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(CASE #51)

G.R. No. L-23109 March 20, 1925


SANTIAGO GOCHANGCO, ET AL., Plaintiffs-Appellants, vs. R.L.
DEAN, Defendant-Appellant.
Bernardino Guerrero and Amador Constantino for plaintiffs-
appellants.
G.E. Campbell for defendant-appellant.
ROMUALDEZ, J.:
The plaintiffs seek to recover of the defendant the sum of P17,655
as the value of 5,885 coconut trees, plus P1,000 as attorney's
fees.chanroblesvirtualawli brary chanrobles virtual law l ibrary
The defendant answered with a general denial and a counterclaim
for the sum of P1,914 paid by the defendant and which must be
paid by the plaintiffs.chanroblesvi rtualawlibrary chanrobles vi rtual law library
The Court of First Instance of Manila, where the action was
instituted, rendered judgment absolving the defendant from the
complaint, and the plaintiffs from the cross-complaint and
counterclaim of the defendant.chanroblesvi rtualawlibrary chanrobles vi rtual law library
Both parties have appealed, the plaintiffs assigning the following
errors:
1. The denial of the two motions of the plaintiffs dated January 3
and 7, 1924, praying that the defendant be adjudged in default on
the ground of not having appeared nor answered the complaint
within the period fixed by the law, the court knowing, as it very well
knew, that said denial openly and manifestly violated the statutes
and jurisprudence of this high court on the matter (pp. 7-17,
plaintiff's B. of E.).chanroblesvi rtualawlibrary chanrobles vi rtual law li brary
2. The finding that the plaintiffs seek to annul the contract of
exchange in order to recover from the defendant the property
exchanged (p. 28, Id.).chanroblesvi rtualawlibrary chanrobles vi rtual law li brary
3. The finding that it was one Thompson who induced the plaintiffs
and defendant to exchange their respective lands (p. 24, Id.), and
not the defendant himself, or at least by express order of the
latter.chanroblesvirtualawli brary chanrobles virtual law l ibrary
4. The finding that it was not proven that the defendant committed
fraud and that he had never had the intention to deceive the
plaintiffs (p. 30, Id.), when, as a matter of fact, the contradictory
and improbable testimony of the defendant clearly shows the falsity,
bad faith or fraud committed by him, and the preconceived intention
to secure the making of the exchange by fraudulent means.chanroblesvirtualawl ibrary chanrobles virtual law library
5. The finding that the defendant did not positively say (p. 26, Id.)
that there were on the lands exchanged more, but not less, than
6,000 coconut trees, instead of finding that said defendant did so
affirm, with full knowledge of the non-existence of said number of
trees, and that such existence of said number was the primary
consideration of the contract of exchange, without which the
plaintiffs would not have accepted the carrying out of the
transaction between them.chanroblesvi rtualawlibrary chanrobles vi rtual law library
6. The failure to hold, as shown by the record, that while the
defendant attempted to establish or has established the fact that
there were on his lands more than 6,000 coconut trees, according
to his estimate, statement or belief, yet the fact is that not all of
said coconut trees belong to him exclusively. chanrobles virtual law li brary
7. The admission of Exhibits 1 to 13 of the defendant upon which its
findings immaterial to this case are based, taking into account that,
aside from the fact that said exhibits have no bearing at all on the
instant case, they were not even identified.chanroblesvi rtualawlibrary chanrobles vi rtual law li brary
8. The unjust finding against the preponderance of the evidence of
the plaintiffs, apparently reconciling it with the evidence of the
defendant, and the absolution of the latter from the complaint.
The defendant, in turn, assigns the following as error:chanrobles virtual law l ibrary
1. The failure to render judgment in his favor and against the
plaintiffs for the sum of P414.chanroblesvi rtualawlibrary chanrobles vi rtual law li brary
We find no merit in the first assignment of error made by the
plaintiffs. The defendant's default is made to consist in the fact of
the latter not having furnished the plaintiffs a copy of his
appearance and answer. Such a fact cannot in itself alone constitute
sufficient cause for adjudication of default. The record shows that
said appearance and answer were filed with the court in due time,
although the plaintiffs aver that they did not receive any copy
thereof.chanroblesvirtualawl ibrary chanrobles virtual law library
We find no error, much less injustice, in the denial of the motion for
adjudication of default based on such a defect.chanroblesvirtualawli brary chanrobles virtual law l ibrary
The other assignments of error go to the merits of the case.chanroblesvi rtualawlibrary chanrobles vi rtual law library
The plaintiffs had purchased a land of the Pasay Estate by
installments. the defendant was the owner of two parcels of land
situated in Masbate. The plaintiffs and defendant agreed to
exchange their respective properties, but before the final execution
of the contract of exchange, the plaintiff Gochangco went to
Masbate to make an examination of the parcels of land offered for
exchange by the defendant.chanroblesvirtualawli brary chanrobles virtual law l ibrary
The contract of exchange (Exhibits D and 1) was later executed. In
the deed Exhibit D, the defendant stated, among other things, the
following:
It is also declared that the said described property is sold will all
coconut trees growing on it, and I declared that I believe there are
more than 6,000 coconut trees so growing, together with any and
all improvements of any kind whatsoever existing on the said land
including all movable goods, chattel, etc., found thereof.
The plaintiffs allege that defendant made them false and fraudulent
representations as to the existence of 6,000 coconut trees on his
lands in Masbate offered for exchange. This was not proven. It does
not appear in the record that the defendant deliberately violated the
truth in stating his belief that there were such a number of coconut
trees on said lands. Furthermore, it was shown that the plaintiff
viewed the lands and himself estimated that there were there more
than six thousand coconut trees.chanroblesvi rtual awlibrary chanrobles vi rtual law library
The facts herein proven, considered in the light of the provisions
contained in article 1484 of the Civil Code, made applicable to this
case by article 1541 of said Code, prevent us from holding the
action brought by the plaintiffs to be of any merit. They have not
established their alleged right to the judgment prayed for in their
complaint.chanroblesvirtualawl ibrary chanrobles virtual law l ibrary
As to the cross-complaint and counterclaim of the defendant, we
find that in the deed Exhibit 1 executed by the plaintiffs in favor of
the defendant, the former agreed to reimburse the latter what he
might pay in connection with perfecting his title to the property in
Pasay, exchanged for that of the defendant in Masbate, provided
that the sum thus spent should exceed P1,500.chanroblesvi rtualawlibrary chanrobles vi rtual law library
This was admitted by the plaintiffs in their reply to the cross-
complaint and counterclaim of the defendant, where they also
admitted the fact that for perfecting his title to the property, the
defendant had spent the total sum of P1,914; there being,
therefore, an excess of P414 which the plaintiffs are under
obligation to pay unto the defendant.chanroblesvi rtualawl ibrary chanrobles vi rtual law library
Wherefore the judgment appealed from is affirmed so far as it
absolves the defendant from the complaint, but reversed so far as it
dismisses the cross-complaint and counterclaim, and it is ordered
that the plaintiffs pay the defendant the sum of P414, with legal
interest thereon from January 3, 1924, when the cross-complaint
and counterclaim was filed, without special findings as to costs. So
ordered.
Johnson, Malcolm, Villamor, Ostrand, and Johns, JJ., concur.

(CASE #52)
G.R. No. L-11513 December 4, 1917
LAMBERTO SONGCO, plaintiff-appellee,
vs.
GEORGE C. SELLNER, defendant-appellant.
Thos. D. Aitken for appellant.
Perfecto Gabriel for appellee.

STREET, J .:
In December, 1915, the defendant, George C. Sellner, was the owner of a farm at Floridablanca,
Pampanga, which was contiguous to a farm owned by the plaintiff Lamberto Songco. Both properties
had a considerable quantity of the sugar cane ready to be cut. At Dinalupijan, a short distance away,
was located a sugar central, and Sellner desired to mill his cane at this central. One obstacle was
that the owners of the central were not sure they could mill his cane and would not promise to take it.
Sellner, however, learning that the central was going to mill Songco's cane, conceived the idea of
buying the cane of the latter, expecting to run his own cane in that same time the other should be
milled. Another motive which evidently operated upon the mind of Sellner was the desire to get a
right of way over Songco's land for converting his own sugar to the central. Accordingly he bought
Songco's cane as it stood in the fields for the agreed sum of P12,000 and executed therefor three
promissory notes of P4,000 each. Two of these notes were paid; and the present action was
instituted to recover upon the third. From a judgement rendered in favor of the plaintiff, the defendant
has appealed.
The note, upon which the action was brought, was exhibited with the complaint. The answer of the
defendant was made under oath, and contained a general denial of all the allegations of the
complaint. The answer also contained the allegation, asserted by way of special defense, that the
promissory note in question was obtained from the defendant by means of certain false and
fraudulent representations therein specified. The note was admitted in evidence by the court; and
error is here assigned upon this action, on the ground that the genuineness and due execution of the
note was not proved. There is nothing in this contention for several reasons. In the first place a
general denial of a complaint does not raise a question as to the genuineness or due execution of a
written instrument. Under section 103 of the Code of Civil Procedure it is necessary that the
genuineness and due execution of the instrument shall be specifically denied before an issue is
raised up on this point. This means that the defendant must declare under oath that he did not sign
the document or that it is otherwise false or fabricated. Neither does the statement of the answer to
the effect that the instrument was procured by fraudulent representation raise any issue as to its
genuineness or due execution. On the contrary such a plea is an admission both of the genuineness
and due execution thereof, since it seeks to avoid the instrument upon a ground not affecting either.
Furthermore, in this particular case the fourth paragraph of the answer expressly admits the
execution of the instrument by the defendant.
The principal defense here urged relates to a false representation which, it is claimed, was made by
the plaintiff Songco with respect to the quantity of uncut cane standing in the fields at the time the
defendant Sellner became the purchaser thereof. Upon this point it is proved that Songco estimated
that this cane would produce 3,000 piculs of the sugar and that Sellner bought the crop believing this
estimate to be substantially correct. As the crop turned out it produced 2,017 piculs, gross, and after
the toll for milling was deducted the net left to Sellner was very much less. It appears that in the
course of negotiations Sellner requested Songco to guarantee the quantity which the latter claimed
to be in fields but he would not do so. He, however, repeated that he was sure the fields contained
the quantity estimated by him. Some evidence was introduced tending to show that the disparity
between Songco's estimate and the quantity actually obtained would have been more expeditiously
conducted. We do not think there is much in this; and even making allowance for weight
unnecessary lost, the harvest fell far short of the amount estimated by Songco. We think it is fairly
shown by the evidence that Songco knew at the time he made the representation in question that he
was greatly exaggerating the probable produce of his fields, and it is impossible to believe that his
estimate honestly reflected his true opinion. He knew what these same fields had been producing
over a long period of years; and he knew that, judging from the customary yield, the harvest of this
year should fall far below the amount stated.
Notwithstanding the fact that Songco's statement as to the probable output of his crop was
disingenuous and uncandid, we nevertheless think that Sellner was bound and that he must pay the
price stipulated. The representation in question can only be considered matter of opinion as the cane
was still standing in the field, and the quantity of the sugar it would produce could not be known with
certainty until it should be harvested and milled. Undoubtedly Songco had better experience and
better information on which to form an opinion on this question than Sellner. Nevertheless the latter
could judge with his own eyes as to the character of the cane, and it is shown that he measured the
fields and ascertained that they contained 96 1/2 hectares.
It is of course elementary that a misinterpretation upon a mere matter of opinion is not an actionable
deceit, nor is it a sufficient ground for avoiding a contract as fraudulent. We are aware that
statements may be found in the books to the effect that there is a difference between giving an
honest opinion and making a false representation as to what one's real opinion is. We do not think,
however, that this is a case where any such distinction should be drawn.
The law allows considerable latitude to seller's statements, or dealer's talk; and experience teaches
that it is exceedingly risky to accept it at its face value. The refusal of the seller to warrant his
estimate should have admonished the purchaser that that estimate was put forth as a mere opinion;
and we will not now hold the seller to a liability equal to that which would have been created by a
warranty, if one had been given.
Assertions concerning the property which is the subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high price
and are always understood as affording to buyers no ground for omitting to make inquiries. A man
who relies upon such an affirmation made by a person whose interest might so readily prompt him to
exaggerate the value of his property does so at his peril, and must take the consequences of his
own imprudence. The principles enunciated above are fully supported by the weight of the judicial
authority. In a case where the owners of a certain logs represented to their vendee that the logs
would produce a greater per cent of superior lumber than was actually realized, but refused to
warrant their quality and required the vendee to examine for himself before making the contract, it
was held that the vendee could not avoid the contract. (Fauntleroy vs. Wilcox, 80 Ill., 477.) In
Williamson vs. Holt (147 N. C., 515; 17 L. R. A. [N. S.], 240), it appeared that the defendant had
bought an ice plant with the knowledge that its operation had been abandoned because the output
did not equal its capacity. He had full opportunity to investigate its condition. It was held that he
could not avoid paying the purchase price because the vendor stated that, with some repairs, it
would turn out about a certain amount per day. In Poland vs. Brownell (131 Mass., 138), where a
man who bought a stock of goods had ample opportunity to examine and investigate, it was held that
he could not rely on the seller's misrepresentations as to the value of the goods or the extent of the
business. It would have been different if the seller had fraudulently induced him to forbear inquiries
or examination which he would otherwise have made.
It is not every false representation relating to the subject matter of a contract which will render it void.
It must be as to matters of fact substantially affecting the buyer's interest, not as to matters of
opinion, judgment, probability, or expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18
Pick. [Mass.], 95; Gordon vs. Parmelee, 2 Allen [Mass.],212; Williamson vs. McFadden, 23 Fla., 143,
11 Am. St. Rep., 345.) When the purchaser undertakes to make an investigation of his own, and the
seller does nothing to prevent this investigation from being as full as he chooses to make it, the
purchaser cannot afterwards allege that the seller made misrepresentations. (National Cash
Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349; Williamson vs. Holt, 147 N. C., 515.) 1awphi1. net
We are aware that where one party to a contract, having special or expert knowledge, takes
advantage of the ignorance of another to impose upon him, the false representation may afford
ground for relief, though otherwise the injured party would be bound. But we do not think that the fact
that Songco was an experienced farmer, while Sellner was, as he claims, a mere novice in the
business, brings this case within that exception.
An incident of this action was that the plaintiffs sued out an attachment against the defendant, at the
time of the institution of the suit, upon the ground that he was disposing of his property in fraud of his
creditors. This charge was completely refuted by proof showing that the defendant is a man of large
resources and had not attempted to convey away his property as alleged. The court below therefore
found that this attachment had been wrongfully sued out, and awarded damages to the defendant
equivalent to the amount actually paid out by him in procuring the dissolution of the attachment. No
appeal was taken from this action of the court by the plaintiff; but the defendant assigns error to the
action of the court in refusing to award to him further damages for the injury done to his credit. In this
connection he shows that one of his creditors, being appraised of the fact that the defendant had
been made the subject of an attachment, withheld further credit and forced him to sell a large
quantity of sugar at a price much lower than he would have received if he could have carried it a few
weeks longer. We think the court below committed no error in refusing to award damages upon this
grounds, as such damages were remote and speculative. It could hardly be foreseen as a probable
consequence of the suing out of this attachment that the hands of the creditors would come down
upon their unfortunate client with such disastrous results; and the plaintiff certainly cannot be held
accountable for the complications of the defendant's affairs which made possible the damage which
in fact resulted. The court below also refused to award punitive damages claimed by the plaintiff on
the ground that the attachment was maliciously sued out. The action of the court in this respect will
not be here disturbed.
From what has been said it follows that the judgment of the court below must be affirmed, with costs
against the appellant. So ordered.
Arellano, C. J., Torres, Carson, Araullo, and Malcolm, JJ., concur.

(CASE #53)
THIRD DIVISION

[G.R. No. L-51377. June 27, 1988.]

INVESTMENT & DEVELOPMENT, INC., Petitioner, v. COURT OF APPEALS, RAYMUNDO GATPAYAT,
AGENCIA DE EMPENOS DE AGUIRRE, and AGUIRRE INCORPORATED, Respondents.

Carlos J. Paras and Alaysius E. Dichoso for Petitioner.

Jose M. Macahasa for respondent Raymundo Gatpayat.

Angelito M. Chua for respondent Aguirre, Inc.


D E C I S I O N


GUTIERREZ, JR., J.:


This petition seeks a modification of the decision of the Court of Appeals which affirmed in toto that of the
Court of Agrarian Relations, Seventh Regional District, Branch I, Pasig, Rizal insofar as the complaint against
Raymundo Gatpayat was ordered dismissed.

The facts of the case are not disputed.

On January 14, 1965, private respondent Raymundo Gatpayat sold the land subject matter of this case to
petitioner Investment and Development, Inc. (IDI) for P122,769.50 payable in three installments of
P36,830.85, P24,533.90 and P61,384.75, the last amount to be paid within one year from and after the date
of issuance of the Original Certificate of Title over the property which respondent Gatpayat obligated himself
to secure. On February 20, 1966, Original Certificate of Title No. 5019 was issued in the name of respondent
Gatpayat. On January 30, 1967, Transfer Certificate of Title No. 180376 was issued in Investment and
Development, Inc.s name.

The subject land is agricultural with an area of three-and-a-half hectares, more or less, located in Talon, Las
Pias, Rizal. Originally, the land was owned by one Francisca Tolentino. It had Sotero Domingo Ramirez as
tenant. When old age ensued, Sotero asked for his replacement in the person of his son, Jose Ramirez.chanrobles virtual lawl ibrary

In 1964, respondent Gatpayat bought the land from the original owner on the condition that the annual
rental of ten cavans of palay given by tenant Ramirez would pertain to Gatpayat only after full payment of
the purchase price. Subsequently, respondent Gatpayat completed his payments for the land and entered
into an agreement with tenant Ramirez that the latter shall sell the ten cavans of palay and give the
proceeds to him.

On March 8, 1971, the petitioner sold the land to respondent Agencia de Empenos de A. Aguirre, Inc. for the
amount of P456,001.60. As a result thereof, Transfer Certificate of Title No. 317815 was issued in the
vendees name. On April 6, 1973, Transfer Certificate of Title No. 403109 was issued in the name of the
present owner, respondent A. Aguirre, Inc.

In April 1972, tenant Ramirez was forced to stop cultivating the land in question because of the bulldozing
caused by respondent A. Aguirre, Inc.

In a complaint filed by tenant Ramirez against the petitioner and the private respondent, payment for
disturbance compensation was prayed for as a consequence of the bulldozing of the land. The petitioner, in
turn, filed a cross-claim against respondent Gatpayat in case of a judgment adverse to it while respondents
Agencia and Aguirre, Inc. filed a cross-claim against the petitioner.

After the case was submitted for decision, the agrarian court rendered a decision in favor of tenant Ramirez
with the following dispositive portion, to wit:jgc:chanrobles.com.ph

"FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in the tenor the disposition
herein below provided:jgc:chanrobles.com.ph

"1. Declaring plaintiff Jose Ramirez as the true and lawful agricultural tenant of Raymundo Gatpayat over
the landholding in question with an approximate area of 35,077 square meters situated at Talon, Las Pias,
Metro Manila and presently owned by defendant A. Aguirre, Inc.;

"2. Ordering defendant A. Aguirre, Inc. to pay and deliver plaintiff the amount of P24,500.00 as payment for
disturbance compensation;

"3. Ordering A. Aguirre, Inc. to pay plaintiff P2,000.00 as attorneys fees;

"4. Ordering Investment and Development Inc. to pay A. Aguirre, Inc. the amount of P24,000.00 as
damages;

"5. Ordering Investment and Development Inc. to pay A. Aguirre, Inc. P2,000.00 as attorneys fees;

"6. Dismissing the complaint against defendant Raymundo Gatpayat;

"7. Dismissing plaintiffs claim for moral and exemplary damages for insufficiency of evidence; and

"8. Dismissing the claim of A. Aguirre, Inc. for moral and exemplary damages against Investment and
Development, Inc.

"IT IS SO ORDERED." (pp. 11-12, Rollo)

From the above decision, only the petitioner appealed to the Court of Appeals alleging, among others, that
respondent Gatpayat should have been liable to it considering that he violated his warranty "that the land is
free from all liens and encumbrances;" that the agrarian court erred in declaring that tenant Ramirez was an
agricultural lessee of petitioner; and that the courts ruling was contrary to law, equity and fair play in that it
caused unjust enrichment on the part of respondent Gatpayat by ordering the payment of disturbance
compensation at petitioners expense.chanrobles virtual lawl ibrary

On June 14, 1979, the Court of Appeals promulgated a decision affirming the agrarian court in all respects
based on the following grounds:jgc:chanrobles.com.ph

"The warranty made by IDI in the Deed of Absolute Sale in favor of Agencia dated March 8, 1971, it
provides among others that the property is free from all liens, adverse claim, encumbrances, claims of any
tenant and or agricultural workers, either arising as compensation for disturbance or from improvements
including compliance with all the requirements for the provisions of the Tenancy Law, the Land Reform Code
and other pertinent laws of the Republic of the Philippines . . . . With the findings that plaintiff is a true and
lawful tenant and under the above-mentioned warranties, IDI should, therefore, be held liable for the same.
Hence, the counterclaim of Agencia and Aguirre against IDI is proper and compensable." (pp. 15-16, Rollo)

"The warranty made by Gatpayat in favor of the IDI as contained in the Deed of Absolute Sale duly
executed on January 30, 1967 (Exhibit "2," IDI; Exhibit "2," Gatpayat and Exhibit "5," Aguirre) states that
the property was free from all liens and encumbrances. In Civil law and as used and understood in ordinary
legal parlance, a lien and/or encumbrance is synonymous to gravamen, carga, hypoteca or privilegium
and does not cover tenancy. In other words, unless so specifically stated, tenancy cannot be considered a
hen or encumbrance. In the absence of such a showing, and inasmuch as Gatpayat did not warrant the
existence of tenancy, he cannot be held liable for violation of his warranty." (p. 16, Rollo)

"Since the leasehold relationship between the plaintiff and Gatpayat has been established on the land in
question, the same cannot be terminated by the sale of the land to the appellant (IDI). . . . This is the
underlying principle of security of tenure of the leaseholder enshrined in our agrarian laws." (p. 18-19,
Rollo)

The petitioner appealed to this Court by way of certiorari with a lone assignment of error that reads:jgc:chanrobles.com.ph

"THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT RAYMUNDO GATPAYAT
WAS LIABLE TO PETITIONER FOR BREACH OF SELLERS WARRANTY UNDER ARTICLE 1547 (2)IN RELATION
TO ARTICLE 18 OF THE CIVIL CODE." (p. 1, Petitioners Brief)

The only issue presented in this petition is whether or not respondent Gatpayat as seller of the land in
question violated his warranty to the petitioner which bought the land "free from all liens and
encumbrances."cralaw virtua1aw l ibrary

The petitioner no longer questions the finding of the appellate court that tenant Ramirez is entitled to a
disturbance compensation. It only maintains that reimbursement by respondent Gatpayat of said
compensation in its favor should be ordered because the tenancy relationship between respondent Gatpayat
and tenant Ramirez falls under the term "hidden faults or defects" which respondent Gatpayat warranted
against in the sale of the land to the petitioner by virtue of Article 1547, subparagraph (2) of the Civil Code.

We find no merit in the petitioners position.

It is axiomatic that factual findings of the Court of Appeals are conclusive on the parties and reviewable by
us only when the case falls within any of the recognized exceptions which is not the situation obtaining in
this petition (See Chua Giok Ong v. Court of Appeals, 149 SCRA 115; Dulos Realty and Development
Corporation v. Court of Appeals, Et Al., G.R. No. 76668 promulgated on January 28, 1988). The appellate
court in affirming the lower courts decision, has clearly dissected the facts and analyzed the phraseologies
of the warranties contained in the contract between respondent Gatpayat and petitioner, on the one hand,
and petitioner and respondent Agencia de Empenos de Aguirre, on the other. We agree with the disparity in
the terms used and its consequent effects as pointed out in the questioned decision.

The petitioner does not dispute the fact that the Deed of Absolute Sale which it executed with Gatpayat
simply warranted that the subject land was "free from all liens and encumbrances." Neither does the
petitioner deny that to its buyer, respondent Agencia de Empenos de Aquirre, it warranted that the land was
"free from al liens, adverse claims, encumbrances, claims of any tenant and/or agricultural workers, either
arising as compensation for disturbance or from improvements." The distinction in the phraseology is not an
idle one.

We have held in the case of Pilar Development Corporation v. Intermediate Appellate Court (146 SCRA 215),
that:chanrobles lawlibrary : rednad

"When the facts are undisputed, the question of whether or not the conclusion drawn therefrom by the Court
of Appeals is correct, is a question of law cognizable by the Supreme Court (Comments on the Rules of
Court, Moran 1979 Edition, Vol. II, p. 474 citing the case of Commissioner of Immigration v. Garcia, L-
28082, June 28, 1974)

"However, all doubts, as to the correctness of such conclusions will be resolved in favor of the Court of
Appeals (Id.), citing the case of Luna v. Linatoc, 74 Phil. 15."cralaw virtua1aw library

The reimbursement of the payment for disturbance compensation by the petitioner to respondent Agencia
de Empenos de Aguirre is clearly based on an express warranty as can be gleaned from the specific
wordings of the contract between them. The petitioner cannot claim reimbursement from its seller,
respondent Gatpayat, on the basis of an implied warranty against hidden faults or defects under Article
1547, subparagraph (2) inasmuch as the term "hidden faults or defects" pertains only to those that make
the object of the sale unfit for the use for which it was intended at the time of the sale. In the case at bar,
since the object of the sale by Gatpayat to the petitioner is an agricultural land, the existing tenancy
relationship with respect to the land cannot be a "hidden fault or defect." It is not a lien or encumbrance
that the vendor warranted did not exist at the time of the sale. It is a relationship which any buyer of
agricultural land should reasonably expect to be present and which it is its duty to specifically look into and
provide for. Agencia saw to it that the warranty was specific when it, in turn, purchased the land.

WHEREFORE, PREMISES CONSIDERED, the instant petition is DENIED for lack of merit. The decision
appealed from is hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

(CASE #54)
G.R. No. L-43059 October 11, 1979
SAMPAGUITA PICTURES, INC., plaintiff-appellant,
vs.
JALWINDOR MANUFACTURERS, INC., defendant-appellee.
This case was certified to this Court by the Court of Appeals pursuant to the provisions of Section
17, paragraph (6) in relation to Section 31 of the Judiciary Act of 1948.
Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as Sampaguita) is the owner of
the Sampaguita Pictures Building located at the corner of General Araneta and General Roxas
Streets, Cubao, Quezon City. The roofdeck of the building and all existing improvements thereon
were leased by Sampaguita to Capitol "300" Inc. (Capitol for short), and it was agreed, among other
things, that the premises shall be used by said club for social purposes exclusively for its members
and guests; that all permanent improvements made by the lessee on the leased premises shall
belong to the lessor without any obligation on the part of the lessor to reimburse the lessee for the
sum spent for said improvements; that the improvements made by lessee have been considered as
part of the consideration of the monthly rental and said improvements belong to the lessor; that any
remodelling, alterations and/or addition to the premises shall be at the expense of the lessee and
such improvements belong to the lessor, without any obligation to reimburse the lessee of any sum
spent for said improvements. (pp. 29-32, Record on Appeal).
Capitol "300" purchased on credit from defendant-appellee Jalwindor Manufacturers, Inc.
(hereinafter referred to as Jalwindor) glass and wooden jalousies which were delivered and installed
in the leased premises by Jalwindor replacing the existing windows. On June 1, 1964, Jalwindor filed
with the Court of First Instance of Rizal, Quezon City, an action for collection of a sum of money with
a petition for preliminary attachment against Capitol for its failure to pay its purchases. The parties
submitted to the trial court a Compromise Agreement wherein Capitol acknowledged its
indebtedness to Jalwindor in the amount of P9,531.09, exclusive of attorney's fees and interest,
payable in monthly installments of at least P300.00 a month beginning December 15, 1964; and
pending liquidation of the said obligation, all the materials purchased by Capitol will be considered
as security for such undertaking. (p. 13, Record on Appeal).
In the meantime, Capitol "300" was not able to pay rentals to Sampaguita from March 1, 1964 to
April 30, 1965, water, electric and telephone services. Sampaguita filed a complaint for ejectment
and for collection of a sum of money against Capitol and on June 8, 1965, the City Court of Quezon
City rendered judgment ordering Capitol to vacate the premises and to pay Sampaguita.
On the other hand, Capitol likewise failed to comply with the terms of the Compromise Agreement,
and on July 31, 1965, the Sheriff of Quezon City made levy on the glass and wooden jalousies in
question. Sampaguita filed a third party claim alleging that it is the owner of said materials and not
Capitol, Jalwindor however, filed an indemnity bond in favor of the Sheriff and the items were sold et
public auction on August 30, 1965 with Jalwindor as the highest bidder for P6,000.00.
Sampaguita filed with the Court of First Instance of Rizal, Branch IV of Quezon City, an action to
nullify the Sheriff's Sale and for the issuance of a writ of preliminary injunction against Jalwindor from
detaching the glass and wooden jalousies. Jalwindor was ordered to maintain the status
quo pending final determination of the case. No actual hearing was held and the parties submitted
the following stipulation of facts for the consideration of the court.
1. That plaintiff and defendant are both domestic corporations duly organized and
existing by and under the laws of the Philippines:
2. That plaintiff leased to the CAPITOL "300", Inc. the roofdeck of the Sampaguita
building and all the existing improvements thereon for a monthly, rental of P650.00;
that the parties to the lease contract agreed that all permanent improvements made
by the lessee on the leased premises shall belong to the lessor without any
obligation on the part of the lessor to reimburse the lessee for the sum spent for said
improvements; that it was agreed upon by the parties that the improvements made
by the lessee have been considered as part of the consideration of the monthly
rental;
3. That CAPITOL "300", Inc. made alterations on the leased premises; that it
removed the then existing windows and replaced 'them with the following items
bought on credit from the JALWINDOR MANUFACTURERS INC.. valued at
P9,531.09, to wit:
J-21(lever-type) Solex Bluepane
Glass Jaluosies
11 Sets 15'-1 3/4" x 47-7/8" (5 units)
4 Sets 13'-5 3/4" x 47-7/8" (5 units)
3 Sets 10'-9 3/4" x 47-7/7" (4 units)
2 Sets 18'-1 3/3" x 56-3/8" (6 units)
1 Set 9'-1 3/4" x 65-3/8" (3 units)
115 Pcs. Roto Operators for J-21
MODEL J-21 (Roto-type) Glass
and Wood Jalousies
8 Sets 32-1/2" x 60" Solex Bluepane
19 Sets 31-1/4" x 48" Solex Bluepane
18 Sets 34" x 48" Wood
4. That after the CAPITOL "300", Inc. failed to pay the price of the items mentioned in
the preceding paragraph, JALWINDOR MANUFACTURERS, Inc, filed a case for
collection of a sum of money against CAPITOL "300", Inc. with the Court of First
Instance of Rizal (Branch IV Quezon City), Civil Case No. Q-8040; that by virtue of a
Compromise Agreement, CAPITOL "300", Inc. acknowledged indebtedness in favor
of JALWINDOR in the amount of P9,531,09, with a stipulation in the said
Compromise Agreement, that the items forming part of the improvements will form as
security for such an undertaking;
5. That due to non-compliance by CAPITOL "300", Inc., JALWINDOR executed
judgment that the Sheriff of Quezon City made levy on the items above-stated in
paragraph 3 hereof and sold them at a public auction to JALWINDOR
MANUFACTURERS, INC. as the highest bidder, on August 30, 1965, for the total
amount of P 6,000.00:
6. That after CAPITOL "300", Inc. failed to pay the rentals in arrears from March 1,
1964 to April 30, 1965, water, electric and telephone services amounting to P
10,772.90, the plaintiff SAMPAGUITA PICTURES, INC. filed with the City Court of
Quezon City, Civil Case No. 11-13161 for ejectment and collection of a sum of
money against the CAPITOL "300", Inc,; that the City Court rendered judgment in
favor of the Sampaguita Pictures, Inc., on June 8, 1965, ordering the CAPITOL
"300", Inc. to vacate the premises located at the Sampaguita Building and to pay the
Sampaguita Pictures, Inc.;
7. That after the Sheriff of Quezon City made levy on the items above-stated in
paragraph 3 hereof situated on the roofdeck of the Sampaguita Building, plaintiff filed
a Third Party Claim stated in its affidavit on the ground of its right and title to the
possession of the items and that CAPITOL "300", Inc. has no right or title whatsoever
to the possession over said items; that defendant filed a bond to indemnify the Sheriff
against the claim, and the Sheriff sold the items to the defendant; that the
JALWINDOR MANUFACTURERS, Inc., being the highest bidder and the execution
creditor, considered itself paid to the amount of P6,000.00;
8. That the parties herein agree that the matter of attorney's fees be left to the sound
discretion of the Court, which shall not be less than P500.00. (Record on Appeal, pp.
11-14).
On October 20, 1967, based on said Stipulation of Facts, the lower court dismissed the complaint
and ordered Sampaguita to pay Jalwindor the amount of P500.00 as attorney's fees. Sampaguita
filed a motion for reconsideration which was likewise denied, hence, the instant appeal.
Petitioner-appellant raised the following assignment of errors:
I
The lower court erred in holding that Capitol "300" Inc. could not legally transfer or
assign the glass and wooden jalousies in question to the plaintiff-appellant.
II
The lower court erred in not holding that plaintiff-appellant was the rightful owner of
the glass and wooden jalousies when they were sold by the Sheriff at the public
auction,
III
The lower court erred in not declaring as null and void the levy on execution and the
Sheriff's sale at public auction of the glass and wooden jalousies.
IV
The lower court erred in holding that defendant-appellee became the rightful owner
of the glass and wooden jalousies.
When the glass and wooden jalousies in question were delivered and installed in the leased
premises, Capitol became the owner thereof. Ownership is not transferred by perfection of the
contract but by delivery, either actual or constructive. This is true even if the purchase has been
made on credit, as in the case at bar. Payment of the purchase price is not essential to the transfer
of ownership as long as the property sold has been delivered. Ownership is acquired from the
moment the thing sold was delivered to vendee, as when it is placed in his control and possession.
(Arts. 1477, 1496 and 1497, Civil Code of the Phil.)
Capitol entered into a lease Contract with Sampaguita in 1964, and the latter became the owner of
the items in question by virtue of the agreement in said contract "that all permanent improvements
made by lessee shall belong to the lessor and that said improvements have been considered as part
of the monthly rentals." When levy or said items was made on July 31, 1965, Capitol, the judgment
debtor, was no longer the owner thereof.
The action taken by Sampaguita to protect its interest is sanctioned by Section 17, Rule 39 of the
Rules of Court, which reads:
Section 17, Proceedings where property claimed by third person.
... The officer is not liable for damages for the taking or keeping of the property to any
third-party claimant unless a claim is made by the latter and unless an action for
damages is brought by him against the officer within one hundred twenty (120) days
from the date of the filing of the bond. But nothing herein contained shall prevent
claimant from vindicating his claim to the property by any action.
It is, likewise, recignized in the case of Bayer Phil., Inc. vs. Agana, et al., 63 SCRA 358, wherein the
Court declared, "that the rights of third party claimants over certain properties levied upon by the
sheriff to satisfy the judgment, may not be taken up in the case where such claims are presented but
in a separate and independent action instituted by claimants. ... and should a third-party appear to
claim is denied, the remedy contemplated by the rules in the filing by said party of a reinvicatiry
action against the execution creditor or the purchaser of the property after the sale is completed or
that a complaint for damages to be charged against the bond filed by the creditor in favor of the
sheriff. ... Thus, when a property levied upon by the sheriff pursuant to a writ of execution is claimed
by a third person in a sworn statement of ownership thereof, as prescribed by the rules, an entirely
different matter calling for a new adjudication arises."
The items in question were illegally levied upon since they do not belong to the judgemnt debtor.
The power of the Court in execution of judgment extends only to properties unquestionably
belonging to the judgment debtor. The fact that Capitol failed to pay Jalwindor the purchase price of
the items levied upon did not prevent the transfer of ownership to Capitol. The complaint of
Sampaguita to nullify the Sheriff's sale well-founded, and should prosper. Execution sales affect the
rights of judgment debtor only, and the purchaser in the auction sale acquires only the right as the
debtor has at the time of sale. Since the items already belong to Sampaguita and not to Capitol, the
judgment debtor, the levy and auction sale are, accordingly, null and void. It is well-settled in this
jurisdiction that the sheriff is not authorized to attach property not belonging to the judgment debtor.
(Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978], Herald Publishing vs. Ramos, 88 Phil.
94, 100).
WHEREFORE, the decision appealed from is hereby reversed, and plaintiff-appellant Sampaguita is
declared the lawful owner of the disputed glass and wooden jalousies. Defendant-appellee Jalwindor
is permanently enjoined from detaching said items from the roofdeck of the Sampaguita Pictures
Building, and is also ordered to pay plaintiff-appellant the sum of P1,000.00 for and as attorney's
fees, and costs.
SO ORDERED.
Teehankee, Actg. C.J., (Chairman), Makasiar, Fernan, Guerrero and Melencio-Herrera, JJ., concur.

CASE #55
G.R. No. L-41233 November 21, 1979
J.M. TUASON & CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, ALFONSO DE LEON and ROSARIO G. DE LEON, respondents.
Appeal by certiorari from the decision of respondent Court of Appeals (CA-G.R. No. 54695-R)
affirming with modification the decision of the Court of First Instance of Manila in Civil Case No.
89119, which is an action based on warranty against eviction, and to recover the value of a
subdivision lot at the time of eviction, plus damages.
The following facts may be regarded as without any dispute:
On January 31, 1952, petitioner J.M. Tuason & Co., Inc. executed, in favor of Ricardo de Leon, a
contract to sell Lot No. 15, Block 460 of the Sta. Mesa Heights Subdivision containing an area of
1,703.6 square meters with the agreed price of P24.60 per square meter or a total of P41,908.56. At
the execution of the contract, Ricardo de Leon paid the down-payment of P4,190.86 and agreed to
pay the balance in the monthly installment of P498.63 including the agreed annual interest of 10%
(Exhibit A).
Meanwhile, on April 10, 1953, petitioner signed a compromise agreement with the Deudors (in
another Civil Case No. Q-135, captioned Florencio Deudor, et al. vs. J.M. Tuason, et al.).
On July 19, 1965 with the consent of the petitioner, Ricardo de Leon transferred all his rights to the
lot in favor of his parents, herein private respondents Alfonso and Rosario de Leon (exhibit B). On
the same date, private respondents paid the outstanding balance of the purchase price (Exhibit 1-B).
On August 5, 1965 petitioner executed in favor of private respondents the deed of sale over the lot
(Exhibit C) and upon its registration, the Register of Deeds issued to the respondents the Transfer
Certificate of Title No. 96143 (Exhibit 3; Annex B, Rollo, 39-40).
At the time of the execution of the contract to sell, the contracting parties knew that a portion of the
lot in question was actually occupied by Ramon Rivera. However, it was their understanding that the
latter will be ejected by the petitioner from the premises (Annex B, Id).
On May 13, 1958, herein petitioner filed a complaint of ejectment against Ramon Rivera before the
Court of First Instance of Rizal (Civil Case No. Q-2989) and later petitioner petitioner Ricardo de
Leon and respondents Alfonso and Rosario de Leon as necessary parties. In this Civil Case No. Q-
2989, the decision of the lower court, principally based on the compromise agreement executed in
another Civil Case No. Q-135 entitled Florencio Deudor, et al. vs. J.M. Tuason, et al. has the
following dispositive portion:
WHEREFORE, the complaint against the defendant Ramon Rivera is hereby
DISMISSSED ordering the plaintiff to enter into an agreement with Ramon Rivera
allowing said defendant to purchase 1,050 square meters to land now covered by Lot
15, Block 460 of the Sta. Mesa Heights Subdivision to be priced at the prevailing cost
in the year 1958 which is placed by this Court to be P60.00 per square meters; to
pay attorney's fees of P3,000.00 to defendant Ramon Rivera, with costs against the
plaintiff ... (Emphasis supplied)
The Court of Appeals wholly affirmed this decision with costs against plaintiff-appellant J.M. Tuason
& Co., Inc. (CA-G.R. No. 38212-R), and denied the motion for reconsideration filed by the other
plaintiffs-appellants Alfonso and Rosario de Leon, stating among others: ... We believe, however,
that these questions should be properly ventilated in the proper action which the plaintiffs-
appellants, the De Leons, may file against the plaintiff-appellant (J.M. Tuason & Co., Inc.) for failure
of the latter to deliver to them the possession of the whole of Lot 15, Block 460 of the Sta. Mesa
Heights Subdivision ... (Annex E, 4-5).
This decision of the Court of Appeals became final and executory in September, 1971 when the De
Leons were evicted from the premises in question (Annex E, 6).
Pursuing the step as suggested by the Court of Appeals advising herein private respondents to file
the proper action the latter instituted on December 5,1972 before the Court of First Instance of
Manila, Branch XXIX, Civil Case No. 89119, an action against J.M. Tuason & Co., Inc. to enforce the
vendor's warranty against eviction or to recover the value of the land amounting to P315,000.00,
plus damages.
The lower court decided the case against herein petitioner J.M. & Co., Inc. (defendant below)
disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant:
(1) Ordering defendant to pay plaintiffs the sum of TWO HUNDRED TEN
THOUSAND (P210,000.00) PESOS representing the value of the 1,050 square
meters at P200.00 per square meter, from which the latter were evicted, with legal
interest from December 5, 1972, the date of filing of the complaint;
(2) Ordering defendant to pay plaintiffs the sum of TWENTY FIVE THOUSAND
(P25,000.00) PESOS, by lay of moral damages, TEN THOUSAND (P10,000.00)
PESOS, by way of exemplary damages, and FIFTEEN THOUSAND (P15,000.00)
PESOS, for and as attorney's fees; and
(3) For costs of this suit.
This decision of the lower court was appealed to herein respondent Court of Appeals (CA-G.R. No.
54695-R), which on July 2, 1975 affirmed it with the sole modification on the reduction of the
awarded moral damages from P25,000.00 to P5,000.00 (Annex B, Rollo, p. 52).
Hence, this petition before Us with the prayer that the decision of respondent court be reversed and
another rendered, 'dismissing the complaint and ordering respondents De Leons to accept from
petitioner J.M. Tuason & Co., Inc. the sum of P60.00 per square meter for the 1,050 square meters
which the petitioner was ordered to sell to Ramon Rivera, and to pay petitioner P30,000.00 as
attorney's fees plus costs.
Petitioner J. M. Tuason & Co., Inc. alleges that dent court erred: (1) in holding that the compromise
agreement was the proximate cause of its failure to comply with its contract to self in favor of
Ricardo de Leon; (2) in holding that it entered into the compromise agreement without the
knowledge and behind the back of Ricardo de Leon and thereafter continued the collection of the
installments until the purchase price was fully paid and thus it wilfully committed fraud against him;
(3) in not considering that Ricardo de Leon was guilty of bad faith in entering into the contract to sell
and therefore he is not entitled to the warranty against eviction; and (4) in granting moral and
exemplary damages.
The real point in issue is whether respondents De Leon are entitled to the vendor's warranty against
eviction and damages.
The appellate court, in this action of warranty against eviction, found that petitioner J.M. Tuason &
Co., Inc. failed to comply with its obligation to transfer ownership over the lot to the De Leons due to
the compromise agreement it entered with the Deudors, and that petitioner is guilty of "wilful
deception, intentional forsaking of one to whom defendant was bound in a contract to convey, and
worse yet, even at that, after the compromise, defendant still continued to collect installments from
buyer ...
Contrary to these findings, this Court holds that it was not petitioner's own making that it executed
the compromise agreement with the Deudors. This agreement was sanctioned by the court after the
Deudors filed an action against petitioner in Civil Case No. Q-135 entitled "Florencio Deudor, et al.
vs. J.M. Tuason et al." The prior right of Ramon Rivera to purchase the lot in litigation was based
more on his prior occupancy to the same since 1949, about which fact respondents De Leon were
informed by petitioner at the time of the execution of the contract to sell. The execution of the
compromise agreement merely recognized this prior right, under the condition as stipulated in said
agreement, that it was possible to do so.
Petitioner claims, without having been contradicted, that it executed the compromise agreement with
the Deudors in the honest belief that the lots it already sold. like the lot in question, were excluded
from the coverage of the agreement. This claim finds support in paragraph "SEVENTH" of the
compromise agreement which reads ... It shall be the joint and solidary obligation of the Deudors to
make the buyers of the lots purportedly sold by them recognize the title of the OWNERS over the
property purportedly bought by them, and to make them sign,whenever possible, new contracts of
purchase for the said property at the current prices and terms specified by the OWNERS in their
sales of lots in their subdivision known as Sta. Mesa Heights Subdivision ... " (Annex C, Rollo, p. 55).
In fact, in their brief as appellants in CA-G.R. No. 38212-R, private respondents stated that "as
correctly pointed out in the brief for plaintiff-appellant, it was not the intention of the signatories of the
Compromise Agreement to include within its coverage those parcels of land already sold by plaintiff-
appellant (petitioner herein) to third parties," and "We reproduce herein by way of reference the
arguments in pp. 1-2 to 39 of plaintiffs- appellants' brief." (See Annex C, Petition, pp. 3-4). Private
respondents should not be allowed to turn back from what they stated in their brief in CA-G.R. No.
38212-R, to impute "wilful deception" as the respondent court said in its decision under review.
This particular stipulation in the compromise agreement discloses an understanding between the
petitioner and the Deudors that the buyers of lots from the Deudors, like Ramon Rivera, may,
acquire lots from the subdivision being sold by petitioner and sign new contracts of purchase with
the latter 6 whenever possible", or only when said lots have not already been sold to third 'parties.
Relying on the above-quoted provision, petitioner believed in good faith that said lot sold to the De
Leons would not be adversely affected. Nonetheless, with the inevitable and admitted fact that
Ramon Rivera was a prior occupant thereof, petitioner was compelled by judicial fiat in Civil Case
No. 2989 of the Court of First Instance of Rizal, to recognize the preferential right of Rivera to
rightfully purchase the lot. This fact is not of itself a proof under the circumstance just cited, of bad
faith on the part of the petitioner or that it is guilty of committing fraud and deception upon the
respondents as the respondent court found. Its good faith in with Ricardo de Leon who was the one
branded as a "buyer in bad faith" by the Court of Appeals in its decision affirming of the Court of First
Instance of Rizal in CA-G.R. No. No. 38212-R seems beyond question.
If petitioner continued the collection of the outstanding monthly after the execution of the
compromise agreement on April 10,1953 pursuant to the agreements embodied in the contract to
sell (Exhibit A), its act only proved its honest belief that it found no barrier against the enforceability
of the contract to sell, the terms of which have the force of law between the parties and must be
complied with in good faith (Lazo vs. Republic Surety & Insurance Co., Inc., 311 SCRA 329; Ramos
vs. Central Bank of the Philippines, 41 SCRA 565; Enriquez vs. Ramos, 73 SCRA 116; De Cortes
vs, Venturanza, 79 SCRA 709). The collection of the monthly installment payments terminated upon
the fun payment of the purchase price on July 19, 1965, long before the ejectment case against
Ramon Rivera was finally resolved by the appellate court in September, 1971 (Civil Case No. Q-
2989; CA-G.R. No. 38212-R). As properly claimed by the petitioner, it had the right to hopefully
expect to win the ejectment case. It was not exactly its fault that it lost the case. Private respondents
joined in a common cause with it.
The subsequent execution of a deed of sale upon the total payment of the purchase price in favor of
herein respondents on August 5, 1965 in lieu of the previous contract to sell made in favor of
Ricardo de Leon, through which deed of sale the respondents acquired a transfer certificate of title
over the questioned lot, is further evidence of the honesty and good faith of petitioner in dealing with
private respondents. Petitioner owns vast tracts of land, with the lot in question possibly put an
insignificant part in terms of value, and it would be much too difficult to make the serious imputations
made to petitioner.
In fulfillment of the assurance made to eject the occupant from the lot, petitioner, on May 13, 1958,
later joined by Ricardo de Leon and respondents Alfonso and Rosario de Leon, instituted a
complaint of ejectment against Ramon Rivera in Civil Case No. Q- 2989. Unfortunately, however, the
decision of the lower court dismissing the complaint of ejectment was affirmed by the appellate court
in CA-G.R. No. 38212-R, which decision, of the latter upon its finality in September, 1971 resulted in
the eviction of herein respondents from the lot. It is meet, at this juncture, to repeat that in its
decision, the Court of Appeals branded Ricardo de Leon as a buyer in bad faith.
In manifesting its desire to compensate respondents, as disclosed by prayer in the instant petition in
the sum of P60.00 per square meter for the 1,050 meters which it was ordered by the courts, in Civil
Case No. Q-2989 and CA-G.R. No. 38212-R, to sell to Ramon Rivera, again reveals how fair
petitioner would want to be to private respondents, not to defraud them as the respondent court
would ascribe such base intent to petitioner, which is by no means not a disreputable but a
respectable, corporation.
For all the foregoing circumstances, We have no hesitation to give to petitioner the benefit of the
doubt of its having acted in good faith, which is always presumed,, without any intention of taking
advantage of the other party dealing with it. "Good faith consists in an honest intention to abstain
from taking any unconscientious advantage of another. Good faith is an opposite of fraud and of bad
faith and its non-existence must be established by competent proof." (Leung Yee vs. Strong
Machinery Company, 37 PhiL 645; Cui vs. Henson, 51 Phil. 606, 612; Fule vs. De Legare, 7 SCRA
351).
Moreover, at the time of the execution of the contract to sell it is an admitted fact that Ricardo de
Leon knew that a third party was occupying a part of the lot subject of the sale. Ricardo de Leon
ought to have known that he was buying a property with the distinct possibility of not being able to
possess and own the land due to the occupancy of another person on the same. So there had to be
an understanding between him and the petitioner for the latter to eject the occupant, something
which, by the facts then obtaining and the law relevant thereto, would make the ejectment more
speculative than certain. Nonetheless, Ricardo de Leon knowingly assumed the risk when he bought
the, land, and was even called a vendee in bad faith by the Court of Appeals in doing so, clearly not
an innocent purchaser in good faith. If petitioner that it would eject Ramon Rivera, he did so, not
knowing that the compromise agreement would stand on the way, as it had thought, in all good faith,
that paragraph 7 of the compromise agreement excluded the lot in question, having been already
sold to Ricardo de Leon before the agreement was executed in court.
This Court is impelled to declare that private respondents were lacking in good faith for knowing
beforehand, at the time of the sale, the presence of an obstacle to their taking over the possession
of the land, which, in effect, would amount to eviction from said land, and still they bought the land
without first removing that obstacle. (Angelo vs. Pacheco, 56 Phil. 70; Andaya vs. Manansala, 107
Phil 1151).
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith, as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor (Leung Yee vs. Strong Machinery Company, supra; Manancop Jr. vs.
Cansino, 1 SCRA 572; Paylago vs. Jarabe, 22-SCRA 1247; Barrios vs. Court of Appeals, 78 SCRA
427; Emphasis supplied).
Without being shown to be vendees in good faith, herein respondents are not entitled to the warranty
against eviction nor are they On titled to recover damages (Article 1555 of the Civil Code). However,
for justice and equity sake, and in consonance with the salutary principle of non-enrichment at
another's expense, herein petitioner J.M. Tuason & Co., Inc. should compensate respondents De
Leons in the total sum of ONE HUNDRED TWENTY SIX THOUSAND (P126,000.00) PESOS,
representing the aggregate value of the 1,050 square meters (which petitioner was judicially ordered
to sell to Ramon Rivera at the year 1958 prevailing rate of P60.00 per square meter) at the value of
P120.00 per square meter, doubling the price of P60.00 per square meter which amount petitioner
voluntarily offered to pay herein respondents following how indemnity for death had been raised from
P6,000.00 to P12,060.00 (People vs. Pantoja, 25 SCRA 468, 474 [1968]) based on grounds of
equity, due to the reduced purchasing power of the peso, with the legal rate of interest from
December 5, 1972, the date respondents filed their complaint, until the said total sum is fully paid.
WHEREFORE, the judgment of respondent court is hereby modified by ordering petitioner J.M.
Tuason & Co., Inc. to pay the respondents the amount of ONE HUNDRED TWENTY-SIX
THOUSAND (Pl26,000.00) PESOS plus the legal rate of interest from December 5, 1972, the date of
filing the complaint until the s aid total sum is fully paid. No costs.
SO ORDERED.

CASE #56
G.R. No. L-42636 August 1, 1985
MARIA LUISA DE LEON ESCALER and ERNESTO ESCALER, CECILIA J. ROXAS and PEDRO
ROXAS,petitioners,
vs.
COURT OF APPEALS, JOSE L. REYNOSO, now deceased, to be substituted by his heirs or
legal representatives and AFRICA V. REYNOSO, respondents.

This is a Petition for Review on certiorari of the Decision of the then Court of Appeals (now the
Intermediate Appellate Court) and of its Resolution denying petitioners' Motion for Reconsideration,
in CA G.R. No. 41953-R, which was an appeal from the judgment of the Court of First Instance of
Rizal in Civil Case No. 9014 entitled "Maria Luisa de Leon Escaler, et al vs. Jose L. Reynoso and
Africa Reynoso."
The following are the pertinent background facts:
On March 7, 1958, the spouses Africa V. Reynoso and Jose L, Reynoso sold to petitioners several
others, a parcel of land, situated in Antipolo, Rizal with an area of 239,479 square meters and
covered by TCT No. 57400 of the Register of Deeds of the Province of Rizal. The Deed of
Sale
1
contained the following covenant against eviction, to wit:
That the VENDOR is the absolute owner of a parcel of land ... the ownership thereof
being evidenced by an absolute deed of sale executed in her favor by registered
owner ANGELINA C. REYNOSO, ...;
That the VENDOR warrants valid title to and ownership of said parcel of land and
further, warrant to defend the property herein sold and conveyed, unto the
VENDEES, their heirs, and assignees, from any and all claims of any persons
whatsoever.
On April 21, 1961, the Register of Deeds of Rizal and A. Doronilla Resources Development, Inc. filed
Case No. 4252 before the Court of First Instance of Rizal for the cancellation of OCT No. 1526
issued in the name of Angelina C. Reynoso (predecessor-in-interest of private respondents-vendors)
on February 26, 1958 under Decree No. 62373, LRC Record No. N-13783, on the ground that the
property covered by said title is already previously registered under Transfer Certificate of Title No.
42999 issued in the name of A. Doronilla Development, Inc. Petitioners as vendees filed their
opposition to the said petition.
On June 10, 1964, an Order
2
was issued in the said case, the dispositive portion of which reads:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court is constrained to set aside
Decree No. 62373 issued in LRC. Rec. No. N-13783 and the Register of Deeds of
Rizal is directed to cancel OCT No. 1526 of his office and all Transfer Certificates of
Title issued subsequently thereafter to purchaser of said property or portions thereof,
the same being null and void, the expenses for such cancellation to be charged to
spouses Angelina Reynoso and Floro Reynoso. The owner's duplicates in the
possession of the transferees of the property covered by OCT No. 1526 are declared
null and void and said transferees are directed to surrender to the Register of Deeds
of Rizal, said owner's duplicates for cancellation.
The other reliefs sought for by the party oppositors are denied the same not falling
within the jurisdiction of this Court under this proceeding.
SO ORDERED.
On August 31, 1965, herein petitioners, spouses Maria de Leon Escaler and Ernesto Escaler and
spouses Cecilia J. Roxas and Pedro Roxas, filed Civil Case No. 9014 before the Court of First
Instance of Rizal against their vendors, herein private respondents, spouses Jose L. Reynoso and
Africa Reynoso for the recovery of the value of the property sold to them plus damages on the
ground that the latter have violated the vendors' "warranty against eviction."
The complaint among others, alleged that the Order issued in Case No. 4252 which cancelled the
title of Angelina C. Reynoso and all subsequent Transfer Certificates of Title derived and/or
emanating therefrom and which includes the titles of petitioners, is now final, and by reason thereof
petitioners lost their right over the property sold; and that in said Case No. 4252, the respondents
were summoned and/or given their day in court at the instance of the petitioners.
3

The respondents, as defendants, filed their answer alleging, among others, by way of affirmative
defenses that "the cause of action, if any, of plaintiffs against defendants have been fully adjudicated
in Case No. 4252 when plaintiffs failed to file a third-party complaint against defendants."
4

On August 18, 1967, petitioners, as plaintiffs, filed a Motion for Summary Judgment, alleging the
facts already averred in the complaint, and further alleging that the defendants were summoned and
were given their day in court at the instance of plaintiffs in Case No. 4252. In support of their said
motion, the plaintiffs attached the affidavit of Atty. Alberto R. Avancea who had represented the
plaintiffs in Case No. 4252 and had filed a joint opposition in behalf of all the vendees. The pertinent
portion of that affidavit, states
4. That he has furnished a copy of said joint opposition to Africa Reynoso, wife of
Jose L. Reynoso, at her given address at c/o Antipolo Enterprises, Antipolo, Rizal
and the latter had received the same, as evidenced by the photostatic copy of the
Registry Return Receipt thereto affixed as Annex "C-l";
xxx xxx xxx
6. That he hereby executed this Affidavit to prove that said defendants Africa
Reynoso and Jose L. Reynoso were given their day in Court and/or were afforded
their opportunity to be heard in Case No. 4252 aforecited.
On September 27, 1967, judgment was rendered by the trial court, the pertinent portion of which
reads
Considering the foregoing motion for summary judgment and it appearing that the
defendants under a Deed of Absolute Sale (Annex "C") have expressly warranted
their valid title and ownership of the said parcel of land and further warranted to
defend said property from any and all claims of any persons whomever in favor of
plaintiffs; that the said warranties were violated when on June 10, 1964, an Order
was promulgated by the Court of First Instance of Rizal in Case No. 4252 (Related to
LRC Case No. 1559, LRC Record No. N13293). In Re: Petition for Cancellation of
Original Registration, etc., covering the parcel of land in question; that said order of
June 10, 1964 has become final and executory there being no appeal interposed
thereto and defendants were summoned and were given a day in court at the
instance of the plaintiffs in Case No. 4252, the Court hereby grants the motion for
summary judgment, and hereby orders the defendants to jointly and severally return
to the plaintiffs Maria Luisa de Leon Escaler and Ernesto Escaler, Cecilia J. Roxas
and Pedro Roxas, the value of the property sold to them at the time of eviction which
is not to be less than P5,500.00 to reimburse to each one of the plaintiffs the
expenses of contract and litigation and the amount of P2,250.00 to pay the attorney's
fees of P1,000.00 plus the costs of suit.
SO ORDERED.
Private respondents appealed the aforesaid decision to the then Court of Appeals
5
assigning as sole
errorthat the lower court erred in finding that they were summoned and were given their day in court at
the instance of petitioners-plaintiffs in Case No. 4252.
In reversing the decision of the trial court and dismissing the case, the then Court of Appeals found
and so ruled that petitioners as vendees had not given private respondents-vendors, formal notice of
the eviction case as mandated by Arts. 1558 and 1559 of the New Civil Code.
Hence, the instant recourse, petitioners contending
1) that the Court of Appeals erred in applying strictly to the instant case the
provisions of Articles 1558 and 1559 of the new Civil Code; and
2) that the decision of the Court of First Instance of Rizal should have been affirmed
by the Court of Appeals or at least, the, Court of Appeals should have remanded the
case to the trial court, for hearing on the merits.
The petition is devoid of merit. Consequently, it must be dismissed.
Article 1548, in relation to Articles 1558. and 1559 of the New Civil Code reads as follows:
Art. 1548, Eviction shall take place whenever by a final judgment based on a right
prior to the sale or an act imputable to the vendor, the vendee is deprived of the
whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said in the
contract on the subject.
The contracting parties, however, may increase, diminish, or suppress this legal
obligation of the vendor.
Art. 1558. The vendor shall not be obliged to make good the proper warranty, unless
he is summoned in the suit for eviction at the instance of the vendee. (emphasis
supplied)
Art. 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court
for answering the complaint that the vendor be made as co-defendant.
In order that a vendor's liability for eviction may be enforced, the following requisites must concur
a) there must be a final judgment; b) the purchaser has been deprived of the whole or part of the
thing sold; c) said deprivation was by virtue of a right prior to the sale made by the vendor; and d)
the vendor has been summoned and made co-defendant in the suit for eviction at the instance of the
vendee.
6

In the case at bar, the fourth requisitethat of being summoned in the suit for eviction (Case No.
4252) at the instance of the vendeeis not present. All that the petitioners did, per their very
admission, was to furnish respondents, by registered mail, with a copy of the opposition they
(petitioners filed in the eviction suit. Decidedly, this is not the kind of notice prescribed by the
aforequoted Articles 1558 and 1559 of the New Civil Code. The term "unless he is summoned in the
suit for eviction at the instance of the vendee" means that the respondents as vendor/s should be
made parties to the suit at the instance of petitioners-vendees, either by way of asking that the
former be made a co-defendant or by the filing of a third-party complaint against said vendors.
Nothing of that sort appeared to have been done by the petitioners in the instant case.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the petition is DISMISSED and the appealed
decision of the then Court of Appeals is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Concepcion, Jr., Abad Santos, Plana, Escolin, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.


Separate Opinions
AQUINO, J ., dissenting:
In 1958 Cecilia Roxas and Maria Luisa de Leon Escaler and ten other persons bought for P12,000
from Africa V Reynoso, 23.9 hectares of land located at Barrio San Isidro, Antipolo, Rizal covered by
OCT No. 1526 in the name of Angelina C. Reynoso. Africa had purchased the land from Angelina (9-
12, Record on Appeal). Escaler and Roxas obtained TCT Nos. 58389 and 58393, respectively.
On April 21, 1961 the register of deeds of Rizal in Civil Case No. 4252, LRC Case No. 1559, Rec.
No. 13793, filed a petition for the cancellation of Decree No. N-62373 and OCT No. 1526 issued in
the name of Angelina C. Reynoso because the 23.9 hectare land covered by said decree and title
had been previously registered in the name of A. Doronilla Resources Development, Inc. since
February 20, 1956. Angelina was furnished a copy of the petition by registered mail, Registry
Receipt No. 6883. The petition was set for hearing on May 20, 1961.
It was alleged in paragraph 5 of the petition that Angelina transferred to Africa V. Reynoso the said
land. Among the 20 persons furnished copies of the petition for cancellation were Escaler and
Roxas. Escaler and Roxas filed a joint opposition to the petition for cancellation. Their lawyer,
Alberto P. Avancea, furnished Africa Reynoso and A Angelina C. Reynoso by registered mail with
copies of said opposition sent at their common Postal address, care of Antipolo Enterprises,
Antipolo, Rizal, as shown in Registry Receipts Nos. 58558 and 58559 dated June 24, 1961 (p. 85,
Record of Civil Case No. 4252).
In said joint opposition, it was alleged that Escaler and Roxas were innocent purchasers for value,
that the court, as a land registration court, had no jurisdiction over the controversy and that should
the titles of Escaler and Roxas be nullified, they are entitled to relief from the Assurance Fund.
After hearing, which lasted for three years, Judge Muoz Palma in her order of June 10, 1964 found
that the land covered by Angelina Reynoso's title, OCT No. 1526, had been previously registered in
1907 under OCT No. 301, which was cancelled by subsequent transfer certificates of title, the latest
of which is TCT No. 42999 in the name of A. Doronilla Resources Development, Inc.
She declared void Decree No. 62373 and Angelina Reynoso's title and those derived therefrom, like
the titles of Escaler and Roxas, in accordance with the rule that the prior registration prevails over
the later registration (Legarda and Prieto vs. Saleeby, 31 Phil. 590).
The titles of Angelina and Africa (maybe relatives by affinity) were void because they were issued for
lands already registered. The titles of Angelina and Africa may be regarded as a form of land-
grabbing. The purchasers were speculators in Antipolo lots.
More than a year later, or on August 31, 1965, Escaler and Roxas in Civil Case No. 9014 sued
Africa Reynoso to enforce the warranty against eviction contained in the deed of sale executed by
Africa in 1958 in their favor. They prayed for the return to each of the plaintiffs of P5,500 as the value
of the land and P4,750 as reimbursement of "expenses of contract", attorney's fees and litigation
expenses.
Africa Reynoso in her answer alleged that Escaler and Roxas failed to file a third- party complaint
against her when the latter were sued in Civil Case No. 4252, that their action had prescribed, that
they should claim from Angelina C. Reynoso reimbursement for the expenses of cancellation of title
and that their claim is against the Assurance Fund.
Africa Reynoso filed a third-party complaint against Angelina C. Reynoso. No summons was issued.
Escaler and Roxas filed a motion for summary judgment.
On September 27, 1967, Judge Navarro ordered the spouses Africa Reynoso and Jose Reynoso to
return solidarity to the Escalers and the Roxases the value of the land amounting to P5,500, to
reimburse to each one of the plaintiffs the "expenses of contract" and litigation in the sum of P2,250
and attorney's fees of P1,000 (61, Record on Appeal).
The Reynoso spouses appealed to the Court of Appeals which reversed the trial court's decision.
The Appellate Court held that because Escaler and Roxas did not make Africa Reynoso a co-
defendant in the eviction case, as required in articles 1558 and 1559 of the Civil Code, they could
not later on enforce the warranty against Africa. Escaler and Roxas appealed to this Court.
In my opinion, it was not possible for Escaler and Roxas to comply strictly with articles 1558 and
1559. The eviction took place, not in an ordinary suit wherein the vendor can be made a co-
defendant, but as an incident in the cancellation of title in a land registration proceeding.
In such a case, the furnishing of the vendor with a copy of the opposition was a substantial
compliance with articles 1558 and 1559. It was a notice to the vendor. Africa's vendor, Angelina, was
first notified of the cancellation proceeding.
At least, Escaler and Roxas complied with article 1481 of the old Civil Code which requires notice to
the vendor. It was not the fault of the petitioners that the eviction case assumed the shape of a mere
incident in the land registration proceeding and not that of an ordinary contentious civil action. Africa
Reynoso could not be made a co- defendant in that incident for cancellation of title, a summary
proceeding.
A contrary view would enable Africa Reynoso to enrich herself unjustly at the expense of the
petitioners.
Makasiar, C.J., Teehankee, Melencio-Herrera, Alampay, JJ., concur.


Separate Opinions
AQUINO, J ., dissenting:
In 1958 Cecilia Roxas and Maria Luisa de Leon Escaler and ten other persons bought for P12,000
from Africa V Reynoso, 23.9 hectares of land located at Barrio San Isidro, Antipolo, Rizal covered by
OCT No. 1526 in the name of Angelina C. Reynoso. Africa had purchased the land from Angelina (9-
12, Record on Appeal). Escaler and Roxas obtained TCT Nos. 58389 and 58393, respectively.
On April 21, 1961 the register of deeds of Rizal in Civil Case No. 4252, LRC Case No. 1559, Rec.
No. 13793, filed a petition for the cancellation of Decree No. N-62373 and OCT No. 1526 issued in
the name of Angelina C. Reynoso because the 23.9 hectare land covered by said decree and title
had been previously registered in the name of A. Doronilla Resources Development, Inc. since
February 20, 1956. Angelina was furnished a copy of the petition by registered mail, Registry
Receipt No. 6883. The petition was set for hearing on May 20, 1961.
It was alleged in paragraph 5 of the petition that Angelina transferred to Africa V. Reynoso the said
land. Among the 20 persons furnished copies of the petition for cancellation were Escaler and
Roxas. Escaler and Roxas filed a joint opposition to the petition for cancellation. Their lawyer,
Alberto P. Avancea, furnished Africa Reynoso and A Angelina C. Reynoso by registered mail with
copies of said opposition sent at their common Postal address, care of Antipolo Enterprises,
Antipolo, Rizal, as shown in Registry Receipts Nos. 58558 and 58559 dated June 24, 1961 (p. 85,
Record of Civil Case No. 4252).
In said joint opposition, it was alleged that Escaler and Roxas were innocent purchasers for value,
that the court, as a land registration court, had no jurisdiction over the controversy and that should
the titles of Escaler and Roxas be nullified, they are entitled to relief from the Assurance Fund.
After hearing, which lasted for three years, Judge Muoz Palma in her order of June 10, 1964 found
that the land covered by Angelina Reynoso's title, OCT No. 1526, had been previously registered in
1907 under OCT No. 301, which was cancelled by subsequent transfer certificates of title, the latest
of which is TCT No. 42999 in the name of A. Doronilla Resources Development, Inc.
She declared void Decree No. 62373 and Angelina Reynoso's title and those derived therefrom, like
the titles of Escaler and Roxas, in accordance with the rule that the prior registration prevails over
the later registration (Legarda and Prieto vs. Saleeby, 31 Phil. 590).
The titles of Angelina and Africa (maybe relatives by affinity) were void because they were issued for
lands already registered. The titles of Angelina and Africa may be regarded as a form of land-
grabbing. The purchasers were speculators in Antipolo lots.
More than a year later, or on August 31, 1965, Escaler and Roxas in Civil Case No. 9014 sued
Africa Reynoso to enforce the warranty against eviction contained in the deed of sale executed by
Africa in 1958 in their favor. They prayed for the return to each of the plaintiffs of P5,500 as the value
of the land and P4,750 as reimbursement of "expenses of contract", attorney's fees and litigation
expenses.
Africa Reynoso in her answer alleged that Escaler and Roxas failed to file a third- party complaint
against her when the latter were sued in Civil Case No. 4252, that their action had prescribed, that
they should claim from Angelina C. Reynoso reimbursement for the expenses of cancellation of title
and that their claim is against the Assurance Fund.
Africa Reynoso filed a third-party complaint against Angelina C. Reynoso. No summons was issued.
Escaler and Roxas filed a motion for summary judgment.
On September 27, 1967, Judge Navarro ordered the spouses Africa Reynoso and Jose Reynoso to
return solidarity to the Escalers and the Roxases the value of the land amounting to P5,500, to
reimburse to each one of the plaintiffs the "expenses of contract" and litigation in the sum of P2,250
and attorney's fees of P1,000 (61, Record on Appeal).
The Reynoso spouses appealed to the Court of Appeals which reversed the trial court's decision.
The Appellate Court held that because Escaler and Rxas did not make Africa Reynoso a co-
defendant in the eviction case, as required in articles 1558 and 1559 of the Civil Code, they could
not later on enforce the warranty against Africa. Escaler and Roxas appealed to this Court.
In my opinion, it was not possible for Escaler and Roxas to comply strictly with articles 1558 and
1559. The eviction took place, not in an ordinary suit wherein the vendor can be made a co-
defendant, but as an incident in the cancellation of title in a land registration proceeding.
In such a case, the furnishing of the vendor with a copy of the opposition was a substantial
compliance with articles 1558 and 1559. It was a notice to the vendor. Africa's vendor, Angelina, was
first notified of the cancellation proceeding.
At least, Escaler and Roxas complied with article 1481 of the old Civil Code which requires notice to
the vendor. It was not the fault of the petitioners that the eviction case assumed the shape of a mere
incident in the land registration proceeding and not that of an ordinary contentious civil action. Africa
Reynoso could not be made a co- defendant in that incident for cancellation of title, a summary
proceeding.
A contrary view would enable Africa Reynoso to enrich herself unjustly at the expense of the
petitioners.

CASE #58
G.R. No. L-34727 March 9, 1932
PACIFIC COMMERCIAL COMPANY, plaintiff-appellee,
vs.
ERMITA MARKET & COLD STORES, INC., defendant-appellant.
Jose Perez Cardenas and Guevara, Francisco & Recto for appellant.
Jose Yulo for appellee.
This is an appeal from a judgment of the Court of First Instance of Manila, ordering defendant to pay
plaintiff the sum of P1,740 with interest thereon at the rate of 10 per cent per annum from January 1,
1928, to date of payment; likewise, to pay plaintiff P174 for attorneys' fees and costs of collection;
and to pay P250.67 with legal interest from date of filing of complaint to date of payment for work,
labor, and services rendered and for materials used in the installation of a refrigerating machine for
the defendant, and pay the costs.
It appears that on September 14, 1927, the Pacific Commercial Co., the plaintiff herein, sold to the
Ermita Market & Cold Stores, Inc., the defendant herein, an automatic refrigerating machine of the
following description:
Una maquina refrigeradora automatica York Style Y-26 capacidad Dos toneladas de
refrigeracion consistente en: Compresor de amoniaco York, de Doble Cilinfro, Condensador,
Recibidor, Separador de aciete, Juego de manometros, Valvulas, Valvula reguladora de
agua, Control automatico, Aparato de seguridad, Motor Electrico G-E de cinco caballos de
fuerza 220 volts Corriente alterna, de Una Fase, montadas todas en una basee de hierro,
asi como tambien incluye una bomba centrifuga para circulacion de argua y correas.
The parties signed the usual printed sales-contract form of the plaintiff company, the purchase price
being P2,550, payable by installments on dates and in amounts stated in the sales contract. The
delivery of the machines was made on December 7, 1927, and by mutual agreement between the
vendor and the vendee, the former installed the machine which was completed on December 26,
1927. The installation, including materials used, amounted to P250.67, to be paid by the Ermita
Market & Cold Stores, Inc., to the Pacific Commercial Company. Complying with the terms of the
sales contract, the defendant paid the plaintiff the amount of P810 against the purchase price of the
machine, leaving a balance of P1,740.
A few days after installation of the automatic refrigerating machine, the Ermita Market & Cold Stores
advised the Pacific Commercial Company that the machine was not serving the purpose for which it
was sold to defendant and that it was lacking ammonia receiver and oil separator. The plaintiff
company in turn advised the defendant that the machine installed was complete, having all the
accessories as stated in the contract. However, upon the insistence of the defendant, the plaintiff,
just to please the president of the defendant company, delivered and installed on the machine an
additional oil separator without charge. The machine did not give the result expected from it, and the
defendant refused to pay the installation of the machine. The Pacific Commercial Company
thereupon brought this action.
In its answer, the defendant generally and specially denied the allegations contained in plaintiff's
complaint, and by way of special defense alleged substantially that the machine delivered to the
defendant by the plaintiff was not the machine described in the contract of sale inasmuch as the said
machine was not automatic and as it was lacking ammonia receiver, oil separator, and the
implements necessary to make the said machine automatic.
By way of cross-complaint, the defendant further alleges that it bought the machine in question from
the plaintiff for the purpose of running the business of cold storage; that the temperature in the
refrigerating rooms did not reach, and had never reached, the necessary temperature for the
preservation of meat, fish, vegetables, and fruits; that owing to the negligence of the plaintiff in not
repairing or putting in good working condition the said refrigerating machine, the defendant had been
forced to close its establishment and for which reason the defendant claimed damages against the
plaintiff as follows:
P5,000 for expenses in advertising and propaganda;
P15,000 as the value of fish, pork, meat, vegetables and fruits alleged to have deteriorated in
the refrigerating rooms;
P30,000 for the loss of its clientele and decrease in its sales;
P20,000 for the loss of the whole business; and "P3,600 for rentals of the premises, salaries
of the manager, guard and warehouseman, from May 10, 1928, up to October of the same
year, at the rate of P600 a month, because of the refusal of the plaintiff to withdraw the
refrigerating machine in question from the premises where it was installed. In other words,
the defendant asks for damages in the total sum of P73,600.
Replying to the defendant's cross-complaint, the plaintiff denied generally and specifically each and
every and every allegation in the said cross-complaint and by way of special defense, alleged that
whatever defects or deficiency there might have been in the temperature in the refrigerating rooms
of defendant's establishment, or in the functioning of the machine, these were due to the defects and
imperfections of the coils which were supplied and installed by the defendant itself, as well as to the
incompetency and inefficiency of the defendant's personnel to operate the machine.
After trial, the court below rendered the judgment above mentioned, and, as hereinbefore stated, the
defendant appealed to this court.
After a careful examination of the record, we have not the least doubt that the plaintiff delivered the
machine as described in the sales contract, and the fact that the defendant could not use it
satisfactorily in the three cold stores division cannot be attributed to plaintiff's fault; as far as we can
see, the machine was strictly in accordance with the written contract between the parties, and the
defendant can hardly honestly say that there was any deception by the plaintiff. (See article 327,
Code of Commerce; Palanca vs. Fred Wilson & Co., 37 Phil., 506.)
But it is clear that the defendant company did not fully understand the use of the motor. It complains
that the machine would not properly refrigerate the refrigerating rooms, but it is evident that the
machine could not operate automatically when the defendant had three refrigerating rooms which it
expected to maintain at three different temperatures.
The defendant also complained that the machine was not equipped with a thermostat and that the
lack of its obstructed the work of the refrigerating. In the first place, the thermostat was not include in
the sales contract and in the second place it would not have been of any service to defendant
because it could not possibly operate automatically at three different temperatures with the
defendant's insufficient equipment.
The defendant's complaint that the machine did not contain an oil separator is not true; the oil
separator is combined with the receiver and condenser in a single combined piece in the machine.
The evidence in this case is clear to us, and we cannot find any errors committed by the court below.
It may be that the machine could have given satisfaction to the defendant if the coils had been
installed properly and the machine had been operated by competent persons. Any deficiency in this
regard could not be the plaintiff's fault; the coils were supplied and installed by someone other than
the plaintiff, and the machine was being operated by the defendant itself.
The judgment appealed from is therefore affirmed in its entirely, with costs against appellant. So
ordered.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Romualdez, Villa-Real, and Imperial, JJ.,
concur.

CASE #60
G.R. No. L-32958 November 8, 1930
BLOSSOM AND COMPANY, INC., plaintiff-appellant,
vs.
MANILA GAS CORPORATION, defendant-appellee.
Harvey and O'Brien for appellant.
Ross, Lawrence and Selph and John B. Miller for appellee.
STATEMENT
In its complaint filed March 3, 1927, the plaintiff alleges that on September 10, 1918, it entered into a
contract with the defendant in which the plaintiff promised and undertook to purchase and receive
from the defendant and the defendant agreed to sell and deliver to the plaintiff, for a period of four
years, three tons of water gas tar per month from September to January 1, 1919 and twenty tons per
month after January 1, 1919, for the remaining period of the contract; one-half ton of coal gas tar a
month from September to January 1, 1919, and six tons per month after January 1, 1919, for the
remainder of the contract, delivery to be made at the plant of the defendant in the City of Manila,
without containers and at the price of P65 per ton for each kind of gas tar, it being agreed that this
price should prevail only so long as the raw materials coal and crude oil used by the defendant
in the manufacture of gas should cost the defendant the same price as that prevailing at the time of
the contract, and that in the event of an increase or decrease in the cost of raw material there would
be a corresponding increase or decrease in the price of the tar. That on January 31, 1919, this
contract was amended so that it should continue to remain in force for a period of ten years from
January 1, 1919, and it was agreed that the plaintiff should not be obliged to take the qualities of the
tars required during the year 1919, but that it might purchase tars in such quantities as it could use
to advantage at the stipulated price. That after the year 1919 the plaintiff would take at least the
quantities specified in the contract of September 10, 1918, to be taken from and after January 1,
1919, and that at its option it would have the right to take any quantity of water gas tar in excess of
the minimum quantity specified in that contract and up to the total amount of output of that tar of
defendant's plant and also to take any quantity of coal gas tar in excess of the minimum quantity
specified in that contract and up to 50 per cent of defendant's entire output of coal gas tar, and that
by giving the defendant ninety days' notice, it would have the right at its option to take the entire
output of defendant's coal gas tar, except such as it might need for its own use in and about its plant.
That in consideration of this modification of the contract of September 10, 1918, plaintiff agreed to
purchase from the defendant of certain piece of land lying adjacent to its plant at the price of P5 per
square meter, the proof of which is evidenced by Exhibit C. That pursuant to Exhibit C, defendant
sold and conveyed the land to the plaintiff which in turn executed a mortgage thereon to the
defendant for P17,140.20, to secure the payment of the balance of the purchase price.
It is then alleged:
VIII. That about the last part of July, 1920 the defendant herein, the Manila Gas Corporation
willfully, and deliberately breached its said contract, Exhibit C, with the plaintiff by ceasing to
deliver any coal and water gas tar to it thereunder solely because of the increased price of its
tar products and its desire to secure better prices therefor than plaintiff was obliged to pay to
it, notwithstanding the frequent and urgent demands made by the plaintiff upon it to comply
with its aforesaid contract by continuing to deliver the coal and water gas tar to the plaintiff
thereunder, but the said defendant flatly refused to make any deliveries under said contract,
and finally on November 23, 1923, the plaintiff was forced to commence action against the
defendant herein in the Court of First Instance of Manila, being case No. 25352, of that court
entitled 'Blossom & Co., plaintiff, vs. Manila Gas Corporation, defendant,' to recover the
damages which it had up to that time suffered by reason of such flagrant violation of said
contract on the part of the defendant herein, and to obtain the specific performance of the
said contract and after due trial of that action, judgment was entered therein in favor of the
plaintiff herein and against the said defendant, the Manila Gas Corporation, for the sum of
P26,119.08, as the damages suffered by this plaintiff by the defendant's breach of said
contract from July, 1920, up to and including September, 1923, with legal interest thereon
from November 23, 1923, and for the costs but the court refused to order the said defendant
to resume the delivery of the coal and water gas tar to the plaintiff under said contract, but
left the plaintiff with its remedy for damages against said defendant for the subsequent
breaches of said contract, which said decision, as shown by the copy attached hereto as
Exhibit G, and made a part hereof, was affirmed by our Supreme Court on March 3, 1926;
IX. That after the defendant had willfully and deliberately violated its said contract as herein-
before alleged, and the plaintiff suffered great damage by reason thereof, the plaintiff
claimed the right to off- set its damages against the balance due from it to said defendant on
account of the purchase of said land from the defendant, and immediately thereupon and
notwithstanding said defendant was justly indebted to the plaintiff at that time as shown by
the judgment of the Court Exhibit G, in more that four times the amount due to it from the
plaintiff, the said defendant caused to be presented against the plaintiff a foreclosure action,
known as the Manila Gas Corporation versus Blossom & Company, No. 24267, of the Court
of First Instance of Manila, and obtained judgment therein ordering that Blossom & Company
pay the last installment and interest due on said land or else the land and improvements
placed thereon by the plaintiff would be sold as provided by law in such cases to satisfy the
same, and the said defendant proceeded with the sale of said property under said judgment
and did everything in its power to sell the same for the sole purpose of crushing and
destroying the plaintiff's business and thus rendering it impossible for the plaintiff herein to
continue with its said contract in the event that said defendant might in the future consider it
more profitable to resume performance of the same, but fortunately the plaintiff was able to
redeem its property as well as to comply with its contract and continued demanding that the
defendant performed its said contract and deliver to it the coal and water gas tar required
thereby.
That the defendant made no deliveries under its contract, Exhibit C, from July, 1920 to March 26,
1926, or until after the Supreme Court affirmed the judgment of the lower court for damages in the
sum of P26, 119.08.
1

It is then alleged that:
. . . On March 26, 1926 the said defendant offered to resume delivery to the plaintiff from that
date of the minimum monthly quantities of tars stated in its contract ,and the plaintiff
believing that the said defendant was at least going to try to act in good faith in the further
performance of its said contract, commenced to accept deliveries of said tars from it, and at
once ascertained that the said defendant was deliberately charging it prices much higher
than the contract price, and while the plaintiff accepted deliveries of the minimum quantities
of tars stated in said contract up to and including January, 1927, (although it had demanded
deliveries of larger quantities thereunder, as hereinafter alleged) and paid the increased
prices demanded by the defendant, in the belief that it was its duty to minimize the damages
as much as possible which the defendant would be required to pay to it by reason of its
violation of said contract, it has in all cases done so under protest and with the express
reservation of the right to demand from the said defendant an adjustment of the prices
charged in violation of its contract, and the right to the payment of the losses which it had
and would suffer by reason of its refusal to make additional deliveries under said contract,
and it also has continuously demanded that the said defendant furnish to it statements
supported by its invoices showing the cost prices if its raw materials coal and crude oil
upon which the contract price of the tars in question is fixed, which is the only way the
plaintiff has to calculate the true price of said tars, but said defendant has and still refuses to
furnish such information, and will continue to refuse to do so, unless ordered to furnish such
information to the plaintiff by the court, and the plaintiff believes from the information which it
now has and so alleges that the said defendant has overcharged it on the deliveries of said
tars mentioned in the sum of at least P10,000, all in violation of the rights of the plaintiff
under its said contract with the defendant.
That on January 31, 1926 and pursuant to Exhibit C. plaintiff notified the defendant in writing that
commencing with the month of August, 1926 it desired to take delivery of 50 per cent of defendant's
coal tar production for that month and that on November 1, 1926, it desired to take the entire output
of defendant's coal gas tar, but that the defendant refused and still refuses to make such deliveries
unless plaintiff would take all of its water gas tar production with the desired quantity of coal gas tar
which refusal was a plain violation of the contract. That on January 29, 1927, and in accord with
Exhibit C, plaintiff notified the defendant in writing that within ninety days after the initial delivery to it
of its total coal gas tar production or in February, 1927, it would require 50 per cent of its total water
gas tar production and that in April 1927, it would require the total output of the defendant of both
coal and water gas tars, and that it refused to make either of such deliveries.
It is then alleged:
XIV. That as shown by the foregoing allegations of this complaint, it is apparent that
notwithstanding the plaintiff in this case has at all times faithfully performed all the terms and
conditions of said contract, Exhibit C, on its part of be performed, and has at all times and is
now ready, able and willing to accept and pay for the deliveries of said coal and water gas
tars required by said contract and the notices given pursuant thereto, the said defendant, the
Manila Gas Corporation, does not intend to comply with its said contract, Exhibit C, and
deliver to the plaintiff at the times and under the terms and conditions stated therein the
quantities of coal and water gas tars required by said contract, and the several notices given
pursuant thereto, and that it is useless for the plaintiff to insist further upon its performance of
the said contract, and for that reason he only feasible course for the plaintiff to pursue is to
ask the court for the rescission of said contract and for the full damages which the plaintiff
has suffered from September, 1923, and will suffer for the remainder of said contract by
reason of the defendant's failure and refusal to perform the same, and the plaintiff has so
notified the said defendant.
That since September, 1923, by reason of the bad faith of the defendant, the plaintiff has been
damaged in the sum of P300,000, for which it prays a corresponding judgment, and that the
contract, Exhibit C, be rescinded and declared void and without force and effect.
After the filing and overruling of its demurrer, the defendant filed an answer in the nature of a general
and specific denial and on April 10, 1928, and upon stipulation of the parties, the court appointed W.
W. Larkin referee, "to take the evidence and, upon completion of the trial, to report his findings of law
and fact to the court."
July 18, 1928, the defendant filed an amended answer in which it alleged as an affirmative defense,
first, that the complaint does not state facts sufficient to constitute cause of action the reason that a
prior adjudication has been had of all the issues involved in this action, and, second, "that on or
about the 16th day of June, 1925, in an action brought in the Court of First Instance of the City on
Manila, Philippine Islands, before the Honorable Geo. R. Harvey, Judge, by Blossom & Company,
plaintiff, vs. Manila Gas Corporation, defendant, being civil case No. 25353, of said court, for the
same cause of action as that set fourth in the complaint herein, said plaintiff recovered judgment
upon the merits thereof, against said defendant decreeing a breach of the contract sued upon
herein, and awarding damages therefor in the sum of P26,119.08 with legal interest from November
23, 1923, and costs of suit, which judgment was upon appeal affirmed by the Supreme Court of the
Philippine Islands, in case G. R. No. 24777 of said court, on the 3d day of March, 1926 and reported
in volume 48 Philippines Reports at page 848," and it prays that plaintiff's complaint be dismissed
with costs.
After the evidence was taken the referee made an exhaustive report of sixty-pages in which he
found that the plaintiff was entitled to P56,901.53 damages, with legal interest from the date of the
filing on the complaint, to which both parties filed numerous exceptions
In its decision the court says:
Incidental references have been made to the referee's report. It was admirably prepared.
Leaving aside the question of damages and the facts upon which the referee assessed them,
the facts are not in dispute at least not in serious dispute. They appear in the
documentary evidence and this decision is based upon documents introduced into evidence
by plaintiff. If I could have agreed with the referee in respect to the question of law, I should
have approved his report in toto. If defendant is liable for the damages accruing from
November 23, 1923, the date the first complaint was filed, to April 1st, 1926, the date of
resumption of relations; and if defendant, after such resumption of relations, again violated
the contract, the damages assessed by the referee, are, to my way of thinking, as fair as
could be estimated. He went to tremendous pains in figuring out the details upon which he
based his decision. Unfortunately, I cannot agree with his legal conclusions and the report is
set aside except wherein specifically approved.
It is unnecessary to resolve specifically the many exceptions made by both partied to the
referee's report. It would take much time to do so. Much time has already been spent in
preparing this decision. Since both parties have informed me that in case of adverse
judgment ,and appeal would be taken, I desire to conclude the case so that delay will be
avoided.
Let judgment be entered awarding damages to plaintiff in the sum of P2,219.60, with costs.
From which plaintiff only appealed and assigns twenty-four different errors, of which the following are
material to this opinion:
I. The trial court erred in holding that this suit in so far as the damages from November,
1923, to March 31, 1926, are concerned , is res adjudicata.
II. The trial court erred in holding that the defendant repudiated the contract in question as a
whole, and that the plaintiff when it brought its first suit to collect damages had already
elected and consented to the dissolution of the contract, and its choice once made, being
final, it was estopped to claim that the contract was alive when that suit was brought.
x x x x x x x x x
VII. The trial court erred in refusing to sustain plaintiff's third exception to the legal
interpretation placed on the contract in this case by the referee with reference to quantity of
tars and his conclusion with respect to the terms thereof that:
"1. Plaintiff must take and defendant must deliver either the minimum or maximum quantity
of water gas tar and not any quantity from the minimum to the maximum and/or
"2. Plaintiff must take either the minimum and any quantity up to fifty per cent of entire
output of coal gas tar.
"3. With ninety days' notice by plaintiff to defendant the former must take and the latter must
deliver total output of both tars, except such as might be needed by defendant for use in and
about its plants and not any quantity from the minimum up to total output of both tars."
(See page 47, Referee's report.)
And in holding that the option contained in said contract, taking into consideration the
purposes of both parties in entering into the contract, was a claimed by defendant: all the
water gas tar and 50 per cent of the coal gas tar upon immediate notice and all tars upon
ninety day's notice.
VIII. The trial court erred in refusing to sustain plaintiff's fourth exception to the finding and
conclusion of the referee that from the correspondence between the parties it was apparent
that plaintiff did not make a right use of its option, and that the letter of June 25, 1926, and
the subsequent demands, with exception of the letter of July 31, 1926, were not made in
pursuance to the terms of the contract, and that defendant had no liability in refusing to
comply therewith, and in allowing plaintiff damages only for the failure of the defendant to
deliver quantities shown in Exhibits Ref. 21 and 22. (See pages 51, 52, Referee's report.)
IX. The trial court erred in finding and holding that the demands of plaintiff for additional tars
under its contract with the defendant were extravagant and not made in good faith, and that
when it wrote to defendant that it desired maximum quantities of coal gas tars and only
minimum of water gas tars, but with the reservation of going back to minimum quantities of
both at any time it chose, it announced its intention f breaching the contract, and defendant
was under no obligation to deliver maximum quantities of either tars, and since this was the
efficient cause of the failure of defendant to deliver or plaintiff to accept tars, the blame is
attribute to plaintiff, and it cannot recover for a rescission.
x x x x x x x x x
XXIII. The trial court erred in refusing to sustain plaintiff's seventeenth exception to the
finding and conclusion of the referee that the plaintiff is entitled to recover from the defendant
only the following sums:
Water gas tar (Exhibit Ref. 21) P38,134.60
Coal gas tar (Exhibit Ref. 22) 16,547.33
Overcharges on deliveries (Exhibit Ref.
23)
2,219.60
or a total of

56,901.53
with interest, and in not awarding to the plaintiff as damages in this case the sum of
P319,253.40, with legal interest thereon from the date of filing the complaint in this case, in
the manner and form computed but it, and in awarding damages to the plaintiff for the sum of
only P2,219.60. with costs.
x x x x x x x x x

JOHNS, J .:
In this action plaintiff seeks to recover damages from the defendant which it claims to have
sustained after September, 1923, arising from, and growing out of, its original contract of September
10, 1918, as modified on January 1, 1919, to continue for a period of ten years from that date.
In paragraph VIII of its complaint, plaintiff alleges that about the last part of July, 1920, the defendant
"willfully and deliberately breached its said contract," and that it "flatly refused to make any deliveries
under said contract, and finally on November 23, 1923," it was forced to commence action in the
Court of First Instance against the defendant known as case No. 25352, to recover the damages
which it had then sustained by reason of such flagrant violation of said contract on the part of the
defendant, in which judgment was rendered in favor of the plaintiff and against the defendant for
P26,1119.08, as damages suffered by this plaintiff by the defendant's breach of said contract from
July 1920, up to and including September, 1923, with legal interest thereon from November 23,
1923, and for the costs," in which the court refused to order the defendant to resume the delivery of
the coal and water gas tar to the plaintiff, in accord with said contract, but left it with its remedy for
damages against the defendant for any subsequent breaches of the contract. A copy of that
judgment, which was later affirmed by this court, is attached to, marked Exhibit G, and made a part
of, the complaint in this action.
In their respective briefs, opposing counsel have much to say about the purpose and intent of the
judgment, and it is vigorously asserted that it was never intended that it should be or become a bar
to another action by the plaintiff to recover any damages it may have sustained after September,
1923, during the remainder of the ten-year period of that contract. Be that as it may, it must be
conceded that the question as to what would be the legal force and effect of that judgment in that
case was never presented to, or decided by, the lower court or this court. In the very nature of
things, neither court in that case would have the power to pass upon or decided the legal force and
effect of its own judgment, for the simple reason that it would be premature and outside of the issues
of any pleading, and could not be raised or presented until after the judgment became final and then
only by an appropriate plea, as in this case.
Plaintiff specifically alleges that the defendant willfully and deliverately breached the contract and
"flatly refused to make any deliveries under said contract," by reason of. which it was forced to and
commenced its former action in which it was awarded P26,119.08 damages against the defendant
by reason of its breach of the contract from July, 1920, to September, 1923.
In the final analysis, plaintiff in this action seeks to recover damages growing out of, and arising
from, other and different breaches of that same contract after November, 1923, for the remainder of
the ten-year period, and the question is thus squarely presented as to whether the rendition of the
former judgment is a bar to the right of the plaintiff to recover damages from and after September,
1923, arising from, and growing out of, breaches of the original contract of September 10, 1918, as
modified on January 1, 1919. That is to say, whether the plaintiff, in a former action, having
recovered judgment for the damages which it sustained by reason of a breach of its contract by the
defendant up to September, 1923, can now in this action recover damages it may have sustained
after September, 1923, arising from, and growing out of, a breach of the same contract, upon and for
which it recovered its judgment in the former action.
In the former action in which the judgment was rendered, it is alleged in the compliant:
"7. That about the last part of July or the first part of August, 1920, the Manila Gas
Corporation, the defendant herein, without any cause ceased delivering coal and water gas
tar to the plaintiff herein; and that from that time up to the present date, the plaintiff
corporation, Blossom & Company, has frequently and urgently demanded of the defendant,
the Manila Gas Corporation, that it comply with its aforesaid contract Exhibit A by continuing
to deliver coal and water gas tar to this plaintiff but that the said defendant has refused
and still refuses, to deliver to the plaintiff any coal and water gas tar whatsoever under the
said contract Exhibit A, since the said month of July 1920.
"9. That owing to the bad faith of the said Manila Gas Corporation, defendant herein, in not
living up to its said contract Exhibit A, made with this plaintiff, and refusing now to carry out
the terms of the same, be delivering to this plaintiff the coal and water gas tar mentioned in
the said Exhibit A, has caused to this plaintiff great and irreparable damages amounting to
the sum total of one hundred twenty- four thousand eight hundred forty eight pesos and
seventy centavos (P124,848,70);and that the said defendant corporation has refused, and
still refuses, to pay to this plaintiff the whole or any part of the aforesaid sum.
"10. That the said contract Exhibit A, was to be in force until January 1, 1929, that is to say
ten (10) years counted from January 1, 1929; and that unless the defendant again
commence to furnish and supply this plaintiff with coal and water gas tar, as provided for in
the said contract Exhibit A, the damages already suffered by this plaintiff will continually
increase and become larger and larger in the course of years preceding the termination of
the said contract on January 1, 1929."
In that action plaintiff prays for judgment against the defendant:
"(a) That upon trial of this this cause judgment be rendered in favor of the plaintiff and
against the defendant for the sum of P124,8484.70), with legal interest thereon from
November 23, 1923;
"(b) That the court specifically order the defendant to resume the delivery of the coal and
water gas tar to the plaintiff under the terms of the said contract Exhibit A of this complaint."
In the final analysis, plaintiff must stand or fall on its own pleadings, and tested by that rule it must be
admitted that the plaintiff's original cause of action, in which it recovered judgment for damages, was
founded on the ten-year contract, and that the damages which it then recovered were recovered for
a breach of that contract.
Both actions are founded on one and the same contract. By the terms of the original contract of
September 10, 1018, the defendant was to sell and the plaintiff was to purchase three tons of water
gas tar per month form September to January 1, 1919, and twenty tons of water gas tar per month
after January 1, 1919, one-half ton of coal gas tar per month from September to January 1, 1919,
and six tons of coal gas tar per month after January 1, 1919. That from and after January 1, 1919,
plaintiff would take at least the quantities specified in the contract of September 10, 1918, and that at
its option, it would have the right to take the total output of water gas tar of defendant's plant and 50
per cent of the gross output of its coal gas tar, and upon giving ninety days' notice, it would have the
right to the entire output of coal gas tar, except such as the defendant might need for its own use.
That is to say, the contract provided for the delivery to the plaintiff from month to month of the
specified amounts of the different tars as ordered and requested by the plaintiff. In other words,
under plaintiff's own theory, the defendant was to make deliveries from month to month of the tars
during the period of ten years, and it is alleged in both complaints that the defendant broke its
contract, and in bad faith refused to make any more deliveries.
In 34 Corpus Juris, p. 839, it is said:
As a general rule a contract to do several things at several times in its nature, so as to
authorize successive actions; and a judgment recovered for a single breach of a continuing
contract or covenant is no bar to a suit for a subsequent breach thereof. But where the
covenant or contract is entire, and the breach total, there can be only one action, and plaintiff
must therein recover all his damages.
In the case of Rhoelm vs, Horst, 178 U. U., 1; 44 Law. ed., 953, that court said:
An unqualified and positive refusal to perform a contract, though the performance thereof is
not yet due, may, if the renunciation goes to the whole contract, be treated as a complete
breach which will entitle the injured party to bring his action at once.
15 Ruling Case Law, 966, 967, sec. 441 says:
Similarly if there is a breach by the vendor of a contract for the sale of goods to be delivered
and paid for in installments, and the vendee maintains an action therefor and recovers
damages, he cannot maintain a subsequent action to recover for the failure to deliver later
installments.
In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. A. (N. S.), 1024, the syllabus says:
Upon refusal, by the seller, after partial performance, longer to comply with his contract to
sell and deliver a quantity of articles in installments the buyer cannot keep the contract in
force and maintain actions for breaches as they occur but must recover all his damages in
one suit.
And on page 1044 of its opinion, the court say:
The learned counsel for the plaintiff contends that the former judgment did not constitute a
bar to the present action but that the plaintiff had the right to elect to waive or disregard the
breach, keep the contract in force, and maintain successive actions for time to time as the
installments of goods were to be delivered, however numerous these actions might be. It is
said that this contention is supported in reason and justice, and has the sanction of authority
at least in other jurisdictions. We do not think that the contention can be maintained. There is
not as it seems to us any judicial authority in this state that gives it any substantial support.
On the contrary, we think that the cases, so far as we have been able to examine them, are
all the other way, and are to the effect that, inasmuch as there was a total breach of the
contract by the defendant's refusal to deliver, the plaintiff cannot split up his demand and
maintain successive actions, but must either recover all his damages in the first suit or wait
until the contract matured or the time for the delivery of all the goods had arrived. In other
words, there can be but one action for damages for a total breach of an entire contract to
deliver goods, and the fact that they were to be delivered in installment from time to time
does not change the general rule.
The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. (109 Federal, 411), of the United
States Circuit Court of Appeals for the Fifth Circuit, is very similar.
The syllabus says:
1. CONTRACTS CONSTRUCTION ENTIRE CONTRACT. A contract was made for
the sale of a large quantity of logs to be delivered in monthly installments during a period of
eight years, payments to be made also in installments at times having relation tot he
deliveries. It contained stipulations as to such payments, and guaranties as to the average
size of the logs to be delivered in each installment. Held, that it was an entire contract, and
not a number of separate and independent agreements for the sale of the quantity to be
delivered and paid for each month, although there might be breaches of the minor
stipulations and warranties with reference thereto which would warrant suits without a
termination of the contract.
2. JUDGMENTS MATTERS CONCLUDED ACTION FOR BREACH OF INDIVISIBLE
CONTRACT. The seller declared the contract terminated for alleged breaches by the
purchaser, and brought suit for general and special damages the latter covering payments
due for installments of logs delivered. By way of set-off and recoupment against this
demand, the purchaser pleaded breaches of the warranty as to the size of the logs delivered
during the months for which payment had not been made. Held, that the judgment in such
action was conclusive as to all claims or demands or either party against the other growing
out of the entire contract, and was a bar to a subsequent suit brought by the purchaser to
recover for other breaches of the same warranty in relation to deliveries made in previous
months.
On page 415 of the opinion, the court says:
When the contract was ended, the claims of each party for alleged breaches and damages
therefor constituted an indivisible demand; and when the same, or any part of the same, was
pleaded, litigation had, and final judgment rendered, such suit and judgment constitute a bar
to subsequent demands which were or might have been litigated (Baird vs. U. S., 96 U. S.,
430; 24 L. ed., 703.)
In Watts vs. Weston (238 Federal, 149), Circuit Court of Appeals, Second Circuit, the syllabus says:
1. JUDGMENTS 593 JUDGMENT AS BAR MATTERS CONCLUDED. Where a
continuing contract was terminated by the absolute refusal of the party whose action was
necessary to further perform, a claim for damages on account of the breach constituted as
indivisible demand, and when the same or any part of the same was pleaded, litigated, and
final judgment rendered, such suit and judgment constitute a bar to subsequent demands
which were or might have been litigated therein.
And on page 150 of the opinion, the court says:
It is enough to show the lack of merit in the present contention to point out as an inexorable
rule of law that, when Kneval's contract was discharged by his total repudiation thereof,
Watt's claims for breaches and damages therefor constituted an indivisible demand, and
when the same, or any part of the same, was pleaded, litigation had and final judgment
rendered, such suit and judgment constitute a bar to subsequent demands which were or
might have been litigated." (Bucki, etc., Co. vs. Atlantic, etc., Co., 109 Fed. at page 415; 48
C. C. A., 459; Cf. Landon vs. Bulkley, 95 Fed., 344; 337 C. C. A., 96.)
The rule is usually applied in cases of alleged or supposed successive breaches, and
consequently severable demands for damages; but if the contract has been discharged by
breach, if suit for damages is all that is left, the rule is applicable, and every demand arising
form that contract and possessed by any given plaintiff must be presented (at least as
against any given defendant) in one action; what the plaintiff does not advance he foregoes
by conclusive presumption.
Inn Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal., 42), at page 428, the court said:
In Fish vs. Folley, 6 Hill (N. Y.), 54, it was held, in accord with the rule we have discussed,
that, where the defendant had covenanted that plaintiff should have a continual supply of
water for his mill from a dam, and subsequently totally failed to perform for nine years, and
plaintiff brought an action for the breach and recovered damages sustained by him to that
time, the judgment was a bar to a second action arising from subsequent failure to perform,
on the theory that, although he covenant was a continuing one in one sense, it was an entire
contract, and a total breach put an end to it, and gave plaintiff the right to sue for an
equivalent in damages.
In such a case it is no warrant for a second action that the party may not be able to actually
prove in the first action all the items of the demand, or that all the damage may not then have
been actually suffered. He is bound to prove in the first action not only such damages as has
been actually suffered, but also such prospective damage by reason of the breach as he
may be legally entitled to, for the judgment he recovers in such action will be a conclusive
adjudication as to the total damage on account of the breach.
It will thus be seen that, where there is a complete and total breach of a continuous contract for a
term of years, the recovery of a judgment for damages by reason of the breach is a bar to another
action on the same contract for and on account of the continuous breach.
In the final analysis is, there is no real dispute about any material fact, and the important and
decisive question is the legal construction of the pleadings in the former case and in this case, and
of the contract between the plaintiff and the defendant of January 1, 1920.
The complaint on the former case specifically alleges that the defendant "has refused and still
refuses, to deliver to the plaintiff any coal and water gas tar whatsoever under the said contract
Exhibit A, since the said month of July, 1920." " That owing to the bad faith of the said Manila Gas
Corporation, defendant herein, in not living up to its said contract Exhibit A, made with this plaintiff,
and refusing now to carry out the terms of the same." That is a specific allegation not only a breach
of the contract since the month of July, 1920, but of the faith of the defendant in its continuous
refusal to make deliveries of any coal and water gas tar. That amended complaint was filed on July
11, 1924, or four years after the alleged bad faith in breaking the contract.
Having recovered damages against it, covering a period of four years, upon the theory that the
defendant broke the contract, and in bad faith refused to make deliveries of either of the tars, how
can the plaintiff now claim and assert that the contract is still in fierce and effect? In the instant case
the plaintiff alleges and relies upon the ten year contract on January 11, 1920, which in bad faith was
broken by the defendant. If the contract was then broken, how can it be enforced in this action?
It is admitted that the defendant never made any deliveries of any tar from July, 1920, to April, 1936.
Also that it made nine deliveries to plaintiff of the minimum quantities of coal and water gas tar from
April 7, 1926, to January 5, 1927.
Plaintiff contends that such deliveries were made under and in continuation of the old contract.
March 26, 1926, after the decision of this court affirming the judgment in the original action, plaintiff
wrote the defendant:
. . . It is our desire to take deliveries of at least the minimum quantities set forth therein and
shall appreciate to have you advise us how soon you will be in a position to make deliveries;
. . .
. . . In view of the fact that you have only effected settlement up to November 23, 1923,
please inform us what adjustment you are willing to make for the period of time that has
since elapsed without your complying with the contract.
In response to which on March 31, 1926, the defendant wrote this letter to the plaintiff:
In reply to your letter of March 26th, 1926, in regard to tar, we beg to advise you that we are
prepared to furnish the minimum quantities of coal and water gas tars as per your letter, viz:
twenty tons of water gas tar and six tons of coal gas tar. The price figured on present costs
of raw materials is P39.01 ) Thirty-nine and 01/100 Pesos) per ton of water gas and P33.59
(Thirty-three and 59/100 Pesos) per ton of coal tar.
We shall expect you to take delivery and pay for the above amount of tars at our factory on
or before April 7th prox.
Thereafter we shall be ready to furnish equal amounts on the first of each month. Kindly
make your arrangements accordingly.
On January 29, 1927, the plaintiff wrote the defendant that:
On July 31st last, we made demand upon you, under the terms of our tar contract for 50 per
cent of your total coal tar production for that month and also served notice on you that
beginning 90 days from August 1st we would require you total output of coal tar monthly; this
in addition to the 20 tons of water gas tar provided for in the contract to be taken monthly.
x x x x x x x x x
We are here again on your for your total output of coal tar immediately and the regular
minimum monthly quantity of water gas tar. In this connection we desire to advise you that
within 90 days of your initial delivery to us of your total coal tar output we will require 50 per
cent of your total water gas tar output, and, further, that two months thereafter we will require
your total output of both tars.
February 2, 1927, the defendant wrote the plaintiff:
Replying to your letter of Jan. 29, we would sat that we have already returned to you the
check enclosed there with. As we have repeatedly informed you we disagree with you as to
the construction of your contract and insist that you take the whole output of both tars if you
wish to secure the whole of the coal tar.
With regard to your threat of further suits we presume that you will act as advised. If you
make it necessary we shall do the same.lawphil. net
From an analysis of these letters it clearly appears that the plaintiff then sought to reply upon and
enforce the contract of January 1, 1920, and that defendant denied plaintiff's construction of the
contract, and insisted "that you take the whole output of both tars if you wish to secure the whole of
the coal tar."
February 28, 1927, the plaintiff wrote the defendant:
In view of your numerous violations of and repeated refusal and failure to comply with the
terms and provisions of our contract dated January 30-31, 1919, for the delivery to us of
water and coal gas tars, etc., we will commence action," which it did.
The record tends to show that tars which the defendant delivered after April 7, 1926, were not
delivered under the old contract of January 1, 1920, and that at all times since July 1920, the
defendant has consistently refused to make any deliveries of any tars under that contract.
The referee found as a fact that plaintiff was entitled to P2,219.60 for and on account of overcharges
which the defendant made for the deliveries of fifty-four tons of coal gas tar, and one hundred eighty
tons of water gas tar after April, 1926, and upon that point the lower says:
The fourth charge that plaintiff makes is meritorious. The price was to be fixed on the basis
of raw materials. The charge for deliveries during 1926 were too high. In this I agree with
entirely with the referee and adopt his findings of fact and calculations. (See Referee's
report, p. 83) The referee awarded for overcharge during the period aforesaid, the sum of
P2,219.60. The defendant was trying to discharge plaintiff from buying tars and made the
price of raw material appear as high as possible.
That finding is sustained upon the theory that the defendant broke its contract which it made with the
plaintiff for the sale and delivery of the tars on and after April, 1926.
After careful study of the many important questions presented on this appeal in the exhaustive brief
of the appellant, we are clearly of the opinion that, as found by the lower court, the plea of res
judicata must be sustained. The judgment of the lower court is affirmed.
It is so ordered, with costs against the appellant.

CASE #61
G.R. No. L-5572 October 26, 1954
PEDRO GUERRERO, petitioner,
vs.
SERAPION D. YIGO and THE COURT OF APPEALS, respondents.
Lauro O. Sansano and Epifanio Garcia for petitioner.
Alfonso Espinosa for respondents.
This is a petition for a writ of certiorari to review the judgment of the Court of Appeals which reversed
that of the Court of First Instance of Nueva Ecija (Civil No. 207). The last mentioned Court held that
the plaintiff therein, now petitioner, is
. . . the legal owner of the western part of the land described in Certificate of Title No. 19251,
Exhibit B, subject to alien for P1,847.22 in favor of defendant Yigo within the stipulated
period mentioned in Exhibits 3, 4 and 5;
voided and annulled Exhibit 2, the deed of sale in favor of the defendants therein, the spouses
Serapion D. Yigo and Francisca D. Batagan, as to the western half of the parcel of land described
in the certificate of title above mentioned, and
. . . for the purpose of final adjudication of the corresponding half, plaintiff Guerrero and
defendant Yigo are hereby ordered to cause the measurement and subdivision of the
property described in Certificate of Title No. 19251. Certificate of Title No. T-520 is ordered
cancelled. With costs against defendant Catabona.
On appeal the Court of Appeals reversed the foregoing judgment of the Court of first Instance of
Nueva Ecija and absolved the defendants from the complaint and declared them the absolute and
exclusive owners of the parcel of land on the ground that the plaintiff therein, now the petitioner, was
a purchaser in bad faith. The Court of Appeals further held that as the parcel of land was sold
with pacto de retro and the corresponding deed was executed and registered prior to the purchase
of one-half of the land by Guerrero from Catabona, Yigo has a better right.
The Court of Appeals found the following:
. . . the defendant Amado Catabona who has been adjudged in default had been mortgaging
the land described in the complaint, as follows:
A parcel of land, situated in Maranac, barrio of Baquiao, municipality of Guimba, bounded on
the North by Maranac Creek; on the east, by property of Fernando Pimentel; on the south, by
property of Casimiro de la Cruz; and on the west, by a creek and property of Engracio Pilapil.
Containing an area of one hundred seventy-five thousand forty-one square meters,
in favor of Serapion Yigo and his wife, Francisca D. Batagan prior to March 2, 1944 when
again he mortgaged it in favor of same parties for the sum of P18,000 payable within five
years from said date on condition, among others, "that should he desire to convey or sell in
the future the above described land he promised to sell the same to the mortgagees for the
sum of P18,000, and that the amount of the mortgage, to wit P18,000, shall be treated as
payment of one-half, or 87,520 square meters more or less, of the above described parcel of
land covered by Transfer Certificate of Title No. 19251 of the land records of Nueva Ecija,
and further warrants that he shall sell the said mentioned land to no other except to the said
spouses and by virtue thereof shall give the latter the right to sue him for damages which
they may incur plus reasonable attorney's fees. Said mortgage was duly registered in the
Office of the Register of Deeds on March 18, 1944.
On April 20, 1944, Amando Catabona again secured a loan of P4,000 from Serapion Yigo
and his wife, and to insure payment thereof executed a second mortgage on the same parcel
of land payable within two months after the expiration of five years from said date and
subject to the same condition that should Catabona desire to sell the above described land
he promised to sell the same to the same mortgagees, at the price of P2,000 per hectare
and that should he sell it to others, the mortgagees may sue him for damages, plus
reasonable attorney's fees (Exhibit 4). Said mortgage was registered on the back of Transfer
Certificate of Title No. 19251 on May 18, 1944.
On July 11, 1944, Catabona again mortgaged or sold the land to Serapion Yigo and his wife
for the sum of P5,000 on condition that should he fail to redeem and property after the period
of five years by paying back and returning the above mentioned amount and the right of
possession, and within the said period, title thereto shall pass to and become vested
absolutely in the said spouses. Again corresponding deed, Exhibit 5, was registered on the
back of Transfer Certificate of Title No. 19251 on the same date, July 11, 1944.
On August 4, 1944, Catabona sold one-half of the same land and executed a deed of
absolute sale in favor of Pedro L. Guerrero married to Consolacion Silvestre for the sum of
P90,000. Guerrero testified that Catabona offered to sell one-half of the land to him with the
information that one-half of the land was mortgaged in favor of Atty. Yigo and that he
offered to sell the land to the mortgagees but the latter could not afford to pay the price he
was asking for it. He then invited Catabona to see Yigo and Serapion himself told Catabona
that he could not afford to pay the high price that Catabona was asking. He asked Yigo
"How is it then, do you not resent if I buy the property?" to which Yigo answered "I will
not, provided that the obligation to me is paid." (Emphasis supplied)
After the execution of the deed of sale, Exhibit A, and the payment Guerrero and Catabona
went to see Yigo but only found his wife to whom they talked about the matter. Mrs. Yigo
told them that her husband was in Manila and advised them to return upon his arrival. They
again went to see Yigo in September to pay the obligation and get the certificate of title but
again failed to see him. Guerrero was not able to take possession of the land because
Catabona requested him to allow him to plant palay until the harvest was over. Catabona,
however, kept the land from 1944 up to 1947 on the pretext that because he was paid in
Japanese war notes which were rendered worthless, he wanted to continue in possession of
the land so as to be able to compensate his loss, and since 1947 Yigo has the one in
possession including the one-half portion involved which, according to Guerrero's compadre,
Catabona yields four (?) cavanes annually and that was the net share Catabona was to
receive from the tenants.
On July 20, 1945 Atty. Lauro Sansano filed a petition for the surrender of the owner's
duplicate of Transfer Certificate of Title No. 19251, Exhibit C, to which Atty. Espinosa, in
behalf of Serapio Yigo, filed an opposition, Exhibit C-1. On August 6 the petition was denied
(Exhibit C-2). A motion to reconsider said order was again denied on September 26, 1945.
On October 18, however, the order was reconsidered and Serapion Yigo, the holder of
Transfer Certificate of Title No. 19251, was ordered to surrender the same to the register of
deeds for the registration of the sale above-mentioned subject to his preferential right.
On October 24 Exhibit A, the deed of sale in favor of Guerrero, and Exhibit B, the deed of
partition entered into between Catabona and Guerrero whereby the eastern half of the land
was adjudged to Catabona and the western half to Guerrero were presented to the Register
of Deeds of Nueva Ecija for registration, but because of the failure of Guerrero to produce
the owner's duplicate of the owners copy of the corresponding Transfer Certificate of Title,
the registration was not completed. Guerrero secured on October 24 the issuance of Tax
Declaration No. 21868, Exhibit F, in his favor, for one-half of the land in question and paid
the corresponding tax for the year 1946.
On November 16, 1946, Amado Catabona executed a deed of absolute sale of the land in
question in favor of Yigo for the sum of P6,000, Exhibit 2, which was presented for
registration in the office of the Register of Deeds on November 18, 1946, as a result of which
Transfer Certificate of Title No. T-520, Exhibit 1, was issued in favor of Yigo married to
Francisca D. Batagan, subject to the lis pendens filed in connection with Civil Case No. 207
of the Court of First Instance of Nueva Ecija.
All the instruments attached to the complaint executed by Amado Catabona conveying the parcel of
land, half of which is involved in this litigation, to the spouses Serapion D. Yigo and Francisca D.
Batagan, the first for P18,000 executed on 2 March 1944, the second for P4,000 executed on 20
April 1944 and the third for P5,000 executed on 11 July 1944, are mortgages to secure the payment
of the loans. It is true that in the last instrument the words "mortgage with conditional sale" were
used and the following was stipulated:
That the Party of the First Part, by these presents, reserves for himself and his heirs the right
to redeem the said property after the period of five years from the date hereof by paying back
and returning the above-mentioned amount and the right of possession and use within the
said period; and that on failure of the Party of the First Part to exercise the said right to
redeem the said property according to the terms hereof, title thereto shall pass to and
become vested, absolutely, in the Party of the Second Part.
The first clause was an attempt to stipulate the time when payment of the loan was to be made but
except as to the period of five years from the date of the instrument within which the mortgagor may
not redeem the property there is no period after the five years within which the mortgagor may
redeem it;
1
and if the second clause be construed as giving the mortgagees the right to own the
property upon failure of the mortgagor to pay the loan on the stipulated time which is not provided
that would be pactum commissorium which is unlawful and void.
2
The clause is conclusive proof
that it is a mortgage and not a sale with pacto de retro because if it were the latter title to the parcel
of land would pass unto the vendee upon the execution of the sale and not later as stipulated that
"title thereto shall pass to and become vested, absolutely, in the Party of the Second Part" "on failure
of the Party of the First Part to exercise the said right to redeem the said property according to the
terms hereof." Therefore, no sale of the parcel of land with the right to repurchase was made by
Amando Catabona to the spouses of Serapion D. Yigo and Francisca D. Batagan.
The registration of the three instruments created a real right in favor of the mortgagees. But the fact
that in the instruments the mortgagor undertook, bound and promised to sell the parcel of land to the
mortgagees, such undertaking, obligation or promise to sell the parcel of land to the mortgagees
does not bind the land. It is just a personal obligation of the mortgagor. So that when Amando
Catabona sold one-half of the parcel of land (the western part) on 4 August 1944 to Pedro Guerrero
the sale was legal and valid. If there should be any action accruing to Yigo it would be a personal
action for damages against Catabona. If Guerrero contributed to the breach of the contract by
Catabona, the former together with the latter may also be liable for damages. If Guerrero was guilty
of fraud which would be a ground for rescission of the contract of sale in his favor, Catabona and not
Yigo would be the party entitled to bring the action for annulment.
The judgment of the Court of Appeals is reversed and the petitioner is declared the lawful owner of
one-half of the parcel of land (the western part) described in transfer certificate of title No. 19251,
subject to a mortgage to secure the payment of P1,847.22
3
in favor of the spouses Serapion D.
Yigo and Francisca D. Batagan payable within such period of time as may be fixed by the Court
upon petition, without pronouncement as to costs.
Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, and
Reyes, J.B.L., JJ.,concur.


Footnotes
1
Lack of stipulation as to such period may be supplied by the Court upon application (Article
1128, Old Civil Code or Article 1197, New Civil Code).
2
Articles 1859 and 1884, Old Civil Code; 2088 and 2137, New Civil Code; Tan Chun Tic vs.
West Coast Life Insurance Co. et al., 54 Phil., 361.
3
This sum is a reduction of the several sums paid in Japanese war notes to the currency of
the Republic made by the trial court as per Ballantyne schedule.
CASE #63
G.R. No. L-26295 July 14,1978
SALVACION A. CATANGCATANG, petitioner,
vs.
PAULINO LEGAYADA, respondent.
ANTONIO, J .:
Appeal by way of certiorari from the decision of the Court of Appeals in CA-G. R. No. 24123-R,
entitled "Salvacion A. Catangcatang vs. Paulino Legayada" The following are the pertinent facts:
On May 19, 1952, respondent executed in favor of petitioner a deed of sale with pacto de retro, with
a five-year period of redemption, over a parcel of land situated at Lambunao, Iloilo, with a stated
area of 8.8272 hectares more or less, for a specified consideration of P1,400.00. Of the total
consideration, the amount of P1,200.00 was paid upon the execution of the deed and the balance of
P200.00, covered by a promissory note, was agreed to be payable at a later date.
Subsequently, petitioner found that the area of the land actually delivered to her was only 5.0779
hectares. Thus, on January 22, 1957, she instituted Civil Case No. 2635 against respondent,
seeking the recovery of the area allegedly withheld. In his answer to the complaint in said case,
respondent filed a counterclaim asking for rescission of the Deed of Sale with Right of Repurchase
attached as Annex "A" to the complaint because of failure of plaintiff to pay the balance of P200.00
of the purchase price on the due date.
On May 10, 1957, during the pendency of the aforementioned case, respondent forcibly took back
the possession of the land from petitioner. On May 19, 1957, the period for the repurchase of the
land expired, allegedly without respondent having availed himself of his right to repurchase the
same.
On June 17, 1957, the Court of First Instance of Iloilo dismissed the complaint, having found that the
parcel of land subject matter of the deed of sale was described by metes and bounds, as shown by
Tax Declaration No. 4156, and has an actual area of 5.0779 hectares, notwithstanding that the
stated area in the Tax Declaration was 8.8272 hectares. In the same decision, the counterclaim of
Paulino Legayada was likewise dismissed. The decision of the Court of First Instance became final,
neither party having appealed therefrom.
On June 29, 1957, petitioner instituted the present petition for consolidation of title and restoration of
possession (Civil Case No. 4464). In his answer, Paulino Legayada admitted that on May 19, 1952,
he, as vendor, executed a Deed of Sale with Right of Repurchase in favor of petitioner but denied
that he failed to repurchase the property on or before May 19, 1957 because on May 10, 1957 he
took possession of the property "because the redemption amount is already deposited in the hands
of undersigned counsel to be paid" to petitioner Salvacion Catangcatang.
The Court of First Instance of Iloilo, finding that respondent was not able to effect the repurchase
within the period stipulated, rendered judgment declaring title over the land consolidated in the name
of petitioner and ordering respondent to deliver the possession of the same to her, plus 100 cavanes
of palay or the value thereof, fixed at P10.00 per cavan, for every year from May 10, 1957, the date
of the dispossession, until actual delivery is effected, and costs.
From the said decision, respondent appealed to the Court of Appeals, which in turn reverse the
decision of the trial court. The decision of the Court of Appeals states, in part, as follows:
The failure to pay the full purchase price suspends the running of the period of
redemption. Contrary to the finding of the court a quo. the stipulated five-year period
of redemption did not expire on May 19, 1957. or five years from the execution of the
deed of sale, Exhibit A, since said period never commenced to run (Villarosa, et al.
vs. Villamor, 53 Phil. 350; Ramos vs. Villafuerte, CA-G.R. No. 5310-R, March 7,
1952). For this reason, we do not deem it necessary to pass upon the issue of
whether a valid offer to redeem was made by the respondent as vendor a retro.
Petitioner-vendee a retro paid the amount of P1,200.00. It appears from the record,
however, that during her period of possession, or from 1952 to 1957, she failed to
pay the land taxes on the property in the total amount of P120.45. The vendee a
retro is the owner of the thing sold while the period of redemption lasts and he is the
one who takes advantage thereof and its fruits; and if the object of the land tax is to
contribute to the expense of the Government in the protection of his rights, it is but
just that he should bear said charges (Cabigao vs. Valencia, 53 Phil. 646; Villaflor vs.
Barreto, et al., G. R. No. L-5045, November 26, 1952).
The amount of P 120.45 should, therefore, be deducted from the amount of
P1,200.00 to be returned to the petitioner as vendee a retro, leaving an amount of
P1,079.55 to be delivered to her by the respondent-appellant as vendor a retro. "The
court a quocorrectly held that the amount of costs awarded the respondent-appellant
in Civil Case No. 2635 is not properly deductible from the amount of the purchase
price to be returned by the respondent to the petitioner-appellee since he has other
proper legal means to conect the same.
WHEREFORE, the judgment appealed from is hereby reversed and the petition for
consolidation of title and restoration of possession is hereby dismissed. Respondent-
appellant, Paulino Legayada, is ordered to pay the petitioner-appellee, Salvacion
Catangcatang, the sum of P1,079.55. (pp. 28-30, Rollo).
Petitioner came to this Court, contending that the Court of Appeals erred: (a) in holding that the
failure to pay the remaining consideration of P200.00 suspended the running of the period for
redemption; (b) in not holding that said remaining consideration is now unenforceable by reason
of res judicata; (c) in not holding, accordingly, that in legal effect, the decision in Civil Case No. 2635
of the Court of First Instance of Iloilo operated to reform the sale in question so as to make its actual
consideration only P1,200.00 (which was fully paid on the date of the execution of the deed); (d) in
not holding that title to the land subject matter of the sale with pacto de retro is now consolidated, for
failure of the vendor to effect the repurchase thereof; and (e) in not affirming en toto the decision of
the Court of First Instance of Iloilo.
At the outset, it should be noted that the deed of sale with pacto de retro, entered into by petitioner
and respondent contains the following stipulation:
That for and in consideration of the sum of ONE THOUSAND FOUR HUNDRED
PESOS (P1,400.00), Philippine Currency, previously to me in hand paid and
delivered to my complete satisfaction by SALVACION ALCUBILLA
CATANGCATANG, Filipino, of age, widow and a resident of Lambunao, Iloilo,
Philippines; receipt of which sum I hereby acknowledged in full, I hereby SELL,
CEDE, TRANSFER and CONVEY, WITH RIGHT OF REPURCHASE, unto the said
SALVACION ALCUBILLA CATANGCATANG, her heirs, executors, administrators
and assigns the above-described property, including all my rights, title and interest
therein, together with the improvements thereon, free from all liens and
encumbrances, subject to the following conditions:
That it is the essence of this contract that if I, the Vendor, my heirs, legal
representatives or successors in interest shall pay or cause to be paid to the Vendee,
her heirs, legal representatives or successors in interest the purchase price above-
mentioned, together with expenses incident of the repurchase, on the date of the
expiration of a period of FIVE (5) YEARS from and after the date hereof, then this
sale shall become annulled and of no effect; otherwise, the same shall become
definite and irrevocable with all the legal consequences therefrom resulting; ... . (p.
39, Rollo).
The nature and character of the deed of May 19, 1952 as a Deed of Sale with Right of Repurchase
appears definitely settled in the decision of the Court of First Instance in Civil Case No. 2653, which
had already become final. As a matter of fact, respondent, in the second case, Civil Case No. 4644,
admitted that it was a sale with right of repurchase. Likewise, in his defense, he attempted to
establish that he offered in due time to pay the repurchase price of the property. The only issue
raised here, therefore, is whether or not the non-payment of the P200.00 suspended the running of
the period to repurchase. We are unable to find any support for the holding of the Appellate Court
that the failure to pay the balance of the purchase price embodied in the agreement in the amount of
P200.00 resulted in the suspension of the running of the period for redemption.
The sale was consummated upon the execution of the document and the delivery of the land subject
matter thereof to the vendee, petitioner herein. It was a perfectly valid agreement, and the non-
payment of the balance of the purchase price could not have the effect of suspending the efficacy of
the provisions thereof. Failure to pay part of the consideration of the contract.
1
The sale under
consideration was perfected from the moment Legayada consented to sell the land in question and
Catangcatang agreed to purchase it for the sum of P1,400.00 and the latter had partially complied with
his obligation by paying the sum of P1,200.00 and the former by delivering possession of the land to the
vendee. Moreover, there was nothing whatsoever in the deed of sale to indicate that the agreement of the
parties was to suspend the running of the period of redemption until full payment of the purchase price.
On the contrary, said period was agreed to be five (5) years from the date of the execution of the deed.
In addition, it appears from the records that the balance of the purchase price has been litigated in
Civil Case No. 2635, the same having been presented as a counterclaim by herein respondent.
When the complaint in said case was dismissed, the counterclaim was likewise dismissed. The
decision became final without either party having appealed therefrom; hence the principle of res
judicata applies to bar the reopening of this issue in the instant Proceedings.
The more basic issue is whether or not respondent was able to effect redemption of the property in
question within the period stipulated in the contract. Pursuant to Article 1616 of the Civil Code, "the
vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the
sale, and in addition: (1) the expenses of the contract, and any other legitimate payments made by
reason of the sale; (2) the necessary and useful expenses made on the thing sold."
The records reveal that on May 10, 1957, respondent, without the knowledge of petitioner, took
possession of the subject property. It is claimed that on the same date, respondent's counsel wrote a
letter to petitioner, informing her that the redemption money was already in his (counsel's)
possession This letter never reached petitioner, and was allegedly returned to said counsel. The
reason given by respondent for the non-delivery of the letter is that petitioner could not be found.
This was found by the trial court to be unworthy of credence. Apart from this letter, no further effort to
effect redemption was made. Respondent could have deposited the amount for the redemption with
the court, but this he did not do. In the exercise of the right to repurchase, it is not sufficient that the
vendor a retro manifests his desire to repurchase. This statement of intention must be accompanied
with an actual and simultaneous tender of payment which constitutes the legal exercise of the right
to repurchase.
2
While consignation of the redemption price is not necessary in order to allow the
repurchase within the time provided by law or by contract, a mere tender being enough, said tender does
not relieve the vendor from the obligation of paying the price.
3
In case of absence of the vendee a retro,
the right of redemption may still be exercised, as a vendor who decides to redeem a property sold
with pacto de retro stands as the debtor and the vendee as the creditor of the purchase price. The vendor
could and should have exercised his right of redemption against the vendee by filing a suit against him
and making a consignation with the court of the amount due for the redemption.
4
In Rumbaoa v.
Arzaga,
5
this Court held that "... the plaintiff should have deposited the full amount in court ...; not that
deposit or consignation was legally essential to preserve his reserved right of redemption or repurchase,
but because the full amount was already due and payable to his creditors. Under the circumstances, he
should be regarded as having done that which he said he wanted to do, or should have done, to fulfill his
obligation and to terminate the rights of the defendants over the property." The period for redemption
having lapsed without respondent having validly effected redemption, petitioner is entitled to consolidation
of ownership over the property sold.
WHEREFORE, the decision appealed from is hereby REVERSED, and the decision of the Court of
First Instance of Iloilo is AFFIRMED, with costs against respondent.
Fernando (Chairman), Barredo, Concepcion, Jr. and Santos, JJ., concur.


Separate Opinions

AQUINO, J ., dissenting:
I dissent. I vote for the affirmance of the decision of the Court of Appeals (Per Esguerra, J., Villamor
and Nolasco,JJ., concurring).
On May 19, 1952, Paulino Legayada sold his land to Salvacion A. Catangcatang for the sum of
P1,400 with the right to repurchase it within five years.
However, Salvacion paid only P1,200 of the purchase price and never paid the balance of P200. On
the other hand, although the land sold was supposed to have an area of 8.8 hectares, the area
actually delivered to her was only five hectares, or a deficiency of more than three hectares.
In my opinion, in view of those discrepancies (failure of the vendee to pay the full price and failure of
the vendor to deliver the total area sold), the contract ceased to be a true pacto de retro sale and it
became a loan secured by the delivery of the land to the creditor, a sort of antichresis, wherein the
creditor's enjoyment of the fruits of the land served as payment of the interest on the loan.
On May 10, 1957, or nine days before the expiration of the five-year period of redemption, Legayada
took possession of the land and at the same time his lawyer allegedly sent a letter to Salvacion
Catangcatang at Lambunao, Iloilo, her residence in 1952 when the deed of sale was signed. In that
letter Legayada offered to pay the redemption price (p. 12-13, Record on Appeal). That letter was
returned to Legayada's lawyer because Salvacion was not residing anymore in Lambunao.
On June 29, 1957 Salvacion filed an action against Legayada for the consolidation of her title and
the recovery of the possession of the land.
On July 22, 1957, or after the institution of that action, Legayada, through his lawyer, sent another
letter to Salvacion, addressed to her at 274 Rizal Street, La Paz, Iloilo where she was residing. In
that second letter Legayada offered again to redeem the land but he said that Salvacion should
reimburse him the amount of realty taxes for five years which he had paid (Exh. D).
Judge Jose R. Querubin in an order dated July 27, 1957 required Salvacion to inform Legayada of
the exact amount to be deposited in court as redemption price.
Judge F. Imperial Reyes in his order of January 10, 1958 set aside the order of Judge Querubin and
held that Legayada should know that the amount of the redemption price was P1,200.
Judge Imperial Reyes in his decision of July 9, 1958 consolidated Salvacion's title to the land and
ordered Legayada to surrender to her the possession of the land and account for the fruits thereof
from May 10, 1957.
As already stated, that decision was reversed by the Court of Appeals which dismissed the action for
consolidation of title and ordered Legayada to pay Salvacion Catangcatang the redemption price,
less the taxes in the sum of P120.45, or the net amount of P1,079.55.
That decision of the Court of Appeals should be affirmed in conformity with the view that the contract
between the parties had been transformed into an antichresis, but with the modification that
Legayada should pay six percent interest on the sum of P1,079.55 from May 11, 1957 until that
amount is paid.

Separate Opinions
AQUINO, J ., dissenting:
I dissent. I vote for the affirmance of the decision of the Court of Appeals (Per Esguerra, J., Villamor
and Nolasco,JJ., concurring).
On May 19, 1952, Paulino Legayada sold his land to Salvacion A. Catangcatang for the sum of
P1,400 with the right to repurchase it within five years.
However, Salvacion paid only P1,200 of the purchase price and never paid the balance of P200. On
the other hand, although the land sold was supposed to have an area of 8.8 hectares, the area
actually delivered to her was only five hectares, or a deficiency of more than three hectares.
In my opinion, in view of those discrepancies (failure of the vendee to pay the full price and failure of
the vendor to deliver the total area sold), the contract ceased to be a true pacto de retro sale and it
became a loan secured by the delivery of the land to the creditor, a sort of antichresis, wherein the
creditor's enjoyment of the fruits of the land served as payment of the interest on the loan.
On May 10, 1957, or nine days before the expiration of the five-year period of redemption, Legayada
took possession of the land and at the same time his lawyer allegedly sent a letter to Salvacion
Catangcatang at Lambunao, Iloilo, her residence in 1952 when the deed of sale was signed. In that
letter Legayada offered to pay the redemption price (p. 12-13, Record on Appeal). That letter was
returned to Legayada's lawyer because Salvacion was not residing anymore in Lambunao.
On June 29, 1957 Salvacion filed an action against Legayada for the consolidation of her title and
the recovery of the possession of the land.
On July 22, 1957, or after the institution of that action, Legayada, through his lawyer, sent another
letter to Salvacion, addressed to her at 274 Rizal Street, La Paz, Iloilo where she was residing. In
that second letter Legayada offered again to redeem the land but he said that Salvacion should
reimburse him the amount of realty taxes for five years which he had paid (Exh. D).
Judge Jose R. Querubin in an order dated July 27, 1957 required Salvacion to inform Legayada of
the exact amount to be deposited in court as redemption price.
Judge F. Imperial Reyes in his order of January 10, 1958 set aside the order of Judge Querubin and
held that Legayada should know that the amount of the redemption price was P1,200.
Judge Imperial Reyes in his decision of July 9, 1958 consolidated Salvacion's title to the land and
ordered Legayada to surrender to her the possession of the land and account for the fruits thereof
from May 10, 1957.
As already stated, that decision was reversed by the Court of Appeals which dismissed the action for
consolidation of title and ordered Legayada to pay Salvacion Catangcatang the redemption price,
less the taxes in the sum of P120.45, or the net amount of P1,079.55.
That decision of the Court of Appeals should be affirmed in conformity with the view that the contract
between the parties had been transformed into an antichresis, but with the modification that
Legayada should pay six percent interest on the sum of P1,079.55 from May 11, 1957 until that
amount is paid.
CASE #64
G.R. No. L-3889 November 26, 1951
VICENTE BAUTISTA, plaintiff-appellant,
vs.
LAM PING and JOSE O. VERA, defendants-appellees.
Vicente Bautista and Quijano and Azores for plaintiff-appellant.
Antonio L. Gregorio for defendant-appellee Jose O. Vera.
Oredain and Tordesillas for defendant-appellee Lam Ping.
JUGO, J .:
This is an appeal from a judgment of the Court of First Instance of Baguio, dismissing the complaint
filed for the annulment of a deed of resale on the ground that it was obtained by means of
intimidation and that it was against the Constitution. The plaintiff appealed.
In the year 1933, the defendant Lam Ping obtained from Silvestre T. Bautista, father of the plaintiff
Vicente Bautista (who brought this action as assignee of his father), the sum of P30,000 for which
Lam Ping executed a deed of sale of the real property herein involved with the right of repurchase, in
favor of Silvestre. This sum was paid by Lam Ping. In 1941, Lam Ping borrowed from the Philippine
National Bank, with the guaranty of said property, the sum of P35,000 with which he began the
construction of the second building on the lot in question. On March 30, 1941, Lam Ping, finding that
said amount was insufficient to finish the building, approached Silvestre for a loan of P55,000 which
Bautista granted to him. With part of this money he paid his indebtedness to the Philippine National
Bank and with the balance he finished the construction of the building. For the said sum of P55,000,
Ping executed a deed of sale of the same property with option to repurchase (Exh. A of the plaintiff
and Exh. 8 of the defendant). As Lam Ping knew very little English or Spanish, the languages in
which the deed was drafted, he asked his nephew Teodoro Lam to interpret and explain to him the
contents of said deed. Aware of the contents, Lam Ping asked Silvestre why was the document
drafted in the form of a deed of sale with option to repurchase and not in that of a mortgage.
Silvestre answered that as he was not a money lender it was not his practice to accept mortgages
and that when Lam Ping borrowed in the year 1933 the sum of P30,000 he also executed a deed of
sale with right to repurchase and no trouble had arisen as he has got back his property. Lam Ping
then asked Teodoro Lam to compare the two documents and they were found to be in the same
form with the exception, of course, of the amounts, dates, etc. Silvestre further explained that Lam
Ping could get his property back at any time before the expiration of the period of eight years
specified in the deed, by paying back to Silvestre the amount mentioned therein. As Lam Ping badly
needed money to pay his indebtedness to the Philippine National Bank and to continue the
construction of the building, he acquiesced in signing the deed. Silvestre registered the document in
the office of the Register of Deeds of Baguio, and procured the cancellation of the transfer certificate
of title in the name of Lam Ping and the issuance of another certificate in Silvestre's name.
Subsequently, the assessment division of the City Treasurer of Baguio sent a notice to Lam Ping to
the effect that the lot and the buildings thereon had been sold to Silvestre. After the notice was
interpreted to Lam Ping by his nephew Teodoro Lam, Lam Ping was alarmed, believing that
Silvestre had become sinister purpose with regard to his property. It should be noted that the former
deed of sale with regard to the loan of P30,000 had never been registered and no new certificate of
title had been, issued to Silvestre.
Silvestre explained to Lam Ping that the issuance of the new certificate of title in Silvestre's name did
not make any difference, because during the eight-year period Lam Ping could repurchase and
reacquire the property.
Lam ping could not dismiss his fears and was greatly worried notwithstanding the explanation given
to him. To allay his fears he told Silvestre that he would forthwith raise the money to redeem the
property.
Lam Ping applied for a loan to the Filipinas Compaia de Seguros, but as their broke out the matter
was dropped. However, on November 2, 1943, through the help of Juan Zarate, Lam Ping obtained
a loan of P57,000 from the defendant Jose O. Vera. Although the deed of mortgage had already
been signed by Lam Ping in favor of Vera for said sum of P57,000, the latter did not want to deliver
said sum until Silvestre had signed the deed of repurchase in favor of Lam Ping. After the signing by
Silvestre of said deed, Lam Ping, accompanied by Jose Perez, son-in-law of Vera, brought the sum
of P55,000 in buri sacks to be delivered to Silvestre, but the latter refused saying that the money
was too bulky and he would prefer a check. Lam Ling and Jose Perez deposited the amount with the
Philippine National Bank and obtained a check for the amount which they delivered to Silvestre.
Silvestre received the check smiling, without making any protest or comment.
Silvestre, through his son Vicente Bautista, the herein plaintiff, deposited the check in his current
account in the Baguio branch of the Philippine National Bank, which cashed the check and credited
the amount to the depositor Silvestre. Silvestre had at that time a balance in his favor of P40,000. He
afterwards made withdrawals, the total amount of which did not reach the sum of P40,000.
We agree with the conclusion of the trial court that, although the transaction between Silvestre and
Lam Ping was in the form of a sale with the right of repurchase, yet from the circumstances of the
case there is no doubt that it was an equitable mortgage. To mention a few of these circumstances:
Lam Ping did not in any way intend to sell his lot and building; he was even greatly alarmed when
Silvestre registered the deed and had a new title issued in his name, of which Lam Ping became
aware when he was notified by the City Assessor of Baguio that the property had been transferred to
the name of Silvestre. The money that he borrowed was used partly to pay his indebtedness to the
Philippine National Bank and the rest to finish the construction of the second building. It would have
been utterly unreasonable for Lam Ping to finish the construction of the building if he had already
sold the property in question; he would have used the balance for other purposes, which would have
benefited him and not the purchaser. He made a strong remonstrance to Silvestre when the
document was explained to him by his interpreter, but Silvestre assuaged him with the assurance
that it made no difference as he could get back his property within the eight-year period if he had the
money. The result from his transaction is that when Lam Ping, a Chinese national, redeemed his
property, he did not violate the provision of the Constitution which prohibits the sale of real estate to
a foreigner.
But even supposing that the transaction was that of a sale with the right to repurchase, the
redemption madre by Lam Ping of the real estate did not constitute a sale, transfer, or assignment,
within the meaning of the constitutional prohibition.
With regard to the contention that Silvestre accepted the payment through intimidation, it has no
foundation in fact. The appellant testifed that the broker Zarate accused Silvestre before the
Japanese authorities of refusing to accept in payment Japanese Military Notes. This complaint
referred not to the transaction between Silvestre and Lam Ping, but to the sale of another piece of
land which Silvestre had promised to sell to Zarate, Silvestre refusing to accept in payment
Japanese Military Notes. With reference to this transaction, Silvestre was brave enough to stand firm
in his refusal, notwithstanding the complaint, causing the negotiation to fall through. This would show
that the accusation was not sufficient to intimidate him. When Lam Ping and Jose Perez brought and
tendered to Silvestre the sum of P55,000 in Japanese Military Notes, the only objection he could
have refused to accept any payment either in cash or in check, both of which represented Japanese
Military Notes. He deposited the check in his current account and issued checks against his total
balance as increased by said check. The fact that his withdrawals did not amount to more than
P40,000 which was the balance before the deposit of the check, does not mean that the P55,000
was not in his disposal, for he could not have drawn checks at ant time against the total balance of
his current account. Furthermore, the withdrawals that he made cannot be said to have been taken
from the original balance of P40,000 and not from the additional amount of P55,000, inasmuch as
the original balance was not earmarked.
In view of the foregoing, the judgment appealed from is hereby affirmed, with costs against the
appellant. It is so ordered.
Paras, C.J., Feria, Pablo, Bengzon, Padilla, Tuason, Reyes and Bautista Angelo, JJ., concur.

CASE #65
G.R. No. L-19196 November 29, 1968
ANGEL VILLARICA and NIEVES PALMA GIL DE VILLARICA, petitioners,
vs.
THE COURT OF APPEALS, JULIANA MONTEVERDE, GAUDENCIO CONSUNJI and JOVITO S.
FRANCISCO,respondents.
Ruiz Law Office and Leopoldo M. Abellera for petitioners.
Anatolia Reyes for respondent Jovito S. Francisco.
Jose M. Kimpo for respondents Juliana Monteverde, et al..
CAPISTRANO, J .:
On May 19, 1951, the spouses Angel Villarica and Nieves Palma Gil de Villarica sold to the spouses
Gaudencio Consunji and Juliana Monteverde a lot containing an area of 1,174 sq. meters, situated
in the poblacion of the City of Davao, for the price of P35,000. The instrument of absolute sale dated
May 19, 1951 (Exh. "B"), in the form of a deed poll, drafted by Counselor Juan B. Espolong who had
been appointed by the Villaricas as their agent to sell the lot, was acknowledged on May 25, 1951,
before the same Juan B. Espolong who was also a Notary Public. The public instrument of absolute
sale and the vendors' TCT No. 2786 were delivered to the vendees. On the same day, May 25,
1951, the spouses Consunji executed another public instrument, Exh. "D", whereby they granted the
spouses Villarica an option to buy the same property within the period of one year for the price of
P37,750. In July, same year, the spouses Consunji registered the absolute deed of sale, Exh. "B", in
consequence of which TCT No. 2786 in the names of the spouses Villarica was cancelled and a new
TCT No. 3147 was issued in the names of the spouses Consunji. In February, 1953, the spouses
Consunji sold the lot to Jovito S. Francisco for the price of P47,000 by means of a public instrument
of sale Exh. "4". This public instrument of sale was registered in view of which TCT No. 3147 in the
names of the spouse Consunji was cancelled and a new TCT in the name of Jovito S. Francisco was
issued.
On April 14, 1953, the spouses Villarica brought an action in the Court of First Instance of Davao
against the spouses Consunji and Jovito S. Francisco for the reformation of the instrument of
absolute sale, Exh. "B", into an equitable mortgage as a security for a usurious loan of P28,000
alleging that such was the real intention of the parties. Defendants answered that the deed of
absolute sale expressed the real intention of the parties and they also alleged a counterclaim for
sums of money borrowed by the plaintiffs from the Consunjis which were then due and demandable.
After trial, the Court of First Instance of Davao rendered its decision holding that the instrument of
absolute sale, Exh. "B", was really intended as an equitable mortgage. Judgment was accordingly
rendered reforming the deed of absolute sale into an equitable mortgage. Judgment was likewise
rendered in favor of defendant Consunjis on their counterclaim for sums of money. Judgment was
also rendered in favor of defendant Francisco as purchaser in good faith. Both parties appealed to
the Court of Appeals.
On September 15, 1961, the Court of Appeals rendered its decision finding that the public instrument
of absolute sale, Exh. "B", expressed the true intention of the parties and that the defendants-
appellants' (Consunjis) counterclaim for sums of money was substantiated by the evidence.
Accordingly the Court of Appeals rendered judgment as follows:
WHEREFORE, the judgment appealed from is reversed and the complaint is dismissed as to
the defendant spouses, and the plaintiffs are ordered to pay to them their remaining
indebtedness of fifteen thousand (P15,000.00) pesos with interest at 5% from July 7, 1951.
That part of the judgment dismissing the complaint as to Jovito S. Francisco is hereby
affirmed, with the modification that the attorney's fees in the sum of P2,350.00 awarded to
him is eliminated. The present case is not one of those enumerated in Article 2208 of the
New Civil Code where attorney's fees may be recovered. Costs against the plaintiffs-
appellants.
On December 6, 1961, the spouses Villarica, plaintiffs-appellants in the Court of Appeals, petitioned
the Supreme Court for certiorari or review of the decision rendered by the Court of Appeals. The
petition was given due course and the decision of the Court of Appeals is now before us for review
on questions of law.
Petitioners contend that the Court of Appeals erred in finding that the public instrument of absolute
sale, Exh. "B", expressed the true intention of the parties, arguing that under Article 1604 in relation
to Articles 1602 and 1603 of the Civil Code, the instrument of absolute sale, Exh. "B", should be
presumed as an equitable mortgage on the grounds that (1) the price of P35,000 was unusually
inadequate; (2) the vendors remained in possession of the property sold; (3) the period of one year
for repurchase granted in the instrument Exh. "D" was extended for one month; and (4) the vendors
pay the taxes on the land sold. The contention is unmeritorious in view of the following
considerations:
(1) The price of P35,000 was not even inadequate. The land sold was assessed for tax purposes at
P8,870 effective 1950. It was purchased by the spouses Villarica from the Philippine Alien Property
Custodian in October, 1950, for the price of P20,000. The Villaricas borrowed P7,400 from a
Chinese named Domingo Lua Chin Lam and, with this borrowed money, made part payment of the
price to the Philippine Alien Property Custodian. Then they mortgaged the land to the Philippine
Alien Property Custodian as security for the P10,000 unpaid balance of the purchase price. One
year later, on May 19, 1951, they sold the land by means of the instrument of absolute sale Exh. "B"
to the Consunjis for the price of P35,000, thus making a profit of P15,000 in one year without having
invested their own money in buying the land. On February 21, 1953, the Consunjis sold the land to
Jovito S. Francisco for the price of P47,000, thus making profit of P12,000. The price of P70,000
found by the trial court to be the market price of the land at the time of the trial in 1956 was not the
market price in 1951 when the Villaricas sold the lot to the Consunjis. Hence, it is evident that the
price of P35,000 stated in the instrument of absolute sale Exh. "B" was the market price of the lot in
1951.
(2) The vendors did not remain in possession of the land sold as lessees or otherwise. On their
request in order to help them in the expenses of their children in Manila, the vendors were merely
allowed by the vendees to collect the monthly rents of P300 for five months up to October, 1951, on
the understanding that the amounts so collected would be charged against them. But thereafter the
vendees were the ones who collected the monthly rents from the tenants. It follows that the vendors
did not remain in possession of the land as lessees or otherwise.
(3) In Exh. "D" the Consunjis as new owners of the lot granted the Villaricas an option to buy the
property within the period of one year from May 25, 1951 for the price of P37,750. Said option to buy
is different and distinct from the right of repurchase which must be reserved by the vendor, by
stipulation to that effect, in the contract of sale. This is clear from Article 1601 of the Civil Code,
which provides:
Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provisions of article 1616 and other
stipulation which may have been agreed upon.
The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument,
but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the
right to repurchase, and any right thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other right like the option to buy in the instant
case. Hence, Exhibits "B" and "D" cannot be considered as evidencing a contract of sale with pacto
de retro. Since Exh. "D" did not evidence a right to repurchase but an option to buy, the extension of
the period of one year for the exercise of the option by one month does not fall under No. 3, of
Article 1602 of the Civil Code, which provides that:
When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed.
(4) The taxes paid by the vendors were back taxes up to the time of the sale on May 19, 1951. The
vendors had the obligation to pay the back taxes because they sold the land free of all liens and
encumbrances. The taxes due after the sale were paid by the vendees.
The petitioners admit that they cannot now question the finding of the Court of Appeals that they fully
received the price of P35,000 mentioned in the instrument of absolute sale Exh. "B". In addition, we
noted that the petitioners acknowledged in writing (Exh. "4"-Consunji-Monteverde), dated May 28,
1951, having received full payment of said price of P35,000. In view hereof and of the foregoing
considerations, petitioners' contention that Exhibits "B" and "D" were used as a device to cover a
usurious loan, has absolutely no merit.
The findings of the Court of Appeals on the amounts due from the spouses Villarica to the spouses
Consunji as loans, evidenced by promissory notes, after deducting partial payments made thereon
being factual, cannot be reviewed.
PREMISES CONSIDERED, the judgment of the Court of Appeals is hereby affirmed, with costs
against petitioners also in this instance.

CASE #66
G.R. No. L-26878 December 27, 1972
ALEJANDRA CUARTO VDA. DE LUNA, et al., plaintiffs-appellees,
vs.
SEVERIANO VALLE, et al., defendants-appellants.
Galileo P. Brion for plaintiffs-appellees.
Joaquin M. Trinidad for defendants-appellants.

MAKALINTAL, J .:p
Appeal from the decision of the Court of First Instance of Quezon in Civil Case No. 6818
1
dated
January 31, 1966 adjudicating a parcel of coconut land subject of a deed of sale with the right of
repurchase in favor of the heirs of the vendee a retro and ordering the reconveyance of said land to them
by the subsequent purchasers for value from the heirs of the vendora retro.
Involved in this case is a private instrument of sale with the right of repurchase covering a parcel of
agricultural land located in Barrio Balubal, Sariaya, Quezon, for the amount of P3,334.00. This
instrument was executed on December 1, 1928 by the spouses Nicasio Valle and Maxima Abril, as
vendors a retro, in favor of Sotero de Luna. It was stipulated that the period of repurchase was five
years from date of the contract; that the title to the property had been approved by the cadastral
judge in the names of the vendors; and that upon receipt of the certificate of title the vendors should
deliver the same to the vendee.
On January 31, 1931, before the five-year period expired, the decree of registration in the names of
the vendors was issued, but it was not until January 13, 1965 that they obtained the certificate of title
(OCT No. O-11568). It is admitted, however, that the vendee Sotero de Luna took possession of the
property upon the execution of the deed of sale and that such possession was continued by his heirs
after his death in 1961 up to the present.
There is no evidence to show that the vendors ever attempted to exercise their right of repurchase.
On March 23, 1936 more than seven years after the execution of the sale and five years after the
decree of registration was issued the vendee Sotero de Luna filed a suit against the Valle
spouses to compel them to acknowledge the instrument before a notary public so that he could
register it in the Register of Deeds. The suit (Civil Case No. 3897), decided after default of the
defendants, was nevertheless dismissed on July 31, 1936 on the ground that the period for filing the
action had already prescribed under Article 43 of the Code of Civil Procedure. The order of dismissal
quoted the report of the Clerk of Court, who had been commissioned to receive the evidence, that
the spouses "obtuvieron del demandante Sotero de Luna un prestamo por valor de P3,334.00; que
para garantizar dichas obligaciones de los demandados, estos vendieron en venta con pacto de
retro dentro del plazo de cinco aos sobre una parcela de terreno...."
Reconsideration was sought by Sotero de Luna on August 19, 1936, questioning the aforequoted
portion of the order and alleging that the defense of prescription had not been specially pleaded,
since the defendants had been adjudged in default. This motion for reconsideration remained
unresolved for several years. The parties Sotero de Luna and the spouses Nicasio Valle and
Maxima Abril died in the meantime. On February 4, 1965, a month after O.C.T. No. O-11568 was
issued in favor of the Valle spouses, the motion for reconsideration was declared by the court as
abandoned. A reconsideration of this order sought by the heirs of Sotero de Luna was denied on
February 25, 1965.
On March 20, 1965 notice was published in the Quezon Times regarding the execution by the heirs
of Nicasio Valle and Maxima Abril of a "Deed of Extra-judicial Partition with Absolute Sale" covering
the disputed property. The instrument was both an adjudication of the land to Severiano Valle and
Emeterio Valle and a sale thereof to the spouses Domingo Villota and Elena Pabelonia.
The present suit was thereupon instituted on April 14, 1965 by Alejandra Cuarto Vda. de Luna,
surviving spouse of Sotero de Luna, in her own behalf and in behalf of her children, against the heirs
of the Valle spouses and the subsequent purchasers Domingo Villota and Elena Pabelonia to have
said "Deed of Extra-judicial Partition with Absolute Sale" declared null and void, O.C.T. No. O-11568
cancelled and a new title issued in the names of the plaintiffs. The complaint included a prayer for
the issuance of a writ of preliminary injunction to enjoin the Register of Deeds from registering the
challenged instrument.
On April 19, 1965 a notice of lis pendens involving the suit was entered on the back of O.C.T. No.
11568. On May 17, 1965, after the requirement of publication under Rule 74 of the Rules of Court
with respect to settlement of estates was complied with, the deed of partition was also annotated on
the title. Thereupon T.C.T. No. T-62673 was issued in the names of the heirs of the Valle spouses.
This title was subsequently cancelled and a new title, T.C.T. No. T-62696 was issued, on the same
day, to the purchasers Domingo Villota and Elena Pabelonia. Both of these transfer certificates,
however, carried notice of lis pendens.
The defendants filed their answer to the complaint, with a counterclaim for moral and exemplary
damages, on May 21, 1965, alleging as affirmative and special defenses that the cause of action
was barred by prior judgment in Civil Case No. 3897; that the claim had either been paid, waived,
abandoned or otherwise extinguished; that the Valle spouses had acquired an indefeasible title to
the property upon the issuance of O.C.T. No. O-11568; and that the subsequent purchasers,
Domingo Villota and Elena Pabelonia, were buyers in good faith.
Judgment was rendered on January 31, 1966 (subsequently amended on April 18, 1966), ordering
the purchasers Domingo Villota and Elena Pabelonia to reconvey the title to the property to the
plaintiffs and ordering likewise the issuance of a new certificate of title in their names.
1. The first question is the effect of the judgment in Civil Case No. 3897 on the present suit. It is
argued that res judicata or estoppel by judgment should apply. The argument is without merit. Civil
Case No. 3897 was instituted to compel the vendors to acknowledge the private deed of sale
with pacto de retro before a notary public, in accordance with Article 1279 of the Old Civil Code. The
report of the Clerk of Court, while quoted in the decision, was not necessarily approved or adopted
by the Judge, who dismissed the complaint on the sole ground that the action had prescribed. The
present suit, on the other hand, was filed in order to enforce the stipulations in the contract. There is
clearly a lack of identity of subject matter and of causes of action in the two cases.
Estoppel by judgment, while not requiring identity of causes of action, bars a subsequent litigation
only on "a point which was actually and directly in issue in a former suit, and was there judicially
passed upon and determined by a domestic court of competent jurisdiction."
2
The question as to
whether the contract here was one of sale with pacto de retro or some other contract was not put in issue
in Civil Case No. 3897. The only point resolved by the court therein was that the complaint to compel
notarial acknowledgment of a private instrument was filed beyond the prescriptive period. The finding
made by the Clerk of Court that the contract was actually a loan had no relevance to the relief sought and
was not passed upon by the Judge in disposing of the case. Thus a determination of the issue in the
present action does not militate against the principle invoked by defendants.
2. The contract in question stipulates a sale with the right of repurchase. It does not contain any
other condition to indicate that a different transaction was intended by the parties. No extraneous
evidence was presented to show that a mortgage or antichresis was the real purpose of the
instrument. Nor was there any proof offered that the purchase price was ever repaid. The vendee
was placed in possession of the land immediately after the execution of the contract in 1928 and this
possession was continued by his heirs up to the present without any objection from the vendors or
their heirs at least until this action was instituted. All these facts justify the conclusion that the
contract was indeed a sale, subject to the right of repurchase, and that the vendors failed to exercise
such right. Applicable here is Article 1509 of the Old Civil Code, which provides: "If the vendor does
not comply with the provisions of Article 1518 [i.e., does not exercise right of redemption], the
vendee shall acquire irrevocably the ownership of the thing sold." It follows that right of ownership
over the land was consolidated in the person of the vendee Sotero de Luna by operation of law upon
the lapse of the five-year period of repurchase.
3. Defendants assert the indefeasibility of the decree of registration and the certificate of title issued
in the names of their predecessors-in-interest. The doctrine of indefeasibility under the Torrens
System is no defense. In a similar case, Cabanos vs. The Register of Deeds of Laguna, 40 Phil.
620, 630, where the vendor a retro obtained the registration of the property in his name without the
knowledge of the vendee and thereafter failed to repurchase the property, this Court, while holding
that "the decree of registration and the certificate of title have rendered ineffective the consolidation
of the right of the purchaser"
3
allowed the latter to recover the property for the reason that:
the issuance in his (vendor's) favor of said title does not destroy the validity of the
executed contract and does not exempt him from the obligation of complying with it in
accordance with the provisions of Article 1445 et seq. of the Civil Code (which deals
with purchase and sale) for it would then be highly unjust that the defendant, who
received the price of the use of the lands in question would still retain said lands
thereby enriching himself at the expense and to the great prejudice of the plaintiff.
In this case, reasons other than equity exist in favor of plaintiffs' right over the property. At the time
the contract was executed the title of the vendors had already been approved by the cadastral judge.
The contract itself stipulated that upon the issuance of the certificate of title the vendors should
deliver it to the vendee. The obligation thus created was not only contractual; it was fiduciary. The
trust relationship was never repudiated by the vendors and their heirs, until 1965, when the latter
executed the deed of extra-judicial partition with absolute sale. They never attempted to take
possession of the land from the vendee from the time the decree of registration was promulgated in
1931 up to the time the present dispute arose a span of more than 30 years.
4. The sale of the land to the spouses Domingo Villota and Elena Pabelonia and the subsequent
issuance of a certificate of title in their names do not bar the plaintiffs' rights. At the time the sale was
executed the title to the land was still in the names of Nicasio Valle and Maxima Abril and not in the
names of the transferors. This was sufficient notice to the vendees that the property they were
buying was not yet at the free disposal of their vendors. They cannot therefore be considered
innocent purchasers within the protection of Section 55 of the Land Registration Act. For as stated
by this Court, "good faith affords protection only to purchasers for value from the registered
owners."
4
The Valle heirs, the transferors, were not the registered owners of the land at the time the sale
was made. They became registered owners only after complying with the requirements of Rule 74 of the
Rules of Court, on May 17, 1965. By this time, however, there was already a notation of lis pendens,
dated April 19, 1965, on the back of O.C.T. No. O-11568. The effect of this prior entry is to charge the
purchasers Domingo Villota and Elena Pabelonia with notice of the litigation and consequently they are
bound by any judgment against their transferors.
The fact that the deed of partition with sale was actually made prior to the notation of the lis
pendens does not negate the effect of said notation. Under Section 1 of Rule 74 of the Rules of
Court, in order that a deed of partition may affect third parties and creditors, the same must be in a
public instrument and filed in the office of the register of deeds. And with respect to the sale, Section
56 of the Land Registration Act provides that the act of registration shall be the operative act to
convey and affect the land. Therefore, as far as plaintiffs are concerned the deed of partition with
sale was non-existent prior to May 17, 1965. It follows that the sale, having been registered only
after the plaintiffs had caused a notice of lis pendens to be noted on the back of O.C.T. No. 0-11568
and T.C.T. No. T-62673, remains subordinate to the rights adjudged in favor of the plaintiffs in the
present suit.
5

WHEREFORE the decision appealed from is affirmed, with costs against appellants.
Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and
Esguerra, JJ., concur.

CASE #67
G.R. No. L-22331 June 6, 1967
IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE
RIGHTS TO A LOT.
MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees.
RODOLFO LANUZA, vendor,
vs.
MARTIN DE LEON, intervenor-appellant.
Erasmo R. Cruz and C. R. Pascual for intervenor-appellant.
Augusto J. Salas for vendees-petitioners-appellees.
REGALA, J .:
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria
Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated Asiatic Co.
On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right to
Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro the
house, together with the leasehold rights to the lot, a television set and a refrigerator in consideration
of the sum of P3,000. The deed reads:
DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE
PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and
residing at 783-D Interior 14 Maria Guizon, Gagalangin, Tondo, Manila, hereby
declare that I am the true and absolute owner of a new two storey house of strong
materials, constructed on a rented lot Lot No. 12 of the Maria Guizon Subdivision,
owned by the Consolidated Asiatic Co. as evidenced by the attached Receipt No.
292, and the plan of the subdivision, owned by said company.
That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00)
which I have received this day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of
legal age, widow; and Aurelia Reyes, married to Jose S. Navarro, Filipinos, of legal
ages, and residing at 1112 Antipolo St., Tondo, Manila, I hereby SELL, CEDE,
TRANSFER, AND CONVEY unto said Maria Bautista Vda. de Reyes, her heirs,
succesors, administrators and assigns said house, including my right to the lot on
which it was constructed, and also my television, and frigidaire "Kelvinator" of nine
cubic feet in size, under the following conditions:
I hereby reserve for myself, my heirs, successors, administrators, and assigns the
right to repurchase the above mentioned properties for the same amount of
P3,000.00, without interest, within the stipulated period of three (3) months from the
date hereof. If I fail to pay said amount of P3,000.00, within the stipulated period of
three months, my right to repurchase the said properties shall be forfeited and the
ownership thereto shall automatically pass to Mrs. Maria Bautista Vda. de Reyes, her
heirs, successors, administrators, and assigns, without any Court intervention, and
they can take possession of the same.1wph 1. t
IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this
12th day of January, 1961.
s/t RODOLFO LANUZA
Vendor
s/t MARIA BAUTISTA VDA. DE REYES
Vendee
s/t AURELIA REYES
Vendee
WITH MY MARITAL CONSENT:
s/t JOSE S. NAVARRO
When the original period of redemption expired, the parties extended it to July 12, 1961 by an
annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not sign the
deed, this time signed her name below the annotation.
It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same
house in favor of Martin de Leon to secure the payment of P2,720 within one year. This mortgage
was executed on October 4, 1961 and recorded in the Office of the Register of Deeds of Manila on
November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a
petition for the extra-judicial foreclosure of the mortgage. On the other hand, Reyes and Navarro
followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of
ownership of the house on the ground that the period of redemption expired on July 12, 1961 without
the vendees exercising their right of repurchase. The petition for consolidation of ownership was filed
on October 19. On October 23, the house was sold to De Leon as the only bidder at the sheriffs
sale. De Leon immediately took possession of the house, secured a discharge of the mortgage on
the house in favor of a rural bank by paying P2,000 and, on October 29, intervened in court and
asked for the dismissal of the petition filed by Reyes and Navarro on the ground that the
unrecorded pacto de retro sale could not affect his rights as a third party.
The parties
1
thereafter entered into a stipulation of facts on which this opinion is mainly based and
submitted the case for decision. In confirming the ownership of Reyes and Navarro in the house and
the leasehold right to the lot, the court said:
It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was not
signed by Belen Geronimo-Lanuza, wife of the vendor a retro, Rodolfo Lanuza, at the time of
its execution. It appears, however, that on the occasion of the extension of the period for
repurchase to July 12, 1961, Belen Geronimo-Lanuza signed giving her approval and
conformity. This act, in effect, constitutes ratification or confirmation of the contract (Annex
"A" Stipulation) by Belen Geronimo-Lanuza, which ratification validated the act of Rodolfo
Lanuza from the moment of the execution of the said contract. In short, such ratification had
the effect of purging the contract (Annex "A" Stipulation) of any defect which it might have
had from the moment of its execution. (Article 1396, New Civil Code of the Philippines; Tang
Ah Chan and Kwong Koon vs. Gonzales, 52 Phil. 180)
Again, it is to be noted that while it is true that the original contract of sale with right to
repurchase in favor of the petitioners (Annex "A" Stipulation) was not signed by Belen
Geronimo-Lanuza, such failure to sign, to the mind of the Court, made the contract merely
voidable, if at all, and, therefore, susceptible of ratification. Hence, the subsequent ratification
of the said contract by Belen Geronimo-Lanuza validated the said contract even before the
property in question was mortgaged in favor of the intervenor.
It is also contended by the intervenor that the contract of sale with right to repurchase should
be interpreted as a mere equitable mortgage. Consequently, it is argued that the same
cannot form the basis for a judicial petition for consolidation of title over the property in
litigation. This argument is based on the fact that the vendors a retro continued in possession
of the property after the execution of the deed of sale with pacto de retro. The mere fact,
however, that the vendors a retro continued in the possession of the property in question
cannot justify an outright declaration that the sale should be construed as an equitable
mortgage and not a sale with right to repurchase. The terms of the deed of sale with right to
repurchase (Annex "A" Stipulation) relied upon by the petitioners must be considered as
merely an equitable mortgage for the reason that after the expiration of the period of
repurchase of three months from January 12, 1961.
Article 1602 of the New Civil Code provides:
"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any of
the following cases;
x x x x x x x x x
"(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed.
x x x x x x x x x
In the present case, it appears, however, that no other instrument was executed between the
parties extending the period of redemption. What was done was simply to annotate on the
deed of sale with right to repurchase (Annex "A" Stipulation) that "the period to repurchase,
extended as requested until July 12, 1961." Needless to say, the purchasers a retro, in the
exercise of their freedom to make contracts, have the power to extend the period of
repurchase. Such extension is valid and effective as it is not contrary to any provision of law.
(Umale vs. Fernandez, 28 Phil. 89, 93)
The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public
document. Consequently, the same is sufficient for the purpose of transferring the rights of
the vendors a retro over the property in question in favor of the petitioners. It is to be noted
that the deed of sale with right to repurchase (Annex "A" Stipulation) was executed on
January 12, 1961, which was very much ahead in point of time to the execution of the real
estate mortgage on October 4, 1961, in favor of intervenor (Annex "B" Stipulation). It is
obvious, therefore, that when the mortgagors, Rodolfo Lanuza and Belen Geronimo Lanuza,
executed the real estate mortgage in favor of the intervenor, they were no longer the
absolute owners of the property since the same had already been sold a retro to the
petitioners. The spouses Lanuza, therefore, could no longer constitute a valid mortgage over
the property inasmuch as they did not have any free disposition of the property mortgaged.
(Article 2085, New Civil Code.) For a valid mortgage to exist, ownership of the property
mortgaged is an essential requisite. A mortgage executed by one who is not the owner of the
property mortgaged is without legal existence and the registration cannot validate. (Philippine
National Bank vs. Rocha, 55 Phil. 497).
The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason
that while the real estate mortgage in his favor (Annex "B" Stipulation) has been registered
with the Register of Deeds of Manila under the provisions of Act No. 3344 on November 3,
1961, the deed of sale with right to repurchase (Annex "A" Stipulation) however, has not
been duly registered. Article 1544 of the New Civil Code, however, refers to the sale of the
same property to two or more vendees. This provision of law, therefore, is not applicable to
the present case which does not involve sale of the same property to two or more vendees.
Furthermore, the mere registration of the property mortgaged in favor of the intervenor under
Act No. 3344 does not prejudice the interests of the petitioners who have a better right over
the property in question under the old principle of first in time, better in right. (Gallardo vs.
Gallardo, C.B., 46 O.G. 5568)
De Leon appealed directly to this Court, contending (1) that the sale in question is not only voidable
but void ab initio for having been made by Lanuza without the consent of his wife; (2) that the
pacto de retro sale is in reality an equitable mortgage and therefore can not be the basis of a petition
for consolidation of ownership; and (3) that at any rate the sale, being unrecorded, cannot affect third
parties.
We are in accord with the trial court's ruling that a conveyance of real property of the conjugal
partnership made by the husband without the consent of his wife is merely voidable. This is clear
from article 173 of the Civil Code which gives the wife ten years within which to bring an action for
annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave her
conformity to the extension of the period of redemption by signing the annotation on the margin of
the deed. We may add that actions for the annulment of voidable contracts can be brought only by
those who are bound under it, either principally or subsidiarily (art. 1397), so that if there was anyone
who could have questioned the sale on this ground it was Lanuza's wife alone.
We also agree with the lower court that between an unrecorded sale of a prior date and a recorded
mortgage of a later date the former is preferred to the latter for the reason that if the original owner
had parted with his ownership of the thing sold then he no longer had the ownership and free
disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under Act
No. 3344 would, in such case, be of no moment since it is understood to be without prejudice to the
better right of third parties.
2
Nor would it avail the mortgagee any to assert that he is in actual
possession of the property for the execution of the conveyance in a public instrument earlier was
equivalent to the delivery of the thing sold to the vendee.
3

But there is one aspect of this case which leads us to a different conclusion. It is a point which
neither the parties nor the trial court appear to have sufficiently considered. We refer to the nature of
the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality an equitable
mortgage. While De Leon raised the question below and again in this Court in his second
assignment of error, he has not demonstrated his point; neither has he pursued the logical
implication of his argument beyond stating that a petition for consolidation of ownership is an
inappropriate remedy to enforce a mortgage.
De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact
that, first, the supposed vendors (the Lanuzas) remained in possession of the thing sold and,
second, when the three-month period of redemption expired the parties extended it. These are
circumstances which indeed indicate an equitable mortgage.
4
But their relevance emerges only
when they are seen in the perspective of other circumstances which indubitably show that what was
intended was a mortgage and not a sale.These circumstances are:
1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the
decision of the trial court, the fact has not been mentioned that for the price of P3,000, the supposed
vendors "sold" not only their house, which they described as new and as being made of strong
materials and which alone had an assessed value of P4,000, but also their leasehold right television
set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the petition for consolidation of
ownership is limited to the house and the leasehold right, while the stipulation of facts of the parties
merely referred to the object of the sale as "the property in question." The failure to highlight this
point, that is, the gross inadequacy of the price paid, accounts for the error in determining the true
agreement of the parties to the deed.
2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not
really transfer their ownership of the properties in question to Reyes and Navarro. What was agreed
was that ownership of the things supposedly sold would vest in the vendees only if the vendors
failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount rather than on
the redemption of the things supposedly sold. Thus, the deed recites that
If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three
months, my right to repurchase the said properties shall be forfeited and the ownership
thereto automatically pass to Mrs. Maria Bautista Vda. de Reyes . . . without any Court
intervention and they can take possession of the same.
This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires
ownership of the thing sold immediately upon execution of the sale, subject only to the vendor's right
of redemption.
5
Indeed, what the parties established by this stipulation is an odious pactum
commissorium which enables the mortgages to acquire ownership of the mortgaged properties
without need of foreclosure proceedings. Needless to say, such a stipulation is a nullity, being
contrary to the provisions of article 2088 of the Civil Code.
6
Its insertion in the contract of the parties
is an avowal of an intention to mortgage rather than to sell.
7

3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked in
the consideration of this case is the fact that the period of redemption expired on July 12, 1961 and
yet this action was not brought until October 19, 1962 and only after De Leon had asked on October
5, 1962 for the extra-judicial for closure of his mortgage. All the while, the Lanuzas remained in
possession of the properties they were supposed to have sold and they remained in possession
even long after they had lost their right of redemption.
Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequence because it means not only that this action
for consolidation of ownership is improper, as De Leon claims, but, what is more that between the
unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the
registered mortgage of De Leon, the latter must be preferred. Preference of mortgage credits is
determined by the priority of registration of the mortgages,
8
following the maxim "Prior tempore potior
jure" (He who is first in time is preferred in right.)
9
Under article 2125 of the Civil Code, the equitable
mortgage, while valid between Reyes and Navarro, on the one hand, and the Lanuzas, on the other,
as the immediate parties thereto, cannot prevail over the registered mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is
dismissed. Costs against Reyes and Navarro.

CASE #68
G.R. No. L-61337 June 29, 1984
AURORA P. CAPULONG, BENJAMIN P. CAPULONG, CESAR P. CAPULONG, DOLORES P.
CAPULONG, ESTER P. CAPULONG, FERNANDO P. CAPULONG, FELICITAS P. CAPULONG,
IRMA P. CAPULONG, JAIME P. CAPULONG, FRUTO P. CAPULONG, and LOURDES P.
CAPULONG, as substituted heirs of JOVITA PONCE VDA. DE CAPULONG, petitioners,
vs.
THE COURT OF APPEALS, DELFIN G. TOLENTINO, PILAR DE JOYA, and DOROTEO
TOLENTINO, AVELINO TOLENTINO, DELFIN TOLENTINO, ANGELA TOLENTINO, SEVERINO
TOLENTINO, FRANCISCO TOLENTINO, EMILIO TOLENTINO, ZENAIDA BAUTISTA, PILAR DE
JOYA as substituted heirs of RICARDO G. TOLENTINO,respondents.
.

GUTIERREZ, JR., J .:p
This is a petition for review of the decision of the respondent Court of Appeals, now Intermediate
Appellate Court, affirming a judgment of the Court of First Instance of Bulacan dismissing the
complaint for annulment of usurious contracts, declaration of the deed of sale as equitable
mortgage, reconveyance, and damages filed by Jovita Ponce Vda. de Capulong and ordering her to
pay respondents the sum of P2,000.00 as attomey's fees and to pay the costs of the suit.
The background facts which led to the filing of this petition are summarized by the respondent Court
of Appeals as follows:
Between November 19, 1964 and May 28, 1965, plaintiff-appellant Jovita Ponce Vda.
de Capulong obtained a series of loans in varied amounts from defendant-appellee
Dr. Delfin Tolentino (Exhibits A to J) the aggregate of which amounted to P16,250.00
(Exh. J) The loans were secured by a continuing mortgage on plaintiff's 950.3 square
meter titled property in barrio Concepcion, municipality of Baliuag, Bulacan province.
Capulong failed to liquidate the mortgage upon maturity. Dr. Tolentino accepted her
proposal to sell to him the mortgaged property. On February 18, 1967, the notarial
document of absolute sale (Exh. K) now assailed as an equitable mortgage, was
executed by Capulong whereby title to the property in question was transferred to Dr.
Tolentino for P21,300.00, which amount was P1,000.00 more than Capulong's
mortgage indebtedness. In another document (Exh. L) Capulong was given an option
to purchase the property on or before November 20, 1967, for the same price of
P21,300.00, Capulong failed to exercise the option in due time. Her efforts to secure
an extension of time proved futile. On January 28, 1968, Dr. Tolentino sold (Exh. O)
the land in question to defendants spouses Ricardo G. Tolentino and Pilar de Joya in
whose names it is now titled (Exh. 14).
On February 1, 1968, Jovita Ponce Vda. de Capulong, predecessor-in-interest of the petitioners,
filed the complaint for annulment of usurious contracts, declaration of the deed of sale as an
equitable mortgage, reconveyance, and damages with the Court of First Instance of Bulacan against
respondent Delfin G. Tolentino. The case was docketed as Civil Case No. 3617-M.
On February 6, 1968, Mrs. Capulong filed an amended complaint alleging inter alia that the subject
property was sold by Delfin Tolentino to the spouses Ricardo G. Tolentino and Pilar de Joya under a
fictitious deed of sale. She also impleaded said spouses as additional defendants.
On September 9, 1968, the private respondents filed their answer alleging inter alia that the
transactions adverted to are not usurious and that the deed of absolute sale between them and
Jovita Capulong is a true and valid sale representing the real intention of the parties.
On March 20, 1975, the trial court dismissed the complaint on the ground that Jovita Capulong was
not able to present concrete evidence to prove her claim of usury and that the testimonies of the
defendant Delfin Tolentino and his witness Fermin Samson were more credible and weighty than
those of the plaintiff and her witness. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the complaint is hereby dismissed for total lack
of merit, and the plaintiff is hereby ordered to pay the defendant the sum of
P2,000.00 by way of attorney's fees, and to pay the cost of this suit.
Jovita Ponce Vda. de Capulong appealed to the then Court of Appeals. On May 9, 1978 while the
appeal was pending, the appellant died, and on motion of her counsel, she was properly substituted
by her children and heirs, the petitioners herein.
On January 27, 1981, the respondent court affirmed in toto the decision of the trial court.
On March 10, 1981, the petitioners filed a motion for reconsideration of said decision but this was
denied in a resolution dated July 16, 1982.
For the grant of this petition, petitioners assign the following errors:
A. THE FORMULA USED BY THE COURT OF APPEALS IN COMPUTING THE 25% INTEREST
ON THE PRINCIPAL OF THE VARIOUS LOANS IN QUESTION IS NOT SUPPORTED BY THE
EVIDENCE NOR ADMITTED BY THE PARTIES.
B. IN GIVING WEIGHT TO THE FINDING OF THE TRIAL COURT ON THE CREDIBILITY OF THE
WITNESSES FOR PRIVATE RESPONDENTS, THE COURT OF APPEALS MISAPPLIED THE
RULE ON THE WEIGHT AND SUFFICIENCY OF EVIDENCE.
C. IN CONCLUDING THAT THE 'OPTION TO REPURCHASE IN THIS CASE IS NOT A SOUND
BASIS TO FIND THE DEED OF SALE IN QUESTION AS AN EQUITABLE MORTGAGE THE
COURT OF APPEALS ERRONEOUSLY APPLIED THE RULING IN THE CASE OF VILLARICA V.
COURT OF APPEALS.
The main point for consideration in this petition is whether or not the "Pagbibilihang Tuluyan Ng
Bakuran" should be treated as an equitable mortgage and not the absolute sale it purports to be.
Petitioners submit that the questioned deed of sale is not what it appears to be but that it is an
equitable mortgage because the facts and evidence show it was merely resorted to by the parties in
circumvention of the usury law. Private respondents on the other hand allege that Exhibits 11 and 12
do not embody a sale with repurchase agreement, or "sale con pacto de retro." They state that
Exhibit 11 is a deed of absolute sale while Exhibit 12, in essence, simply grants the appellant an
"option to buy."
We find the stand of the private respondents to be without merit, and accordingly reverse the
decision elevated to us for review. Articles 1602 and 1604 of the Civil Code state:
ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:
(1) Wen the price of a sale with right to repurchase is unusually inadequate;
(2) When the vender remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation
In any of the foregoing cases, any money, fruits, or other benefit to be received by
the vendee as rent or otherwise shall be considered as interest which shall be
subject to the usury laws. (Emphasis supplied)
xxx xxx xxx
ART. 1604. The provisions of article 1602 shall also apply to a contract purporting to
be an absolute sale.
Where any of the above circumstances defined in Article 1602 is present, a contract of sale with right
to repurchase is presumed to be an equitable mortgage. As stated by the Code Commission which
drafted the new Civil Code, in practically all of the so-called contracts of sale with right of
repurchase, the real intention of the parties is that the pretended purchase price is money loaned
and in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro
is drawn up. (Report of the Code Commission, p. 63)
The respondent court allowed itself to be misled by our ruling in Villarica v. Court of Appeals, (26
SCRA 189), that:
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once the instrument of absolute
sale is executed, the vendor can no longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee in a separate instrument cannot be
a right of repurchase but some other right like the option to buy in the instant case. ...
In Villarica, the deed of absolute sale was executed on May 19, 1951. The consideration was
P35,000.00. It was registered on May 25, 1951. On that same day, May 25, 1951, the vendees
therein executed another public instrument where they granted the vendors an option to buy the
same property within a period of one year for the price of P37,750.00. The ruling was based on a
particular set of facts.
There is one important factor that differentiates the Villarica case from the instant petition. The
document granting the vendors therein an option to buy back the property was executed six (6) days
after the execution of the deed of sale whereas in the instant case the option to buy was embodied
in a document executed at the same time that the questioned deed of sale was executed. The option
to buy in the Villarica case was interpreted to be only an afterthought. On the other hand, the intent
of the parties to circumvent the provision discouraging pacto de retro is very apparent in the instant
case. The two contracts, the deed of sale and the document embodying the option to repurchase
were prepared, signed, and notarized on the same day. The respondent court should have seen
through a transparent effort to make it appear that the two transactions were not intimately related
but distinct and separate as in the Villarica case. This should have put the court on guard
considering the other circumstances of the case from which no other conclusion could be derived
except that the deed of absolute sale and the document giving the right to repurchase were, in fact,
only one transaction of sale pacto de retro which must be construed as an equitable mortgage.
Another factor which the respondent court failed to note is the sale of the property to the vendee a
retro's brother, thus interposing a supposed innocent third party between the parties to the contract.
This second sale was squarely raised in the amended complaint. The records show that this sale
and the issuance of a new Transfer Certificate of Title on the same date as the sale cannot be
deemed to be bona fide.
Looking into the reason for the inclusion of Article 1602 in the New Civil Code, this Court held
in Santos v. Duata (14 SCRA 1041) that:
Article 1602 is a new provision in the Civil Code designed primarily to curtail the evils
brought about by contracts of sale with right of repurchase, such as the
circumvention of the usury law and pactum commission it particularly envisions
contracts of sale with right to repurchase where the real intention of the parties is that
the pretended purchase price is money loaned, and in order to secure the payment
of the loan a contract purporting to be a sale with pacto de retro is drawn up. (See
report of the Code Commission, pp. 61-63.)
The records show that over a six-month period, the mother of the petitioners borrowed money on no
less than ten separate occasions from Delfin G. Tolentino. The evidence presented by Mrs. Jovita
Ponce Vda. de Capulong alleges that when her total borrowing. 9 of P13,000.00 were added to what
she claims were usurious interests amounting to P3,250.00, the kited total of P16,250.00 was made
to appear at the P21,300.00 purchase price for the lot when actually no money outside of the ten
earlier loan transactions was exchanged between the parties.
The added fact that Jovita Capulong remained in actual physical possession of the land and enjoyed
the fruits thereof confirms the real intention of the parties to secure the payment of the loans with the
land as security. The records show that the private respondents waited for the period of redemption
to expire before taking possession of the land. Had the petitioners' mother really executed an
absolute sale in favor of respondent Delfin Tolentino, the land which is the object of the transaction
should have been delivered to Tolentino and he would have assumed immediate possession after
the execution of the questioned deed of sale.
The deed of sale taken together with the companion "right to redeem" contract is only an equitable
mortgage. Therefore, private respondent Delfin G. Tolentino could not validly sell the land to his
brother Ricardo Tolentino and the latter's wife, Pilar de Joya.
Apart from failing to appreciate the fact that the vendee a retro used two separate documents of sale
and option to repurchase to formalize what was basically only one transaction of sale pacto de retro,
thus simulating a Villarica v. Court of Appeals situation, the respondent court also relied too much on
the trial court's failure to find usurious transactions.
The petitioners' mother summarized the loan transactions as follows:
Date
Obtained
Actual Loan 25% interest Amounts per
Documents
Nov.
20,
1964
P5,000.00 P1,250.00 P 6,250.00
(Exh.
"A")


Dec. 5,
1964
600.00 150.00 750.00
(Exh.
"B")


Dec.
21,
1964
1,000.00 250.00 1,250.00
(Exh.
"C")


Jan. 6,
1965
1,500.00 375.00 1,875.00
(Exh.
"D")


Jan.19,
1965
1,500.00 375.00 1,875.00
(Exh.
"E")


Feb.18,
1965
1,000.00 250.00 1,250.00
(Exh.
"F")


April
17,
1965
600.00 150.00 50.00
(Exh.
"G")


April
19,
1965
800.00 200.00 1,000.00
(Exh.
"H")


May
21,
1965
50.00 125.00 625.00
(Exit.
"I")


May
28,
1965
500.00 125.00 625.00
(Exh.
J)
_____________ _____________ _____________
Total P13,000.00 P3,250.00 P16,250.00
According to Mrs. Capulong, she actually borrowed only P13,000.00 but the contracts evidencing the
transaction make the total appear as P16,250.00. When the last contract, the one now sought to be
set aside, was executed, the loans and interests were allegedly made to appear as a P21,300.00
purchase price, including a P1,000.00 amount given to her on February 18, 1967, when actually no
additional money was given when the deed of sale was granted.
The respondent court sustained the trial court's conclusions and reasoned out:
There is no merit in this appeal. Appellant's theory, that the purchase of her land in
the amount of P21,300.00 is the sum total of her principal loan allegedly amounting
to only P13,000.00 and the usurious interest thereon at 25% per annum, minus the
sum of Pl,500.00 which she paid to Dr. Tolentino on November 20, 1965, in concept
of interest Vide p. 10, appellant's brief), does not find support from a mathematical
computation based on said theory. Thus from November 20, 1964 until February 18,
1967, when the controverted sale was consummated, a period of 2 years and 3
months, the interest due on P13,000.00 amounted to P7,412.49. This added to the
principal of P13,000.00 would give a result of P20,412.49. The balance after
deducting therefrom the sum of P1,500.00 would be P8,912.49 only, or P2,387.51
less the sum of P21,300.00.
The petitioners now allege that the Court of Appeals adopted a computation formula in consonance
with the respondents' theory which is not supported by the evidence in the records but which is only
a theory. The petitioners offer their own theory, thus:
Upon the other hand, in adopting the formula now being questioned, the respondent
Court of Appeals disregarded a basic rule followed in the computation of interest
charges. It also disregarded what petitioners offered was a formula of computation
used by the parties in accounting for the consideration of the sale of P21,300.00. In
the formula adopted by the respondent Court, the 12% per annum was computed on
the principal loan on a straight basis without taking into account the fact that the said
amount of loan was obtained on different dates.
Anent petitioners' suggested formula which was disregarded by respondent Court of
Appeals, the same consisted in the following: The actual loan received by Jovita
Ponce Vda. de Capulong from Delfin Tolentino of P13,000.00 would command an
interest of P6,500.00 computed at the rate of 25% per annum for 2 years
disregarding the 3 months from November 20, 1965 to February 18, 1967. The loan
of P16,250.00 which is the total of the face value of the various loan contracts would
command an interest of P3,250.00 computed at the stipulated rate of 12% per
Annum for 2 years and 3 months. The said amounts of interest totalling P9,750.00
added to the actual amount of loan received of P13,000.00 less the payment of
P1,500.00 on November 20, 1965 in the concept of interest, yields a total of
P21,250.00 or P50.00 less than the consideration of P21,300.00 stated in the deed
of absolute sale. The result using this formula compared to that in the formula
adopted by respondent Court of Appeals suggests that it was error to have
disregarded this formula in favor of the other.
Actually, the determination of whether or not there were usurious transactions in this case depends
on whom to believe the borrowers or the lenders? We see no need to disturb the trial court's
findings on the credibility of the witnesses. Even if no usury was involved, and this is by no means
certain or established to our satisfaction, there is enough evidence in the records to prove that a
contract of loan with mortgage was made to appear in paper as an absolute sale with a companion
option to buy.
WHEREFORE, the judgment of the respondent court is hereby REVERSED and SET ASIDE. The
deed of sale executed by Jovita Ponce de Capulong in favor of Dr. Delfin G. Tolentino is declared as
an equitable mortgage. The petitioners are ordered to pay their mortgage indebtedness in the
amount of P21,300.00 to the private respondents with legal rate of interest from the time of the
expiration of the redemption period on November 20, 1967 until it is fully paid. The deed of sale
executed by Delfin Tolentino in favor of Ricardo Tolentino and Pilar de Joya, being null and void, is
also CANCELLED.
SO ORDERED.

CASE #69
G.R. No. L-48198 July 31, 1978
PRUDENCIA GLORIA-DIAZ and EUGENIO DIAZ, petitioners,
vs.
HON. COURT OF APPEALS, FELIX B. MAGALONG and ISIDRA G. MAGALONG, respondents.
Tarcisio S. Calilung for petitioners.
Roberto S. Vinzon for respondents.s

TEEHANKEE, J .:
The Court sets aside respondent appellate court's resolution which countermanded its original
decision declaring that in the light of the admitted facts of record the transaction between the parties
was truly and in reality a simple loan and equitable mortgage regardless of the nomenclature given
thereto as a pacto de retro sale, The original decision correctly held that it is not the parties but the
law that determines the juridical situation created by the parties through their contract and the rights
and obligations arising therefrom.
On May 8, 1972, petitioners-spouses Prudencia Gloria- Diaz and Eugenio Diaz as plaintiffs filed their
complaint in the Pangasinan court of first instance praying that respondents-spouses Felix B.
Magalong and Isidra G. Magalong as defendants be compelled to accept the tender of payment of
P4,500.00 deposited in the court by way of redemption of their 40,000-square meter riceland in
Bayambang, Pangasinan, subject of several contracts entitled "Deed of Sale with Conventional
Redemption" executed by them with respondents as vendees and to execute the necessary deed
reconveying the said property to them.
The trial court in its decision of November 29, 1973 dismissed the complaint on the ground of lapse
of the 10-year repurchase period and ruling that if "[respondents] had set certain conditions for the
reconveyance of the property to [petitioners] other than those agreed upon, [respondents] were well
within their right to do so."
1

Petitioners appealed to respondent Court of Appeals
2
which restated the facts in its decision
of November 3, 1977, as follows:
... plaintiff, Prudencia Gloria, married to plaintiff Eugenio Diaz, is the aunt of Isidra
Gloria-Magalong, wife of defendant, Felix B. Magalong; the parties are from
Pangasinan, but the spouses Magalong are U.S. residents, the husband being with
the U.S. Army; now, on 27 January, 1958, Prudencia with assistance of her husband,
Eugenia executed Exh. A being a deed entitled one of sale with conventional
redemption over 2 parcels of land in Barrio Buayaan, town of Bayambang,
Pangasinan, in favor of Isidra Gloria, wife of Magalong for the sum of P3,600.00,
redeemable with 10 years then 2 years later, on 21 August 1961, a new deed of
same tenor was signed by spouses Diaz increasing the original consideration of
P3.600.00 by P 200.00, Exh. B; again, on 1 October, 1964, a new deed once more of
the same tenor executed by spouses Diaz increasing the sum received by P400, so
that the total became P4,200.00, Exh. C; finally on 26 June 1965, another sum was
added of P30.00, and a new deed once again of the same tenor was signed by
Prudencia, Exh. D, so that the total became P4,500.00 now remember that the
period of redemption not having been changed either in Exh. B, C or D, was to
expired by 27 January 1968, and apparently because they did not have money to
redeem, spouses Diaz wrote to spouses Magalong in America sometime
in December, 1967 asking to renew and it is here where complication arose.
Because according to plaintiffs, spouses Magalong answered in letter of 19
February, 1968 indicating willingness, Exh. F, which is in handwriting, instructing
that new document of same tenor be drafted by Notary Public, Mr. Numeriano de
Castro, Magalong's friend, this despite the fact that 10 year redemption period had
already expired, on the other hand, according to defendants, Magalong, they
never sent this handwritten letter, Exh. F, what they had sent was the letter, Exh. 6
dated 12 January 1968 (duplicate carbon of that is Exh. 6) wherein they manifested
their willingness to accept a new document of the same tenor but upon certain
conditions, among them that because of depreciation of value of the peso, that the
consideration should be placed at P9,000.00 if the dollar was worth 4 times the peso,
further, that draft of new document to be sent unto them for perusal and if they were
agreeable, they would send it back for notarization, and that also, before finalization,
they should be notified, for them to send a special power of attorney for a relative
who spoke English welt,
And the misunderstanding began with that, plaintiffs, on the position that they
were complying with Exh. F, caused preparation of new deed, Exh. E, on 21 June,
1968, with consideration being only for P4,500.00, and had it ratified before the
above-mentioned notary public, Mr. Numeriano G. de Castro, but in turn, defendants
refused to accept claiming they were not bound thereby, there was further
interchange of communications, until plaintiffs filed present case on 8 May, 1972 and
according to her, she deposited the money coincidentally; and in the trial, her
position and evidence were to the effect that it became obligation of defendants to
execute deed of redemption, which defendants spouses Magalong resist, on the
position and evidence that no, and that the period of redemption having expired, title
should be consolidated, ... .
3

While respondent appellate court did not give its sanction to the last deed of sale executed
unilaterally by petitioners on June 21, 1968 for P4,500.00 with right to repurchase within a period of
five (5) years from said date of execution, it held however that in the fight of the admitted facts the
transaction was in reality an equitable mortgage and therefore set aside the trial court's dismissal of
the case.
The appellate court cited petitioners' contention on appeal "that the agreement was only an equitable
mortgage, not a sale with right of redemption at an, and they point to the undisputed fact that the
first document of 27 January, 1958, Exh. A, was for P3,600.00, then a second document of exactly
the same tenor was executed on 21 August, 1958, or hardly 7 months later, adding a sum that had
been later on received as addition to the price ofP200.00, making the redemption price, P3,800.00,
then four years later, 179 cause an additional amount was again received of P400.00, a new
document was once more executed, Exh. C, raising the redemption price toP4,200.00, and then a
year later, because still another sum of P300.00 had been received, still another document of the
same tenor was once more executed, Exh. D, on June, 1965, raising the redemption price
to P4,500.00."
4

The appellate court found that "(I)n the mind of this Court, (the) foregoing facts, admitted on both
sides, can not have any other interpretation than that there could have been no legal purposes for
the additions of P200.00, P400.00, and P500.00 to increase the redemption price than to erase the
nomenclature of the transaction from a deed of sale with conventional redemption, into the
revelation that it was truly and in reality, a simple loan, surely, if Exh. A was a true deed of sale
with pacto de retro, the price was P3,600.00, nothing not even a centavo more, the only right of
vendor-a-retro would have been to redeem at that price; if vendee-a- retro himself gave afterwards
several additional amounts, and himself consented that they be aggregated to the price of
redemption, that was absolutely inconsistent with the designation of the agreement, Exh. A, as a true
sale with pacto de retro, a sale with pacto de retro is a true, a good sale, it transfers title to vendee,
only subject to a resolutory condition, the addition of further sums accepted by vendee-a-retro,
becomes incomprehensible, in other words, the net conclusion must have to that consistent with
their own conduct, especially that of 'vendee-a-retro', the Courts should understand the agreement
to have been really only loan with equitable mortgage, for the parties neither have any legal night to
change the juridical qualification that the law attaches to their conduct, it is the law, not their written
contract, that does that for them."
5

The appellate court rejected respondents' defense of estoppel, thus: "(N)ow, of course, defendants
contend in this connection, that plaintiffs are in estoppel to raise this question that it was only an
equitable mortgage, since plaintiffs themselves have described the transaction as a sale with right of
conventional redemption in their complaint, but the answer to this is not only that as this Court
has said, it is not the parties but the law, that determines the juridical situation created by the parties
thru their contract, but not only this, but this Court, reviewing the record, notices that no less
than defendants themselves apparently accepted that this had become an issue in the trial, so much
so that they presented witness Atty. Felipe Santillan, a practising lawyer and Notary Public in
Pangasinan, versed in the Pangasinan dialect, and who confronted with the very letters of
defendants Magalong wherein the latter referred to the transaction they had had with plaintiffs as
'prindaan,' declared. ... A. 'Well, this word PRINDAAN is a general term in Pangasinan. It may
mean a pledge, chattel mortgage, a simple mortgage and it may mean also a deed of sale with
conventional redemption.' (tsn. 11:2021, witness Felipe Santillan). The long and short of it is that as
Courts of Justice can not close their eyes to the evidence presentedby the parties themselves and
foregoing testimony of a witness submitted by defendants no less going to show that they
understood that the true meaning of the transaction had to be clarified, that point had
become materialtherefore the argument of estoppel by them stated in answer to Error 2 cannot
persuade, and since with that, this Court becomes not only free but in fact, obliged to rule, and said
additional sums by them receive having no other meaning than that this was in reality a series of
loans."
6

The appellate court accordingly reversed the lower court's decision and rendered judgment for
petitioners allowing their redemption of the property for the stipulated sum of P4,500.00 within 30
days from finality of the decision.
7

Upon respondent's motion for reconsideration, however, respondent appellate court (with a changed
composition with the compulsory retirement on January 1, 1978 of the ponente Acting Presiding
Justice Gatmaitan)
8
issued its Resolution of February 3, 1978 setting aside its original decision of
November 3, 1977 and instead affirming the lower court's dismissal of petitioners' complaint, on the
following ratiocination:
That on 3 occasions, the purchase price was increased under Exhs. B, C and D may
indeed be interpreted as meaning that only a simple loan was intended by the
contracting parties, but then.
a) This is not one of the circumstances listed in Art. 1602 of the Civil Code;
b) The additional amounts did not result in any extension of the redemption period;
and
c) The payment of the additional amounts did not in any way benefit the vendees and
were acts of liberality extended to a close relative by blood.
It is also important to note that the complaint is anchored on Exh. E (dated June 21,
1968 after the expiration of the redemption period) which the Court a quo found to
be self-serving as it was the unilateral act of the appellants. And the complaint is
totally silent as to Exhs. A, B, C and D; seeks no reformation; and alleges that the
consignation was not in payment of a loan, but in payment of the repurchase price
(par. 9). In asking that the motion for reconsideration be denied, the appellants in
effect uphold that they are entitled to reformation. This is a remedy not sought by
them in the trial court and is not a matter even discussed in the briefs.
Finally, the 10-year redemption period expired on January 27, 1968, but the
consignation was made and the complaint was filed only in 1972.
The appellate court in its Resolution of April 14, 1973 denied petitioners' motion for reconsideration
in turn and reaffirmed its legal conclusion that the true transaction was a sale with rights to
repurchase rather than a simple loan as held by the original decision of November 3, 1977.
Hence, the petition at bar, which the Court finds to be well taken for the following principal
considerations.
1. The conclusion in the appellate court's countermanding Resolution of February 3, 1978 that the
true transaction a pacto de retro sale is contrary to the very admission of respondent Felix B.
Magalong in his letter of March 28, 1972 to petitioner Eugenie Diaz wherein said respondent
expressly referred to petitioners' proposal "to redeem the land which has been mortgaged to us."
9

2. The appellate court's countermanding Resolution of February 3, 1978, supra, recognized that the
undisputed fact that on three occasions the original "purchase price" of P3,600.00 was increased
with the "additional payments" of P200.00, P400.00 and P300.00, which added up to a total
increased "purchased price" of P4,500.00indicated that only a simple loan was intended by the
contracting parties." Yet, it rejected this correct indication and conclusion on three manifestly
mistaken inferences as follows:
1st that "this is not one of the circumstances listed in Article 1602 of the Civil Code", completely
disregarding the 6th circumstance or badge of equitable mortgage fisted in the article, to wit, "(6) In
any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation";
2nd, "The additional amounts did not result in any extension of the redemption period." Precisely, as
stressed in the original decision of November 3, 1977, if the transaction were a true pacto de retro,
the purchase price had been fixed at P3,600.00 not a centavo more and respondents' giving of
additional amounts on three different occasions to be aggregated to the redemption price "was
absolutely inconsistent" with the concept of "a true sale with pacto de retro"; and
3rd, the inference that the additional amounts did not benefit the respondents and were "acts of
liberality" is patently mistaken. As already pointed out, such addition amounts merely reveal the
nature of the transaction as a series of loans which did not involve any "liberality." As a matter of
fact, respondents expressly insisted that they be repaid in dollars at the equivalent increased rate
then of P6.40 to the dollar not, withstanding the prohibitory provision to the contrary of Republic Act
No. 529.
3. The appellate court's countermanding Resolution of February 3, 1978 furthermore completely
disregarded the applicable provisions of Article 1603, Civil Code that "In case of doubt, a contract
purporting to be a sale with right to repurchase shall be construed as an equitable mortgage" and of
Article 1606, Civil Code, 3rd paragraph that "the vendor may still exercise the right to
repurchase within thirty days from the time final judgment was rendered in a civil action on the basis
that the contract was a true sale with right to repurchase", which latter provision was aptly applied in
the original decision although it did not expressly cite the codal article.
ACCORDINGLY, judgment is hereby rendered setting aside the appellate court's Resolutions of
February 3, 1978 and April 14, 1979 and reinstating the original decision and judgment of November
3, 1977. Without costs.
Makasiar, Muoz Palma, Fernandez and Guerrero, JJ., concur.

Footnotes
1 Record on Appeal, pp. 54-55.
2 Special First Division composed of Gatmaitan, Acting Presiding Justice, ponente,
Reyes, S. F. and Climaco, JJ.
3 Rollo, pages 26-28; emphasis supplied.
4 Rollo, p. 30; emphasis supplied.
5 Idem, pp. 30-31; emphasis supplied.
6 Idem, pp. 31-33; emphasis supplied;
7 The text of the judgment reads: "IN VIEW WHEREOF, this Court is constrained to
reverse as it now reverses, judgment appealed from; Plaintiffs are declared debtors
in the total sum of P4,500.00 upon payment or deposit in Court thereof the fact of
consignation not being very clear, within a period of 30 days from the date this
decision shall become final if it ever wilt the land conveyed in Exh. A shall be
considered redeemed unto plaintiffs and shall immediately thereafter be surrendered
unto them by defendant. 9, Otherwise, to be sold at public auction to satisfy the said
slim of P4,500.00 with costs of foreclosure; no more pronouncement as to costs.
8 Former Special First Division now composed of Agcaoili Reyes, S. F. and Climaco,
ponente, JJ.
9 Pertinent portion of the letter reads: "In your letter, you informed me that you are
now ready and willing to redeem the land which has been mortgaged to us. Please
refer to my letter to your wife dated November 15, 1971. I would ask you to pay
particular attention to the first condition I spelled out on page 2 of that letter. This
condition is a compromise I offered to your wife. To go directly to the point, I will once
more say that if you will pay us P8,467.20 to be converted by you to $1,323.00 in
'bank draft' form, I will upon receipt of the draft and after I have cashed it, return all
the papers of the land to you. This condition is a must and there can be no further
compromise as it is in itself a compromise. "Had the value of the dollar in the
Philippines remained at P2.00 to $1.00, Seding and I would certainly accept without
question the amount of P4,500. which you are offering to us. But I regret to say that
through no fault of yours or ours, the value of the dollar went up to about P6.40.
Therefore, the compromise I spelled out in this latter and in my letter to your wife is
just and fair. (Rec. on Appeal, pp. 7-10; emphasis supplied)

CASE #70
G.R. No. L-10183 April 28, 1958
RAQUEL ADORABLE, ET AL., petitioners,
vs.
IRINEA INACALA, ET AL., respondents.
Gaudencio L. Atendido for petitioners.
Pedro D. Maldia, for respondents.
PARAS, C.J .:
This is an appeal by the petitioners from the decision of the Court of Appeals, holding that the deed
of sale between respondent Irinea Inacala and one Arcadio Mendoza should be given the effect of a
mere pacto de retrosale and that, in accordance with the third paragraph of Article 1606 of the Civil
Code of the Philippines, said respondent should be permitted to exercise the right of repurchase.
Respondent Inacala was the registered owner of a parcel of land located in barrio Valdefuente,
Cabanatuan, Nueva Ecija. On July 1, 1941, through the intervention of Claro Pacis, she executed a
deed of sale (Exhibit B) covering a 15-hectare lot in favor of Arcadio Mendoza for P420.00. The
latter thereupon executed a private instrument (Exhibit C) granting said respondent the option to
repurchase the lot for the same consideration within the period of one year from the date of the sale.
Mendoza afterwards sold the property to the spouses Eugenio and Margarita Ramos to whom a
transfer certificate of title was issued. The petitioners herein, all surnamed Adorable, in turn bought
the land from the Ramos spouses, and the corresponding transfer certificate of title No. 19736 was
issued.
Since the first sale in 1941, Inacala, who had not redeemed the land from Mendoza, never
relinquished the possession thereof. It was only in 1951, during the opening of the Pampanga River
Irrigation Project, when the petitioners attempted to take physical possession through one Geronimo
Fajardo, who leased it from them, that said petitioners were apprised for the first time of Inacala's
claim over the lot.
There can be no question about the correctness of the correctness of the Court of Appeals that the
transaction at bar is a pacto de retro sale. Exhibit "C" is conclusive on the point. But, as contended
by the petitioners, the Court of Appeals erred in applying the third paragraph of Article 1606 of the
new Civil Code. In our opinion, this provision refers to cases involving a transaction where one of the
parties contests or denies that the true agreement is one of sale with right of repurchase. In the case
now before us, the sale (Exhibit B) is expressly with right to repurchase in virtue of Exhibit "C"
granting respondent Inacala the right to redeem within one year. As this stipulated period has
expired without said respondent having redeemed the land in question, the original purchaser,
Arcadio Mendoza, had irrevocably acquired ownership over the property in accordance with Article
1509 of the old Civil Code which was in force at the time of the transaction in dispute. (Angao vs.
Clavano, 17 Phil., 152; Rafols vs. Rafols, 22 Phil., 236; Gonzales vs. Javellana, 49 Phil., 1; Racca
vs. Viloria, 26 Phil., 120.)
It therefore becomes unnecessary to discuss petitioners' other contention that the Court of Appeals
erred in holding that the petitioners were not purchasers in good faith.
In view of the foregoing, the decision appealed from is hereby reversed, and the petitioners declared
owners, of the land in controversy. So ordered without pronouncement as to costs.
Bengzon, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia and Felix,
JJ., concur.

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