conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of tit lefrom the name of petitioners‘ father, Constancio P. Coronel, to their names.

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

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

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing whicobject of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law gthe form of contracts.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of thosalready acquired, shall depend upon the happening of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in penames was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of salemutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of titlein their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the absolute sale, while the buyer on her part, was obliged to forthwith pay t he balance of the purchase price amtoP1,190,000.00.

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

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

(Rollo, p. 1

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

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

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

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

Besides, it should be stressed and emphasized that what is more controlling than these mere hypoarguments is the fact that thecondition herein referred to was actually and indisputably fulfFebruary 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 3274

―D‖; Exh. ―4‖).

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated asof Down Payment‖ (Exh. ―A‖; Exh. ―1‖), the parties entered into a contract of sale subject to the su

condition that the sellers shall effect the issuance of new certificate title from that of their father‘s name

names and that, on February 6, 1985, this condition was fulfilled (Exh. ―D‖; Exh. ―4‖).

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

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

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

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

Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then notyet the absolute owners of the inherited property.

We cannot sustain this argument.

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

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

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel arecompulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his lastbreath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights orobligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to thesuccession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs.Villanueva, 90 Phil. 850 [1952]).

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

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 took whenthey entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, andcannot be denied or disproved as against the person relying thereon.

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

Petitioners also contend that although there was in fact a perfected contract of sale between them andRamona P. Alcaraz, the latter breach her reciprocal obligation when she rendered impossible the consummationthereof by going to the United States of America, without leaving her address, telephone number, and Special Powerof Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo,

p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding the contract of sale.

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

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

Even assuming arguendo that Ramona P. Alcaraz was in the United St ates of America on February 6, 1985, wecannot justify petitioners-sellers‘ act of unilaterally and extrajudicially rescinding the contract of sale, there being noexpress stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA, 158SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984] )

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because althoughthe evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had beendealing with Concepcion D. Alcaraz, Ramona‘s mother, who had acted for and in behalf of her daughter, if not also in

her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal Che ―B‖; Exh. ―2‖) for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever quConcepcion‘s authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioconcerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in de fault, insofar as her obligation to papurchase price is concerned. Petit ioners who are precluded from setting up the defense of the physical abRamona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented transfer certificate of title in their names and signified their willingness and readiness to execute the absolute sale in accordance with their agreement. Ramona‘s corresponding obligation to pay the balancpurchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefcannot be deemed to have been in default.

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

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

x x x

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

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

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

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

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

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

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of thecontract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance ocertificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Artshall apply.

The above-cited provision on double sale presumes title or ownership to pass to the buyer, the exbeing: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the

ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will notto him to the prejudice of the first buyer.

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

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the firstof the second sale cannot defeat the first buyer‘s rights except when the second buyer first registers in goodthe second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer

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first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (seealso Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22

June 1984, 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph,that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of

Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604 ).

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

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer in good

faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge ofany defect in the title of the property sold.

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

This Court had occasions to rule that:

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

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld byboth the courts below.

Although there may be ample indications that there was in fact an agency between Ramona as principal andConcepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or notConcepcion was also acting in her own behalf as a co-buyer is not squarely raised in t he instant petition, nor in suchassumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb thelower courts‘ ruling on this point.

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

SO ORDERED.

PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS and GILDA C. MEJIA, respondents.

D E C I S I O N

REGALADO, J.:

This is definitely not a case of first impression. The incident which eventuated in the present controversy is adrama of common contentious occurrence between passengers and carriers whenever loss is sustained by theformer. Withal, the exposition of the factual ambience and the legal precepts in this adjudication may hopefullychannel the assertiveness of passengers and the intransigence of carriers into the realization that at times a badextrajudicial compromise could be better than a good judicial victory.

Assailed in this petition for review is the decision of respondent Court of Appeals in CA-G.R.42744[1] which affirmed the decision of the lower court[2] finding petitioner Philippine Air Lines, Inc. (PAL) follows:

―ACCORDINGLY, judgment is hereby rendered ordering defendant Philippine Air Lines, Inc., to pay plaintiff GMejia:

(1) P30,000.00 by way of actual damages of the microwave oven;

(2) P10,000.00 by way of moral damages;

(3) P20,000.00 by way of exemplary damages;

(4) P10,000.00 as attorney‘s fee;

all in addition to the costs of the suit.

Defendant‘s counterclaim is hereby dismissed for lack of merit.‖ [3]

The facts as found by respondent Court of Appea ls are as follows:

―On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1) unit microwoven, with a gross weight of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon arrival, hoof said article in Manila, Philippines, plaintiff discovered that its front glass door was broken and the damagerendered it unserviceable. Demands both oral and written were made by plaintiff against the defendant for treimbursement of the value of the damaged microwave oven, and transportation charges paid by plaintiffto defendant company. But these demands fell on deaf ears.

―On September 25, 1990, plaintiff Gilda C. Mejia filed the instant action for damages against defendant in th

court.

―In its answer, defendant Airlines alleged inter alia, by way of special and affirmative defenses, that the cour jurisdiction over the case; that plaintiff has no valid cause of action against defendant since it acted only in gfaith and in compliance with t he requirements of the law, regulations, conventions and contractual commitmand that defendant had always exercised the required diligence in the selection, hiring and supervision of itsemployees.‖ [4]

What had theretofore transpired at the trial in the court a quo is narrated as follows:

―Plaintiff Gilda Mejia testified that sometime on January 27, 1990, she took defendant‘s plane from San FranU.S.A. for Manila, Philippines (Exh. ‗F‘). Amongst her baggages (sic) was a slightly used microwave oven witbrand name ‗Sharp‘ under PAL Air Waybill No. 0-79-1013008-3 (Exh. ‗A‘). When shipped, defendant‘s office Francisco inspected it. It was in good condition with its front glass intact. She did not declare its value uponadvice of defendant‘s personnel at San Francisco.

―When she arrived in Manila, she gave her sister Concepcion C. Diño authority to claim her baggag(e) (Exh.

took a connecting flight for Bacolod City.

―When Concepcion C. Dino claimed the baggag(e) (Exh. ‗B‘) with defendant, then with the Bureau of Customfront glass of the microwave oven was already broken and cannot be repaired because of the danger ofradiation. They demanded from defendant thru Atty. Paco P30,000.00 for the damages although a brand necosts P40,000.00, but defendant refused to pay.

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―Hence, plaintiff engaged the services of counsel. Despite demand (Exh. ‗E‘) by counsel, defendant still refused topay.

―The damaged oven is still with defendant. Plaintiff is engaged in (the) catering and restaurant business. Hence, thenecessity of the oven. Plaintiff suffered sleepless nights when defendant refused to pay her (for) the broken ovenand claims P 10,000.00 moral damages, P20,000.00 exemplary damages, P10,000.00 attorney‘s fees plus P300.00per court appearance and P15,000.00 monthly loss of income in her business beginning February, 1990.

―Defendant Philippine Airlines thru its employees Rodolfo Pandes and VicenteVillaruz posited that plaintiff‘s claim wasnot investigated until after the filing of the formal claim on August 13, 1990 (Exh. ‗6‘ also Exh. ‗E‘). During theinvestigations, plaintiff failed to submit positive proof of the value of the cargo. Hence her claim was denied.

―Also plaintiff‘s claim was filed out of time under paragraph 12, a(1) of the Air Waybill (Exh. ‗A‘, also Exh. ‗1‘) which

provides: ‗(a) the person entitled to delivery must make a complaint to the carrier in writing in case: (1) of visibledamage to the goods, immediately after discovery of the damage and at the latest within 14 days from the receiptof the goods.‖ [5]

As stated at the outset, respondent Court of Appeals similarly ruled in favor of private respondent by a ffirmingin full the trial court‘s judgment in Civil Case No. 6210, with costs against petitioner.[6] Consequently, petitioner nowimpugns respondent appellate court‘s ruling insofar as it agrees with (1) the conclusions of the trial court that sincethe air waybill is a contract of adhesion, its provisions should be strictly construed against herein petitioner; (2) thefinding of the trial court that herein petitioner‘s liability is not limited by the provisions of the air waybill; and (3) theaward by the trial court to private respondent of moral and exemplary damages, attorney‘s fees and litigationexpenses.

The trial court relied on the ruling in the case of Fieldmen’s Insurance Co., Inc. vs. Vda. De Songco, et al .[7] infinding that the provisions of the air waybill should be strictly construed against pet itioner. More particularly, thecourt below stated its findings thus:

―In this case, it is seriously doubted whether plaintiff had read the printed conditions at the back of the Air Waybill(Exh. ‗1‘), or even if she had, if she was given a chance to n egotiate on the conditions for loading her microwaveoven. Instead she was advised by defendant‘s employee at San Francisco,U.S.A., that there is no need to declarethe value of her oven since it is not brand new. Further, plaintiff testified that she immediately submitted a formalclaim for P30,000.00 with defendant. But their claim was referred from one employee to another th(e)n told to comeback the next day, and the next day, until she was referred to a certain Atty. Paco. When they got tired andfrustrated of coming without a settlement of their claim in sight, they consulted a lawyer who demanded fromdefendant on August 13, 1990 (Exh. ‗E‘, an[d] Exh. ‗6‘).

―The conclusion that inescapably emerges from the above findings of fact is to concede it with credence. x x x.‖ [8]

Respondent appellate court approved said findings of the trial court in this manner:

―We cannot agree with defendant-appellant‘s above contention. Under our jurisprudence, the Air Waybill is acontract of adhesion considering that all the provisions thereof are prepared and drafted only by the carrier (SweetLines v.Teves, 83 SCRA 361). The only participation left of the other party is to affix his signature thereto (BPICredit Corporation vs. Court of Appeals, 204 SCRA 601; Saludo, Jr. vs. C.A., 207 SCRA 498; Maersk vs. Court ofAppeals, 222 SCRA 108, among the recent cases). In the earlier case of Angeles v. Calasanz, 135 SCRA 323, theSupreme Court ruled that ‗the terms of a contract (of adhesion) must be interpreted against the party who draftedthe same.‘ x x x.‖ [9]

Petitioner airlines argues that the legal principle enunciated inFieldmen’s Insurance does not apply to thepresent case because the provisions of the contract involved here are neither ambiguous nor obscure. The frontportion of the air waybill contains a simple warning that the shipment is subject to the conditions of the contract onthe dorsal portion thereof regarding the limited liability of the carrier unless a higher valuation is declared, as well asthe reglementary period within which to submit a written claim to the carrier in case of damage or loss to thecargo. Granting that the air waybill is a contract of adhesion, it has been ruled by the Court that such contracts arenot entirely prohibited and are in fact binding regardless of whether or not respondent herein read the provisions

thereof. Hav ing contracted the services of petitioner carrier instead of other airlines, private respondent negotiated the terms of the contract and thus became bound thereby.[10]

Counsel for private respondent refutes these arguments by saying that due to her eagerness to microwave oven to Manila, private respondent assented to the terms and conditions of the contract withopportunity to question or change its terms which are practically on a ―take-it-or-leave-it‖ basis, participation therein being the affixation of her signature. Further, reliance on the Fieldmen’s insuranc

misplaced since it is not the ambiguity or obscurity of the stipulation that renders necessary the strict interpof a contract of adhesion against the drafter, but the peculiarity of the transaction wherein one party, nocorporation, drafts all the provisions of the contract without any participation whatsoever on the part of tparty other than affixment of signature.[11]

A review of jurisprudence on the matter reveals the consistent holding of the Court that contracts of are not invalid per se and that it has on numerous occasions upheld the binding effect thereof .[12] As ein Ong Yiu vs. Court of Appeals, et al., supra:

―x x x. Such provisions have been held to be a part of the contract of carriage,and valid and binding upon thpassenger regardless of the latter‘s lack of knowledge or assent to the regulation. It is what is known as a cof ‗adhesion,‘ in regards which it has been said that contracts of adhesion wherein one party imposes a readform of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. Thwho adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. x x x, acontract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding oncontracting against his own negligence.‖

As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:

―x x x, it should be borne in mind that a contract of adhesion may be struck down as void and unenforceablebeing subversive of public policy, only when the weaker party is imposed upon in dealing with the dominantbargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportbargain on equal footing. x x x.‖

but subject to the caveat that –

‖x x x. Just because we have said that Condition No. 5 of the airway bill is binding upon the parties to and fuoperative in this transaction, it does not mean, and let this serve as fair warning to respondent carriers, thatcan at all times whimsically seek refuge from liability in the exculpatory sanctuary of said Condition No. 5 x

The peculiar nature of such contracts behooves the Court to closely scrutinize the factual milieu to wprovisions are intended to apply. Thus, just as consistently and unhesitatingly, but without categorically invsuch contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of contadhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative fsurrounding circumstances.[13]

We find nothing objectionable about the lower court‘s reliance upon the Fieldmen’s Insurance cprinciples wherein squarely apply to the present petition. The parallelism between the aforementioned caseone is readily apparent for, just as in the instant case, it is the binding effect of the provisions in a conadhesion (an insurance policy in Fieldmen’s Insurance) that is put to test.

A judicious reading of the case reveals that what was pivotal in the judgment of liability against pinsurance company therein, and necessarily interpreting the provisions of the insurance policy as ineffective,finding that the representations made by the agent of the insurance company rendered it impossible to comthe conditions of the contract in question, rather than the mere ambiguity of its terms. The epronouncements regarding strict construction of ambiguous provisions in an adhesion contract against itswhich although made by the Court as an aside but has perforce evolved into a judicial tenet over time, wasan incidental statement intended to emphasize the duty of the court to protect the weaker, as against tdominant, party to a contract, as well as to prevent the iniquitous situation wherein the will of one party is upon the other in the course of negotiation.

Thus, there can be no further question as to the validity of the terms of the air waybill, even if thconstitutes a contract of adhesion. Whether or not the provisions thereof particularly on the limited liabilit





































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carrier are binding on private respondent in this instance must be determined from the facts and circumstancesinvolved vis-a-vis the nature of the provisions sought to be enforced, taking care that equity and fair play shouldcharacterize the transaction under review.

On petitioner‘s insistence that its liability for the damage to private respondent‘s microwave oven, if any,should be limited by the provisions of the air waybill, the lower court had this to say:

―By and large, defendant‘s evidence is anchored principally on plaintiff‘s alleged failure to comply with paragraph12, a(1) (Exh. ‗1-C-2‘) of the Air waybill (Exh. ‗A,‘ also Exh. ‗1‘), by filing a formal claim immediately after discoveryof the damage. Plaintiff filed her formal claim only on August 13, 1990(Exh. ‗6‘, also Exh. ‗E‘). And, failed to presentpositive proof on the value of the damaged microwave oven. Hence, the denial of her claim.

―This Court has misgivings about these pretensions of defendant.

xxx xxx xxx

―Finally, the Court finds no merit to defendant‘s contention that under the Warsaw Convention, its liability if any,cannot exceed U.S. $20.00 based on weight as plaintiff did not declare the contents of her baggage nor payadditional charges before the flight.” [14]

The appellate court declared correct the non-application by the trial court of the limited liability of thereindefendant-appellant under the ―Conditions of the Contract‖ contained in the air waybill , based on the rulingin Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al. ,[15]which substantially enunciates the rule that while theWarsaw Convention has the force and effect of law in the Philippines, being a treaty commitment by the governmentand as a signatory thereto, the same does not operate as an exclusive enumeration of the instances when a carriershall be liable for breach of contract or as an absolute limit of the extent of liability, nor does it preclude theoperation of the Civil Code or other pertinent laws.

Petitioner insists that both respondent court and the trial court erred in finding that petitioner‘s liability, if any,is not limited by the provisions of the air waybill, for, as evidence of the contract of carriage between petitioner andprivate respondent, it substantially states that the shipper certifies to the correctness of the entries containedtherein and accepts that the carrier‘s liability is limited to US$20 per kilogram of goods lost, damaged or destroyed

unless a value is declared and a supplementary charge paid. Inasmuch as no such declaration was made by privaterespondent, as she admitted during cross-examination, the liability of petitioner, if any, should be limited to 28kilograms multiplied by US$20, or $560. Moreover, the validity of these conditions has been upheld in the leadingcase of Ong Yiu vs. Court of Appeals, et al., supra, and subsequent cases, for being a mere reiteration of thelimitation of liability under the. Warsaw Convention, which treaty has the force and effect of law.[16]

It is additionally averred that since private respondent was merely advised, not ordered, that she need notdeclare a higher value for her cargo, the final decision of refraining from making such a declaration fell on privaterespondent and should not put the petitioner in estoppel from invoking its limited liability.[17]

In refutation, private respondent explains that the reason for the absence of a declaration of a higher valuewas precisely because petitioner‘s personnel in San Francisco, U.S.A. advised her not to declare the value of hercargo, which testimony has not at all been rebutted by petitioner. This being so, petitioner is estopped from faultingprivate respondent for her failure to declare the value of the microwave oven.[18]

The validity of provisions limiting the liability of carriers contained in bills of lading have been consistentlyupheld for the following reason:

―x x x. The stipulation in the bill of lading limiting the common carrier‘s liability to the value of goods appearing in

the bill, unless the shipper or owner declares a greater value, is valid and binding. The limitation of the carrier‘sliability is sanctioned by the freedom of the contracting parties to establish such stipulations, clauses, terms, orconditions as they may deem convenient, provided they are not contrary to law, morals, good customs and publicpolicy. x x x.‖ [19]

However, the Court has likewise cautioned against blind reliance on adhesion contracts where the facts andcircumstances warrant that they should be disregarded.[20]

In the case at bar, it will be noted that private respondent signified an intention to declare the valumicrowave oven prior to shipment, but was explicitly advised against doing so by PAL‘s personneFrancisco, U.S.A., as borne out by her testimony in court:

xxx xxx xxx

“Q Did you declare the value of the shipment?

A No. I was advised not to.

Q Who advised you?

A At the PAL Air Cargo.‖ [21]

It cannot be denied that the attention of PAL through its personnel inSan Francisco was sufficiently the fact that private respondent‘s cargo was highly susceptible to breakage as would necessitate the decla

its actual value. Petitioner had all the opportunity to check the condition and manner of packing prior to acfor shipment,[22]as well as during the preparation of the air waybill by PAL‘s Acceptance Personnel binformation supplied by the shipper,[23] and to reject the cargo if the contents or the packing did not mcompany‘s required specifications. Certainly, PAL could not have been otherwise prevailed upon to merethe cargo.

While Vicente Villaruz, officer-in-charge of the PAL Import Section at the time of incident, posited thmay have been inadequate and improper packing of the cargo ,[24] which by itself could be a ground for carriage of the goods presented for shipment, he nonetheless admitted on cross-examination thatrespondent‘s cargo was accepted by PAL in its San Francisco office:

―ATTY. VINCO

So that, be that as it may, my particular concern is that, it is the PAL personnel that accepts thbaggage?

WITNESS

Yes, sir.

ATTY. VINCO

Also, if he comes from abroad like in this particular case, it is the PAL personnel who accepts tbaggage?

WITNESS

Yes, sir.

ATTY. VINCO

And the PAL personnel may or may not accept the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

According to what is stated as in the acceptance of the cargo, it is to the best interest of tairlines, that is, he want(s) also that the airlines would be free from any liability. Could that

one of the grounds for not admitting a baggage?

WITNESS

Safety is number one (I)

xxx xxx xxx

ATTY. VINCO












































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So, this baggage was accepted and admitted in San Francisco?

WITNESS

Yes, sir.

ATTY. VINCO

And you could not show any document to the Court that would suggest that this baggage wasdenied admittance by your office a tSan Francisco?

WITNESS

No, I cannot show.

ATTY. VINCO

Now, can you show any document that would suggest that there was insufficient pac(k)aging onthis particular baggage from abroad?

WITNESS

No, sir.‖ [25]

In response to the trial court‘s questions during the trial, he also stated that while the passenger‘s declarationregarding the general or fragile character of the cargo is to a certain extent determinative of its classification, PALnevertheless has and exercises discretion as to the manner of handling required by the nature of the cargo itaccepts for carriage. He further opined that the microwave oven was only a general, not a fragile, cargo which didnot require any special handling.[26]

There is no absolute obligation on the part of a carrier to accept a cargo. Where a common carrier accepts acargo for shipment for valuable consideration, it takes the risk of delivering it in good condition as when it wasloaded. And if the fact of improper packing is known to the carrier or its personnel, or apparent upon observationbut it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injuryresulting therefrom.[27]

The acceptance in due course by PAL of private respondent‘s cargo as packed and its advice against the need

for declaration of its actual value operated as an assurance to private respondent that in fact there was no need forsuch a declaration. Petitioner can hardly be faulted for relying on the representations of PAL‘s own personnel.

In other words, private respondent Mejia could and would have complied with the conditions stated in the airwaybill, i.e., declaration of a higher value and payment of supplemental transportation charges, entitling her torecovery of damages beyond the stipulated limit of US$20 per kilogram of cargo in the event of loss or damage, hadshe not been effectively prevented from doing so upon the advice of PAL‘s personnel for reasons best known tothemselves.

As pointed out by private respondent, the aforestated facts were not denied by PAL in any of its pleadings norrebutted by way of evidence presented in the course of the trial, and thus in effect it judicially admitted that such anadvice was given by its personnel in San Francisco, U.S.A. Petitioner, therefore, is estopped from blaming privaterespondent for not declaring the value of the cargo shipped and which would have otherwise entitled her to recovera higher amount of damages. The Court‘s bidding in the Fieldmen’s Insurance case once again rings true:

―x x x. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall aninnocent party due to its injurious reliance, the failure to apply it in this case would result in gross travesty of

justice.‖

We likewise uphold the lower court‘s finding that private respondent complied with the requirement for theimmediate filing of a formal claim for damages as required in the air waybill or, at least, we find that there wassubstantial compliance therewith.

Private respondent testified that she authorized her sister,Concepcion Diño, to claim her cargo consisting of amicrowave oven since the former had to take a connecting flight to Bacolod City on the very same afternoon of theday of her arrival.[28] As instructed,Concepcion Diño promptly proceeded to PAL‘s Import Section the next day to

claim the oven. Upon discovering that the glass door was broken, she immediately filed a claim by wabaggage freight claim[29] on which was duly annotated the damage sustained by the oven.[30]

Her testimony relates what took place thereafter:

―ATTY. VINCO

So, after that inspection, what did you do?

WITNESS

After that annotation placed by Mr. Villaruz, I went home and I followed it up the next day withe Clerk of PAL cargo office.

ATTY. VINCO

What did the clerk tell you?

WITNESS

She told me that the claim was being processed and I made several phone calls after thatstarted my follow-ups February up to June 1990.

ATTY. VINCO

And what results did those follow-ups produce?

WITNESS

All they said (was) that the document was being processed, that they were waiting fAtty. Paco to report to the office and they could refer the matter to Atty. Paco.

ATTY. VINCO

Who is this Atty. Paco?

WITNESS

He was the one in-charge of approving our claim.

ATTY. VINCO

Were you able to see Atty. Paco?

WITNESS

Yes, sir. I personally visited Atty. Paco together with my auntie who was a former PAL employee

xxx xxx xxx

ATTY. VINCO

So, what did you do, did you make a report or did you tell Atty.Paco of your scouting around fopossible replacement?

WITNESS

I did call him back at his office. I made a telephone call.

ATTY. VINCO

And what answer did Atty. Paco make after you have reported back to him?

WITNESS

They told me that they were going to process the claim based on the price that I gave them bthere was no definite result.
























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ATTY. VINCO

How many times did you go and see Atty. Paco regarding the claim of your sister?

WITNESS

I made one personal visit and several follow-up calls. With Atty.Paco, I made one phone call but Imade several phone calls with his secretary or the clerk at PAL cargo office and I was trying tolocate him but unfortunately, he was always out of his office.‖ [31]

PAL claims processor, Rodolfo Pandes,* confirmed having received the baggage freight claim on January 30,1990[32] and the referral to and extended pendency of the private respondent‘s claim with the office of Atty. Paco, towit:

―ATTY. VINCO:

Q And you did instruct the claimant to see the Claim Officer of the company, right?

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q And the Claim Officer happened to be Atty. Paco?

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q And you know that the plaintiff thru her authorized representativeConcepcion Diño, who is her sisterhad many times gone to Atty.Paco, in connection with this claim of her sister?

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q As a matter of fact even when the complaint was already filed here in Court the claimant hadcontinued to call about the settlement of her claim with Atty. Paco, is that correct?

xxx xxx xxx

WITNESS:

A Yes, sir.

ATTY. VINCO.

Q You know this fact because a personnel saw you in one of the pre-trial here when this case washeard before the sala of JudgeMoscardon, is that correct?

WITNESS:

A Yes.

ATTY. VINCO:

Q In other words, the plaintiff rather had never stop(ped) in her desire for your company to settle thisclaim, right?

WITNESS

A Yes, sir.‖ [33]

Considering the abovementioned incidents and private respondent Mejia‘s own zealous efforts in follthe claim,[34] it was clearly not her fault that the letter of demand for damages could only be filed, after moexasperating follow-up of the claim, on August 13, 1990 .[35] If there was any failure at all to file the formwithin the prescriptive period contemplated in the air waybill, this was largely because of PAL‘sown doconsequences of which cannot, in all fairness, be attributed to private respondent.

Even if the claim for damages was conditioned on the timely filing of a formal claim, under Article 118Civil Code that condition was deemed fulfilled, considering that the collective action of PAL‘s personnel inaround the claim and leaving it unresolved for an indefinite period o f time was tantamount to ―voluntarily prits fulfillment.‖ On grounds of equity, the filing of the baggage freight claim, which sufficiently informed PA

damage sustained by private respondent‘s cargo, constituted substantial compliance with the requiremecontract for the filing of a formal claim.

All told, therefore, respondent appellate court did not err in ruling that the provision on limited liabiliapplicable in this case. We, however, note in passing that while the facts and circumstances of this case dofor the direct application of the provisions of the Warsaw Convention, it should be stressed that, indeed, rec

of the Warsaw Convention does not preclude the operation of the Civil Code and other pertinent lawdetermination of the extent of liability of the common carrier.[36]

The Warsaw Convention, being a treaty to which the Philippines is a signatory, is as much a part of Plaw as the Civil Code, Code of Commerce and other municipal special laws.[37] The provisions therein cospecif ically on the limitation of carrier‘s liability, are operative in the Philippines but only in appropriate situa

Petitioner ascribes ultimate error in the award of moral exemplary damages and attorney‘s fees in private respondent in that other than the statement of the trial court that petitioner acted in bad faith inprivate respondent‘s claim, which was affirmed by the Court of Appeals, there is no evidence on recordsame is true. The denial of private respondent‘s claim was supposedly in the honest belief that the saprescribed, there being no timely formal claim filed; and despite having been given an opportunity to submitproof of the value of the damaged microwave oven, no such proof was submitted. Petitioner insists that its fdeliver the oven in the condition in which it was shipped could hardly be considered as amounting to bad fait

Private respondent counters that petitioner‘s failure to deliver the microwave oven in the condition inwas received can be describe as gross negligence amounting to bad faith, on the further consideration that to prove that it exercised the extraordinary diligence required by law, and that no explanation whatsoever was to why the front glass of the oven was broken.[39]

The trial court justified its award of actual, moral and exemplary damages, and attorney‘s fees in private respondent in this wise:

―Since the plaintiff‘s baggage destination was the Philippines, Philippine law governs the liability of the defendamages for the microwave oven.

―The provisions of the New Civil Code on common carriers are Article(s) 1733, 1735 and 1753 x x x.

xxx xxx xxx

―In this case, defendant failed to overcome, not only the presumption but more importantly, plaintiff‘s evidedefendant‘s negligence was the proximate cau se of the damages of the microwave oven. Further, plaintiff hestablished that defendant acted in bad faith when it denied the former‘s claim on the ground that the formawas filed beyond the period as provided in paragraph 12 (a-1) (Exh. ‗1-C-2‘) of the Air Waybill (Exh. ‗1‘,also Exh ‗A‘), when actually,Concepcion Diño, sister of plaintiff has immediately filed the formal claim upon dof the damage.‖ [40]

Respondent appellate court was in full agreement with the trial court‘s finding of bad faith on thpetitioner as a basis for the award of the aforestated damages, declaring that:

―As to the last assigned error, a perusal of the facts and law of the case reveals that the lower court‘s awardmoral and exemplary damages, attorney‘s fees and costs of suit to plaintiff -appellee is in accordance with culaws and jurisprudence on the matter. Indeed, aside from the fact that defendant-appellant acted in bad faibreaching the contract and in denying plaintiff‘s valid claim for damages, plaintiff -appellee underwent profou









































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distress, sleepless nights, and anxiety upon knowledge of her damaged microwave oven in possession of defendant-appellant, entitling her to the award of moral and exemplary damages (Cathay Pacific Airways,Ltd. vs. C.A., supra; Arts. 2219 & 2221, New Civil Code), and certainly plaintiff-appellant‘s unjust refusal to complywith her valid demand for payment, thereby also entitling her to reasonable attorney‘s fees [Art. 2208 (2) and(11), id.].” [41]’

It will be noted that petitioner never denied that the damage to the microwave oven was sustained while thesame was in its custody. The possibility that said damage was due to causes beyond the control of PAL haseffectively been ruled out since the entire process in handling of the cargo - from the unloading thereof from theplane, the towing and transfer to the PAL warehouse, the transfer to the Customs examination area, and its releasethereafter to the shipper - was done almost exclusively by, and with the intervention or, at the very least, under thedirect supervision of a responsible PAL personnel.[42]

The very admissions of PAL, through Vicente Villaruz of its Import Section, as follows:

―ATTY. VINCO

So that, you now claim, Mr. Witness, that from the time the cargo was unloaded from the planeuntil the time it reaches the Customs counter where it was inspected, all the way, it was the PALpersonnel who did all these things?

WITNESS

Yes, however, there is also what we call the Customs storekeeper and the Customs guard alongwith the cargo.

ATTY. VINCO

You made mention about a locator?

WITNESS

Yes, sir.

ATTY. VINCO

This locator, is he an employee of the PAL or the Customs?

WITNESS

He is a PAL employee.‖ [43]

lead to the inevitable conclusion that whatever damage may have been sustained by the cargo is due to causesattributable to PAL‘s personnel or, at all events, under their responsibility.

Moreover, the trial court underscored the fact that petitioner was not able to overcome the statutorypresumption of negligence in Article 1735 which, as a common carrier, it was laboring under in case of loss,destruction or deterioration of goods, through proper showing of the exercise of extraordinary diligence. Neither didit prove that the damage to the microwave oven was because of any of the excepting causes under Article 1734, allof the same Code. Inasmuch as the subject item was received in apparent good condition, no contrary notation orexception having been made on the air waybill upon its acceptance for shipment, the fact that it was delivered witha broken glass door raises the presumption that PAL‘s personnel were negligent in the carriage and handling of thecargo.[44]

Furthermore, there was glaringly no attempt what so ever on the part of petitioner to explain the cause of thedamage to the oven. The unexplained cause of damage to private respondent‘s cargo constitutes gross carelessness

or negligence which by itself justifies the present award of damages.[45] The equally unexplained and inordinatedelay in acting on the claim upon referral thereof to the claims officer, Atty. Paco, and the noncommittal responsesto private respondent‘s entreaties for settlement of her claim for damages belies petitioner‘s pretension that there

was no bad faith on its part. This unprofessional indifference ofPAL‘s personnel despite full and actual knowledge ofthe damage to private respondent‘s cargo, just to be exculpated from liability on pure technicality and bureaucraticsubterfuge, smacks of willful misconduct and insensitivity to a passenger‘s plight tantamount to bad faith[46] andrenders unquestionable petitioner‘s liability for damages. In sum, there is no reason to disturb the findings of thetrial court in this case, especially with its full affirmance by respondent Court of Appeals.

On this note, the case at bar goes into the annals of our jurisprudence after six years and recedes memories of our legal experience as just another inexplicable inevitability. We will never know exactly homan-hours went into the preparation, litigation and adjudication of this simple dispute over an oven, wparties will no doubt insist they contested as a matter of principle. One thing, however, is certain. As lonfirst letter in ―principle‖ is somehow outplacedby the peso sign, the courts will always have to resolvcontroversies although mutual goodwill could have dispensed with judicial recourse.

IN VIEW OF ALL OF THE FOREGOING , the assailed judgment of respondent Court of ApAFFIRMED in toto.

SO ORDERED.

CARRASCO VS CA

D E C I S I O N

CARPIO MORALES, J.:

El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property)

area of approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93[1] situated in S

Occidental Mindoro.

On February 15, 1972, at a special meeting of El Dorado‘s Board of Directors, a Resolution[2] wa

authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and

documents and contracts bearing thereon.

On March 23, 1972, by a Deed of Sale of Real Property ,[3] El Dorado, through Feliciano Leviste,

property to Fernando O. Carrascoso, Jr. (Carrascoso).

The pertinent provisions of the Deed of Sale read:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHTHUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells,cedes, and transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above -described property subject to the following terms and consitions (sic):

1. Of the said sum of P1,800,000.00 which constitutes the full consideration of thissale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank,thereby effecting the release and cancellation fo (sic) the present mortgage over the above-described property.

2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE tothe VENDOR, receipt of which amount is hereby acknowledged by the VENDOR.

3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10%per annum shall be paid by the VENDEE to the VENDOR within a period of three (3) years, asfollows:

(a) One (1) year from the date of the signing of this agreement, the VENDEE shallpay to the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTYTHREE & 33/100 (P519,833.33) PESOS.






































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(b) Two (2) years from the date of signing of this agreement, the VENDEE shall payto the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED ANDTHIRTY-THREE & 33/100 (P519,833.33) PESOS.

(c) Three (3) years from the date of signing of this agreement, the VENDEE shall payto the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.

4. The title of the property, subject of this agreement, shall pass and be transferredto the VENDEE who shall have full authority to register the same and obtain the correspondingtransfer certificate of title in his name.

xxx

6. THE VENDOR certifies and warrants that the property above-described is not beingcultivated by any tenant and is therefore not covered by the provisions of the Land ReformCode. If, therefore, the VENDEE becomes liable under the said law, the VENDOR shallreimburse the VENDEE for all expenses and damages he may incur thereon .[4] (Underscoringsupplied)

From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the

purchase price on March 23, 1975.

On even date, the Board of Directors of El Dorado passed a Resolution reading: ―RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93

to Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to theproperty being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank ofhis choice as long as the balance on the Deed of Sale shall be recognized by Dr.FERNANDO O. CARRASCOSO, JR.;

―RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on theproperty to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O.

CARRASCOSO, JR.;

―RESOLVED, FINALLY, that in case of any mortgage on the property, the corporationwaives the preference of any vendor‘s lien on the property.‖ [5] (Emphasis and underscoringsupplied)

Feliciano Leviste also executed the following affidavit on the same day:

1. That by reason of the sale of that parcel of land covered by Transfer Certificate ofTitle T-93 as evidenced by the Deed of Sale attached hereto as Annex ―A‖ and made an integralpart hereof, the El Dorado Plantation, Inc. has no objection to the aforementionedproperty being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of hischoice, as long as the payment of the balance due the El Dorado Plantation, Inc.under the Deed of Sale, Annex “A” hereof, shall be recognized by the vendee therein,Dr. Fernando O. Carrascoso, Jr. though subordinated to the preferred claim of themortgagee bank.

2. That in case of any mortgage on the property, the vendor hereby waives thepreference of any vendor‘s lien on the property, subject matter of the deed of sale.

3. That this affidavit is being executed to avoid any question on the authority of Dr.Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex ―A‖hereof, where the purchase price provided therein has not been fully paid.

4. That this affidavit has been executed pursuant to a board resolution of El DoradoPlantation, Inc.[6] (Emphasis and underscoring supplied)

On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real

Mortgage[7] over the property in favor of Home Savings Bank (HSB) to secure a loan in the

of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release t he m

priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to above-quoted pa

Nos. 1 and 2 of the terms and conditions of the Deed of Sale.[8]

The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorado‘s T

T-93 as Entry No. 15240

[9]

on April 5, 1972. On even date, TCT No. T-93 covering the property was canceTCT No. T-6055[10] was in its stead issued by the Registry of Deeds of Occidental Mindoro in the n

Carrascoso on which the real estate mortgage in favor of HSB was annotated as Entry No. 15242.[11]

On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additiona

year loan of P70,000.00 as requested by the spouses Carrascoso.[12] The Amendment of Real Estate Mortg

also annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.[13]

The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed witho

having complied therewith.

In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Co

(PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and Se ll[14] whereby the

agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or

of P3,000,000.00.

The July 11, 1975 Agreement to Buy and Sell was not regis tered and annotated on Carrascoso‘s

T-6055.

Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, throu

counsel, Atty. Benjamin Aquino, by letter[15] dated December 27, 1976, called the attention of the B

Carrascoso‘s failure to pay the balance of the purchase price of the property amounting to P1,300,000.0

Lauro‘s lawyer manifested that:

Because of the default for a long time of Mr. Carrascoso to pay the balance of theconsideration of the sale, Don Lauro Leviste, in his behalf and in behalf of the other shareholderssimilarly situated like him, want a rescission of the sale made by the El Dorado Plantation, Inc. toMr. Carrascoso. He desires that the Board of Directors take the corresponding action forrescission.[16]





















































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Lauro‘s desire to rescind the sale was reiterated in two other letters[17] addressed to the Board dated

January 20, 1977 and March 3, 1977.

Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 [18] to Carrascoso

informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was

seeking the rescission of the March 23, 1972 Deed of Sale of Real Property.

The pertinent portions of the letter read:

x x x

I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long beendue and payable, although you have mortgaged said property with the Home Savings Bank forP1,000,000.00 on March 24, 1972, which was subsequently increased to P1,070,000.00 on May18, 1972.

You very well know that the El Dorado Plantation, Inc., is a close family corporation, ownedexclusively by the members of the Leviste family and I am one of the co-owners of the land. Asnothing appears to have been done on your part after our numerous requests for payment of thesaid amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be advisedthat we would like to rescind the contract of sale of the land.[19](Underscoring supplied)

Jose Leviste, by letter[20] dated March 10, 1977, informed Lauro‘s counsel Atty. Aquino of his (Jose‘s)

February 21, 1977 letter to Carrascoso, he lamenting that ―Carrascoso has not deemed it fit to give [his] letter the

courtesy of a reply‖ and advis[ing] that some of the Directors of [El Dorado] could not see their way clear in

complying with the demands of your client [Lauro] and have failed to reach a consensus to bring the corresponding

action for rescission of the contract against . . . Carrascoso.‖ [21]

Lauro and El Dorado finally filed on March 15, 1977 a complain t[22] for rescission of the March 23, 1972

Deed of Sale of Real Property between El Dorado and Carrascoso with damages before the Court of First Instance

(CFI) of Occidental Mindoro, docketed as Civil Case No. R-226.

Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the

revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two

prayed for the issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him

of P500,000.00, (2) secure a discharge of the real estate mortgage constituted on the property from HSB, (3)

submit an accounting of the fruits of the property from March 23, 1972 up to the return of possession of the land to

El Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the

of P100,000.00 for attorney‘s fees and other damages.[23]

Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notic

Pendens, inscribed as Entry No. 39737.[24]

In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of A

Sale

[25]

over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy anThe pertinent portions of the Deed are as follows:

WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell onJuly 11, 1975, which is made a part hereof by reference;

WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed ofAbsolute Sale referred to in the aforementioned agreement to Buy and Sell;

WHEREFORE, for and in consideration of the foregoing premises and the termshereunder stated, the VENDOR and the VENDEE have agreed as follows:

1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00),Philippine currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic)already been received by the VENDOR, the VENDOR hereby sells, transfers and conveys unto theVENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T. No. T -6055 ofthe Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey plan xxx

2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of

TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner:

a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) toHome Savings Bank in full payment of the VENDOR‘s mortgaged obligation therewith;

b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;

The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTYTHOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the VENDEEbut which are for the account of the VENDOR under Paragraph 6 of the Agreement to Buy andSell, shall be paid by the VENDEE to the VENDOR upon issuance of title to the VENDEE.[26] (Underscoring supplied)

In turn, PLDT, by Deed of Absolute Sale[27] dated May 30, 1977, conveyed the aforesaid 1,000

portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a cons

of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT upon signing of sai

andP380,000.00 to Carrascoso upon issuance of title to PLDTAC.

In the meantime, on October 19, 1977, the El Dorado Board of D irectors, by a special meeting,[28]

and approved a Resolution ratifying and conferring ―the prosecution of Civil Case No. R-226 of the Cour















































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Instance of Occidental Mindoro, entitled ‗Lauro P. Leviste vs. Fernando Carascoso (sic), etc.‘ initiated by stockholder

Mr. Lauro P. Leviste.‖ [29]

In his Answer with Compulsory Counterclaim,[30] Carrascoso alleged that: (1) he had not paid his

remaining P1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the

extensions of time to comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects,

there being no showing of compliance with the condition precedent of exhaustion of intra-corporate remedies and

the requirement that a derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado

committed a gross misrepresentation when it warranted that the property was not being cultivated by any tenant to

take it out of the coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing of the

complaint for which Lauro and El Dorado must be held liable.

On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective

Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos.

24770,[31] 42774,[32] 42769[33] and 24772,[34] respectively. On even date, Carrascoso‘s TCT No. T-6055 was

cancelled and TCT No. T-12480[35] covering the 1,000 hectare portion of the property was issued in the name of

PLDTAC. The March 15, 1977 Notice of Lis Pendens was carried over to TCT No. T-12480.

On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention[36] which was granted by the

trial court by Order[37] of September 7, 1978.

PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and

Crossclaim[38]against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6,

1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare

portion of the property or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT

executed the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending

litigation over the property and neither were they aware that a notice of lis pendens had been annotated on

Carrascoso‘s title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDT‘s actual

possession of the 1,000 hectare portion of the property since June 30, 1975 and of it s exercise of exclusive rights of

ownership thereon through agricultural development.[39]

By Decision[40] of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to

which the CFI has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows,

quoted verbatim:

WHEREFORE, in view of all the foregoing considerations, judgment is herebyrendered:

1. Dismissing the plaintiffs‘ complaint against the defendant on the ground ofprematurity;

2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actualand compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees;provided, however, that the aforesaid amounts must first be set off from the latter‘s unpaidbalance to the former;

3. Dismissing the defendants-intervenors‘ counterclaim and cross-claim; and

4. Ordering the plaintiffs to pay to (sic) the costs of suit.

SO ORDERED.[41] (Underscoring supplied)

Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.

By Decision[42] of January 31, 1996, the appellate court reversed the decision of the trial court, di

as follows, quotedverbatim:

WHEREFORE, not being meritorious, PLDT‘s/PLDTAC‘s appeal is hereby DISMISSEDand finding El Dorado‘s appeal to be impressed with merit, We REVERSE the appealed Decisionand render the following judgment:

1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.

2. Fernando Carrascoso, Jr. is commanded to:

2.1. return the possession of the 825 [hectare-] remaining portion of the

land to El Dorado Plantation, Inc. without prejudice to the landholdings oflegitimate tenants thereon;

2.2. return the net fruits of the land to El Dorado Plantation, Inc. fromMarch 23, 1972 to July 11, 1975, and of the 825-hectare-remaining portionminus the tenants‘ landholdings, f rom July 11, 1975 up to its delivery to ElDorado Plantation, Inc. including whatever he may have received from thetenants if any by way of compensation under the Operation Land Transferor under any other pertinent agrarian law;

2.3 Pay El Dorado Plantation, Inc. an attorney‘s fee of P20,000.00 andlitigation expenses of P30,000.00;

2.4 Return to Philippine Long Distance Telephone Company/PLDTAgricultural Corporation P3,000,000.00 plus legal interest from April 6,1977 until fully paid;

3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado Plantation, Inc.;

4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to FernandoCarrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The performance of thisobligation will however await the full compliance by Fernando Carrascoso, Jr. of his obligation toaccount for and deliver the net fruits of the land mentioned above to El Dorado Plantation, Inc.

5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) thecourt a quo a full accounting of the fruits of the land during the period mentioned above for thelatter‘s approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc.























































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6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co.and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decisionregarding the exercise of its option under Art. 448 of the Civil Code.

SO ORDERED.[43] (Underscoring supplied)

PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideratio n[44] of the January 31, 1996 CA

Decision, while Carrascoso went up this Court by filing on March 25, 1996 a petition for review ,[45] docketed as G.R.

No. 123672, assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991

Decision of the trial court except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000

hectare portion of the property was subject to the notice of lis pendens.

Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Part y[46] was filed

praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by

Resolution[47] of July 10, 1996.

PLDT and PLDTAC filed their Comment[48] to Carrascoso‘s petition and prayed that judgment be rendered

finding them to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare

portion of the property, together with all the improvements they built thereon. Reiterating that they were not

purchasers pendente lite , they averred that El Dorado and Lauro had actual knowledge of their interests in the said

portion of the property prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.

El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Commen t[49] to

Carrascoso‘s petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of

the January 31, 1996 CA Decision be modified to read as follows:

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co.and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decisionregarding the exercise of its option under Arts. 449 and 450 of the Civil Code, without right toindemnity on the part of the latter should the former decide to keep the improvements underArticle 449.[50] (Underscoring supplied)

Carrascoso filed on November 13, 1996 his Reply[51] to the Comment of El Dorado and the heirs of Lauro.

In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA

decision had remained unresolved, this Court, by Resolution [52] of June 30, 2003, directed the appellate court to

resolve the same.

By Resolution[53] of July 8, 2004, the CA denied PLDT and PLDTAC‘s Motion for Reconsideration f

merit.

PLDT[54] thereupon filed on September 2, 2004 a petition for review [55] before this Court, dockete

No. 164489, seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolut

appellate court. It prayed that judgment be rendered upholding its right, interest and title to the 1,00

portion of the property and that it and its successors-in-interest be declared owners and legal possessors

together with all improvements built, sown and planted thereon.

By Resolution[56] of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.

In his petition, Carrascoso faults the CA as follows:

I

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTEDA MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR RESCISSION WASPREMATURELY FILED.

II

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTEDA MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OFNON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF SALE.

III

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THEDECISION OF THE TRIAL COURT.[57] (Underscoring supplied)

PLDT, on the other hand, faults the CA as follows:

I

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONERAND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THENOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE PROTECTION ACCORDED THEMUNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE.

II

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONERAND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THENOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE LEGAL PRINCIPLE THATRESPONDENTS EL DORADO ET AL.‘s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDT‘SAGREEMENT TO BUY AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THEDELIVERY TO, AND POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OFTHE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND,THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LISPENDENS.[58] (Underscoring supplied)































































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Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated

March 23, 1972, no objection was interposed to his mortgaging of the property to any bank provided that the balance

of the purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El

Dorado could collect the unpaid balance ofP1,300,000.00 only after the mortgage in favor of HSB is paid in full; and

the filing of the complaint for rescission with damages on March 15, 1977 was premature as he fully paid his

obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of Mortgage[59]signed by HSB President

Gregorio B. Licaros.

Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El

Dorado‘s directors and officers, particularly Jose and Angel Leviste.

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case oneof the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of theobligation, with the payment of damages in either case. He may also seek rescission, evenafter he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizingthe fixing of a period.

This is understood to be without prejudice to the rights of third persons who haveacquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor

and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other .[60] They

are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous

fulfillment of the other.[61]

The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by

the other party who violates the reciprocity between them.[62]

A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and

deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its

equivalent.[63] The non-payment of the price by the buyer is a resolutory condition which extinguishes the

transaction that for a time existed, and discharges the obligations created thereunder.[64] Such failure to pay the

price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to

the contract.[65]

In the case at bar, El Dorado already performed its obligation through the execution of the Mar

1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascos

latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price

manner and within the period agreed upon.

The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the p

price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum w

period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed h

El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him

which to fully satisfy his obligation had long lapsed.

The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carra

mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the p

price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.

As the CA correctly found:

The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso topay the balance was extended. Neither can We see in it anything that can logically infer saidaccommodation.

A partially unpaid seller can agree to the buyer‘s mortgaging the subject of the salewithout changing the time fixed for the payment of the balance of the price. The two agreementsare not incompatible with each other such that when one is to be implemented, the other has tobe suspended. In the case at bench, there was no impediment for Carrascoso to pay the balanceof the price after mortgaging the land.

Also, El Dorado‘s subordinating its ―preferred claim‖ or waiving its superior ―vendor‘slien‖ over the land in favor of the mortgagee of said property only means that in a situation where

the unpaid price of the Land and loan secured by the mortgage over the Land both become dueand demandable, the mortgagee shall have precedence in going after the Land for the satisfactionof the loan. Such accommodations do not necessarily imply the modification of the period fixed inthe contract of sale for the payment by Carrascoso of the balance.

The palpable purpose of El Dorado in not raising any objection to Carrascoso‘smortgaging the land was to eliminate any legal impediment to such a contract. That was so

succinctly expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorado‘syielding its ―superior lien‖ over the land in favor of the mortgagee was plainly intended to

overcome the natural reluctance of lending institutions to accept a land whose price has not yetbeen fully paid as collateral of a loan.[66](Underscoring supplied)


































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Respecting Carrascoso‘s insistence that he was granted verbal extensions within which to pay the balance

of the purchase price of the property by El Dorado‘s directors and officers Jose and Angel Leviste, this Court finds

the same unsubstantiated by the evidence on record.

It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention

to his failure to comply, despite ―numerous‖ requests, with his obligation to pay the amount of P1,300,000.00 and

10% annual interest thereon, and advising him that ―we would like to rescind the contract of sale.‖ This letter

reiterated the term of payment agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascosos‘s

non-compliance therewith.

Carrascoso, harping on Jose Leviste‘s March 10, 1977 letter to Lauro‘s counsel wherein he (Jose Leviste)

stated that ―some of the Directors of the corporation could not see their way clear in complying with the demands

of [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract

against Dr. Fernando Carrascoso,‖ argues that the extensions priorly given to him ―no doubt lead to the logical

conclusion on some of the directors‘ inability to file suit against him.‖ [67]

The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to

file suit against him, the same should not be interpreted to mean that this was brought about by a prior extension

of the period to pay the balance of the purchase price of the property as such reluctance could have been due to a

myriad of reasons totally unrelated to the period of payment of the balance.

The bottomline however is, if El Dorado really intended to extend the period ofpayment of the balance there was absolutely no reason why it did not do it in writing in clearand unmistakable terms. That there is no such writing negates all the speculations of the courta quo and pretensions of Carrascoso.

x x x

The unalterable fact here remains that on March 23, 1973, with or without demand,the obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23,1974 and on March 23, 1975 for equal amounts. Since he did not perform his obligation underthe contract of sale, he, therefore, breached it. Having breached the contract, El Dorado‘scause of action for rescission of that contract arose.[68] (Underscoring supplied)

Carrascoso goes on to argue that the appellat e court erred in ignoring the import of the warranty of non-

tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8,

1972 or two weeks prior to the execution of the Deed of Sale, he discovered, while inspecting the property on

board a helicopter, that there were people and cattle in the area; when he confronted El Dorado about it, he was

told that the occupants were caretakers of cattle who would soon leave ;[69] four months after the execution of the

Deed of Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that there were

people claiming to be tenants in certain portions of the property ;[70] and he thus brought the matter aga

Dorado which informed him that the occupants were not t enants but squatters.[71]

Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty o

tenancy committed by El Dorado, he incurred expenses in the amount of P2,890,000.00 for which he sh

reimbursed, his unpaid obligation to El Dorado amounting to P1,300,000.00 to be deducted therefrom.[72]

The breach of an express warranty makes the seller liable for damages.[73] The following requisit

be established in order that there be an express warranty in a contract of sale: (1) the express warranty

an affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the

tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer pu

the thing relying on such affirmation or promise thereon.[74]

Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property w

being cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform C

Carrascoso would become liable under the said law, he would be reimbursed for all expenses and damages i

thereon.

Carrascoso claims to have incurred expenses in relocating persons found on the property four

after the execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof tha

persons were indeed tenants.[75] The fact of tenancy[76] not having been priorly established,[77] El Dorado m

be held liable for actual damages.

Carrascoso further argues that both the trial and appellate courts erred in holding that the sale

1,000 hectare portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the Ma

1977 Notice of Lis Pendens.

PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it

into with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, up

fulfillment of the condition it imposed resulting in its decision to formalize their transaction and execute the

1977 Deed of Sale, retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.[78]

The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carr

read:

2. That the VENDOR hereby agrees to sell to the VENDEE and the latter herebyagrees to purchase from the former, 1,000 hectares of the above-described parcel of land asshown in the map hereto attached as Annex ―A‖ and made an integral part hereof and as

hereafter to be more particularly determined by the survey to be conducted by Certeza & Co or decision With the notice of lis pendens duly recorded and while it remains uncancelled the

















































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hereafter to be more particularly determined by the survey to be conducted by Certeza & Co.,at the purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos(P3,000,000.00) payable in cash.

3. That this contract shall be considered rescinded and cancelled and of no furtherforce and effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of landof all the occupants therein located, within a period of one (1) year from the date of executionof this Agreement. However, the VENDEE shall have the option to extend the life of thisAgreement by another six months, during which period the VENDEE shall definitely inform theVENDOR of its decision on whether or not to finalize the deed of absolute sale for theaforementioned 1,000 hectares of land.

The VENDOR agrees that the amount of P500.00 per family within the aforementioned1,000 hectares of land shall be spent by him for relocation purposes, which amount howevershall be advanced by the VENDEE and which shall not exceed the total amount of P120,000.00,the same to be thereafter deducted by the VENDEE from the aforementioned purchase price of

P3,000,000.00.

The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to theVENDOR upon the signing of this Agreement.

x x x

It is likewise further agreed that the VENDEE shall have the right to enter into anypart of the aforementioned 1,000 hectares at any time within the period of this Agreement forpurposes of commencing the development of the same.

x x x

5. Title to the aforementioned land shall also be cleared of all liens or encumbrancesand if there are any unpaid taxes, existing mortgages, liens and encumbrances on the land, thepayments to be made by the VENDEE to the VENDOR of the purchase price shall first be appliedto liquidate said mortgages, liens and/or encumbrances, such that said payments shall be madedirectly to the corresponding creditors. Thus, the balance of the purchase price will be paid tothe VENDOR after the title to the land is cleared of all such liens and encumbrances.

x x x

7. The VENDOR agrees that, during the existence of this Agreement and without theprevious written permission from the VENDEE, he shall not sel l, cede, assign and/or transfer theparcel of land subject of this Agreement.[79]

A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation,

and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he

gambles on the result of the litigation over said property.[80]

Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land

involved as well as any subsequent transaction affecting the same would have to be subject to the outcome of the

suit. In other words, a purchaser who buys registered land with full notice of the fact that it is in litigation between

the vendor and a third party stands in the shoes of his vendor and his title is subject to the incidents and result of the

pending litigation.[81]

x x x Notice of lis pendens has been conceived and, more often than not, availed of, toprotect the real rights of the registrant while the case involving such rights is pending resolution

or decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, theregistrant could rest secure that he would not lose the property or any part of it during thelitigation.

The filing of a notice of lis pendens in effect (1) keeps the subject matter oflitigation within the power of the court until the entry of the final judgment so as to prevent thedefeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of thelitigation to the judgment or decree t hat will be promulgated thereon whether such a purchaser isa bona fidepurchaser or not; but (3) does not create a non-existent right or lien.

The doctrine of lis pendens is founded upon reason of public policy and necessity, thepurpose of which is to keep the subject matter of the litigation within the power of the court untilthe judgment or decree shall have been entered; otherwise by successive alienations pending thelitigation, its judgment or decree shall be rendered abortive and impossible of execution. Thedoctrine of lis pendens is based on considerations of public policy and convenience, which forbid alitigant to give rights to others, pending the litigation, so as to affect the proceedings of the court

then progressing to enforce those rights, the rule be ing necessary to the admin istration of justicein order that decisions in pending suits may be binding and may be given full effect, by keepingthe subject matter in controversy within the power of the court until final adjudication, that theremay be an end to litigation, and to preserve the property that the purpose of the pending suitmay not be defeated by successive alienations and transfers of title.[82](Italics in the original)

In ruling against PLDT and PLDTAC, the appellate court held:

PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11,1975 when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How canan agreement to buy and sell which is a preparatory contract be the same as a contract of salewhich is a principal contract? If PLDT‘s contention is correct that it bought the Farm on July 11,1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT andPLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is admittedthat PLDT took possession of the Farm on July 11, 1975 after the execution of the Agreement toBuy and Sell but it did so not as owner but as prospective buyer of the property. As prospective

buyer which had actual on (sic) constructive notice of the lis pendens, why did it pursue and gothrough with the sale if it had not been willing to gamble with the result of this case?[83] (Underscoring supplied)

Further, in its July 8, 2004 Resolution, the CA held:

PLDT cannot shield itself from the notice of lis pendensbecause all that it had at thetime of its inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect isa mere contract to sell that did not pass to it the ownership of the property.

x x x

Ownership was retained by CARRASCOSO which EL DORADO may very well recover through itsaction for rescission.

x x x

PLDT‘s possession at the time the notice of lis pendens was registerednot being a legal possession based on ownership but a mere possession in fact and theAgreement to Buy and Sell under which it supposedly took possession not being registered, it isnot protected from an adverse judgment that may be rendered in the case subject of the noticeof lis pendens.[84] (Underscoring supplied)

a right that is expectant or contingent It is a right which is fixed unalterable absolute

























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In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a

contract to sell, ownership is not transferred upon delivery of the property but upon full payment of the purchase

price.[85] In the former, the vendor has lost and cannot recover ownership until and unless the contract is resolved

or rescinded; whereas in the latter, title is retained by the vendor until the full payment of the price, such payment

being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation

of the vendor to convey title from becoming effective.[86]

PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus

calling for the application of Articles 1181[87] and 1187[88] of the Civil Code as held inCoronel v. Court of Appeals.[89]

The Court is not persuaded.

For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is thereby

perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer,

ownership thereto automaticallytransfers to the buyer by operation of law without any further act having to be

performed by the seller.[90] Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership

willnot automatically transfer to the buyer although the property may have been previously delivered to him. The

prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.[91]

A perusal of the contract[92] adverted to in Coronel reveals marked differences from the Agreement to Buy

and Sell in the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-

sellers to transfer title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still

had to ―def initely inform Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the

1,000 hectare portion of the property,‖ such that in the April 6, 1977 Deed of Absolute Sale subsequently executed,

the parties declared that they ―are now decided to execute‖ such deed, indicating that the Agreement to Buy and

Sell was, as the appellate court held, merely a preparatory contract in the nature of a contract to sell. In fact, the

parties even had to stipulate in the said Agreement to Buy and Sell that Carrascoso, ―during the existence of the

Agreement, shall not sell, cede, assign and/or transfer the parcel of land,‖ which provision this Court has held to be

a typical characteristic of a contract to sell.[93]

Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was

merely the beneficial title to the 1,000 hectare portion of the property.

The right of Daniel Jovellanos to the property under the contract [to sell] withPhilamlife was merely an inchoate and expectant right which would ripen into a vested rightonly upon his acquisition of ownership which, as aforestated, was contingent upon his fullpayment of the rentals and compliance with all his contractual obligations thereunder. A vestedright is an immediate fixed right of present and future enjoyment. It is to be distinguished from

a right that is expectant or contingent. It is a right which is fixed, unalterable, absolute,complete and unconditional to the exercise of which no obstacle exists, and which is perfect initself and not dependent upon a contingency. Thus, for a property right to be vested, theremust be a transition from the potential or contingent to the actual, and the proprietary interestmust have attached to a thing; it must have become fixed or established and is no longer opento doubt or controversy.[94] (Underscoring supplied)

In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which

registration is the operative act to convey and affect the land.

An agreement to sell is a voluntary instrument as it is a willful act of the registeredowner. As such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529]

expressly provides that the act of registration shall be the operative act to convey and affect theland. And Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation ofthe owner‘s duplicate certificate of title for the registration of any deed or voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same shouldhave been registered by filing it with the Register of Deeds who, in turn, makes a briefmemorandum thereof upon the original and owner‘s duplicate certificate of title. The reason forrequiring the production of the owner‘s duplicate certificate in the registration of a voluntaryinstrument is that, being a willful act of the registered owner, it is to be presumed that he isinterested in registering the instrument and would willingly surrender, present or produce hisduplicate certificate of title to the Register of Deeds in order to accomplish such registration.However, where the owner refuses to surrender the duplicate certificate for the annotation of thevoluntary instrument, the grantee may file with the Register of Deeds a statement setting forthhis adverse claim, as provided for in Section 110 of Act No. 496. xxx[95] (Underscoring supplied)

In Valley Golf Club, Inc. v. Salas,[96] where a Deed of Absolute Sale covering a parcel of la

executed prior to the annotation of a notice of lis pendens by the original owner thereof but which De

registered after such annotation, this Court held:

The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO,and the additional payment by the CLUB of P54,887.50 as full payment of the purchase price onOctober 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precedethe annotation of the adverse claim by the S ISTERS on October 25, 1960 and the lis pendensonOctober 27, 1960. It is basic that it is the act of registration of the sale that is the operative actto convey and affect the land. That registration was not effected by the CLUB until December4, 1963, or three (3) years after it had made full payment to ROMERO. xxx

x x x

As matters stand, therefore, in view of the prior annotations of the adverse claimand lis pendens, the CLUB must be legally held to have been aware of the flaws in the title. Byvirtue of the lis pendens, its acquisition of the property was subject to whatever judgment wasto be rendered in Civil Case No. 6365. xxx The CLUB‘s cause of action lies, not against theSISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365,but against ROMERO who was found to have had no right to dispose of theland.[97](Underscoring supplied)

A: I cannot remember now, but it was in the newspaper where it was informed or mentioned





















































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PLDT further argues that El Dorado‘s prior, actual knowledge of the July 11, 1975 Agreement to Buy and

Sell is equivalent to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was

not a purchaser pendente lite nor a purchaser in bad faith.

PLDT anchors its argument on the testimony of Lauro and El Dorado‘s counsel Atty. Aquino from which it

infers that Atty. Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on

Carrascoso‘s title only after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the

property.

The pertinent portions of Atty. Aquino‘s testimony are reproduced hereunder:

Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instantcase of Dr. Carrascoso?

A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens coveringthe property as a result of the filing of the instant complaint.

Q: Do you know the notice of Lis Pendens?

A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled ―Notice of Lis Pendens‖.

Q: As a consequence of the filing of the complaint which was annotated, you have knownthat?

A: Yes.

x x x

Q: After the annotation of the notice of Lis Pendens, do you know, if any further transactionwas held on the property?

A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor ofthe PLDT, Co.

Q: And what did you do?

A: We verified the portion of the property having recorded under entry No. 24770 xxx andwe also discovered that the articles incorporated (sic) and other corporate matters hadbeen organized and established of the PLDT, Co., and had been annotated.

x x x

Q: Do you know what happened to the property?

A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was

already notice of Lis Pendens.

x x x

Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of thesubject litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and thePLDT, one of defendants-intervenor, may I say when?

, p pof the sold property to PLDT.

x x x

Q: Will you tell to the Honorable Court what newspaper was that?

A: Well, I cannot remember what is that newspaper. That is only a means of [confirming]the transaction. What was [confirmed] to us is whether there was really transaction(sic) and we found out that there was in the Register of Deeds and that was the reasonwhy we obtained the case.

Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regardthe matter of time when counsel is being able (sic) to read the newspaper allegedly(interrupted)

x x x

Q: The idea of the question, your Honor, is to establish and ask further the notice of [lispendens] with regards (sic) to the transfer of property to PLDT, would have beenaccorded prior to the pendency of the case.

x x x

A: I cannot remember.[98]

PLDT also relies on the following t estimony of Carrascoso:

Q: You mentioned Doctor a while ago that you mentioned to the late Governor FelicianoLeviste regarding your transaction with the PLDT in relation to the subject propertyyou allegedly mention (sic) your intention to sell with the PLDT?

A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) withme with respect to my transaction with the PLDT, sir.

Q: Any other officer of the corporation who knows with instruction aside from Dr. AngelLeviste and Dr. Jose Leviste?

A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.

x x xQ: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?

A: One of the stockholders and director of the plaintiff-corporation, sir.

Q: Will you please tell us the other officers?

A: Expedito Leviste, sir.

A: Will you tell the position of Expedito Leviste?

A: He was the corporate secretary, sir.

Q: If you know, was Dr. Jose Leviste also a director at that time?

A: Yes, sir.[99]

O th th h d El D d t th t it h d k l d f th J l 11 1975 A t t Binvalidating and unmaking the juridical tie, leaving things in their status before the celebration of









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On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy

and Sell prior to the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis

pendens on his title. It further asserts that it always acted in good faith:

xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed inJuly 11, 1975. There is no evidence that El Dorado was notified of this contract. The property islocated in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not anunusual activity on the land, thus it could have been the Petitioner who was using the land. Nothaving been notified of this sale, El Dorado could not have stopped PLDT from developing theland.

The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing ofthis case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977.

Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land butalso in putting up improvements on the property such as buildings, roads, irrigation systems anddrainage. This was done during the pendency of this case, where PLDT and PLDTAC activelyparticipated as intervenors. They were not innocent bystanders. xxx[100]

This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting

interpretations. As such, it cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to

Buy and Sell prior to the annotation of the notice of lis pendens on Carrascoso‘s title.

Respecting Carrascoso‘s allegation that some of the directors and officers of El Dorado had knowledge of

his dealings with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a

corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice

to the corporation, whether he communicates such knowledge or not.[101] In the case at bar, however, apart from

Carrascoso‘s claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare

portion of the property to PLDT, no evidence was presented to substantiate his claim. Such self-serving,

uncorroborated assertion is indubitably inadequate to prove that El Dorado had notice of the July 11, 1975

Agreement to Buy and Sell before the annotation of the notice of lis pendens on his title.

PLDT is, of course, not without recourse. As held by the CA:

Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latteracted in good faith. This is so because it was Carrascoso‘s refusal to pay his just debt to ElDorado that caused PLDT/PLDTAC to suffer pecuniary losses. Therefore,Carrascoso should returnto PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof untilpaid.[102] (Underscoring supplied)

The appellate court‘s decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property

between El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original

situation prior to the consummation of the contract.

The exercise of the power to rescind extinguishes the obligatory relation as if it hadnever been created, the extinction having a retroactive effect. The rescission is equivalent to

the contract.

Where a contract is rescinded, it is the duty of the court to require both parties tosurrender that which they have respectively received and to place each other as far a s practicablein his original situation, the rescission has the effect of abrogating the contract in all parts .[103] (Underscoring supplied)

The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis p

and as the Court affirms the declaration by the appellate court of the rescission of the Deed of Sale execute

Dorado in favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned

PLDT to El Dorado.

As regards the improvements introduced by PLDT on the 1,000 hectare portion of the pr

distinction should be made between those which it built prior to the annotation of the notice of lis pendens

which it introduced subsequent thereto.

When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:Art. 448. The owner of the land on which anything has been built, sown or planted in

good faith, shall have the right to appropriate as his own the works, sowing or planting, afterpayment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built orplanted to pay the price of the land, and the one who sowed, the proper rent. However, thebuilder or planter cannot be obliged to buy the land if its value is considerably more than that ofthe building or trees. In such a case, he shall pay reasonable rent, if the owner of the landdoes not choose to appropriate the building or trees after the proper indemnity. The partiesshall agree upon the terms of the lease and in case of disagreement, the court shall fix the

terms thereof.

The above provision covers cases in which the builders, sowers or planters believe themselves

owners of the land or, at least, to have a claim of title thereto.[104] Good faith is thus identified by the be

the land is owned; or that by some title one has the right to build, plant, or sow thereon.[105]

The owner of the land on which anything has been built, sown or planted in good faith shall have t

to appropriate as his own the building, planting or sowing, after payment to the builder, planter or sowe

necessary and useful expenses,[106]and in the proper case, expenses for pure luxury or mere pleasure.[107]

The owner of the land may also oblige the builder, planter or sower to purchase and pay the price

land.

If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherw

owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to p

the land if its value is considerably more than the building planting or sowing In such case the builder planter or If El Dorado opts for compulsory sale however the payment of rent should continue up to the

































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the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or

sower must pay rent to the owner of the land.

If the parties cannot come to terms over the conditions of the lease, the court must fix the terms

thereof.

The right to choose between appropriating the improvement or selling the land on which the

improvement of the builder, planter or sower stands, is given to the owner of the land.[108]

On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450

govern:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses whatis built, planted or sown without right to indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown inbad faith may demand the demolition of the work, or that the planting or sowing be removed, inorder to replace things in their former condition at the expense of the person who built, plantedor sowed; or he may compel the builder or planter t o pay the price of the land, and the sower theproper rent.

In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000

hectare portion of the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell

with the full consent of Carrascoso.[109] Thus, until March 15, 1977 when the Notice of Lis Pendenswas annotated

on Carrascoso‘s TCT No. T-6055, PLDT is deemed to have been in good faith in introducing improvements on the

1,000 hectare portion of the property.

After March 15, 1977, however, PLDT could no longer invoke the rig hts of a builder in good faith.

Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion

of the property, it should only be made to pay for those improvements at the time good faith existed on the part of

PLDT or until March 15, 1977,[110]to be pegged at its current fair market value.[111]

The commencement of PLDT‘s payment of reasonable rent should start on March 15, 1977 as well, to be

paid until such time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the

reimbursement of expenses as aforestated, that is, if El Dorado opts to appropriate the improvements.[112]

If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the

transfer of ownership.[113]

WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolutio

July 8, 2004 of the Court of Appeals are AFFIRMED with MODIFICATION in that

1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:

a. determine the present fair price of the 1,000 hectare portion of the property and the amoun

expenses actually spent by PLDT for the improvements thereon as of March 15, 1977;

b. include for determination the increase in value (―plus value‖) which the 1,000 hectare port

have acquired by reason of the existence of the improvements built by PLDT before March 15, 1977 and the

fair market value of said improvements;

2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvem

to oblige PLDT to pay the price of the land, and

3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as rea

compensation for its occupancy of the 1,000 hectare portion of the property from the time that its goo

ceased to exist until such time that possession of the same is de livered to El Dorado, subject to the reimbu

of the aforesaid expenses in favor of PLDT or until such time that the payment of the purchase price of the

hectare portion is made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.

Costs against petitioners.

SO ORDERED.

























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