Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 91029

February 7, 1991

NORKIS DISTRIBUTORS, INC., petitioner,

vs.
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.

GRIO-AQUINO, J.:
Subject of this petition for review is the decision of the Court of Appeals
(Seventeenth Division) in CA-G.R. No. 09149, affirming with modification
the judgment of the Regional Trial Court, Sixth (6th) Judicial Region,
Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which
was private respondent Alberto Nepales' action for specific performance of
a contract of sale with damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of
Yamaha motorcycles in Negros Occidental with office in Bacolod City with
Avelino Labajo as its Branch Manager. On September 20, 1979, private
respondent Alberto Nepales bought from the Norkis-Bacolod branch a
brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No.
L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the
Norkis showroom. The price of P7,500.00 was payable by means of a
Letter of Guaranty from the Development Bank of the Philippines (DBP),
Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to
accept. Hence, credit was extended to Nepales for the price of the
motorcycle payable by DBP upon release of his motorcycle loan. As

security for the loan, Nepales would execute a chattel mortgage on the
motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales
Invoice No. 0120 (Exh.1) showing that the contract of sale of the
motorcycle had been perfected. Nepales signed the sales invoice to signify
his conformity with the terms of the sale. In the meantime, however, the
motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land
Transportation Commission in the name of Alberto Nepales. A registration
certificate (Exh. 2) in his name was issued by the Land Transportation
Commission on November 6, 1979 (Exh. 2-b). The registration fees were
paid by him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian
Nepales who was allegedly the agent of Alberto Nepales but the latter
denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and
Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto
Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch (p.
12, Rollo). The motorcycle met an accident on February 3, 1980 at
Binalbagan, Negros Occidental. An investigation conducted by the DBP
revealed that the unit was being driven by a certain Zacarias Payba at the
time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n.,
August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis'
warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's
motorcycle loan to Norkis in the total sum of P7,500. As the price of the
motorcycle later increased to P7,828 in March, 1980, Nepales paid the
difference of P328 (p. 13, Rollo) and demanded the delivery of the
motorcycle. When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional Trial Court of
Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI,
where it was docketed as Civil Case No. 1272. He alleged that Norkis failed
to deliver the motorcycle which he purchased, thereby causing him
damages.
Norkis answered that the motorcycle had already been delivered to private
respondent before the accident, hence, the risk of loss or damage had to
be borne by him as owner of the unit.

After trial on the merits, the lower court rendered a decision dated August
27, 1985 ruling in favor of private respondent (p. 28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendants. The defendants are ordered to pay solidarity
to the plaintiff the present value of the motorcycle which was totally
destroyed, plus interest equivalent to what the Kabankalan SubBranch of the Development Bank of the Philippines will have to
charge the plaintiff on fits account, plus P50.00 per day from
February 3, 1980 until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages, and costs of the
litigation. In lieu of paying the present value of the motorcycle, the
defendants can deliver to the plaintiff a brand-new motorcycle of the
same brand, kind, and quality as the one which was totally destroyed
in their possession last February 3, 1980. (pp. 28-29, Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on August
21, 1989, but deleted the award of damages "in the amount of Fifty
(P50.00) Pesos a day from February 3, 1980 until payment of the present
value of the damaged vehicle" (p35, Rollo). The Court of Appeals denied
Norkis' motion for reconsideration. Hence, this Petition for Review.
The principal issue in this case is who should bear the loss of the
motorcycle. The answer to this question would depend on whether there
had already been a transfer of ownership of the motorcycle to private
respondent at the time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and even
before delivery, that is, even before the ownership is transferred to
the vendee, the risk of loss is shifted from the vendor to the vendee.
Under Art. 1262, the obligation of the vendor to deliver
a determinate thing becomes extinguished if the thing is lost by
fortuitous event (Art. 1174), that is, without the fault or fraud of the
vendor and before he has incurred in delay (Art. 11 65, par. 3). If the
thing sold is generic, the loss or destruction does not extinguish the
obligation (Art. 1263). A thing is determinate when it is particularly
designated or physically segregated from all others of the same class
(Art. 1460). Thus, the vendor becomes released from his obligation to

deliver the determinate thing sold while the vendee's obligation to pay
the price subsists. If the vendee had paid the price in advance the
vendor may retain the same. The legal effect, therefore, is that the
vendee assumes the risk of loss by fortuitous event (Art. 1262) after
the perfection of the contract to the time of delivery. (Civil Code of the
Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle.
However, it insists that there was constructive delivery of the unit upon: (1)
the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the
private respondent and the affixing of his signature thereon; (2) the
registration of the vehicle on November 6, 1979 with the Land
Transportation Commission in private respondent's name (Exh. 2); and (3)
the issuance of official receipt (Exh. 3) for payment of registration fees (p.
33, Rollo).
That argument is not well taken. As pointed out by the private respondent,
the issuance of a sales invoice does not prove transfer of ownership of the
thing sold to the buyer. An invoice is nothing more than a detailed
statement of the nature, quantity and cost of the thing sold and has been
considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether
constructive or actual, be coupled with the intention of delivering the thing.
The act, without the intention, is insufficient (De Leon, Comments and
Cases on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private
respondent, Norkis did not intend yet to transfer the title or ownership to
Nepales, but only to facilitate the execution of a chattel mortgage in favor of
the DBP for the release of the buyer's motorcycle loan. The Letter of
Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its
favor of a chattel mortgage over the purchased vehicle is a pre-requisite for
the approval of the buyer's loan. If Norkis would not accede to that
arrangement, DBP would not approve private respondent's loan application
and, consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting delivery,
which gives legal effect to the act, is the actual intention of the vendor to

deliver, and its acceptance by the vendee. Without that intention, there is
no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court
held:
The Code imposes upon the vendor the obligation to deliver the thing
sold. The thing is considered to be delivered when it is "placed in the
hands and possession of the vendee." (Civil Code, Art. 1462). It is
true that the same article declares that the execution of a public
instrument is equivalent to the delivery of the thing which is the object
of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had
such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and the right of possession. The
thing sold must be placed in his control. When there is no impediment
whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if notwithstanding
the execution of the instrument, the purchaser cannot have the
enjoyment and material tenancy of the thing and make use of it
himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then
fiction yields to reality-the delivery has riot been effects .(Emphasis
supplied.)
The Court of Appeals correctly ruled that the purpose of the execution of
the sales invoice dated September 20, 1979 (Exh. B) and the registration of
the vehicle in the name of plaintiff-appellee (private respondent) with the
Land Registration Commission (Exhibit C) was not to transfer to Nepales
the ownership and dominion over the motorcycle, but only to comply with
the requirements of the Development Bank of the Philippines for
processing private respondent's motorcycle loan. On March 20, 1980,
before private respondent's loan was released and before he even paid
Norkis, the motorcycle had already figured in an accident while driven by
one Zacarias Payba. Payba was not shown by Norkis to be a
representative or relative of private respondent. The latter's supposed
relative, who allegedly took possession of the vehicle from Norkis did not
explain how Payba got hold of the vehicle on February 3, 1980. Norkis'

claim that Julian Nepales was acting as Alberto's agent when he allegedly
took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by
the latter. Alberto denied having authorized Julian Nepales to get the
motorcycle from Norkis Distributors or to enter into any transaction with
Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This
circumstances more than amply rebut the disputable presumption of
delivery upon which Norkis anchors its defense to Nepales' action (pp. 3334, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an
express assumption of risk by the buyer, the things sold remain at seller's
risk until the ownership thereof is transferred to the buyer," is applicable to
this case, for there was neither an actual nor constructive delivery of the
thing sold, hence, the risk of loss should be borne by the seller, Norkis,
which was still the owner and possessor of the motorcycle when it was
wrecked. This is in accordance with the well-known doctrine of res perit
domino.
WHEREFORE, finding no reversible error in the decision of the Court of
Appeals in CA-G.R. No. 09149, we deny the petition for review and hereby
affirm the appealed decision, with costs against the petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2412

April 11, 1906

PEDRO ROMAN, plaintiff-appellant,

vs.
ANDRES GRIMALT, defendant-appellee.
Alberto Barretto, for appellant.
Chicote, Miranda and Sierra, for appellee.
TORRES, J.:

On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of
First Instance of this city against Andres Grimalt, praying that judgment be
entered in his favor and against the defendant (1) for the purchase price of
the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in
Philippine currency, payable by installments in the manner stipulated; (2)
for legal interest on the installments due on the dates set forth in the
complaint; (3) for costs of proceedings; and (4) for such other and further
remedy as might be considered just and equitable.
On October 24 of the same year the court made an order sustaining the
demurer filed by defendant to the complaint and allowing plaintiff ten days
within which to amend his complaint. To this order the plaintiff duly
excepted.
Counsel for plaintiff on November 5 amended his complaint and alleged
that between the 13th and the 23rd day of June, 1904, both parties,
through one Fernando Agustin Pastor, verbally agreed upon the sale of the
said schooner; that the defendant in a letter dated June 23 had agreed to
purchase the said schooner and of offered to pay therefor in three
installment of 500 pesos each, to wit, on July 15, September 15, and
November 15, adding in his letter that if the plaintiff accepted the plan of
payment suggested by him the sale would become effective on the
following day; that plaintiff on or about the 24th of the same month had
notified the defendant through Agustin Pastor that he accepted the plan of
payment suggested by him and that from that date the vessel was at his
disposal, and offered to deliver the same at once to defendant if he so
desired; that the contract having been closed and the vessel being ready
for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in
the harbor of Manila and is a total loss, as a result of a severe storm; and
that on the 30th of the same month demand was made upon the defendant
for the payment of the purchase price of the vessel in the manner stipulated
and defendant failed to pay. Plaintiff finally prayed that judgment be
rendered in accordance with the prayer of his previous complaint.
Defendant in his answer asked that the complaint be dismissed with costs
to the plaintiff, alleging that on or about June 13 both parties met in a public
establishment of this city and the plaintiff personally proposed to the
defendant the sale of the said vessel, the plaintiff stating that the vessel
belonged to him and that it was then in a sea worthy condition; that
defendant accepted the offer of sale on condition that the title papers were

found to be satisfactory, also that the vessel was in a seaworthy condition;

that both parties then called on Calixto Reyes, a notary public, who, after
examining the documents, informed them that they were insufficient to
show the ownership of the vessel and to transfer title thereto; that plaintiff
then promised to perfect his title and about June 23 called on defendant to
close the sale, and the defendant believing that plaintiff had perfected his
title, wrote to him on the 23d of June and set the following day for the
execution of the contract, but, upon being informed that plaintiff had done
nothing to perfect his title, he insisted that he would buy the vessel only
when the title papers were perfected and the vessel duly inspected.
Defendant also denied the other allegations of the complaint inconsistent
with his own allegations and further denied the statement contained in
paragraph 4 of the complaint to the effect that the contract was completed
as to the vessel; that the purchase price and method of payment had been
agreed upon; that the vessel was ready for delivery to the purchaser and
that an attempt had been made to deliver the same, but admitted, however,
the allegations contained in the last part of the said paragraph.
The court below found that the parties had not arrived at a definite
understanding. We think that this finding is supported by the evidence
introduced at the trial.
A sale shall be considered perfected and binding as between vendor and
vendee when they have agreed as to the thing which is the object of the
contract and as to the price, even though neither has been actually
delivered. (Art. 1450 of the Civil Code.)
Ownership is not considered transmitted until the property is actually
delivered and the purchaser has taken possession of the value and paid
the price agreed upon, in which case the sale is considered perfected.
When the sale is made by means of a public instrument the execution
thereof shall be equivalent to the delivery of the thing which is the object of
the contract. (Art. 1462 of the Civil Code.)
Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for
several days negotiating for the purchase of the schooner Santa Marina
from the 13th to the 23d of June, 1904. They agreed upon the sale of the
vessel for the sum of 1,500 pesos, payable in three installments, provided

the title papers to the vessel were in proper form. It is so stated in the letter
written by the purchaser to the owner on the 23rd of June.
The sale of the schooner was not perfected and the purchaser did not
consent to the execution of the deed of transfer for the reason that the title
of the vessel was in the name of one Paulina Giron and not in the name of
Pedro Roman, the alleged owner. Roman promised, however, to perfect his
title to the vessel, but he failed to do so. The papers presented by him did
not show that he was the owner of the vessel.
If no contract of sale was actually executed by the parties the loss of the
vessel must be borne by its owner and not by a party who only intended to
purchase it and who was unable to do so on account of failure on the part
of the owner to show proper title to the vessel and thus enable them to
draw up the contract of sale.
The vessel was sunk in the bay on the afternoon of the 25th of June, 1904,
during a severe storm and before the owner had complied with the
condition exacted by the proposed purchaser, to wit, the production of the
proper papers showing that the plaintiff was in fact the owner of the vessel
in question.
The defendant was under no obligation to pay the price of the vessel, the
purchase of which had not been concluded. The conversations had
between the parties and the letter written by defendant to plaintiff did not
establish a contract sufficient in itself to create reciprocal rights between
the parties.
It follows, therefore, that article 1452 of the Civil Code relative to the injury
or benefit of the thing sold after a contract has been perfected and articles
1096 and 1182 of the same code relative to the obligation to deliver a
specified thing and the extinction of such obligation when the thing is either
lost or destroyed, are not applicable to the case at bar.
The first paragraph of article 1460 of the Civil Code and section 335 of the
Code of Civil Procedure are not applicable. These provisions contemplate
the existence of a perfected contract which can not, however, be enforced
on account of the entire loss of the thing or made the basis of an action in
court through failure to conform to the requisites provided by law.

The judgment of the court below is affirmed and the complaint is dismissed
with costs against the plaintiff. After the expiration of twenty days from the
date hereof let judgment be entered in accordance herewith and ten days
thereafter let the case be remanded to the Court of First Instance for proper
action. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21263

April 30, 1965

LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee,

vs.
PERFECTO A. TABORA, defendant-appellant.
Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.
Tabora and Concon for defendant-appellant.
BAUTISTA ANGELO, J.:
On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative
Publishing Company one complete set of American Jurisprudence
consisting of 48 volumes with 1954 pocket parts, plus one set of American
Jurisprudence, General Index, consisting of 4 volumes, for a total price of
P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of
P1,682.40. Tabora made a partial payment of P300.00, leaving a balance
of P1,382.40. The books were duly delivered and receipted for by Tabora
on May 15, 1955 in his law office Ignacio Building, Naga City.
In the midnight of the same date, however, a big fire broke out in that
locality which destroyed and burned all the buildings standing on one whole
block including at the law office and library of Tabora As a result, the books
bought from the company as above stated, together with Tabora's important
documents and papers, were burned during the conflagration. This
unfortunate event was immediately reported by Tabora to the company in a
letter he sent on May 20, 1955. On May 23, the company replied and as a
token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78
of the Philippine Reports. As Tabora failed to pay he monthly installments

agreed upon on the balance of the purchase price notwithstanding the long
time that had elapsed, the company demanded payment of the installments
due, and having failed, to pay the same, it commenced the present action
before the Court of First Instance of Manila for the recovery of the balance
of the obligation. Plaintiff also prayed that defendant be ordered to pay 25%
of the amount due as liquidated damages, and the cost of action.
Defendant, in his answer, pleaded force majeure as a defense. He alleged
that the books bought from the plaintiff were burned during the fire that
broke out in Naga City on May 15, 1955, and since the loss was due
to force majeure he cannot be held responsible for the loss. He prayed that
the complaint be dismissed and that he be awarded moral damages in the
amount of P15,000.00.
After due hearing, the court a quo rendered judgment for the plaintiff. It
ordered the defendant to pay the sum of P1,382.40, with legal interest
thereon from the filing of the complaint, plus a sum equivalent to 25% of the
total amount due as liquidated damages, and the cost of action.
Defendant took the case to the Court of Appeals, but the same is now
before us by virtue of a certification issued by that Court that the case
involves only questions of law.
Appellant bought from appellee one set of American Jurisprudence,
including one set of general index, payable on installment plan. It was
provided in the contract that "title to and ownership of the books shall
remain with the seller until the purchase price shall have been fully paid.
Loss or damage to the books after delivery to the buyer shall be borne by
the buyer." The total price of the books, including the cost of freight,
amounts to P1,682.40. Appellant only made a down payment of P300.00
thereby leaving a balance of P1,382.40. This is now the import of the
present action aside from liquidated damages.
Appellant now contends that since it was agreed that the title to and the
ownership of the books shall remain with the seller until the purchase price
shall have been fully paid, and the books were burned or destroyed
immediately after the transaction, appellee should be the one to bear the
loss for, as a result, the loss is always borne by the owner. Moreover, even
assuming that the ownership of the books were transferred to the buyer
after the perfection of the contract the latter should not answer for the loss

since the same occurred through force majeure. Here, there is no evidence
that appellant has contributed in any way to the occurrence of the
conflagration.1wph1.t
This contention cannot be sustained. While as a rule the loss of the object
of the contract of sale is borne by the owner or in case of force majeure the
one under obligation to deliver the object is exempt from liability, the
application of that rule does not here obtain because the law on the
contract entered into on the matter argues against it. It is true that in the
contract entered into between the parties the seller agreed that the
ownership of the books shall remain with it until the purchase price shall
have been fully paid, but such stipulation cannot make the seller liable in
case of loss not only because such was agreed merely to secure the
performance by the buyer of his obligation but in the very contract it was
expressly agreed that the "loss or damage to the books after delivery to the
buyer shall be borne by the buyer." Any such stipulation is sanctioned by
Article 1504 of our Civil Code, which in part provides:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership
in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery.
Neither can appellant find comfort in the claim that since the books were
destroyed by fire without any fault on his part he should be relieved from
the resultant obligation under the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event. This is
because this rule only holds true when the obligation consists in the
delivery of a determinate thing and there is no stipulation holding him liable
even in case of fortuitous event. Here these qualifications are not present.
The obligation does not refer to a determinate thing, but is pecuniary in
nature, and the obligor bound himself to assume the loss after the delivery
of the goods to him. In other words, the obligor agreed to assume any risk
concerning the goods from the time of their delivery, which is an exception
to the rule provided for in Article 1262 of our Civil Code.
Appellant likewise contends that the court a quo erred in sentencing him to
pay attorney's fees. This is merely the result of a misapprehension for what
the court a quo ordered appellant to pay is not 25% of the amount due as

attorney's fees, but as liquidated damages, which is in line with an express

stipulation of the contract. We believe, however, that the appellant should
not be made to pay any damages because his denial to pay the balance of
the account is not due to bad faith.
WHEREFORE, the decision appealed from is modified by eliminating that
portion which refers to liquidated damages. No costs.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9954

March 22, 1915

CARLOS DE LIZARDI, administrator of the estate of Lim

Jocsing, plaintiff-appellee,
vs.
F.M. YAPTICO, defendant-appellant.
P. E. del Rosario for appellant.
Aitken and DeSelms for appellee.
TORRES, J.:
Appeal filed through bill of exceptions by counsel for the defendant from the
judgment of January 30, 1913, whereby the Honorable Adolph Wislizenus,
judge, sentenced him to pay to the plaintiff the sum of P10,320, with legal
interest at the rate of 6 per cent a years from the date of the filing of the
complaint, and the costs.
On June 5, 1913, counsel for Carlos de Lizardi, administrator of the
property of the deceased Lim Jocsing, appointed in the proceedings for the
settlement of his intestate estate, filed a complaint in writing in the Court of
First Instance of Cebu alleging; That on October 13, 1912, said Lim
Jocsing, then living, placed on board the steamerBais, lying at Malitbog,
Leyte, a certain quantity of abaca valued at P15,000, consigned to the
defendant F.M. Yaptico to be sold in Cebu, Lim Jocsing insuring said abaca

for the sum of P15,000 with an insurance company whose agent in Cebu
was the defendant himself and paying the premium on the insurance policy;
that on or about October 15, 1912, by reason of the wrecking of the said
steamer Bais in its voyage to Cebu, Lim Jocsing perished in the sea and at
the same time all the abaca he had on board was lost; that the defendant
Yaptico collected the insurance, amounting to P15,000 and appropriated
the sum to his own use, refusing to return it to the plaintiff; wherefore,
judgment is prayed against the defendant by sentencing him to pay the
sum of P15,000 to the plaintiff administrator of the property of Lim Jocsing.
In his answer the defendant F.M. Yaptico admitted as a fact that Lim
Jocsing had delivered for him and loaded on board the steamer Bais a
certain quantity of abaca valued at P10,320, and under an express contract
made between him and Lim Jocsing the abaca the latter delivered on board
the Bais became the property of Yaptico; he also admitted that said
shipment of abaca had been insured in his own name by the defendant,
who paid the corresponding premium; that this abaca was lost as a
consequence of the wrecking of the said steamer, on which occasion the
said Lim Jocsing perished; that he likewise admitted the fact of having
collected the insurance on the abaca; but he denied that said insurance
belonged to him Jocsing, and furthermore denied all other allegations in the
complaint not specifically admitted in his answer.
Under date of October 20, 1913 defendant filed a motion asking leave to
amend the first paragraph of his answer, because the value of the abaca
loaded by Lim Jocsing upon the steamer Bais, as billed to the defendant,
was only P9,460, but was insured for P10,320. This motion was denied by
the court, as the facts set forth in the amendment might be the object of
proof on trial.
After trial and examination of the evidence adduced by both parties, the
court found that the abaca loaded by Lim Jocsing on the steamer Bais on
October 13, 1912, was his property, wherefore it rendered the decision
above mentioned. Defendant excepted thereto and in writing asked for a
reopening of the case and moved for a new trial. This motion was denied
with exception on the part of the appellant, who presented his bill of
exceptions, which was approved and forwarded to the clerk of this court.
There is no question whatsoever as to the facts. Manuela Perez Lim
Jocsing, a Chinese merchant of the town of Malitbog, Leyte, secured from

the firm of F.M. Yaptico, called also Chiat Seng, of Cebu, the opening of an
account current on its books and furthermore the extension to him of a
credit of P15,000 to be employed in the purchase of abaca and copra, this
credits to be guaranteed by all his business (Exhibit B, PP. 60, 61). On
October 9, 1912, the Chinaman Manuel telegraphed several times to the
Yaptico firm asking it to send him one of its steamers, with money and
certain goods he had ordered that same day (Exhibit 16, p. 47; Exhibit 18,
p. 48; Exhibit 19, p. 52, Exhibit 22, p. 55; and Exhibit 23, p. 57); wherefore
Yaptico sent the steamer Bais to Malitbog, carrying 850 sacks of rice and
other goods the value whereof amounted to P7,127, and also the sum of
P4,000 in cash consigned to the said Chinaman Lim Jocsing (Exhibit C, p.
62).
Having received the goods and the money sent by the defendant, said Lim
Jocsing in his turn on October 13, 1912, loaded upon the Bais 430 piculs of
abaca consigned to the defendant in Cebu, which abaca at the rate of P22
a picul was worth P9,460, and this amount was charged to the defendant,
while it was also credited on the account current of Lim Jocsing, as
appears from the extract of accounts entered on page 46 of the record.
Aside from the consignment of abaca, copra was also loaded upon the said
steamer, and these articles of merchandise were insured at P15,000 for
and in the name of Chiat Seng that is, the defendant Yaptico, in two
insurance companies, whose agent in Cebu was defendant himself (Exhibit
14, p. 45).
It is an indisputable fact that the defendant Yaptico collected the sum of
P10,320, the insurance on 430 piculs of abaca at the rate of P24, a picul,
which sum he retains in his possession on the ground that the abaca
insured and lost through the wrecking of the said steamer belonged to him.
We have therefore to decided who was to owner of the abaca carried on
board the Bais when it was wrecked, and who is entitled to collect the
insurances on that abaca.
The question resolves itself into an interpretation of the contract entered
into between the parties (Exhibit B, PP. 60 and 61 of the record), which
gave rise to the commercial relations between Manuela Perez Lim Jocsing
of Malitbog, Leyte, and the firm of F.M. Yaptico of Cebu., This contract,
which is written in Chinese characters, was executed about the years 1909

by the said Lim Jocsing in favor of the firm F.M. Yaptico, or Chiat Seng, and
by virtue thereof the defendant opened for him in its books an account
current and at the same time extended to him a credit of P15,000 to be
employed in the purchase of abaca and copra, which was his principal
business in the Island of Leyte, Jim Jocsing guaranteeing said credit with
the business he had established.
In the said contract appears the stipulation, among other things, that all the
abaca and copra which Lim Jocsing might secure should to be delivered to
the defendant Yaptico and the value thereof should be credited on the
shipper's account, said Lim Jocsing obligating himself to ship these article
only Yaptico's steamers and to pay the latter the freight charge set forth in
the contract. Lim Jocsing bound himself to send and deliver to Yaptico at
least 10,000 piculs of abaca annually, but no quantity of copra was fixed,
and if the abaca secured did not amount to 10,000 piculs he would pay the
difference, and he obligated himself to pay to the defendant a commission
of 20 centavos for each picul sent; but the warehouse charges, fire
insurance, and other expenses the abaca might occasion while it was
stored in Cebu would be for the account of the shipper Lim Jocsing. IN the
forth paragraph it was agreed that whenever Yaptico should send a
steamer to Lim Jocsing to get the abaca and copra he would also furnish
the latter money and merchandise in value approximating the amount of
abaca and copra delivered. The fifth paragraph of the contract reads
literally: "The abaca and copra that I may deliver to be received on board
by his agent shall be for the account of Yaptico,. except in case I should
otherwise expressly provide in writing."
In the remaining paragraph it was agreed how the account should be
liquidated and the debt paid to Yaptico.
Plaintiff claims that all the abaca and copra delivered and loaded upon
Yaptico's steamer and sent to him in Cebu belonged to Lim Jocsing, who
forwarded them in order that the defendant might sell them on commission,
not only because the Yaptico firm is a commission firm and this kind of
transactions form a large part of its business, but also from the context of
the said contract (Exhibit B) it appears that Lim Jocsing could pay a
commission of 20 centavos to Yaptico for each picul of abaca or copra sent
to the latter; that these articles of merchandise should be shipped only in
the defendant's steamers at the freight rates stipulated; that furthermore
said Lim Jocsing obligated himself to bear the expenses of storage,

insurance, etc., upon the goods while they were stored in Cebu; and
therefore the defendant Yaptico had on various occasions telegraphed to
Lim Jocsing in Malitbog the price quoted for abaca and copra in the Cebu
market and at other times communicated to him by telegraph the sales of
his abaca or copra, giving the grade of the article, the selling price and the
buyer's name (Exhibit 16, p.47; Exhibit 17, p.49; Exhibit 20, p. 50; and
Exhibit 25, p. 53).
Finally, the plaintiff Lizardi produced in evidence various documents he had
found among the papers belonging to the deceased Lim Jocsing, some of
which are invoices for goods sent him by the defendant Yaptico; various
extracts from Lim Jocsing's account current, which under the contract
(Exhibit B) the defendant sent him monthly, in which extract Lim Jocsing is
credited with the value of the sales of copra and abaca (Exhibit 6, 7, 8, and
12, ); some statements of sale of abaca sent to Lim Jocsing by the
defendant showing he quantity, grade, price, and buyer's name (Exhibits 9,
10, and 11). All these documents are drawn up in Chinese, but heir
corresponding translations into Spanish are attached are attached to the
originals. In the said statement of sale it appears that Lim Jocsing paid the
expenses of the abaca sold in Cebu, consisting of freight charges, drying,
insurance, internal-revenue tax, and defendant's commission, expenses
that by the terms of the contract (Exhibit B) Lim Jocsing was obligated to
meet.
It is now alleged by the plaintiff that in view of these facts the conclusions is
inevitable that the abaca which Lim Jocsing sent to the defendant Yaptico
for sale on commission did not become the latter's property, but continued
to belong to the said Lim Jocsing and the trial; court so held.
Defendant maintains that by the clear and explicit terms of the fifth
paragraph of the contract (Exhibit B) it is understood without any effort
whatsoever that all abaca shipped and delivered on board his steamers
became his property, unless Lim Jocsing expressly provided otherwise in
writing. It cannot be denied that Lim Jocsing did not expressly provided in
writing for the equipment of the abaca that he delivered on board the
steamer Bais on October 13, 1912, according to the agreement. he merely
delivered it to the steamer's supercargo, without providing in writing for the
disposition of the abaca in a special manner under the terms of the
contract.

The witness Benito Tan Unchuan, who examined the Spanish translation of
the contract Exhibit B, at the request of plaintiff's counsel, affirmed that it is
faithful and exact. The fifth paragraph of this contract sets forth in a clear
and positive manner, without leaving room for any reasonable doubt, that
the intention of the contracting parties was that the abaca and copra which
should be delivered and received on board the defendant's steamers would
be on account that is to say, on account and at the risk of Yaptico,
unless Lim Jocsing otherwise expressly provided in writing. It is clear that
the merchandise which was shipped on defendant's account and ta his risk
would be in his charge and under his responsibility, because once received
it became his property; and in case of loss, as has occurred, the defendant
would be the only one prejudiced as the owner thereof.
Upon this understanding of the contract the parties had dealing during the
three of four years they maintained commercial relations, for the manager
of the Yaptico firm asserted that whenever Lim Jocsing had abaca or copra
to forward, he sent him money and goods for a value equal to that of said
merchandise which Lim Jocsing was to receive and the latter obligated
were made with money of the defendant, and for these reasons he had an
agent, named Go Tiu, who at the same time was the supercargo of the
shipper Lim Jocsing (sten. notes, p. 23). In fact, the insurance policies,
Exhibit E, F, and G, demonstrate that in the months of February, April, and
May, 1912, Lim Jocsing insured in his own name certain shipments of
abaca and copra forwarded to the defendant in Cebu to be sold by him and
these must have been acquired by Lim Jocsing with his own money; but
the other policies, Exhibit H and I, must undoubtedly have been for the
insurance of the abaca and copra collected and acquired with money of the
defendant, for they were issued in favor of Chiat Seng that is, the
defendant.
It is, therefore fact proven that, under clause 5 of the contract before
mentioned, under the terms of which the contracting parties acted, the
abaca and copra delivered by Lim Jocsing on board the steamer Bias for
the defendant became the latter's property, nor can the plaintiff be
permitted to maintain a different theory from that which clearly and
indisputably appears in the fifth paragraph of the contract, Exhibit B, for it is
provided in article 1281 of the Civil Code that:
When the terms of an obligation stated in a written contract are clear
and leave no room for doubt, the plaint meaning of the wording

thereof should be observed, it not being lawful to include therein

things and cases different from those which the interested parties
intended to contract for. (Azarraga vs. Rodriquez, 9 Phil. Rep., 637.)
Persons who enter into a contract which is not contrary to law, to
good morals, or to public policy are bound by the terms of their
agreement. (Santos vs. Marquez, 13 Phil., Rep. 207; Alcantara vs.
Alinea, 8 Phil. Rep., 11; Icaza vs. Perz, 5 Phil. Rep., 166.)
Moreland, in the first paragraph it was stipulated that, when Lim Jocsing
sent his products to the defendant the latter was to credit the former's
account with the value of the abaca and copra forwarded. Hence it follows
that upon receiving the goods and crediting Lim Jocsing's account current
with the value thereof the defendant made himself the real owner of the
merchandise delivered and therefore had a right to protect his interests by
insuring it as he did. If the abaca lost in the wrecking of the Bais had not
been insured, upon whom would the loss fallen? Under the paragraph of
the contract cited, Lim Jocsing would not have lost the value of the abaca
because upon receipt of the goods on board the steamer the defendant
had to place the value thereof to the credit of Lim Jocsing, and whether the
shipment arrived at Cebu or not its value was already entered on his
account, wherefore the one who would have suffered the loss in that case
would have been the defendant; but as he insured it in his name and on his
account to provided against accident and as the abaca belonged to him, it
is just that he collect the value of the insurance thereon.
True it is that Lim Jocsing was on board the Bais with the abaca in question
when it was lost; and that when he was going in person to Cebu with his
abaca, the shipment was his own money; but it is not proven in the record
that Lim Jocsing had disposed by letter of the abaca which disappeared,
the value whereof was Yaptico's and therefore once delivered on board the
steamer to the supercargo, according to the fifth paragraph of the contract,
the abaca should be regarded as sold to Yaptico and as belonging to him,
with the value of the insurance.
This theory is in conformity with the terms of the contract and is
reasonable, for when the defendant extended credit to Lim Jocsing he
furnished him in cash the sum of P15,000 and, furthermore, obligated
himself to send money and goods of approximately the same value as the
abaca and copra he should receive from Lim Jocsing, so that the latter

might secure more, thus furnishing in advance the value of the goods which
Lim Jocsing obligated himself to deliver to the party who was furnishing him
in advance the value of the shipment, and these goods, consisting of copra
and abaca, forwarded and delivered to the agent of the defendant, became
the reimbursement or payment of the sum advanced; wherefore it is only
just that the defendant, as owner of the money or of the value of the
shipment, should be regarded as the owner thereof and consequently of
the insurance, the premiums on which he had paid.
Plaintiff argues that it is ridiculous and in conflict with the other clauses of
the said contract, Exhibit B, to suppose that the abaca and copra shipped
on the defendant's steamer would be his property and yet that Lim Jocsing
should be obligated to pay the freight charges, insurance, storage, and
other expenses, for if Lim Jocsing had not been the owner of said article
then he would not have been obligated to bear those expenses.
The fact that Lim Jocsing had to reimburse these expenses does not
conflict with the property rights of the defendant Yaptico in the abaca and
copra received from Lim Jocsing, taking into consideration that the latter
was doing business with capital or money of the defendant Yaptico, without
payment of any premium or interest; wherefore nothing is more just than
that the creditor should benefits from the freight charges on his boats, from
the commission on the sales, and that he be indemnified for the expenses
of storage, fire insurance, and so forth, because the defendant advanced
his money without getting any profits from the operations of buying up
abaca copra carried on by the said Lim Jocsing.
The circumstances that the defendant Yaptico kept Lim Jocsing informed of
the price of the abaca and copra sold in Cebu, even of he goods delivered
on board to the supercargo, does not indicate ownership rights, but merely
the interest Lim Jocsing had in knowing the price of the sales, since the
result of the latter would appear in the account current and the amount the
sale produced would be deducted from the sum advanced to him by the
defendant.
As owner of the abaca the defendant Yaptico was interested in its
preservation and had the right to insure it against any risk or accident
prejudicial to his interests, and since the loss of the abaca would have
injured Yaptico as the owner of both the fiber and the money with which it
was acquired, nothing is more just than that when it was insured the

insurance should accrue to his benefits and in payment of the value of the
abaca, which he had already advanced.
For these reason the judgment appealed from must be reversed, and we
should absolved the defendant Yaptico from the complaint, as we hereby
do, without special finding as to costs. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17527

April 30, 1963

SUN BROTHERS APPLIANCES, INC., plaintiff-appellee,

vs.
DAMASO P. PEREZ, defendant-appellant.
Dominador A. Alafriz for plaintiff-appellee.
Robert P. Halili & Associates for defendant-appellant.
LABRADOR, J.:
This is an action brought by the plaintiff to recover from defendant the sum
of P1,404.00, the price of one Admiral Air Conditioner, Slim Style, Model
100-23-1 H.P., Serial No. 2978828, delivered to the defendant by the
plaintiff under a conditional sale agreement entered into by and between
them on December 6, 1958, in the City of Manila, plus stipulated interest of
12% from January 6, 1959 until the same is fully paid, together with P200
as attorney's fees, and costs. Defendant answered that the air-conditioner
in question was delivered to him installed in the office of the defendant
located at Gardiner street, Lucena, Quezon on December 14, 1959 but that
said air-conditioner was totally destroyed by fire which occured in the
morning of December 28, 1958 at 2 o'clock. Defendant further claimed that
the machine was destroyed by force majeure, not by the defendant's fault
and/or negligence and, therefore, he is not liable under the conditional sale,
Annex "A", which the parties, plaintiff and defendant, had executed.

At the trial of the case the parties entered into a stipulation of facts, the
most important provision of which are as follows:
1. That defendant admits that on December 6, 1958, he entered into
a Conditional Sale Agreement with the plaintiff, copy of which contract
is attached to the complaint as Annex "A";
2. That pursuant to the terms and conditions provided in the said
Conditional Sale Agreement the plaintiff delivered to the defendant (1)
Admiral Air Conditioner Slim Style Model 100-23-1 HP, Serial No.
2978828 with the contract price of P1,678.00 and that said Air
Conditioner was received by the defendant;
3. That defendant made a down payment of P274.00 on December 6,
1958, pursuant to the terms and conditions of the Conditional Sales
Agreement; and Air Conditioner was installed by the plaintiff, thru its
representative, at Lucena, Quezon;
4. That said Air Conditioner was burned on December 27,1958, on or
about 2:00 o'clock in the morning, however, defendant will present
evidence to show that the Air Conditioner subject of the complaint
herein was burned where it was installed by the plaintiff;
5. That defendant, after making down payment of P274.00 to the
plaintiff, did not pay any of the monthly installments of P78.00
thereafter, leaving a balance of P1,404.00 in favor of the plaintiff;
6. That after defendant presents evidence to prove that the Air
Conditioner was burned where it was installed by the plaintiff to the
satisfaction of this Honorable Court, the parties agree to leave to this
Honorable Court the resolution of the issue whether loss by fire
extinguishes the obligation of the defendant to pay to the plaintiff the
subsequent installments of the initial payment;"
The Court of First Instance before which the action was brought rendered
judgment condemning the defendant to pay the plaintiff the amount
demanded in the complaint, including interest and attorney's fees. The
defendant has appealed the case directly to us as involving only a question
of law.

The conditional sale executed by the plaintiff and defendant contained the
following stipulation:
"2. Title to said property shall vest in the Buyer only upon full payment
of the entire account as herein provided, and only upon complete
performance of all the other conditions herein specified:
"3. The Buyer shall keep said property in good condition and properly
protected against the elements, at his/its address above-stated, and
undertakes that if said property or any part thereof be lost, damaged,
or destroyed for any causes, he shall suffer such loss, or repair such
damage, it being distinctly understood and agreed that said property
remains at Buyer's risk after delivery;"
The Court below declared that as the buyer would be liable in case of loss
for any cause, such buyer assumed liability even in case of loss by
fortuitous event; so it rendered judgment declaring defendant liable for the
sun demanded together with interest and attorney's fees.
Wherefore, the parties respectfully pray that the foregoing stipulation of
facts be admitted and approved by this Honorable Court, without prejudice
to the parties adducing other evidence to prove their case not covered by
this stipulation of facts. 1wph1.t
In this Court on appeal defendant-appellant argues that inasmuch as the
title to the property sold shall vest in the buyer only upon full payment of the
price, the loss of the vendor; that the phrase "for any cause" used in
paragraph 2 of the agreement may not be interpreted to include a fortuitous
event absolutely beyond the control of the appellant; and that although
Article 1174 of the new Civil Code recognizes the exception on fortuitous
event when the parties to a contract expressly so stipulate, the phrase "for
any cause" used in the contract did not indicate any intention of the parties
that the loss of the unit due to fortuitous event is to be included within the
responsibility of the vendor.
In answer to the arguments above set forth the appellee argues that the
stipulation in the contract of sale whereby the buyer shall be liable for any
loss, damage or destruction for any cause, is not contrary to law, morals or
public policy and is specifically authorized to be stipulated upon between
the parties by Article 1174 of the Civil Code; that the risk of loss was
expressly stipulated to be undertaken by the buyer, even if the title to the

property sold remained, also by stipulation, in the vendor; that the terms
"any cause" used in the agreement includes a fortuitous event, and an
express stipulation making the vendee responsible in such case is valid.
We believe that the agreement making the buyer responsible for any loss
whatsoever, fortuitous or otherwise, even if the title to the property remains
in the vendor, is neither contrary to law, nor to morals or public policy. We
have held such stipulation to be legal in the case of Government vs.
Amechazurra, 10 Phil. 637 (Tolentino, Commentaries on the Civil Code,
Vol. IV, p. 120)and declare it to be based on a sound public policy in
conditional sales according to American decisions.
"The weight of authority support the rule that where goods are sold and
delivered to the vendor under an agreement that the title is to remain in the
vendor until payment, the loss or destruction of the property while in the
possession of the vendor before payment, without his fault, does not relieve
him from the obligation to pay the price, and he, therefore, suffers the loss.
In accord with this rule are the provisions of the Uniform Sales Act and the
Uniform Conditional Sales Act. There are several basis for this rule. First is
the absolute and unconditional nature of the vendee's promise to pay for
the goods. The promise is nowise dependent upon the transfer of the
absolute title. Second is the fact that the vendor has fully performed his
contract and has nothing further to do except receive payment, and the
vendee received what he bargained for when he obtained the right of
possession and use of the goods and the right to acquire title upon making
full payment of the price. A third basis advanced for the rule is the policy of
providing an incentive to care properly for the goods, they being exclusively
under the control and dominion of the vendee." (47 Am. Jur., pp. 81-82).
We, therefore, agree with the trial court that the loss by fire or fortuitous
event was expressly agreed in the contract to be borne by the buyer and
this express agreement is not contrary to law but sanctioned by it as well as
by the demands of sound, public policy. The judgment of the court below is
affirmed, with costs against defendant-appellant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-10056 December 24, 1915

SONG FO & CO., plaintiff-appellant,
vs.
MANUEL ORIA, defendant-appellant.
Gutierrez Repide and Socias for plaintiff.
Sanz, Opisso and Luzuriaga for defendant.

CARSON, J.:
Song Fo & Co., the original plaintiff in this action, sold a launch to Oria, the
defendant, for P16,500, payable in quarterly installments of P1,000,
together with interest at the rate of ten per centum per annum. The launch
was delivered to Oria in Manila, but was shipwrecked and became a total
loss while en route to Oria's place of business in Samar. No part of the
purchase price has ever been paid and this action was instituted for the
recovery of the total amount of the purchase price with interest thereon until
paid. The trial court gave judgment in favor of the plaintiff for P6,000 and
interest, that being the amount of the unpaid installments due under the
express terms of the contract at the date of the institution of the action; but
declined to enter judgment for the balance of the indebtedness on the
ground that, under the express terms of the contract, it was not due and
payable when the complaint was filed.
From this judgment both parties appealed, and the record is now before us
on their duly perfected bills of exceptions.
The defendant's contentions on this appeal are substantially limited to his
claim that under the terms of the deed of sale of the launch, Song Fo & Co.
had obligated themselves to insure the launch, and since they had failed
and neglected to do so, they themselves should suffer the loss resulting
from the shipwreck of the launch without insurance.1awphil.net
It cannot be denied that if the contract of sale did in fact impose on Song
Fo & Co. an imperative obligation to insure the launch, which under the
terms of the contract was mortgaged to secure the payment of the
purchase price, and if Song Fo & Co. did in fact fail and neglect to insure
the launch in compliance with the terms of the contract, Oria would be

entitled to have the amount of his indebtedness reduced by the amount of

the insurance which he would have been entitled to have applied to the
payment of the purchase price had Song Fo & Co. faithfully complied with
the terms of the contract.
But an examination of the terms of the deed of sale of the launch discloses
that Song Fo & Co. did not expressly obligated themselves to insure and
keep the launch insured, although it is true that the contract expressly
authorized them to insure it in their own name.
Counsel for Oria contend, however, that although the language of the
contract did not in express terms obligate Song Fo & Co. to insure the
launch, it was their duty so to do under all the circumstances, and it is
insisted that they should not be permitted to evade the loss resulting from
their negligence in the performance of that duty.
The contract expressly authorized Song Fo & Co. to insure the launch in
their own name and to charge the estimated cost of the premiums with
interest at the rate of ten per centum to Oria, and there is much force in the
contention of counsel for Oria at least to extent that under all the
circumstances, it was the duty of Song Fo & Co. to insure the vessel if they
could. But there is nothing in the record which would justify a holding that
Song Fo & Co. obligated themselves to insure the launch at all events.
There is nothing in the written contract, examined in the light of all the
surrounding circumstances, which justifies an inference that there was any
thought in the mind of either of the parties that the vendor of the launch
would himself insure her against loss or damage during the long period
allowed for the payment of the purchase price; yet that substantially would
be the effect of the effect of the assumption of an obligation of an obligation
to insure and keep her insured at all events. On the contrary, the language
of the contract, which authorized Song Fo & Co. to take out insurance in
their own name and to charge the amount of the premium to Oria, when
read in the light of the transaction of which it was a part, imposed at most, a
duty upon Song Fo & Co. to take such reasonable measures looking to the
insurance of the vessel as might be required of a prudent man in
connection with the insurance of his own property.
The undisputed evidence of record shows that Song Fo & Co. did in fact
make a bona fide attempt to insure the launch, and to that end did all in
their power and adopted all available means which could reasonably be

required of them. It appears, however, that partly due to the dangerous

nature of the coast of Samar along which Oria desired to operate the
launch, and partly due to the some lack of confidence in the character and
reputation of the owner of the property for which application for insurance
was made, the local agents of the marine insurance companies declined to
accept the risk without previous communication within their foreign
principals: and the launch was lost before they could ascertain the wishes
of these principals as to the execution of an insurance contract. It appears
also that Oria, who had exclusive control of the operation of the vessel,
sent her from Manila to Samar on the trip in the course of which she was
shipwrecked, well knowing that she had not yet been insured: and that
Song Fo & Co. had no power to interfere, or to keep her in port pending
their application for insurance. Indeed it is evident that under the terms of
the deed of sale, they would not have had the right to detain the vessel in a
place of safety, against the wishes of Oria, had the insurance agents
definitely declined their insurance proposals.
Under these circumstances we are of opinion and so hold that Song Fo &
Co. were in no wise responsible under the contract for the loss of the
launch without insurance and that the contentions of the defendant in this
regard furnish no defense to the action against him for the purchase agreed
upon in the deed of sale.
Coming now to examine the contentions of the plaintiffs on their appeal, we
think that the trial judge erred in declining to render judgment in their favor
for the total amount of the purchase price of the launch. He appears to
have relied upon the provisions of article 1125 of the Civil Code but to have
overlooked the co-related provisions of article 1129 of the same code.
These articles are as follows:itc-a1f
1125. Obligations, the fulfillment of which has been fixed for a certain
day, are exigible only when such day arrives.
By a certain day is understood one which shall necessarily arrive,
even when the date of arrival is unknown.
When the uncertainty consists in the arrival or non-arrival of the day,
then the obligations is conditional and shall be controlled by the
proceeding section.

1129. The debtor shall lose all right to profit by the term:
1. When, after the obligation has been contracted, it appears that he
is insolvent, unless he gives security for the debt.
2. When he does not give to the creditor the security he is bound to
give.
3. When by his own acts, he acts, he has reduced such security after
giving it, or when it disappears through an unforeseen event (vis
major), unless it is immediately substituted by a new one equally
safe.
The security for the payment of the purchase price of the launch itself
having disappeared as a result of an unforeseen event (vis major), and no
other security having been substituted therefor, the plaintiffs were clearly
entitled to recover judgment not only for the installments of the
indebtedness due under the terms of the contract at the time when the
instituted their action, but also for all installments which, but for the loss of
the vessel had not matured at that time.
The judgment entered in the court below should be modified by substituting
for so much thereof as provides for the recovery by the plaintiff of P6,000
together with interest of November 1911, a provision for the recovery of
P16,500 together with interest at the rate of ten per centum per annum,
from the 15th day of November, 1911, and thus modified, the judgment
appealed from should be affirmed with the costs of this instance against the
appellant. So ordered.
SECOND DIVISION
JAIME D. ANG,
Petitioner,

G.R. No. 177874

Present:

- versus -

QUISUMBING, J., Chairperson,

CARPIO MORALES,
TINGA,
VELASCO, JR., and

BRION, JJ.
COURT OF APPEALS AND
BRUNO SOLEDAD,
Respondents.

Promulgated:
September 29, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

Under a car-swapping scheme, respondent Bruno Soledad (Soledad)
sold his Mitsubishi GSR sedan 1982 model to petitioner Jaime Ang (Ang)
by Deed of Absolute Sale [1] dated July 28, 1992. For his part, Ang conveyed
to Soledad his Mitsubishi Lancer model 1988, also by Deed of Absolute
Sale[2] of even date. As Angs car was of a later model, Soledad paid him an
additional P55,000.00.
Ang, a buyer and seller of used vehicles, later offered the Mitsubishi
GSR for sale through Far Eastern Motors, a second-hand auto display
center. The vehicle was eventually sold to a certain Paul Bugash (Bugash)
for P225,000.00, by Deed of Absolute Sale [3] dated August 14, 1992. Before
the deed could be registered in Bugashs name, however, the vehicle was
seized by virtue of a writ of replevin [4] dated January 26, 1993 issued by the
Cebu City Regional Trial Court (RTC), Branch 21 in Civil Case No. CEB13503, BA Finance Corporation vs. Ronaldo and Patricia Panes, on
account of the alleged failure of Ronaldo Panes, the owner of the vehicle
prior to Soledad, to pay the mortgage debt[5] constituted thereon.
To secure the release of the vehicle, Ang paid BA Finance the amount
of P62,038.47[6] on March 23, 1993. Soledad refused to reimburse the said
amount, despite repeated demands, drawing Ang to charge him for Estafa

with abuse of confidence before the Office of the City

Prosecutor, Cebu City. By Resolution[7] of July 15, 1993, the City
Prosecutors Office dismissed the complaint for insufficiency of evidence,
drawing Ang to file on November 9, 1993 the first[8] of three successive
complaints for damages against Soledad before the RTC of Cebu City
where it was docketed as Civil Case No. Ceb-14883.
Branch 19 of the Cebu City RTC, by Order [9] dated May 4, 1995,
dismissed Civil Case No. Ceb-14883 for failure to submit the controversy to
barangay conciliation.
Ang thereafter secured a certification to file action and again filed a
complaint for damages,[10] docketed as Ceb-17871, with the RTC of Cebu
City, Branch 14 which dismissed it, by Order [11] dated March 27, 1996, on
the ground that the amount involved is not within its jurisdiction.
Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in
Cities (MTCC) a complaint,[12] docketed as R-36630, the subject of the
instant petition.
After trial, the MTCC dismissed the complaint on the ground of
prescription, vz:
It appearing that the Deed of Sale to plaintiff o[f]
subject vehicle was dated and executed on 28 July 1992,
the complaint before the Barangay terminated 21
September 1995 per Certification to File Action attached
to the Complaint, and this case eventually was filed with
this Court on 15 July 1996, this action has already
beenbarred since more than six (6) months
elapsed from the delivery of the subject vehicle to the
plaintiff buyer to the filing of this action, pursuant to
the aforequoted Article 1571.[13] (Emphasis and
underscoring supplied)

His motion for reconsideration having been denied, Ang appealed to the
RTC, Branch 7 of which affirmed the dismissal of the complaint, albeit it
rendered judgment in favor of Ang for the sake of justice and equity, and in
consonance with the salutary principle of non-enrichment at anothers
expense. The RTC ratiocinated:
xxxx
[I]t was error for the Court to rely on Art. 1571 of the
Civil Code to declare the action as having prescribed,
since the action is not one for the enforcement of the
warranty against hidden defects. Moreover, Villostas vs.
Court of Appeals declared that the six-month prescriptive
period for a redhibitory action applies only to implied
warranties. There is here an express warranty. If at all,
what applies is Art. 1144 of the Civil Code, the general
law on prescription, which states, inter alia, that
actions upon a written contract prescribes in ten (10)
years [Engineering & Machinery Corporation vs. Court of
Appeals, G.R. No. 52267, January 24, 1996].
More appropriate to the discussion would be defendants
warranty against eviction, which he explicitly made in the
Deed of Absolute Sale: I hereby covenant my absolute
ownership to (sic) the above-described property and the
same is free from all liens and encumbrances and I will
defend the same from all claims or any claim whatsoever
Still the Court finds that plaintiff cannot recover
under this warranty. There is no showing of
compliance with the requisites.
xxxx
Nonetheless, for the sake of justice and equity, and in
consonance with the salutary principle of nonenrichment at anothers expense, defendant should
reimburse plaintiff the P62,038.47 which on March 23,
1993 he paid BA Finance Corporation to release the

mortgage on the car. (Emphasis and underscoring

supplied)[14]
The RTC thus disposed as follows:

Wherefore, judgment is rendered directing defendant to

pay plaintiff P62,038.47, the amount the latter paid BA
Finance Corporation to release the mortgage on the
vehicle, with interest at the legal rate computed
from March 23, 1993. Except for this, the judgment in the
decision of the trial court, dated October 8,
2001 dismissing
the
claims
of
plaintiff
is
[15]
affirmed. (Underscoring supplied)
Soledads Motion for Reconsideration was denied by Order [16] of December
12, 2002, hence, he elevated the case to the Court of Appeals, Cebu City.
The appellate court, by the challenged Decision [17] of August 30,
2006, noting the sole issue to be resolved whether the RTC erred in
directing Soledad to pay Ang the amount the latter paid to BA Finance plus
legal interest, held that, following Goodyear Phil., Inc. v. Anthony Sy,[18] Ang
cannot anymore seek refuge under the Civil Code provisions granting
award of damages for breach of warranty against eviction for the simple
fact that three years and ten months have lapsed from the execution of the
deed of sale in his favor prior to the filing of the instant complaint. It further
held:
It bears to stress that the deed of absolute
sale was executed on July 28, 1992, and the instant
complaint dated May 15, 1996 was received by the
MTCC onJuly 15, 1996.
While it is true that someone unjustly enriched
himself at the expense of herein respondent, we
agree with petitioner (Soledad) that it is not he.

The appellate court accordingly reversed the RTC decision and

denied the petition.
By Resolution[19] of April 25, 2007, the appellate court denied Angs
motion for reconsideration, it further noting that when Ang settled the
mortgage debt to BA Finance, he did so voluntarily in order to resell the
vehicle, hence, Soledad did not benefit from it as he was unaware of the
mortgage constituted on the vehicle by the previous owner.
The appellate court went on to hold that Soledad has nothing to do
with the transaction anymore; his obligation ended when he delivered the
subject vehicle to the respondent upon the perfection of the contract of
sale. And it reiterated its ruling that the action, being one arising from
breach of warranty, had prescribed, it having been filed beyond the 6month prescriptive period.
The appellate court brushed aside Angs contention that Soledad was
the proximate cause of the loss due to the latters failure to thoroughly
examine and verify the registration and ownership of the previous owner of
the vehicle, given that Ang is engaged in the business of buying and selling
second-hand vehicles and is therefore expected to be cautious in
protecting his rights under the circumstances.
Hence, the present recourse petition for review on certiorari, Ang
maintaining that his cause of action had not yet prescribed when he filed
the complaint and he should not be blamed for paying the mortgage debt.
To Ang, the ruling in Goodyear v. Sy is not applicable to this case,
there being an express warranty in the herein subject Deed of Absolute
Sale and, therefore, the action based thereon prescribes in ten (10) years
following Engineering & Machinery Corp. v. CA[20] which held that where
there is an express warranty in the contract, the prescriptive period is the
one specified in the contract or, in the absence thereof, the general rule on
rescission of contract.

Ang likewise maintains that he should not be blamed for paying BA

Finance and should thus be entitled to reimbursement and damages for,
followingCarrascoso, Jr. v. Court of Appeals,[21] in case of breach of
an express warranty, the seller is liable for damages provided that certain
requisites are met which he insists are present in the case at bar.
The resolution of the sole issue of whether the complaint had
prescribed hinges on a determination of what kind of warranty is provided
in the Deed of Absolute Sale subject of the present case.
A warranty is a statement or representation made by the seller of
goods, contemporaneously and as part of the contract of sale, having
reference to the character, quality or title of the goods, and by which he
promises or undertakes to insure that certain facts are or shall be as he
then represents them.[22]
Warranties by the seller may be express or implied. Art. 1546 of the
Civil Code defines express warranty as follows:
Art. 1546. Any affirmation of fact or any
promise by the seller relating to the thing is an
express warranty if the natural tendency of such
affirmation or promise is to induce the buyer to
purchase the same, and if the buyer purchases
the thing relying thereon. No affirmation of the
value of the thing, nor any statement purporting to
be a statement of the sellers opinion only, shall be
construed as a warranty, unless the seller made
such affirmation or statement as an expert and it
was relied upon by the buyer. (Emphasis and
underscoring supplied)
On the other hand, an implied warranty is that which the law derives
by application or inference from the nature of the transaction or the relative
situation or circumstances of the parties, irrespective of any intention of the
seller to create it.[23] Among the implied warranty provisions of the Civil

Code are: as to the sellers title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and
against eviction (Art. 1548).
The earlier cited ruling in Engineering & Machinery Corp. states that
the prescriptive period for instituting actions based on a breach
of express warranty is that specified in the contract, and in the absence of
such period, the general rule on rescission of contract, which is four years
(Article 1389, Civil Code).

As for actions based on breach of implied warranty, the prescriptive

period is, under Art. 1571 (warranty against hidden defects of or
encumbrances upon the thing sold) and Art. 1548 (warranty against
eviction), six months from the date of delivery of the thing sold.
The following provision of the Deed of Absolute Sale reflecting the
kind of warranty made by Soledad reads:
xxxx
I hereby covenant my absolute ownership to
(sic) the above-described property and the same
is free from all liens and encumbrances and I
will defend the same from all claims or any
claim whatsoever; will save the vendee from any
suit by the government of the Republic of the
Philippines.
x x x x (Emphasis supplied)
In declaring that he owned and had clean title to the vehicle at the
time the Deed of Absolute Sale was forged, Soledad gave

an implied warranty of title. In pledging that he will defend the same from
all claims or any claim whatsoever [and] will save the vendee from any suit
by the government of the Republic of thePhilippines, Soledad gave a
warranty against eviction.
Given Angs business of buying and selling used vehicles, he could
not have merely relied on Soledads affirmation that the car was free from
liens and encumbrances. He was expected to have thoroughly verified the
cars registration and related documents.
Since what Soledad, as seller, gave was an implied warranty, the
prescriptive period to file a breach thereof is six months after the delivery of
the vehicle, following Art. 1571. But even if the date of filing of the action is
reckoned from the date petitioner instituted his first complaint for damages
on November 9, 1993, and not on July 15, 1996 when he filed the
complaint subject of the present petition, the action just the same had
prescribed, it having been filed 16 months after July 28, 1992, the date of
delivery of the vehicle.
On the merits of his complaint for damages, even if Ang invokes breach of
warranty against eviction as inferred from the second part of the earlierquoted provision of the Deed of Absolute Sale, the following essential
requisites for such breach, vz:
A breach of this warranty requires the
concurrence of the following circumstances:
(1) The purchaser has been deprived of the
whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right
prior to the sale made by the vendor; and
(4) The vendor has been summoned and
made co-defendant in the suit for eviction at the
instance of the vendee.

In the absence of these requisites, a breach of

the warranty against eviction under Article 1547
cannot be declared. [24] (Emphasis supplied),
have not been met. For one, there is no judgment which deprived Ang of
the vehicle. For another, there was no suit for eviction in which Soledad as
seller was impleaded as co-defendant at the instance of the vendee.
Finally, even under the principle of solutio indebiti which the RTC
applied, Ang cannot recover from Soledad the amount he paid BA
Finance. For, as the appellate court observed, Ang settled the mortgage
debt on his own volition under the supposition that he would resell the
car. It turned out
that he did pay BA Finance in order to avoid returning the payment made
by the ultimate buyer Bugash. It need not be stressed that Soledad did not
benefit from Angs paying BA Finance, he not being the one who mortgaged
the vehicle, hence, did not benefit from the proceeds thereof.
WHEREFORE, the
disquisition, DENIED.

petition

is,

in

light

of

the

foregoing

SO ORDERED.

FIRST DIVISION
[G.R. No. 151821. April 14, 2004]
BANK OF THE PHILIPPINE ISLANDS, as Successor-in-Interest of BPI
Investment Corporation, petitioner, vs. ALS MANAGEMENT &
DEVELOPMENT CORP., respondent.
DECISION

PANGANIBAN, J.:
Factual findings of the lower courts are entitled to great respect, but
may be reviewed if they do not conform to law and to the evidence on
record. In the case at bar, a meticulous review of the facts compels us to
modify the award granted by the Court of Appeals.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
seeking to set aside the November 24, 2000 Decision [2] and the January 9,
2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
25781. The assailed Decision disposed as follows:
WHEREFORE, premises considered, the assailed decision is
hereby AFFIRMED in toto and the instant appeal DISMISSED.[4]
The assailed Resolution denied reconsideration.
The Facts
The facts of the case are narrated by the appellate court as follows:
On July 29, 1985, [petitioner] BPI Investment Corporation filed a complaint
for a Sum of Money against ALS Management and Development
Corporation, alleging inter alia that on July 22, 1983, [petitioner] and
[respondent] executed at Makati, Metro Manila a Deed of Sale for one (1)
unfurnished condominium unit of the Twin Towers Condominium located at
Ayala Avenue, corner Apartment Ridge Street, Makati, Metro Manila
designated as Unit E-4A comprising of 271 squares [sic] meters more or
less, together with parking stalls identified as G022 and G-63. The
Condominium Certificate of Title No. 4800 of the Registry of Deeds for
Makati, Metro Manila was issued after the execution of the said Deed of
Sale. [Petitioner] advanced the amount ofP26,300.45 for the expenses in
causing the issuance and registration of the Condominium Certificate of
Title. Under the penultimate paragraph of the Deed of Sale, it is stipulated
that the VENDEE [respondent] shall pay all the expenses for the
preparation and registration of this Deed of Sale and such other documents
as may be necessary for the issuance of the corresponding Condominium
Certificate of Title. After the [petitioner] complied with its obligations under
the said Deed of Sale, [respondent], notwithstanding demands made by

[petitioner], failed and refused to pay [petitioner] its legitimate advances for
the expenses mentioned above without any valid, legal or justifiable
reason.
In its Answer with Compulsory Counterclaim, [respondent] averred among
others that it has just and valid reasons for refusing to pay [petitioners]
legal claims. In clear and direct contravention of Section 25 of Presidential
Decree No. 957 which provides that No fee except those required for the
registration of the deed of sale in the Registry of Deeds shall be collected
for the issuance of such title, the [petitioner] has jacked-up or increased the
amount of its alleged advances for the issuance and registration of the
Condominium Certificate of Title in the name of the [respondent], by
including therein charges which should not be collected from buyers of
condominium units. [Petitioner] made and disseminated brochures and
other sales propaganda in and before May 1980, which made warranties as
to the facilities, improvements, infrastructures or other forms of
development of the condominium units (known as The Twin Towers) it was
offering for sale to the public, which included the following:
The Twin Towers is destined to reflect condominium living at its very best.
While the twin tower design and its unusual height will make the project the
only one of its kind in the Philippines, the human scale and proportion [are]
carefully maintained.
To be sure, modern conveniences are available as in the installation of an
intercom system and a closed-circuit TV monitor through which residents
from their apartments can see their guests down at the lobby call station.
Some of the features of each typical apartment unit are: x x x A bar x x x
Three toilets with baths x x x.
The penthouse units are privileged with the provision of an all-around
balcony. x x x
[Respondent] further averred that [petitioner] represented to the
[respondent] that the condominium unit will be delivered completed and
ready for occupancy not later than December 31, 1981.[Respondent] relied
solely upon the descriptions and warranties contained in the
aforementioned brochures and other sales propaganda materials when
[respondent] agreed to buy Unit E-4A of the Twin Tower(s) for the hefty sum

of P2,048,900.00 considering that the Twin Towers was then yet to be

built. In contravention of [petitioners] warranties and of good engineering
practices, the condominium unit purchased by [respondent] suffered from
the following defects and/or deficiencies:
1. The clearance in the walkway at the balcony is not sufficient for passage;
2. The anodized aluminum used in the door and windows were damaged;
3. The kitchen counter tops/splashboard suffered from cracks and were
mis-cut and misaligned;
4. The partition between living and masters bedroom was unpainted and it
had no access for maintenance due to aluminum fixed glass cover;
5. The varifold divider, including the bar and counter top cabinet were not
installed;
6. The toilets had no tiles;
7. No closed circuit TV was installed;
8. Rainwater leaks inside or into the condominium unit. [5]
Respondents Answer prayed that judgment be rendered ordering
[petitioner] to correct such defects/deficiencies in the condominium unit,
[6]
and that the following reliefs be granted:
1. The sum of P40,000.00 plus legal interest thereon from the date of extrajudicial demand, representing the amount spent by the defendant for the
completion works it had undertaken on the premises.
2. The sum of U.S.$6,678.65 (or its equivalent in the Philippine currency)
representing the unearned rental of the premises which the defendant did
not realize by reason of the late delivery to him of the condominium unit;
3. Twenty-four percent (24%) interest per annum on the agreed one (1)
year advance rental and one (1) month deposit (totaling U.S.$15,785.00)
corresponding to the period January 1, 1982 to June 17, 1982, which
[petitioner] would have earned had he deposited the said amount in a bank;

4. The sum of U.S.$1,214.30 per month, commencing from May 1, 1985,

which the [respondent] no longer earns as rental on the premises because
the lessee vacated the same by reason of defects and/or deficiencies;
5. The sum of P50,000.00 plus appearance fees of P300.00 per court
hearing, as attorneys fees;
6. Litigation expenses and costs of suit.[7]
On February 6, 1990, the trial court issued this judgment:
1. Ordering the [respondent] to pay [petitioner] the sum of P26,300.45, with
legal interest from the filing of the complaint up to full payment thereof,
representing the amount spent for the registration of the title to the
condominium unit in [respondents] name;
2. Ordering [petitioner] to deliver, replace or correct at [petitioners]
exclusive expense/cost or appoint a licensed qualified contractor to do the
same on its behalf, the following defects/deficiencies in the condominium
unit owned by the [respondent]:
a) KITCHEN
i) The sides of the kitchen sink covered with sealants as
well as miscut marble installed as filler at the right
side of the sink;
ii) Miscut marble installed on both sides of the side wall
above the gas range;
b) FOYERS
Water marks at the parquet flooring, near the main water
supply room;
c) MAIDS ROOM
Ceiling cut off about one (1) square foot in size and left
unfinished
d) DINING ROOM

i) Water damaged parquet up to about one (1) meter from

the wall underneath the open shelves and directly
behind the plant box;
ii) Plant box directly behind the dining room;
iii) The water damaged parquet flooring near the door of
the dining room to the passage way
e) MASTERS BEDROOM
i) Falling off paint layers at the bathroom wall behind the
bathtub/faucet along the passageway of the
masters bedroom;
ii) Falling off water-damaged plywood ceiling in the
masters bedroom bathroom;
iii) Grinders mark damage at the bathtub;
f) BALCONY WALKWAY
i) PVC pipes installed two (2) inches above floor level
causing water to accumulate;
ii) Cracks on level of wash out flooring;
iii) 14-inches passageway going to the open terrace not
sufficient as passageway;
iv) PVC pipe installed on the plant box water drained
directly on the balcony floor;
g) BALCONY (OPEN) TERRACE
i) Two (2) concrete cement measuring about 6 x 4 inches
with protruding live wires, purportedly lamp posts
which were not installed;
h) BOYS BEDROOM

i) Water mark on the parquet flooring due to water

seepage;
ii) Asphalt plastered at the exterior wall/floor joints to
prevent water seepage;
i) ANALOC FINISH of the aluminum frames of doors and
windows all around the condominium were painted with
dark gray paint to cover dents and scratches;
j) LIVING ROOM
Intercom equipment installed without the TV monitor;
k) STORAGE FACILITIES at the ground floor
3. Ordering [petitioner] to pay [respondent] the following:
a) The sum of P40,000.00 representing reimbursement for expenses
incurred for the materials/labor in installing walls/floor titles in 2 bathrooms
and bar counter cabinet.
b) The sum of P136,608.75, representing unearned income for the fivemonth period that the defendant had to suspend a lease contract over the
premises.
c) The sum of P27,321.75 per month for a period of twenty-one (21)
months (from May 1985 to January 1987), representing unearned income
when defendants lessee had to vacate the premises and condominium unit
remained vacant, all with legal interest from the filing of the counterclaim
until the same are fully paid.[8]
Ruling of the Court of Appeals
On appeal, after a thorough review and examination of the evidence on
record,[9] the CA found no basis for disbelieving what the trial court found
and arrived at.[10]
The appellate court sustained the trial courts finding that while
[petitioner] succeeded in proving its claim against the [respondent] for
expenses incurred in the registration of [the latters] title to the condominium

unit purchased, x x x for its part [respondent] in turn succeeded in

establishing an even bigger claim under its counterclaim. [11]
Hence, this Petition.[12]
The Issues
Petitioner raises the following issues for our consideration:
I. Whether or not the Honorable Court of Appeals erred in not
holding that the trial court had no jurisdiction over the respondents
counterclaims.
II. Whether or not the decision of the Court of Appeals is based on
misapprehension of facts and/or manifestly mistaken warranting a
review by this Honorable Court of the factual findings therein.
III. Whether or not the award of damages by the Honorable Court of
Appeals is conjectural warranting a review by this Honorable
Court of the factual findings therein.[13]
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Jurisdiction
Contending that it was the Housing and Land Use Regulatory Board
(HLURB) -- not the RTC -- that had jurisdiction over respondents
counterclaim, petitioner seeks to nullify the award of the trial court.
Promulgated on July 12, 1976, PD No. 957 -- otherwise known as The
Subdivision and Condominium Buyers Protective Decree -- provides that
the National Housing Authority (NHA) shall have exclusive authority to
regulate the real estate trade and business. [14] Promulgated later on April 2,
1978, was PD No. 1344 entitled Empowering the National Housing
Authority to Issue Writs of Execution in the Enforcement of Its Decisions
Under Presidential Decree No. 957. It expanded the jurisdiction of the NHA
as follows:

SECTION 1. In the exercise of its function to regulate the real estate trade
and business and in addition to its powers provided for in Presidential
Decree No. 957, the National Housing Authority shall have exclusive
jurisdiction to hear and decide cases of the following nature:
A. Unsound real estate business practices;
B. Claims involving refund and any other claims filed by subdivision lot or
condominium unit buyer against the project owner, developer, dealer,
broker or salesman; and
C. Cases involving specific performance of contractual and statutory
obligations filed by buyers of subdivision lot or condominium unit against
the owner, developer, broker or salesman. (Italics ours.)
On February 7, 1981, by virtue of Executive Order No. 648, the
regulatory functions of the NHA were transferred to the Human Settlements
Regulatory Commission (HSRC).Section 8 thereof provides:
SECTION 8. Transfer of Functions. -The regulatory functions of the
National Housing Authority pursuant to Presidential Decree Nos. 957, 1216,
1344 and other related laws are hereby transferred to the Commission
(Human Settlements Regulatory Commission). x x x. Among these
regulatory functions are: 1) Regulation of the real estate trade and
business; x x x 11) Hear and decide cases of unsound real estate business
practices; claims involving refund filed against project owners, developers,
dealers, brokers, or salesmen; and cases of specific performance.
Pursuant to Executive Order No. 90 dated December 17, 1986, the
functions of the HSRC were transferred to the HLURB.
As mandated by PD No. 957, the jurisdiction of the HLURB is
encompassing. Hence, we said in Estate Developers and Investors
Corporation v. Sarte:[15]
x x x. While PD 957 was designed to meet the need basically to protect lot
buyers from the fraudulent manipulations of unscrupulous subdivision
owners, sellers and operators, the exclusive jurisdiction vested in the NHA
is broad and general -to regulate the real estate trade and business in
accordance with the provisions of said law.

Furthermore, the jurisdiction of the HLURB over cases enumerated in

Section 1 of PD No. 1344 is exclusive. Thus, we have ruled that the board
has sole jurisdiction in a complaint of specific performance for the delivery
of a certificate of title to a buyer of a subdivision lot; [16] for claims of refund
regardless of whether the sale is perfected or not; [17]and for determining
whether there is a perfected contract of sale. [18]
In Solid Homes v. Payawal,[19] we declared that the NHA had the
competence to award damages as part of the exclusive power conferred
upon it -- the power to hear and decide claims involving refund and any
other claims filed by subdivision lot or condominium unit buyers against the
project owner, developer, dealer, broker or salesman. [20]
Clearly then, respondents counterclaim -- being one for specific
performance (correction of defects/deficiencies in the condominium unit)
and damages -- falls under the jurisdiction of the HLURB as provided by
Section 1 of PD No. 1344.
The Applicability of Estoppel
The general rule is that any decision rendered without jurisdiction is a
total nullity and may be struck down at any time, even on appeal before this
Court.[21] Indeed, the question of jurisdiction may be raised at any time,
provided that such action would not result in the mockery of the tenets of
fair play.[22] As an exception to the rule, the issue may not be raised if the
party is barred by estoppel.[23]
In the present case, petitioner proceeded with the trial, and only after a
judgment unfavorable to it did it raise the issue of jurisdiction. Thus, it may
no longer deny the trial courts jurisdiction, for estoppel bars it from doing
so. This Court cannot countenance the inconsistent postures petitioner has
adopted by attacking the jurisdiction of the regular court to which it has
voluntarily submitted.[24]
The Court frowns upon the undesirable practice of submitting ones case
for decision, and then accepting the judgment only if favorable, but
attacking it for lack of jurisdiction if it is not. [25]
We also find petitioner guilty of estoppel by laches for failing to raise the
question of jurisdiction earlier. From the time that respondent filed its
counterclaim on November 8, 1985, the former could have raised such

issue, but failed or neglected to do so. It was only upon filing its appellants
brief[26] with the CA on May 27, 1991, that petitioner raised the issue of
jurisdiction for the first time.
In Tijam v. Sibonghanoy,[27] we declared that the failure to raise the
question of jurisdiction at an earlier stage barred the party from questioning
it later. Applying the rule on estoppel by laches, we explained as follows:
A party may be estopped or barred from raising a question in different ways
and for different reasons. Thus, we speak of estoppel in pais, of estoppe[l]
by deed or by record, and of estoppel bylaches.
Laches, in general sense, is failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the
party entitled to assert it either has abandoned it or declined to assert it.
The doctrine of laches or of stale demands is based upon grounds of public
policy which requires, for the peace of society, the discouragement of stale
claims and, unlike the statute of limitations, is not a mere question of time
but is principally a question of the inequity or unfairness of permitting a right
or claim to be enforced or asserted.[28]
Thus, we struck down the defense of lack of jurisdiction, since the
appellant therein failed to raise the question at an earlier stage. It did so
only after an adverse decision had been rendered.
We further declared that if we were to sanction the said appellants
conduct, we would in effect be declaring as useless all the proceedings had
in the present case since it was commenced x x x and compel the
judgment creditors to go up their Calvary once more. The inequity and
unfairness of this is not only patent but revolting. [29]
Applicable herein is our ruling in Gonzaga v. Court of Appeals,[30] in
which we said:
Public policy dictates that this Court must strongly condemn any doubledealing by parties who are disposed to trifle with the courts by deliberately
taking inconsistent positions, in utter disregard of the elementary principles
of justice and good faith. There is no denying that, in this case, petitioners

never raised the issue of jurisdiction throughout the entire proceedings in

the trial court.Instead, they voluntarily and willingly submitted themselves to
the jurisdiction of said court. It is now too late in the day for them to
repudiate the jurisdiction they were invoking all along. [31]
Second and Third Issues:
Appreciation of Facts
It is readily apparent that petitioner is raising issues of fact that have
been ruled upon by the RTC and sustained by the CA. The factual findings
of lower courts are generally binding upon this Court and will not be
disturbed on appeal, especially when both sets of findings are the same.
[32]
Nevertheless, this rule has certain exceptions, [33] as when those findings
are not supported by the evidence on record.
We have carefully scrutinized the records of this case and found reason
to modify the award to conform to law and the evidence. We thus address
the arguments of petitionerseriatim.
Warranties and Representations
in the Brochure
The brochure that was disseminated indicated features that would be
provided each condominium unit; and that, under Section 19 of PD No.
957, would form part of the sales warranties of petitioner.[34] Respondent
relied on the brochure in its decision to purchase a unit. [35] Since the former
failed to deliver certain items stated therein, then there was a clear violation
of its warranties and representations.
The brochure says that [t]he particulars stated x x x as well as the
details and visuals shown x x x are intended to give a general idea of the
project to be undertaken, and as such, are not to be relied [upon] as
statements or representations of fact.[36] This general disclaimer should
apply only to the general concept of the project that petitioner aptly
characterizes thus:
x x x [D]estined to reflect condominium living at its very best and its design
x x x will make the project the only one of its kind in the Philippines. [37]

This disclaimer, however, should not apply to the features and the
amenities that the brochure promised to provide each condominium
unit. Petitioner was thus in breach when it failed to deliver a closed-circuit
TV monitor through which residents from their apartments can see their
guests x x x.[38]
Storage Facilities
The trial court erred, though, in requiring petitioner to provide storage
facilities on the ground floor, as the non-delivery had not been alleged in
respondents Answer with Counterclaim. [39]
It is elementary that a judgment must conform to and be supported by
both the pleadings and the evidence, and that it be in accordance with the
theory of the action on which the pleadings were framed and the case was
tried.[40] Indeed, issues in each case are limited to those presented in the
pleadings.[41]
We are aware that issues not alleged in the pleadings may still be
decided upon, if tried with the parties express or implied consent. [42] Trial
courts are not precluded from granting reliefs not specifically claimed in the
pleadings -- notwithstanding the absence of their amendment -- upon the
condition that evidence has been presented properly, with full opportunity
on the part of the opposing parties to support their respective contentions
and to refute each others evidence.[43] This exception is not present in the
case at bar.
Moreover, a cursory reading of the brochure shows that there is no
promise to provide individual storage facilities on the ground floor for each
condominium unit. The brochure reads: Storage facilities in the apartment
units and the ground floor.[44] Apparent from the letter of petitioner dated
June 18, 1982,[45] was its compliance with its promise of storage facilities on
the ground floor. In that letter, respondent was also informed that it may
course a reservation of those facilities through the building superintendent.
Damages for Delay in Delivery
It is undisputed that petitioner sent respondent a Contract to
Sell[46] declaring that the construction would be finished on or before
December 31, 1981.[47] The former delivered the condominium unit only in
June 1982;[48] thus, the latter claims that there was a delay in the delivery.

Because of this delay, the trial court ordered petitioner to pay damages
of P136,608.75 representing unearned income for the period that
respondent had to suspend a lease contract. We find a dearth of evidence
to support such award.
To recover actual damages, the amount of loss must not only be
capable of proof, but also be proven with a reasonable degree of certainty.
[49]
The lone evidence for this award was the self-serving testimony of
respondents witness that a lease contract had indeed been intended to
commence in January 1982, instead of the actual implementation on June
18, 1982.[50] Without any other evidence, we fail to see how the amount of
loss was proven with a reasonable degree of certainty.
Condominium Defects
The rule is that a partys case must be established through a
preponderance of evidence.[51] By such term of evidence is meant simply
evidence that is of greater weight, or is more convincing than that which is
offered in opposition to it.[52] Respondent was able to establish through its
witness testimony that the condominium unit suffered from defects. [53] This
testimony was confirmed by an inspection report [54] noted and signed by
petitioners representative, as well as by a commissioners report [55] prepared
after an ocular inspection by the clerk of court acting as a
commissioner. Furthermore, this conclusion is supported by the
circumstances that occurred during the lease period, as evidenced by the
complaint and the update letters[56] of respondents lessee.
Petitioners contention that the claim arising from the alleged defects
has already prescribed must fail for being raised for the first time only on
appeal.[57] Well-settled is the rule that issues not raised below cannot be
resolved on review in higher courts.[58]
We agree, however, that the lower courts erred in finding that there was
a defect in a portion of the balcony, which respondent alleges to be a
walkway x x x [that] is not sufficient for passage. [59] Petitioner was able to
prove, however, that the specifications thereof conformed to the building
plan.
Respondent contends that this portion should have been 65 to 80
centimeters wide, so that it would be sufficient as a passageway. [60] The
building plan[61] had not specified the width, however. Architect Leo Ramos

of W.V. Coscolluela & Associates, the architectural firm that prepared the
building plan, testified thus:
Q I am directing
condominium
measurement
measurement
plan?

your attention xxx to a certain portion in this

unit x x x it appears x x x [that] there is no
indicated therein, do you know why the
of said portion was not indicated in the building

A Normally, it is variable.
Q What do you mean by variable?
A It

depends on
construction.

the

actual

measurement

of

the

building

Q Could you please tell the Court, what x x x the purpose of the said
portion of the condominium unit [is]?
A It is used for watering the plants and the servicing of some
area[s].
Q How much measurement is made to affix the portion of watering
the plants?
A Approximately .50 [m].[62]
Respondent maintains that this portion should have been .80 meters (or
80 centimeters), similar to another area in the building plan that it offered
as Exhibit 2-A.[63] But an analysis of this plan reveals that the latter area has
a different width from that of the former.
It is readily apparent from the foregoing facts that the portion in
controversy was not intended to be a walkway. Thus, there was no
deviation from the building plan. Because it has not been shown that this
section was insufficient to serve the purpose for which it was intended, the
lower courts erred in considering it as defective.
Reimbursement of P40,000
for Completion Work

The lower courts did not err in ordering petitioner to correct the defects
in the condominium unit, but in requiring it to reimburse respondent in the
amount of P40,000 for completion work done.
Petitioner argues that the trial courts Decision encompassed the areas
beyond those alleged in respondents Answer.[64] This contention is not
convincing, because the allegations in the latter were broad enough to
cover all the defects in the condominium unit. In fact, respondent prayed
that judgment be rendered ordering [petitioner] to correct such defects x x x
in the condominium unit as may be prove[d] during the trial. [65]
Petitioner further challenges the award of P40,000 as reimbursement
for completion work done by respondent, on the ground that this claim was
not proven during the trial.The latters evidence partook of a witness
testimony[66] and of a demand letter [67] sent to petitioner requesting
reimbursement for completion work done. Petitioner argues that
respondent should have presented receipts to support the expenses. [68]
We agree with petitioner. While respondent may have suffered
pecuniary losses for completion work done, it failed to establish with
reasonable certainty the actual amount spent. The award of actual
damages cannot be based on the allegation of a witness without any
tangible document, such as receipts or other documentary proofs to
support such claim.[69] In determining actual damages, courts cannot rely on
mere assertions, speculations, conjectures or guesswork, but must depend
on competent proof and on the best obtainable evidence of the actual
amount of loss.[70]
Unearned Lease Income
Respondent entered into a lease contract with Advanced Micro Device
on May 18, 1982, for the period June 18, 1982 to June 17, 1983, with
option to renew.[71] The lease -- which was for an agreed monthly rental
of P17,000 -- was renewed for a period ending May 1, 1985, when
Advanced Micro Device vacated the unit. [72] On the basis of these facts, the
trial court ordered petitioner to pay damages by way of unrealized income
for twenty-one months or from May 1, 1985, until January 1987 -- when
respondent decided to move into the condominium unit, which was
unoccupied by then.

Despite the defects of the condominium unit, a lessee stayed there for
almost three years.[73] The damages claimed by respondent is based on the
rent that it might have earned, had Advanced Micro Device chosen to stay
and renew the lease. Such claim is highly speculative, considering that
respondent failed to adduce evidence that the unit had been offered for
lease to others, but that there were no takers because of the defects
therein. Speculative damages are too remote to be included in an accurate
estimate thereof.[74] Absent any credible proof of the amount of actual
damage sustained, the Court cannot rely on speculations as to its
existence and amount.[75]
We recognize, however, that respondent suffered damages when its
lessee vacated the condominium unit on May 1, 1985, because of the
defects therein. Respondents are thus entitled to temperate damages.
[76]
Under the circumstances, the amount equivalent to three monthly rentals
of P17,000 -- or a total of P51,000 -- would be reasonable.
WHEREFORE, this Petition is PARTLY GRANTED, and the assailed
Decision and Resolution of the Court of Appeals MODIFIED, as follows:
Hereby DELETED is the requirement on the part of petitioner to (1)
deliver storage facilities on the ground floor; (2) pay P136,608.75 for
unearned income for the five-month period that the lease contract was
allegedly suspended; (3) correct the alleged passageway in the balcony;
(4) pay P40,000.00 as reimbursement for completion work done by
respondent; (5) pay P27,321.75 per month for a period of twenty-one
months for the alleged unearned income during the period when the
condominium unit remained vacant.Petitioner, however, is ORDERED to
pay P51,000 as temperate damages for the termination of the lease
contract because of the defects in the condominium unit. All other awards
are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-24256

January 21, 1926

PHILIPPINE MANUFACTURING CO., plaintiff-appellant,

vs.
GO JOCCO, defendant-appellee.
Araneta and Zaragoza for appellant.
Camus, Delgado and recto for appellee.
OSTRAND, J.:

On October 25, 1922, the plaintiff and the defendant entered into the
following contract (Exhibit A):
CONTRACT
MANILA, October 25, 1922
Messrs. GO JOCCO
Manila, P.I.
As brokers duly authorized, we have on this date sold by order and for the
accounts of yourselves to Messrs. Philippine Manufacturing Co., Inc.,
Manila P.I., 500 tons of coconut oil for the price of twenty-seven and a half
centavos per kilo ex tanque.
The delivery shall be made within 35 days, that is, between November 1st
and December 5, 1922, inclusive.
The purchaser shall pay the vendor the total amount of this contract on the
15th of November, 1922.
Should the purchaser take the oil a few days before November 15, 1922,
the purchaser shall pay to the vendor all the amount of the aforesaid
contract two days before delivery.
Should the purchaser fail to take the oil until the 5th day of December,
1922, said purchaser shall pay the vendor as storage the sum of P50 for
each successive day.
The state or class of the oil: Not more than 5% F.F.A.
Conformes:
PHIL., MF'G. Co. (Sgd.) GO JOCCO
Vendee
(Sgd.) "S.W.MASONVendor

BERMUDEZ & BAUTISTA

By (Sgd.) BERMUDEZ
Brokers
The oil purchased was stored in the defendant's tanks Nos. 5 and 7 and,
previously to the closing of the contract, the plaintiff's secretary and
chemist, Mr. S.W. Mason, took samples of the oil from said tanks for
analysis. The testimony is uncontradicted that on November 15, 1922, the
defendant, in conformity with the terms of the contract Exhibit A,
endeavored to collect the price of the oil from the plaintiff, but was told by
Mr. Mason that it would first be necessary to measure the contents of the
tanks and to again examine the oil. On the same day, Mason went to the
defendant's establishment and took new samples of the oil form the tanks
or chemical analysis. He thereupon ordered his men to close the tanks by
placing padlocks on the valves, he retaining the keys. After having done so,
he advised the defendant that he would analyze the samples and that if the
result was satisfactory, payment would be made at once, and later in the
day the plaintiff gave the defendant its check for P137,500, the full amount
of the contract purchase price.
On November 17, 1922, the plaintiff sold the oil by contract in writing to the
Portsmouth Cotton Oil Refining Corporation at the price of $7.50, United
States currency, per 100 pounds, C.I.F., Norfolk, Virginia, the contract
containing the following provision as to the quality of the oil:
Coconut Oil bases 5 per cent free fatty acid, Maximum 7 per cent free
fatty acid shall be fair average of the season of the country in which it
is pressed, and shall be sold on basis 5 per cent free fatty acid, one
per cent moisture and impurities; provided, however, that any oil
which exceed 5 per cent free fatty acid but does not exceed 7 per
cent free fatty acid, shall not be rejected but shall be reduced in price
one half of one per cent for each one per cent excess acidity over 5
per cent, fractions in proportions.
In the morning of November 27, 1922, the oil was drawn from the tanks by
the plaintiff and brought aboard the tank steamer Acme for shipment to the
Portsmouth Cotton Oil Refining Corporation at Norfolk, Virginia, together
with other oil manufactured by the plaintiff and by the Philippine Vegetable
Oil Company, the whole shipment amounting to approximately 901 long

tons. Mr. Mason was present when the oil was removed from the
defendant's tanks.
Mr. Ericksen of the firm of Morton & Ericksen, marine and cargo surveyors,
surveyed the ship's tank No. 2 in which the shipment in question was
carried. In his certificate of survey, Exhibit B, he states among other things:
Temperatures were taken and samples drawn of oil loaded into No. 2
tank, port and starboard sections Steamship Acme from Philippine
Manufacturing Co.'s storage tank A, Philippine National Oil's Storage
Tanks Nos. 5 and 7, and from tank lighter Quinan which were loaded
form P.V.O. Storage Tank No. 21. All these samples were submitted
to Bureau of Science, Manila, for determination of specific gravity and
weight per cu. ft.
Samples of oil were also drawn from vessel's tank, both sections,
after all oil was loaded on board and submitted to Bureau of Science
for analysis. Samples of this oil drawn form vessel's tanks will be
forwarded to Firemans's Fund Insurance Co., San Francisco.
On the arrival of the Acme at Norfolk, the Portsmouth Cotton Oil Refining
Corporation refused to accept the oil on the ground that it was
contaminated with cottonseed oil and, in accordance with the contract
between the parties, the matter was submitted to the New York Produce
Exchange Arbitration Committee for arbitration. Samples alleged to have
been taken from the shipment were tested by the Bureau of Chemistry of
the New York Produce Exchange though the so-called Halpen test, and
were found to be contaminated with cottonseed oil. As to the proceedings
before the Arbitration Committee, Mr. Berry, the plaintiff's vice-president
and treasurer, who at that time was in New York, makes the following
statement in a letter to the defendant dated July 6, 1923:
The matter was discussed, each side given an opportunity to present
its arguments and examine the other's witnesses and statements.
However, the purchaser produced a certificate of the Bureau of
Science of Manila showing that an examination made of the oil taken
from your tanks showed the presence of Kapok Seed Oil. This
certificate, showing the condition of the oil before it was loaded into
the deep tanks of the vessels, appeared to convince the committee
that the purchaser's claim was justified. The committee called us back

again the next day and asked whether we would be willing to agree
with the purchaser to receive the rejection of the oil and replace it
with oil of good tender or what objections we could possibly have to
granting the allowance asked for. There was every indication shown
by the committee that its decision would decidedly be in favor of the
purchaser. The writer had been is close touch with the market and
knew just what could be done with the oil if the decision was against
us. Realizing that the committee would not rendered a decision in our
favor, the writer made a proposition to the purchaser in the presence
of the arbitration committee to buy back the oil from him on the basis
of 8 7/8 per pound c.i.f. The purchase was not enthusiastic about
releasing the oil of this price as he figured he was practically certain
of a decision of the committee which would grant him an allowance of
1 cent gold per pound, but the committee insisted that the accept the
proposition advanced, which was considered fair. However, the
committee decide that in addition to the purchase price of the oil the
purchaser was entitled to all of the expenses incurred up to that time.
As soon as the matter was closed the oil was placed in the hands of
Zimmermann Alderson Carr Company for sale and sale was effected
two days later to Messrs. Proctor & Gamble Company on the basis of
9 1/4 tank cars Cincinnati, which was approximately the equivalent
of $.0894 Norfolk. The sale was closed and the oil disposed of in this
manner.
The contract of sale to Proctor & Gamble Co. reads as follows:
New York, March 19, 1923.
PHILIPPINE MANUFACTURING COMPANY
Manila, P.I. Sellers
THE PROCTOR & GAMBLE COMPANY
Cincinnati, Ohio Buyers
GENTLEMEN: Confirming telephone conversation, we confirm
having sold to-day to:
Purchaser: The Proctor & Gamble Company.
For account of: Philippine Manufacturing Company.

Article; Two million twenty-nine thousand four hundred

(2,029,400) lbs. Manila Cocoanut Oil, as per sample submitted
and approximately equal to Stillwell & Glading's analysis of
February 3d, 1923.
Price: All at a price of nine and one-quarter (91/4) cents per lb.,
cost and freight Cincinnati, Ohio.
Shipment: Immediate from Norfolk, Va.
Weights: actual weight of oil in tank cars as shown by Public
Weighmaster's certificates.
Terms and conditions: Net cash in exchange for bill of lading,
payable in New York City funds in United States Gold, or its
equivalent in currency. Sellers not responsible for contingencies
beyond their control.
Brokerage: To be paid by sellers.
ZIMMERMANN ALDERSON CARR CO.
(Sgd.) R.N.BALL
This confirmation is made in triplicate, one copy being sent to
the sellers, one to the buyers, and one retained on file in this
office. Kindly sign one copy of this confirmation and return to us
for exchange with other party to the trade for completion of their
files.
Accepted: PHILIPPINE MFG. COMPANY
(Sgd.) BRYCE LE JENNE
Sellers Agt.
Accepted: THE PROCTOR & GAMBLE CO.
(Sgd.) F.M. BARNEY
Buyers
Though the price at which the oil was sold to Proctor & Gamble
Co. was considerably higher than the price agreed upon with
the Portsmouth Cotton Oil Refining Corporation, the expenses

for rend of cars, transportation, brokerage, etc., greatly

exceeded the differences and the plaintiff maintains that it
suffered a loss of P21,263.04.
The first intimation given the defendant of dissatisfaction with
the quality of the oil purchased from him was the following letter
from the plaintiff:
February 3, 1923.
Mr. GO JOCCO
212-214 Rosario
Manila, P.I.
DEAR SIR: We have received a cable from the United States
stating that the oil delivered to us by you contained kapok or
cottonseed oil. The buyers in the United States are claiming
damages. We will call upon you to stand any loss or damage
due to this cause. Official samples taken from tanks at your
plant show the presence of kapok or cottonseed oil as analyzed
by the Bureau of Science.
Very truly yours,
PHILIPPINE MANUFACTURING COMPANY
By (Sgd.) S.W. MASON
Secretary
After some more fruitless correspondence, the present action was brought
on December 27, 1923, the plaintiff alleging the principal facts hereinbefore
set forth and asking damages in the sum of P21,263.04, Philippine
currency. The defendant answered with a general denial and set up as
special defenses that under the provisions of paragraph 1 of article 336 of
the Code of Commerce, the plaintiff had no right of action having examined
the oil at the time of its delivery; that conceding without admitting that the
oil was defective in quality, the plaintiff had lost its right of action by failing
to make its claim within thirty days immediately following the delivery; that
the loss plaintiff alleged to have suffered was due to its own fault; that the
coconut oil sold and delivered to the plaintiff by the defendant was of the
quality called for in the contract of sale; and that the oil having been

delivered to, tested, accepted and paid for by the plaintiff, the respective
obligations of the parties were then and there terminated and extinguished.
The trial of the case consumed considerable time and the case was not
decided until March 15, 1925. In its decision absolving the defendant from
the complaint and from which the plaintiff appeals, the Court of First
Instance, after a fairly exhaustive discussion of the evidence, found in
substance that it had not been sufficiently established that the oil
purchased from the defendant was contaminated at the time of its delivery
to the plaintiff; that upon the evidence there was reason to believe that
certain samples analyzed by the Bureau of Science and found positive for
kapok oil were not taken from the oil sold by the defendant and that such
contamination as there may have been of the oil shipped to the Portsmouth
Cotton Oil Refining Corporation, was likely to have been caused through
the impurity of the oil manufactured by the plaintiff itself, in view of the fact
that said plaintiff was partly engaged in the manufacture of kapok oil while
the defendant neither dealt in nor manufactured such oil. The court further
found that the plaintiff, before closing its contract with the defendant,
examined the oil to its satisfaction and that therefore the first paragraph of
article 336 of the Code of Commerce was applicable to the case and the
plaintiff's cause of action extinguished.
The findings of the court below are vigorously assailed by counsel for the
appellant, but after a careful examination of the record, we are not
prepared to say that the court erred in its appreciation of the evidence to
such an extent as to justify a reversal of its decision. In addition to direct
evidence adduced by the defendant, there are also several circumstances
which, in our opinion, have not been very satisfactorily explained by the
plaintiff and which tend to support the conclusion of the trial court and to
cast doubt on the correctness of the plaintiff's contention that the oil bought
from the defendant was contaminated by an admixture of kapok oil.
But assuming that such contamination existed, we would still be of the
opinion that the plaintiff has established no cause of action. The
comparatively small quantity of kapok oil alleged to have been mixed with
the coconut oil can only be regarded as an impurity and did not change the
essential character of the merchandise; this is sufficiently shown by the fact
that it after analysis was sold by the plaintiff to Proctor & Gamble Co. as
"Manila Coconut Oil" and at the current New York price for that article. In
contradistinction to the contract between the plaintiff and the Portsmouth

Cotton Oil Refining Corporation, the contract of sale between the plaintiff
and the defendant contains no express warranty against impurities aside
from the stipulation that not more than 5 per cent of free fatty acid would be
allowed. This is, therefore, not an action on an express warranty.
In the absence of an examination of the oil by the plaintiff, the latter might
have had a right of action on an implied warranty under article 336 of the
Code of Commerce, which in part reads as follows:
A purchaser who, at the time of receiving the merchandise, fully
examines the same, shall not have a right of action against the
vendor, alleging a defect in the quantity or quality of the merchandise.
As it appears that the plaintiff examined the oil to his satisfaction, it is
evident that he cannot now rely on this article for his cause of action.
The result will be the same if we regard impurity complained of as a latent
defect which could not be discovered by an ordinary examination. The case
would then come under article 342 of the Code of Commerce, but the right
of action mentioned in that article was extinguished by the failure of the
plaintiff to present his claim within thirty days from the delivery of the
merchandise (Kelly Springfield Road Roller Co. vs. Sideco, 16 Phil., 345;
Government of the Philippine Islands vs. Inchausti & Co., 24 Phil., 315).
There being no express warranty and the plaintiff having lost its right of
action on the implied warranties as to the quality of the merchandise, it
must now necessarily base its cause of action on fraud under article 344 of
the Code which reads as follows:
Commercial sales shall not be rescinded by reason of lesion; but the
contracting party who acted with malice or fraud, in the contract or in
its fulfillment, shall indemnify for loss and damage, without prejudice
to the criminal action which may be proper.
The law on the subject of frauds with reference to sales is practically the
same in this jurisdiction as in the United States and we may, therefore,
freely refer to American authorities in that connection. Anson, in his work on
Contracts, 7th edition, at page 165, defines fraud as "a false representation
of fact, made with a a knowledge of its falsehood, or recklessly, without
belief in its truth, with the intention that it should be acted upon b the
complaining party, and actually inducing him to act upon it." Concealment

of the truth is sometimes equivalent to false representations, and it is here

argued that the defendant in not disclosing the existence of kapok oil in the
oil sold to the plaintiff, was guilty of fraud. In regard to such concealments
or nondisclosures, Mechem, citing authorities, says:
The concealment which shall amount to a false representation is that
only which may properly be designated as active. Mere passive nondisclosure which, as been seen, may suffice to vitiate a
contract uberrimae fidei, will not be sufficient here; 'there must be an
active attempt to deceive, either by a statement which is false or
which is true so far as tit goes, but is accompanied with such a
suppression of facts as to convey a misleading impression. "There
must be some active misstatement of fact, or, at all events, such a
partial and fragmentary statement of fact as that the withholding of
that which is not stated makes that which is stated absolutely
false." . . . (Mechem on Sales, section 868.)
As will be seen, an intention to deceive or mislea the other party to his
prejudice is an essential element of the fraud here considered. It is true that
such an intention may sometimes be imputed upon the principle that the
party must be presumed to intend the necessary consequences of his own
acts or conduct, and need not necessarily be proven by direct evidence,
but in the present case we search that record in vain for anything from
which that intention may be definitely inferred. We may, perhaps, surmise
that had there been any mixing of other oils with the coconut oil in question,
the defendant would have been aware thereof, but there is nothing from
which we can presume that the defendant intended to mislead the plaintiff
to his prejudice. It is not disputed that at the time the sale was made, kapok
oil commanded a higher price in the market than did coconut oil and the
defendant may well have been under the impression that a slight admixture
of kapok oil did not substantially impair the general market value of the oil
purchased. Indeed, there is nothing in the evidence to show that for
ordinary purposes, the coconut oil suffered any material impairment in
value from the mixture and it is to be observed that the defendant was not
advised of the fact that the oil was sold to the Portsmouth Cotton Oil
Refining Corporation under an express warranty against impurities and
possibly for a special purpose. That it was still of good merchantable quality
clearly appears from the fact that it was bought by Proctor & Gamble Co. at
current market prices. And when it is further considered that the plaintiff,
before purchasing, was given full opportunity to examine the oil and

actually did so, it seems obvious that the evidence is not sufficient to
overcome the presumption of good faith and to establish fraud on the part
of the vendor. In commercial sales, the fact that the vendor does not
volunteer detailed statements of all he knows, whether important or not, in
regard to the goods sold by him, is not fraud per se.
The judgment appealed from is affirmed with the costs against the
appellant. So ordered.
SECOND DIVISION
JAIME GUINHAWA, G.R. No. 162822
Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
Promulgated:
PEOPLE OF THE PHILIPPINES,
Respondent. August 25, 2005
x--------------------------------------------------x
DECISION
CALLEJO, SR., J.:

Jaime Guinhawa was engaged in the business of selling brand new

motor vehicles, including Mitsubishi vans, under the business name of
Guinrox Motor Sales. His office and display room for cars were located
along Panganiban Avenue, Naga City. He employed Gil Azotea as his sales
manager.

On March 17, 1995, Guinhawa purchased a brand new Mitsubishi L300 Versa Van with Motor No. 4D56A-C8929 and Serial No. L069WQZJL07970 from the Union Motors Corporation (UMC) in Paco, Manila. The van
bore Plate No. DLK 406. Guinhawas driver, Leopoldo Olayan, drove the
van from Manila to Naga City. However, while the van was traveling along
the highway in Labo, Daet, Camarines Norte, Olayan suffered a heart
attack. The van went out of control, traversed the highway onto the
opposite lane, and was ditched into the canal parallel to the highway. [1] The
van was damaged, and the left front tire had to be replaced.
The incident was reported to the local police authorities and was
recorded in the police blotter.[2] The van was repaired and later offered for
sale in Guinhawas showroom.[3]
Sometime in October 1995, the spouses Ralph and Josephine Silo
wanted to buy a new van for their garment business; they purchased items
in Manila and sold them in Naga City.[4] They went to Guinhawas office, and
were shown the L-300 Versa Van which was on display. The couple
inspected its interior portion and found it beautiful. They no longer
inspected the under chassis since they presumed that the vehicle was
brand new.[5] Unaware that the van had been damaged and repaired on
account of the accident in Daet, the couple decided to purchase the van
for P591,000.00. Azotea suggested that the couple make a downpayment
of P118,200.00, and pay the balance of the purchase price by
installments via a loan from the United Coconut Planters Bank (UCPB),
Naga Branch, with the L-300 Versa Van as collateral. Azotea offered to
make the necessary arrangements with the UCPB for the consummation of

the loan transaction. The couple agreed. On November 10, 1995, the
spouses executed a Promissory Note [6] for the amount of P692,676.00 as
payment of the balance on the purchase price, and as evidence of the
chattel mortgage over the van in favor of UCPB.
On October 11, 1995, the couple arrived in Guinhawas office to take
delivery of the van. Guinhawa executed the deed of sale, and the couple
paid theP161,470.00 downpayment, for which they were issued Receipt
No. 0309.[7] They were furnished a Service Manual [8] which contained the
warranty terms and conditions. Azotea instructed the couple on how to start
the van and to operate its radio. Ralph Silo no longer conducted a test
drive; he and his wife assumed that there were no defects in the van as it
was brand new.[9]
On October 12, 1995, Josephine Silo, accompanied by Glenda
Pingol, went to Manila on board the L-300 Versa Van, with Glendas
husband, Bayani Pingol III, as the driver. Their trip to Manila was
uneventful. However, on the return trip to Naga from Manila on October 15
or 16, 1995, Bayani Pingol heard a squeaking sound which seemed to be
coming from underneath the van. They were in Calauag, Quezon, where
there were no humps along the road. [10] Pingol stopped the van in Daet,
Camarines Norte, and examined the van underneath, but found no
abnormalities or defects.[11] But as he drove the van to Naga City, the
squeaking

sound

persisted.

Believing that the van merely needed grease, Pingol stopped at a Shell
gasoline station where it was examined. The mechanic discovered that
some parts underneath the van had been welded. When Pingol complained

to Guinhawa, the latter told him that the defects were mere factory defects.
As the defects persisted, the spouses Silo requested that Guinhawa
change the van with two Charade-Daihatsu vehicles within a week or two,
with the additional costs to be taken from their downpayment. Meanwhile,
the couple stopped paying the monthly amortization on their loan, pending
the replacement of the van. Guinhawa initially agreed to the couples
proposal, but later changed his mind and told them that he had to sell the
van first. The spouses then brought the vehicle to the Rx Auto Clinic in
Naga City for examination. Jesus Rex Raquitico, Jr., the mechanic,
examined the van and discovered that it was the left front stabilizer that
was producing the annoying sound, and that it had been repaired.
[12]

Raquitico prepared a Job Order containing the following notations and

recommendations:
1. CHECK UP SUSPENSION (FRONT)
2. REPLACE THE ROD END
3. REPLACE BUSHING
NOTE:

FRONT STEP BOARD HAS

DAMAGED AND REPAIRED.

BEEN

ALREADY

NOTE: FRONT LEFT SUSPENSION MOUNTING IS NOT ON

SPECIFIED ALIGNMENT/MEASUREMENT[13]
Josephine Silo filed a complaint for the rescission of the sale and the
refund of their money before the Department of Trade and Industry (DTI).
During the confrontation between her and Guinhawa, Josephine learned
that Guinhawa had bought the van from UMC before it was sold to them,
and after it was damaged in Daet. Subsequently, the spouses Silo withdrew
their complaint from the DTI.

On February 14, 1996, Josephine Silo filed a criminal complaint for

violation of paragraph 1, Article 318 of the Revised Penal Code against
Guinhawa in the Office of the City Prosecutor of Naga City. After the
requisite investigation, an Information was filed against Guinhawa in the
Municipal Trial Court (MTC) of Naga City. The inculpatory portion reads:
The undersigned Assistant Prosecutor of Naga City
accuses Jaime Guinhawa of the crime of OTHER DECEITS
defined and penalized under Art. 318, par. 1 of the Revised
Penal Code, committed as follows:
That on or about October 11, 1995, in the City
of Naga, Philippines, and within the jurisdiction of
this Honorable Court, the said accused, being a
motor vehicle dealer using the trade name of
Guinhawa Motor Sales at Panganiban Avenue,
Naga City, and a dealer of brand new cars, by
means of false pretenses and fraudulent acts, did
then and there willfully, unlawfully and feloniously
defraud private complainant, JOSEPHINE P. SILO,
as follows: said accused by means of false
manifestations and fraudulent representations, sold
to said private complainant, as brand new, an
automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the
amount of P591,000.00, when, in truth and in fact,
the same was not brand new because it was
discovered less than a month after it was sold to
said Josephine P. Silo that said L-300 Versa Van
had defects in the underchassis and stepboard and
repairs had already been done thereat even before
said sale, as was found upon check-up by an auto
mechanic; that private complainant returned said L300 Versa Van to the accused and demanded its
replacement with a new one or the return of its
purchase price from said accused but despite

follow-up demands no replacement was made nor

was the purchase price returned to private
complainant up to the present to her damage and
prejudice in the amount of P591,000.00, Philippine
Currency, plus other damages that may be proven
in court.[14]

Guinhawa testified that he was a dealer of brand new Toyota, Mazda,

Honda and Mitsubishi cars, under the business name Guinrox Motor Sales.
He purchased Toyota cars from Toyota Philippines, and Mitsubishi cars
from UMC in Paco, Manila. [15] He bought the van from the UMC in March
1995, but did not use it; he merely had it displayed in his showroom in
Naga City.[16] He insisted that the van was a brand new unit when he sold it
to the couple.[17] The spouses Silo bought the van and took delivery only
after inspecting and taking it for a road tests. [18] His sales manager, Azotea,
informed him sometime in November 1995 that the spouses Silo had
complained about the defects under the left front portion of the van. By
then, the van had a kilometer reading of 4,000 kilometers. [19] He insisted
that he did not make any false statement or fraudulent misrepresentation to
the couple about the van, either before or simultaneous with its purchase.
He posited that the defects noticed by the couple were not major ones, and
could be repaired. However, the couple refused to have the van repaired
and insisted on a refund of their payment for the van which he could not
allow. He then had the defects repaired by the UMC. [20] He claimed that the
van was never involved in any accident, and denied that his driver, Olayan,
met an accident and sustained physical injuries when he drove the van
from Manila to Naga City.[21] He even denied meeting Bayani Pingol.

The accused claimed that the couple filed a Complaint [22] against him
with the DTI on January 25, 1996, only to withdraw it later. [23] The couple
then failed to pay the amortizations for the van, which caused the UCPB to
file a petition for the foreclosure of the chattel mortgage and the sale of the
van at public auction.[24]
Azotea testified that he had been a car salesman for 16 years and
that he sold brand new vans. [25] Before the couple took delivery of the
vehicle, Pingol inspected its exterior, interior, and underside, and even
drove it for the couple.[26] He was present when the van was brought to the
Rx Auto Clinic, where he noticed the dent on its front side. [27] He claimed
that the van never figured in any vehicular accident in Labo, Daet,
Camarines Norte on March 17, 1995. [28] In fact, he declared, he found no
police record of a vehicular accident involving the van on the said date.
[29]

He admitted that Olayan was their driver, and was in charge of taking

delivery of cars purchased from the manufacturer in Manila. [30]

On November 6, 2001, the trial court rendered judgment convicting
Guinhawa. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered declaring the accused, JAIME GUINHAWA, guilty of
the crime of Other Deceits defined and penalized under Art.
318(1) of the Revised Penal Code, the prosecution having
proven the guilt of the accused beyond reasonable doubt and
hereby imposes upon him the penalty of imprisonment from 2
months and 1 day to 4 months of Arresto Mayor and a fine of
One Hundred Eighty Thousand Seven Hundred and Eleven
Pesos (P180,711.00) the total amount of the actual damages
caused to private complainant.

As to the civil aspect of this case which have been

deemed instituted with this criminal case, Articles 2201 and
2202 of the Civil Code provides:
Art. 2201. In contracts and quasi-contracts,
the damages for which the obligor who acted in
good faith is liable shall be those that are the natural
and probable consequences of the breach of the
obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the
obligation was constituted.
In case of fraud, malice or wanton attitude, the
obligor shall be responsible for all damages which
may be reasonably attributed to the nonperformance of the obligation.
Art. 2202. In crimes and quasi-delicts, the
defendant shall be liable for all damages which are
the natural and probable consequences of the act or
omission complained of. It is not necessary that
such damages have been foreseen or could have
reasonably been foreseen by the defendant.
Thus, accused is condemned to pay actual damages in
the amount of One Hundred Eighty Thousand Seven Hundred
and Eleven Pesos (Php180,711.00), which represents the 20%
downpayment and other miscellaneous expenses paid by the
complainant plus the amount of Nineteen Thousand Two
Hundred Forty-One (Php19,241.00) Pesos, representing the 1st
installment payment made by the private complainant to the
bank. Accused is, likewise, ordered to pay moral damages in
the amount of One Hundred Thousand Pesos (Php100,000.00)
in view of the moral pain suffered by the complainant; for
exemplary damages in the amount of Two Hundred Thousand
Pesos (Php200,000.00) to serve as deterrent for those
businessmen similarly inclined to take undue advantage over
the publics innocence. As for attorneys fees, the reasonable

amount of One Hundred Thousand Pesos (Php100,000.00) is

hereby awarded.
SO ORDERED.[31]

The trial court declared that the accused made false pretenses or
misrepresentations that the van was a brand new one when, in fact, it had
figured in an accident in Labo, Daet, Camarines Norte, and sustained
serious damages before it was sold to the private complainant.
Guinhawa appealed the decision to the Regional Trial Court (RTC) of
Naga City, Branch 19, in which he alleged that:
1. The lower court erred in its finding that the repair works
on the left front portion and underchassis of the van was the
result of the accident in Labo, Camarines Norte, where its driver
suffered an attack of hypertension.
2. The lower court erred in its four (4) findings of fact that
accused-appellant made misrepresentation or false pretenses
that the van was a brand new car, which constituted deceit as
defined in Article 318, paragraph 1 of the Revised Penal Code.
3. The lower court erred in finding accused-appellant
civilly liable to complainant Josephine Silo. But, even if there be
such liability, the action therefor has already prescribed and the
amount
awarded
was
exhorbitant,
excessive
and
[32]
unconscionable.

Guinhawa insisted that he never talked to the couple about the sale
of the van; hence, could not have made any false pretense or
misrepresentation.

On August 1, 2002, the RTC affirmed the appealed judgment. [33]

Guinhawa filed a petition for review with the Court of Appeals (CA),
where he averred that:
I
THE COURT A QUO ERRED IN CONVICTING PETITIONER
OF THE CRIME OF OTHER DECEITS AND SENTENCING
HIM TO SUFFER IMPRISONMENT OF TWO MONTHS AND
ONE DAY TO FOUR MONTHS OF ARRESTO MAYOR AND
TO PAY FINE IN THE AMOUNT OF P180,711.00.
II
THE COURT A QUO ERRED IN ORDERING PETITIONER TO
PAY
PRIVATE
COMPLAINANT P180,711.00
AS
DOWNPAYMENT, P19,241.00 AS FIRST INSTALLMENT WITH
UCPB
NAGA, P100,000.00
AS
MORAL
DAMAGES, P200,000.00
AS
EXEMPLARY
DAMAGES
[34]
AND P100,000.00 AS ATTORNEYS FEES.

On January 5, 2004, the CA rendered judgment affirming with

modification the decision of the RTC. The fallo of the decision reads:
WHEREFORE, premises considered, the instant petition
is hereby partially granted insofar as the following are
concerned: a) the award of moral damages is
herebyREDUCED to P10,000.00 and b) the award of attorneys
fees and exemplary damages are hereby DELETED for lack of
factual basis. In all other respects, We affirm the decision under
review.
Costs against petitioner.
SO ORDERED.[35]

The CA ruled that the private complainant had the right to assume that the
van was brand new because Guinhawa held himself out as a dealer of
brand new vans. According to the appellate court, the act of displaying the
van in the showroom without notice to any would-be buyer that it was not a
brand new unit was tantamount to deceit. Thus, in concealing the vans true
condition from the buyer, Guinhawa committed deceit.
The appellate court denied Guinhawas motion for reconsideration,
prompting him to file the present petition for review on certiorari, where he
contends:
I
THE COURT A QUO ERRED IN NOT HOLDING THAT THE
INFORMATION CHARGED AGAINST PETITIONER DID NOT
INFORM HIM OF A CHARGE OF OTHER DECEITS.
II
THE COURT A QUO ERRED IN HOLDING THAT PETITIONER
EMPLOYED FRAUD OR DECEIT AS DEFINED UNDER
ARTICLE 318, REVISED PENAL CODE.

III
THE COURT A QUO ERRED IN NOT CONSIDERING THE
CIRCUMSTANCES POINTING TO THE INNOCENCE OF THE
PETITIONER.[36]

The issues for resolution are (1) whether, under the Information, the
petitioner was charged of other deceits under paragraph 1, Article 318 of
the Revised Penal Code; and (2) whether the respondent adduced proof
beyond reasonable doubt of the petitioners guilt for the crime charged.

The petitioner asserts that based on the allegations in the

Information, he was charged with estafa through false pretenses under
paragraph 2, Article 315 of the Revised Penal Code. Considering the
allegation that the private complainant was defrauded of P591,000.00, it is
the RTC, not the MTC, which has exclusive jurisdiction over the case. The
petitioner maintains that he is not estopped from assailing this matter
because the trial courts lack of jurisdiction can be assailed at any time,
even on appeal, which defect cannot even be cured by the evidence
adduced during the trial. The petitioner further avers that he was convicted
of other deceits under paragraph 1, Article 318 of the Revised Penal Code,
a crime for which he was not charged; hence, he was deprived of his
constitutional right to be informed of the nature of the charge against him.
And in any case, even if he had been charged of other deceits under
paragraph 1 of Article 318, the CA erred in finding him guilty. He insists that
the private complainant merely assumed that the van was brand new, and
that he did not make any misrepresentation to that effect. He avers that
deceit cannot be committed by concealment, the absence of any notice to
the public that the van was not brand new does not amount to deceit. He
posits that based on the principle ofcaveat emptor, if the private
complainant purchased the van without first inspecting it, she must suffer
the consequences. Moreover, he did not attend to the private complainant
when they examined the van; thus, he could not have deceived them.
The petitioner maintains that, absent evidence of conspiracy, he is
not criminally liable for any representation Azotea may have made to the
private complainant, that the van was brand new. He insists that the

respondent was estopped from adducing evidence that the vehicle was
involved in an accident in Daet, Camarines Norte on March 17, 1995,
because such fact was not alleged in the Information.
In its comment on the petition, the Office of the Solicitor General
avers that, as gleaned from the material averments of the Information, the
petitioner was charged with other deceits under paragraph 1, Article 318 of
the Revised Penal Code, a felony within the exclusive jurisdiction of the
MTC. The petitioner was correctly charged and convicted, since he falsely
claimed that the vehicle was brand new when he sold the same to the
private complainant. The petitioners concealment of the fact that the van
sustained serious damages as an aftermath of the accident in Daet,
Camarines Norte constituted deceit within the meaning of paragraph 1 of
Article 318.
The Information filed against the petitioner reads:

That on or about October 11, 1995, in the City of Naga,

Philippines, and within the jurisdiction of this Honorable Court,
the said accused, being a motor vehicle dealer using the trade
name of Guinhawa Motor Sales at Panganiban Avenue, Naga
City, and dealer of brand new cars, by means of false pretenses
and fraudulent acts, did then and there, willfully, unlawfully and
feloniously defraud private complainant, JOSEPHINE P. SILO,
as follows: said accused by means of false manifestations and
fraudulent representations, sold to said private complainant, as
brand new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount
of P591,000.00, when, in truth and in fact, the same was not
brand new because it was discovered less than a month after it
was sold to said Josephine P. Silo that said L-300 Versa Van

had defects in the underchassis and stepboard and repairs

have already been done thereat even before said sale, as was
found upon check-up by an auto mechanic; that private
complainant returned said L-300 Versa Van to the accused and
demanded its replacement with a new one or the return of its
purchase price from said accused but despite follow-up
demands no replacement was made nor was the purchase
price returned to private complainant up to the present to her
damage and prejudice in the amount of P591,000.00, Philippine
Currency, plus other damages that may be proven in court.
CONTRARY TO LAW.[37]

Section 6, Rule 110 of the Rules of Criminal Procedure requires that

the Information must allege the acts or omissions complained of as
constituting the offense:
SEC. 6. Sufficiency of complaint or information. A
complaint or information is sufficient if it states the name of the
accused; the designation of the offense given by the statute; the
acts or omissions complained of as constituting the offense; the
name of the offended party; the approximate date of the
commission of the offense; and the place where the offense
was committed.
When an offense is committed by more than one person,
all of them shall be included in the complaint or information.
The real nature of the offense charged is to be ascertained by the
facts alleged in the body of the Information and the punishment provided by
law, not by the designation or title or caption given by the Prosecutor in the
Information.[38] The Information must allege clearly and accurately the
elements of the crime charged.[39]

As can be gleaned from its averments, the Information alleged the

essential elements of the crime under paragraph 1, Article 318 of the
Revised Penal Code.
The false or fraudulent representation by a seller that what he offers
for sale is brand new (when, in fact, it is not) is one of those deceitful acts
envisaged in paragraph 1, Article 318 of the Revised Penal Code. The
provision reads:
Art. 318. Other deceits. The penalty of arresto mayor and
a fine of not less than the amount of the damage caused and
not more than twice such amount shall be imposed upon any
person who shall defraud or damage another by any other
deceit not mentioned in the preceding articles of this chapter.

This provision was taken from Article 554 of the Spanish Penal Code which
provides:
El que defraudare o perjudicare a otro, usando de cualquier
engao que no se halle expresado en los artculos anteriores de
esta seccin, ser castigado con una multa del tanto al duplo del
perjuicio que irrogare; y en caso de reincidencia, con la del
duplo y arresto mayor en su grado medio al mximo.

For one to be liable for other deceits under the law, it is required that
the prosecution must prove the following essential elements: (a) false
pretense, fraudulent act or pretense other than those in the preceding
articles;
(b) such false pretense, fraudulent act or pretense must be made or
executed prior to or simultaneously with the commission of the fraud; and

(c) as a result, the offended party suffered damage or prejudice. [40] It is

essential that such false statement or fraudulent representation constitutes
the very cause or the only motive for the private complainant to part with
her property.
The provision includes any kind of conceivable deceit other than
those enumerated in Articles 315 to 317 of the Revised Penal Code. [41] It is
intended as the catchall provision for that purpose with its broad scope and
intendment.[42]
Thus, the petitioners reliance on paragraph 2(a), Article 315 of the
Revised Penal Code is misplaced. The said provision reads:
2. By means of any of the following false pretenses or
fraudulent acts executed prior to or simultaneously with the
commission of the fraud:
(a) By using fictitious name, or falsely pretending to
possess power, influence, qualifications, property,
credit, agency, business or imaginary transactions; or
by means of other similar deceits.

The fraudulent representation of the seller, in this case, that the van
to be sold is brand new, is not the deceit contemplated in the law. Under
the principle ofejusdem generis, where a statement ascribes things of a
particular class or kind accompanied by words of a generic character, the
generic words will usually be limited to things of a similar nature with those
particularly enumerated unless there be something in the context to the
contrary.[43]

Jurisdiction is conferred by the Constitution or by law. It cannot be

conferred by the will of the parties, nor diminished or waived by them. The
jurisdiction of the court is determined by the averments of the complaint or
Information, in relation to the law prevailing at the time of the filing of the
criminal complaint or Information, and the penalty provided by law for the
crime charged at the time of its commission.
Section 32 of Batas Pambansa Blg. 129, as amended by Republic
Act No. 7691, provides that the MTC has exclusive jurisdiction over
offenses

punishable

with

imprisonment

not

exceeding

six

years,

irrespective of the amount of the fine:

Sec. 32. Jurisdiction of Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts in
Criminal Cases. Except in cases falling within the exclusive
original jurisdiction of Regional Trial Courts and of the
Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial
Courts, and Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over all
violations of city or municipal ordinances committed
within their respective territorial jurisdiction; and
(2) Exclusive original jurisdiction over all
offenses punishable with imprisonment not
exceeding six (6) years irrespective of the amount
of fine, and regardless of other imposable
accessory or other penalties, including the civil
liability arising from such offenses or predicated
thereon, irrespective of kind, nature, value or
amount thereof: Provided, however, That in
offenses involving damage to property through
criminal negligence, they shall have exclusive
original jurisdiction thereof.

Since the felony of other deceits is punishable by arresto mayor, the

MTC had exclusive jurisdiction over the offense lodged against the
petitioner.
On the merits of the petition, the Court agrees with the petitioners
contention that there is no evidence on record that he made direct and
positive representations or assertions to the private complainant that the
van was brand new. The record shows that the private complainant and her
husband Ralph Silo were, in fact, attended to by Azotea. However, it bears
stressing that the representation may be in the form of words, or conduct
resorted to by an individual to serve as an advantage over another. Indeed,
as declared by the CA based on the evidence on record:
Petitioner cannot barefacedly claim that he made no
personal representation that the herein subject van was brand
new for the simple reason that nowhere in the records did he
ever refute the allegation in the complaint, which held him out
as a dealer of brand new cars. It has thus become admitted that
the petitioner was dealing with brand new vehicles a fact which,
up to now, petitioner has not categorically denied. Therefore,
when private complainant went to petitioners showroom, the
former had every right to assume that she was being sold brand
new vehicles there being nothing to indicate otherwise. But as it
turned out, not only did private complainant get a defective and
used van, the vehicle had also earlier figured in a road accident
when driven by no less than petitioners own driver.[44]

Indeed, the petitioner and Azotea obdurately insisted in the trial court
that the van was brand new, and that it had never figured in vehicular

accident. This representation was accentuated by the fact that the

petitioner gave the Service Manual to the private complainant, which
manual
contained the warranty terms and conditions, signifying that the van was
brand new. Believing this good faith, the private complainant decided to
purchase the van for her buy-and-sell and garment business, and even
made a downpayment of the purchase price.
As supported by the evidence on record, the van was defective when
the petitioner sold it to the private complainant. It had ditched onto the
shoulder of the highway in Daet, Camarines Norte on its way from Manila
to Naga City. The van was damaged and had to be repaired; the rod end
and bushing had to be replaced, while the left front stabilizer which gave
out a persistent annoying sound was repaired. Some parts underneath the
van were even welded together. Azotea and the petitioner deliberately
concealed these facts from the private complainant when she bought the
van, obviously so as not to derail the sale and the profit from the
transaction.
The CA is correct in ruling that fraud or deceit may be committed by
omission. As the Court held in People v. Balasa:[45]
Fraud, in its general sense, is deemed to comprise
anything calculated to deceive, including all acts, omissions,
and concealment involving a breach of legal or equitable duty,
trust, or confidence justly reposed, resulting in damage to
another, or by which an undue and unconscientious advantage
is taken of another. It is a generic term embracing all
multifarious means which human ingenuity can device, and
which are resorted to by one individual to secure an advantage

over another by false suggestions or by suppression of truth

and includes all surprise, trick, cunning, dissembling and any
unfair way by which another is cheated. On the other hand,
deceit is the false representation of a matter of fact whether by
words or conduct, by false or misleading allegations, or by
concealment of that which should have been disclosed which
deceives or is intended to deceive another so that he shall act
upon it to his legal injury.[46]

It is true that mere silence is not in itself concealment. Concealment

which the law denounces as fraudulent implies a purpose or design to hide
facts which the other party sought to know.[47] Failure to reveal a fact which
the seller is, in good faith, bound to disclose may generally be classified as
a deceptive act due to its inherent capacity to deceive. [48] Suppression of a
material fact which a party is bound in good faith to disclose is equivalent to
a false representation.[49] Moreover, a representation is not confined to
words or positive assertions; it may consist as well of deeds, acts or
artifacts of a nature calculated to mislead another and thus allow the fraudfeasor to obtain an undue advantage.[50]
Fraudulent nondisclosure and fraudulent concealment are of the
same genre. Fraudulent concealment presupposes a duty to disclose the
truth and that disclosure was not made when opportunity to speak and
inform was presented, and that the party to whom the duty of disclosure, as
to a material fact was due, was induced thereby to act to his injury.[51]
Article 1389 of the New Civil Code provides that failure to disclose
facts when there is a duty to reveal them constitutes fraud. In a contract of
sale, a buyer and seller do not deal from equal bargaining positions when

the latter has knowledge, a material fact which, if communicated to the

buyer, would render the grounds unacceptable or, at least, substantially
less desirable.[52] If, in a contract of sale, the vendor knowingly allowed the
vendee to be deceived as to the thing sold in a material matter by failing to
disclose an intrinsic circumstance that is vital to the contract, knowing that
the vendee is acting upon the presumption that no such fact exists, deceit
is accomplished by the suppression of the truth. [53]
In the present case, the petitioner and Azotea knew that the van had
figured in an accident, was damaged and had to be repaired. Nevertheless,
the van was placed in the showroom, thus making it appear to the public
that it was a brand new unit. The petitioner was mandated to reveal the
foregoing facts to the private complainant. But the petitioner and Azotea
even obdurately declared when they testified in the court a quo that the
vehicle did not figure in an accident, nor had it been repaired; they
maintained that the van was brand new, knowing that the private
complainant was going to use it for her garment business. Thus, the private
complainant bought the van, believing it was brand new.
Significantly, even when the petitioner was apprised that the private
complainant had discovered the vans defects, the petitioner agreed to
replace the van, but changed his mind and insisted that it must be first sold.
The petitioner is not relieved of his criminal liability for deceitful
concealment of material facts, even if the private complainant made a
visual inspection of the vans interior and exterior before she agreed to buy
it

and

failed to inspect its under chassis. Case law has it that where the vendee
made only a partial investigation and relies, in part, upon the representation
of the vendee, and is deceived by such representation to his injury, he may
maintain an action for such deceit. [54] The seller cannot be heard to say that
the vendee should not have relied upon the fraudulent concealment; that
negligence, on the part of the vendee, should not be a defense in order to
prevent the vendor from unjustifiably escaping with the fruits of the fraud.
In one case,[55] the defendant who repainted an automobile, worked it over
to resemble a new one and delivered it to the plaintiff was found to have
warranted and represented that the automobile being sold was new. This
was found to be a false representation of an existing fact; and, if it was
material and induced the plaintiff to accept something entirely different from
that which he had contracted for, it clearly was a fraud which, upon its
discovery and a tender of the property back to the seller, [it] entitled the
plaintiff to rescind the trade and recover the purchase money.[56]
On the petitioners insistence that the private complainant was proscribed
from charging him with estafa based on the principle of caveat emptor,
case law has it that this rule only requires the purchaser to exercise such
care and attention as is usually exercised by ordinarily prudent men in like
business affairs, and only applies to defects which are open and patent to
the service of one exercising such care. [57] In an avuncular case, it was held
that:
The rule of caveat emptor, like the rule of sweet charity, has
often been invoked to cover a multitude of sins; but we think its
protecting mantle has never been stretched to this extent. It can
only be applied where it is shown or conceded that the parties

to the contract stand on equal footing and have equal

knowledge or equal means of knowledge and there is no
relation of trust or confidence between them. But, where one
party undertakes to sell to another property situated at a
distance and of which he has or claims to have personal
knowledge and of which the buyer knows nothing except as he
is informed by the seller, the buyer may rightfully rely on the
truth of the sellers representations as to its kind, quality, and
value made in the course of negotiation for the purpose of
inducing the purchase. If, in such case, the representations
prove to be false, neither law nor equity will permit the seller to
escape responsibility by the plea that the buyer ought not to
have believed him or ought to have applied to other sources to
ascertain the facts. [58]

It bears stressing that Azotea and the petitioner had every opportunity to
reveal to the private complainant that the van was defective. They resolved
to maintain their silence, to the prejudice of the private complainant, who
was a garment merchant and who had no special knowledge of parts of
motor vehicles. Based on the surrounding circumstances, she relied on her
belief that the van was brand new. In fine, she was the innocent victim of
the petitioners fraudulent nondisclosure or concealment.
The petitioner cannot pin criminal liability for his fraudulent omission
on his general manager, Azotea. The two are equally liable for their
collective fraudulent silence. Case law has it that wherever the doing of a
certain act or the transaction of a given affair, or the performance of certain
business is confided to an agent, the authority to so act will, in accordance
with a general rule often referred to, carry with it by implication the authority
to do all of the collateral acts which are the natural and ordinary incidents of
the main act or business authorized.[59]

The MTC sentenced the petitioner to suffer imprisonment of from two

months and one day, as minimum, to four months of arresto mayor, as
maximum. The CA affirmed the penalty imposed by the trial court. This is
erroneous. Section 2 of Act 4103, as amended, otherwise known as the
Indeterminate Sentence Law, provides that the law will not apply if the
maximum term of imprisonment does not exceed one year:
SEC. 2. This Act shall not apply to persons convicted of
offenses punished with death penalty or life-imprisonment; to
those convicted of treason, conspiracy or proposal to commit
treason; to those convicted of misprision of treason, rebellion,
sedition or espionage; to those convicted of piracy; to those
who are habitual delinquents; to those who shall have escaped
from confinement or evaded sentence; to those who having
been granted conditional pardon by the Chief Executive shall
have violated the terms thereof; to those whose maximum term
of imprisonment does not exceed one year, not to those already
sentenced by final judgment at the time of approval of this Act,
except as provided in Section 5 hereof. (As amended by Act
No. 4225.)

In this case, the maximum term of imprisonment imposed on the petitioner

was four months and one day of arresto mayor. Hence, the MTC was
proscribed from imposing an indeterminate penalty on the petitioner. An
indeterminate penalty may be imposed if the minimum of the penalty is
one year or less, and the maximum exceeds one year. For example, the
trial court may impose an indeterminate penalty of six months of arresto
mayor, as minimum, to two years and four months of prision correccional,
as maximum, since the maximum term of imprisonment it imposed exceeds
one year. If the trial court opts to impose a penalty of imprisonment of one

year or less, it should not impose an indeterminate penalty, but a straight

penalty of one year or less instead. Thus, the petitioner may be sentenced
to a straight penalty of one year, or a straight penalty of less than one
year, i.e., ten months or eleven months. We believe that considering the
attendant circumstances, a straight penalty of imprisonment of six months
is reasonable.
Conformably with Article 39 in relation to paragraph 3, Article 38 of
the Revised Penal Code, the petitioner shall suffer subsidiary imprisonment
if he has no property with which to pay the penalty of fine.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
assailed Decision and Resolution are AFFIRMED WITH MODIFICATION.
Considering the surrounding circumstances of the case, the petitioner is
hereby sentenced to suffer a straight penalty of six (6) months
imprisonment. The petitioner shall suffer subsidiary imprisonment in case of
insolvency.
Costs against the petitioner.

SO ORDERED.
THIRD DIVISION
GOODYEAR PHILIPPINES, INC., G.R. No. 154554
Petitioner,
Present:
Panganiban, J.,
Chairman,

- versus - Sandoval-Gutierrez*
Corona,**
Carpio Morales, and
Garcia, JJ
Promulgated:
ANTHONY SY and JOSE L. LEE,
Respondents. November 9, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:

A
complaint must contain a concise statement of the ultimate facts
constituting the plaintiffs cause of action. To determine whether a cause of
action is stated, the test is as follows: admitting arguendo the truth of the
facts alleged, can the court render a
_____________________
* On official leave.
** On medical leave.

valid judgment in accordance with the prayer? If the answer is no, the
complaint does not state a cause of action and should be dismissed
forthwith. If yes, then it does and must be given due course.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of

Court, assailing the June 5, 2002 Decision [2] and the August 8, 2002
Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 61229. The
dispositive portion of the challenged Decision reads as follows:
WHEREFORE, the instant appeal is GRANTED. The
Order dated May 27, 1998 of the Regional Trial Court of
Legazpi City, Branch 9, is hereby REVERSED and the case is
remanded to the court a quo for the appropriate further
proceedings.[4]

The

assailed

Resolution

denied

petitioners

Motion

Reconsideration.

The Antecedents

The CA narrated the antecedents of the case as follows:

The subject of this case involves a motor vehicle, particularly
described as:
MAKE: 1984 Isuzu JCR 6-Wheeler
PLATE NUMBER: PEL 685
MOTOR NO.: 6BD1-371305
SERIAL NO.: JCR500BOF-21184
The vehicle was originally owned by Goodyear Philippines, Inc.
([Goodyear]) which it purchased from Industrial and Transport

for

Equipment, Inc. in 1983. It had since been in the service of

[Goodyear] until April 30, 1986 when it was hijacked. This
hijacking was reported to the Philippine National Police (PNP)
which issued out an alert alarm on the said vehicle as a stolen
one. It was later on recovered also in 1986.
The vehicle was used by [Goodyear] until 1996, when it sold it
to Anthony Sy on September 12, 1996.
Sy, in turn, sold it to Jose L. Lee on January 29, 1997. But the
latter on December 4, 1997, filed an action for rescission of
contract with damages against Sy[,] because he could not
register the vehicle in his name due to the certification from the
PNP Regional Traffic Management Office in Legazpi City that it
was a stolen vehicle and the alarm covering the same was not
lifted. Instead, the PNP in Legazpi City impounded the vehicle
and charged Lee criminally.
Upon being informed by Sy of the denial of the registration of
the vehicle in Lees name, [Goodyear] requested on July 10,
1997 the PNP to lift the stolen vehicle alarm status. This
notwithstanding, [Goodyear] was impleaded as third-party
defendant in the third-party complaint filed by Sy on January 9,
1998.
A motion to dismiss was filed by [Goodyear] on March 24, 1998
on the twin grounds that the third-party complaint failed to state
a cause of action and even if it did, such cause of action was
already extinguished. An opposition thereto was interposed by
Sy on April 17, 1998.
The Regional Trial Court [(RTC)] resolved to dismiss the thirdparty complaint on the basis of the first proffered ground in its
challenged Order dated May 27, 1998. It ratiocinated:
A perusal of the third party complaint does not
expressly show any act or omission committed by
the third party defendant which violates a right of the
third party complainant. The third party complaint
failed to show that the vehicle in question belongs to

a person other than the third party defendant at the

time the said motor vehicle was sold by the third
party defendant to the third party plaintiff. On the
contrary[,] the third party defendant has not denied
having sold to the third party plaintiff the said motor
vehicle which had been in its possession as owner
from 1986 to 1996. The fact that the said motor
vehicle was included by the PNP in its alert status
as stolen vehicle[,] resulted only following the report
by the third party defendant that it was hijacked in
1986. But when the said motor vehicle was
recovered, the third party defendant informed the
PNP about the said recovery and requested the
lifting of the alert status on it as stolen vehicle.
If the PNP has not removed the said vehicle from its
alert status as a stolen vehicle, [then] that does not
make [Goodyear] not the owner thereof. Hence,
[Goodyear], the third party defendant, is not guilty of
any breach resulting from any flaw in the title over
the said vehicle. This is confirmed by the allegation
of the third party plaintiff as answering defendant in
paragraph 6 of its Answer with Counterclaim and
Affirmative Defenses dated January 9, 1998,
hereunder quoted as follows:
6. Defendant specifically denies the
allegations contained in paragraph 9 of
[p]laintiffs complaint, the truth of the
matter is that [d]efendant help[ed]
plaintiff in removing the impediments in
the registration and transfer of
ownership and that defendant ha[d] no
knowledge of any flaw [in] the title of
Goodyear Philippines, Inc.
Under Rules 16, a motion to dismiss may be made
on any of the following grounds:

g) That the pleading asserting the claim

states no cause of action.
WHEREFORE, for failure of the third party
complaint to state a cause of action, the same is
hereby ordered DISMISSED.[5]

Ruling of the Court of Appeals

In granting the appeal, the CA reasoned that the Third-Party Complaint had
stated a cause of action. First, petitioner did not make good its warranty in
the Deed of Sale: to convey the vehicle to Respondent Anthony Sy free
from all liens, encumbrances and legal impediments. The reported
hijacking of the vehicle was a legal impediment that prevented its
subsequent sale.

Second, Respondent Sy had a right to protect and a warranty to enforce,

while petitioner had the corresponding obligation to honor that warranty.
The latter caused the impairment of that right, though, when the vehicle it
had sold to him was refused registration, because of the non-lifting of the
alert status issued at its instance. That petitioner had to execute all
documents necessary to confer a perfect title to him before he could seek
recourse to the courts was deemed a ludicrous condition precedent,
because it could easily refuse to fulfill that condition in order to obviate the
filing of a case against it.
Hence, this Petition.[6]

The Issues

Petitioner raises the following issues for the Courts consideration:

I.
Whether or not the Court of Appeals erred in reversing and
setting aside the decision of the Regional Trial Court,
dismissing the complaint against petitioner for lack of a cause
of action.
II.
Whether or not the Court of Appeals erred in failing to find that
petitioner did not breach any warranty in the absence of proof
that at the time it sold the subject vehicle to Sy, petitioner was
not the owner thereof.
III.
Whether or not the Court of Appeals erred in failing to find that
the cause of action, if ever it existed, was already extinguished.
[7]

The foregoing issues actually point to one main question: did the ThirdParty Complaint state a cause of action against petitioner?

The Courts Ruling

The Petition has merit.

Main Issue:
Whether a Cause of Action
Was Stated in the Third-Party Complaint

A cause of action is a formal statement of the operative facts that give rise
to a remedial right.[8] The question of whether the complaint states a cause
of action is determined by its averments regarding the acts committed by
the defendant.[9] Thus, it must contain a concise statement of the ultimate
or essential facts constituting the plaintiffs cause of action. [10] Failure to
make

sufficient allegation of a cause of action in the complaint warrants its

dismissal.[11]
Elements of a
Cause of Action

A cause of action, which is an act or omission by which a party violates the

right of another,[12] has these elements:
1) the legal right of the plaintiff;
2) the correlative obligation of the defendant to respect that
legal right; and
3) an act or omission of the defendant that violates such right. [13]

In determining whether an initiatory pleading states a cause of action, the

test is as follows: admitting the truth of the facts alleged, can the court
render a valid judgment in accordance with the prayer? [14] To be taken into
account are only the material allegations in the complaint; extraneous facts
and circumstances or other matters aliunde are not considered.[15] The
court may consider -- in addition to the complaint -- the appended annexes
or documents, other pleadings of the plaintiff, or admissions in the records.
[16]

No Cause of Action
Against Petitioner

In the present case, the third element is missing. The Third-Party Complaint
filed by Sy is inadequate, because it did not allege any act or omission that
petitioner had committed in violation of his right to the subject vehicle. The
Complaint capitalized merely on the fact that the vehicle -- according to the
records of the PNP, which was a stranger to the case -- was a stolen vehicle.
The

pleading did

not

contain

sufficient

notice

of

the

cause

of

action[17] against petitioner.

Without even going into the veracity of its material allegations, the
Complaint is insufficient on its face. [18] No connection was laid out between
the owners sale of the vehicle and its impounding by the PNP. That the
police did not lift the alert status did not make petitioner less of an owner.

The Deed of Sale between petitioner and Respondent Sy was attached as

Annex A[19] to the Third-Party Complaint filed by the latter against the
former. The Deed stated that petitioner was the absolute owner of the
subject vehicle. No contrary assertion was made in the Complaint. Hence,
the trial court correctly observed that the Complaint had failed to show that,
at the time of its sale to Respondent Sy, the vehicle belonged to a person
other than petitioner.[20]

To reiterate, the Third-Party Complaint absolutely failed to state an

act or omission of petitioner that had proximately caused injury or prejudice
to Sy. Indeed, based on that pleading alone, the latters claim for relief
against petitioner does not appear to exist.

Warranties Passed On
By the Vendor to the Vendee

In a contract of sale, the vendor is bound to transfer the ownership of and

to deliver the thing that is the object of the sale. [21] Moreover, the implied
warranties are as follows: first, the vendor has a right to sell the thing at the
time that its ownership is to pass to the vendee, as a result of which the
latter shall from then on have and enjoy the legal and peaceful possession
of the thing;[22] and, second, the thing shall be free from any charge or
encumbrance not declared or known to the vendee. [23]

Upon the execution of the Deed of Sale, petitioner did transfer ownership of and
deliver the vehicle to Respondent Sy.[24] No other owner or possessor of the
vehicle had been alleged, and the ownership and possession rights of petitioner
over it had never been contested. The Deed of Sale executed on September 12,
1996 showed that petitioner was the absolute owner. Therefore, at the time that
ownership passed to Sy, petitioner alone had the right to sell the vehicle.

In the same manner, when he sold the same truck to Jose L. Lee,
[25]

Respondent

Sy

was

exercising

his

right

as

absolute

owner.

Unfortunately, though, from the time Respondent Lee attempted to register

the truck in his name, he could not have or enjoy the legal and peaceful
possession of the vehicle, because it had been impounded by the PNP,
which also opposed its registration.

The impoundment of the vehicle and the failure to register it were clearly
acts that were not deliberately caused by petitioner, but that resulted solely
from the failure of the PNP to lift the latters own alarm over the vehicle.
Pursuant to Republic Act 6975, [26] these matters were purely administrative
and governmental in nature. Petitioner had no authority, much less power,
over the PNP. Hence, the former did not breach its obligation as a vendor
to Respondent Sy; neither did it violate his right for which he could maintain
an action for the recovery of damages. Without this crucial allegation of a
breach or violation, no cause of action exists. [27]

A warranty is an affirmation of fact or any promise made by a vendor in

relation to the thing sold. As such, a warranty has a natural tendency to
induce the vendee -- relying on that affirmation or promise -- to purchase
the thing.[28] The vendor impliedly warrants that that which is being sold is
free from any charge or encumbrance not declared or known to the
vendee. The decisive test is whether the vendor assumes to assert a fact of
which the vendee is ignorant.[29]
No Lien or Breach
of Warranty

In the present case, petitioner did not breach the implied warranty against
hidden encumbrances. The subject vehicle that had earlier been stolen by
a third party was subsequently recovered by the authorities and restored to
petitioner, its rightful owner. Whether Sy had knowledge of the loss and
subsequent recovery, the fact remained that the vehicle continued to be
owned by petitioner, free from any charge or encumbrance whatsoever.

A lien is a legal right or interest that a creditor has in anothers

property, lasting usually until a debt or duty that it secures is satisfied. [30] An
encumbrance is a claim or liability that is attached to property or some
other right and that may lessen its value, such as a lien or mortgage. [31] A
legal impediment is a legal hindrance or obstruction. [32]

The Third-Party Complaint did not allege that petitioner had a creditor with
a legal right to or interest in the subject vehicle. There was no indication
either of any debt that was secured by the vehicle. In fact, there was not
even any claim, liability or some other right attached to the vehicle that
would lessen its value. Its impoundment, as well as the refusal of its
registration, was not the hindrance or obstruction in the contemplation of
law that the vendor warranted against. Neither of those instances arose
from any liability or obligation that could be satisfied by a legal claim or
charge on, or property right to -- other than an ownership interest in -- the
subject vehicle.[33]
No Notice of Any
Breach of Warranty

Gratia argumenti that there was a breach of the implied warranty against
hidden encumbrances, notice of the breach was not given to petitioner
within a reasonable time. Article 1586 of the Civil Code requires that notice
be given after the breach, of which Sy ought to have known. In his ThirdParty Complaint against petitioner, there was no allegation at all that
respondent had given petitioner the requisite notice. [34]

More important, an action for damages for a breach of implied warranties

must be brought within six months from the delivery of the thing sold. [35] The
vehicle was understood to have been delivered to Sy when it was placed in
his control or possession.[36] Upon execution of the Deed of Sale on
September 12, 1996, control and possession of the vehicle was transferred

to respondent. That the vehicle had been delivered is bolstered by the fact
that no contrary allegation was raised in the Third-Party Complaint.
Whether the period should be reckoned from the actual or from
theconstructive delivery through a public instrument, more than six months
had lapsed before the filing of the Third-Party Complaint.

Finally, the argument that there was a breach of the implied warranty
against eviction does not hold water, for there was never any final judgment
based on either a right prior to the sale; or an act that could be
imputed[37] to petitioner and deprive Sy of ownership or possession of the
vehicle purchased.

WHEREFORE, the Petition is hereby GRANTED, and the assailed

Decision and Resolution are REVERSED. The May 27, 1998 Order of the
Regional Trial Court is REINSTATED. No costs.

SO ORDERED.
SECOND DIVISION
HEIRS OF SOFIA QUIRONG, G.R. No. 173441
Represented by ROMEO P.
QUIRONG,
Petitioners, Present:
Carpio, J., Chairperson,
- versus - Leonardo-De Castro,
Brion,
Peralta,* and
Abad, JJ.

DEVELOPMENT BANK OF
THE PHILIPPINES, Promulgated:
Respondent.
December 3, 2009
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This case is about the prescriptive period of an action for rescission
of a contract of sale where the buyer is evicted from the thing sold by a
subsequent judicial order in favor of a third party.
The Facts and the Case
The facts are not disputed. When the late Emilio Dalope died, he left
a 589-square meter untitled lot[1] in Sta. Barbara, Pangasinan, to his wife,
Felisa Dalope (Felisa) and their nine children, one of whom was Rosa
Dalope-Funcion.[2] To enable Rosa and her husband Antonio Funcion (the
Funcions) get a loan from respondent Development Bank of the Philippines
(DBP), Felisa sold the whole lot to the Funcions. With the deed of sale in
their favor and the tax declaration transferred in their names, the Funcions
mortgaged the lot with the DBP.
On February 12, 1979, after the Funcions failed to pay their loan, the
DBP foreclosed the mortgage on the lot and consolidated ownership in its
name on June 17, 1981.[3]
Four years later or on September 20, 1983 the DBP conditionally sold
the lot to Sofia Quirong[4] for the price of P78,000.00. In their contract of
sale, Sofia Quirong waived any warranty against eviction. The contract
provided that the DBP did not guarantee possession of the property and
that it would not be liable for any lien or encumbrance on the
same. Quirong gave a down payment of P14,000.00.
Two months after that sale or on November 28, 1983 Felisa and her
eight children (collectively, the Dalopes)[5] filed an action for partition and

declaration of nullity of documents with damages against the DBP and the
Funcions before the Regional Trial Court (RTC) of Dagupan City, Branch
42, in Civil Case D-7159.
On December 27, 1984, notwithstanding the suit, the DBP executed a
deed of absolute sale of the subject lot in Sofia Quirongs favor. The deed of
sale carried substantially the same waiver of warranty against eviction and
of any adverse lien or encumbrance.
On May 11, 1985, Sofia Quirong having since died, her heirs
(petitioner Quirong heirs) filed an answer in intervention [6] in Civil Case D7159 in which they asked the RTC to award the lot to them and, should it
instead be given to the Dalopes, to allow the Quirong heirs to recover the
lots value from the DBP. But, because the heirs failed to file a formal offer
of evidence, the trial court did not rule on the merits of their claim to the lot
and, alternatively, to relief from the DBP.[7]
On December 16, 1992 the RTC rendered a decision, declaring the DBPs
sale to Sofia Quirong valid only with respect to the shares of Felisa and
Rosa Funcion in the property. It declared Felisas sale to the Funcions, the
latters mortgage to the DBP, and the latters sale to Sofia Quirong void
insofar as they prejudiced the shares of the eight other children of Emilio
and Felisa who were each entitled to a tenth share in the subject lot.
The DBP received a copy of the decision on January 13, 1993 and,
therefore, it had until January 28, 1993 within which to file a motion for its
reconsideration or a notice of appeal from it. But the DBP failed to appeal
supposedly because of excusable negligence and the withdrawal of its
previous counsel of record.[8]
When the RTC judgment became final and the court issued a writ of
execution, the DBP resisted the writ by motion to quash, claiming that the
decision could not be enforced because it failed to state by metes and
bounds the particular portions of the lot that would be assigned to the
different parties in the case. The RTC denied the DBPs motion, prompting
the latter to seek recourse by special civil action of certiorari directly with
this Court in G.R. 116575, Development Bank of the Philippinesv.
Fontanilla. On September 7, 1994 the Court issued a resolution, denying
the petition for failure of the DBP to pay the prescribed fees. This resolution
became final and executory on January 17, 1995. [9]

On June 10, 1998 the Quirong heirs filed the present action [10] against the
DBP before the RTC of Dagupan City, Branch 44, in Civil Case CV-9802399-D for rescission of the contract of sale between Sofia Quirong, their
predecessor, and the DBP and praying for the reimbursement of the price
of P78,000.00 that she paid the bank plus damages. The heirs alleged that
they were entitled to the rescission of the sale because the decision in Civil
Case D-7159 stripped them of nearly the whole of the lot that Sofia
Quirong, their predecessor, bought from the DBP. The DBP filed a motion
to dismiss the action on ground of prescription and res judicata but the RTC
denied their motion.
On June 14, 2004, after hearing the case, the RTC rendered a decision,
[11]
rescinding the sale between Sofia Quirong and the DBP and ordering
the latter to return to the Quirong heirs the P78,000.00 Sofia Quirong paid
the bank.[12] On appeal by the DBP, the Court of Appeals (CA) reversed the
RTC decision and dismissed the heirs action on the ground of
prescription. The CA concluded that, reckoned from the finality of the
December 16, 1992 decision in Civil Case D-7159, the complaint filed on
June 10, 1998 was already barred by the four-year prescriptive period
under Article 1389 of the Civil Code. [13] The Quirong heirs filed a motion for
reconsideration of the decision but the appellate court denied it, [14] thus, this
petition.
The Issues Presented
The issues presented in this case are:
1. Whether or not the Quirong heirs action for rescission
of respondent DBPs sale of the subject property to Sofia
Quirong was already barred by prescription; and
2. In the negative, whether or not the heirs of Quirong
were entitled to the rescission of the DBPs sale of the subject
lot to the late Sofia Quirong as a consequence of her heirs
having been evicted from it.
The Courts Rulings

The CA held that the Quirong heirs action for rescission of the sale
between DBP and their predecessor, Sofia Quirong, is barred by
prescription reckoned from the date of finality of the December 16, 1992
RTC decision in Civil Case D-7159 and applying the prescriptive period of
four years set by Article 1389 of the Civil Code.
Unfortunately, the CA did not state in its decision the date when the
RTC decision in Civil Case D-7159 became final and executory, which
decision resulted in the Quirong heirs loss of 80% of the lot that the DBP
sold to Sofia Quirong. Petitioner heirs claim that the prescriptive period
should be reckoned from January 17, 1995, the date this Courts resolution
in G.R. 116575 became final and executory.[15]
But the incident before this Court in G.R. 116575 did not deal with the
merit of the RTC decision in Civil Case D-7159. That decision became final
and executory on January 28, 1993 when the DBP failed to appeal from it
within the time set for such appeal. The incident before this Court in G.R.
116575 involved the issuance of the writ of execution in that case. The DBP
contested such issuance supposedly because the dispositive portion of the
decision failed to specify details that were needed for its
implementation. Since this incident did not affect the finality of the decision
in Civil Case D-7159, the prescriptive period remained to be reckoned from
January 28, 1993, the date of such finality.
The next question that needs to be resolved is the applicable period
of prescription. The DBP claims that it should be four years as provided
under Article 1389 of the Civil Code. [16] Article 1389 provides that the action
to claim rescission must be commenced within four years. The Quirong
heirs, on the other hand, claim that it should be 10 years as provided under
Article 1144 which states that actions upon a written contract must be
brought within 10 years from the date the right of action accrues.
Now, was the action of the Quirong heirs for rescission or upon a
written contract? There is no question that their action was for rescission,
since their complaint in Civil Case CV-98-02399-D asked for the rescission
of the contract of sale between Sofia Quirong, their predecessor, and the
DBP and the reimbursement of the price of P78,000.00 that Sofia Quirong
paid the bank plus damages. The prescriptive period for rescission is four
years.

But it is not that simple. The remedy of rescission is not confined to

the rescissible contracts enumerated under Article 1381. [17] Article 1191 of
the Civil Code gives the injured party in reciprocal obligations, such as what
contracts are about, the option to choose between fulfillment and
rescission. Arturo M. Tolentino, a well-known authority in civil law, is quick
to note, however, that the equivalent of Article 1191 in the old code actually
uses the term resolution rather than the present rescission. [18] The
calibrated meanings of these terms are distinct.
Rescission is a subsidiary action based on injury to the plaintiffs
economic interests as described in Articles 1380 and 1381. Resolution, the
action referred to in Article 1191, on the other hand, is based on the
defendants breach of faith, a violation of the reciprocity between the
parties. As an action based on the binding force of a written contract,
therefore, rescission (resolution) under Article 1191 prescribes in 10
years. Ten years is the period of prescription of actions based on a written
contract under Article 1144.
The distinction makes sense. Article 1191 gives the injured party an
option to choose between, first, fulfillment of the contract and, second, its
rescission. An action to enforce a written contract (fulfillment) is definitely
an action upon a written contract, which prescribes in 10 years (Article
1144). It will not be logical to make the remedy of fulfillment prescribe in 10
years while the alternative remedy of rescission (or resolution) is made to
prescribe after only four years as provided in Article 1389 when the injury
from which the two kinds of actions derive is the same.
Here, the Quirong heirs alleged in their complaint that they were
entitled to the rescission of the contract of sale of the lot between the DBP
and Sofia Quirong because the decision in Civil Case D-7159 deprived her
heirs of nearly the whole of that lot. But what was the status of that contract
at the time of the filing of the action for rescission? Apparently, that contract
of sale had already been fully performed when Sofia Quirong paid the full
price for the lot and when, in exchange, the DBP executed the deed of
absolute sale in her favor. There was a turnover of control of the property
from DBP to Sofia Quirong since she assumed under their contract, the
ejectment of squatters and/or occupants on the lot, at her own expense. [19]

Actually, the cause of action of the Quirong heirs stems from their
having been ousted by final judgment from the ownership of the lot that the
DBP sold to Sofia Quirong, their predecessor, in violation of the warranty
against eviction that comes with every sale of property or thing. Article
1548 of the Civil Code provides:
Article 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 thing purchased.
xxxx
With the loss of 80% of the subject lot to the Dalopes by reason of the
judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right
to file an action for rescission against the DBP pursuant to the provision of
Article 1556 of the Civil Code which provides:
Article 1556. Should the vendee lose, by reason of the
eviction, a part of the thing sold of such importance, in
relation to the whole, that he would not have bought it
without said part, he may demand the rescission of the
contract; but with the obligation to return the thing without
other encumbrances than those which it had when he
acquired it. x x x
And that action for rescission, which is based on a subsequent
economic loss suffered by the buyer, was precisely the action that the
Quirong heirs took against the DBP. Consequently, it prescribed as Article
1389 provides in four years from the time the action accrued. Since it
accrued on January 28, 1993 when the decision in Civil Case D-7159
became final and executory and ousted the heirs from a substantial portion
of the lot, the latter had only until January 28, 1997 within which to file their
action for rescission. Given that they filed their action on June 10, 1998,
they did so beyond the four-year period.
With the conclusion that the Court has reached respecting the first
issue presented in this case, it would serve no useful purpose for it to
further consider the issue of whether or not the heirs of Quirong would have

been entitled to the rescission of the DBPs sale of the subject lot to Sofia
Quirong as a consequence of her heirs having been evicted from it. As the
Court has ruled above, their action was barred by prescription. The CA
acted correctly in reversing the RTC decision and dismissing their action.
Parenthetically, the Quirong heirs were allowed by the RTC to
intervene in the original action for annulment of sale in Civil Case D-7159
that the Dalopes filed against the DBP and the Funcions. Not only did the
heirs intervene in defense of the sale, they likewise filed a cross claim
against the DBP. And they were apparently heard on their defense and
cross claim but the RTC did not adjudicate their claim for the reason that
they failed to make a formal offer of their documentary exhibits.Yet, they did
not appeal from this omission or from the judgment of the RTC, annulling
the DBPs sale of the subject lot to Sofia Quirong. This point is of course
entirely academic but it shows that the Quirong heirs have themselves to
blame for the loss of whatever right they may have in the case.
WHEREFORE, the Court DENIES the petition and AFFIRMS the
November 30, 2005 decision of the Court of Appeals in CA-G.R. CV 83897.
SO ORDERED.
SECOND DIVISION
ASSET PRIVATIZATION TRUST, G.R. No. 167195
Petitioner,
Present:
CARPIO MORALES, J.,*
- versus - Acting Chairperson,
TINGA,
VELASCO, JR.,
LEONARDO-DE CASTRO,** and
BRION, JJ.
T.J. ENTERPRISES,
Respondent. Promulgated:
May 8, 2009
x----------------------------------------------------------------------------------x
DECISION

TINGA, J.::
This is a Rule 45 petition[1] which seeks the reversal of the Court of
Appeals decision[2] and resolution[3] affirming the RTCs decision[4] holding
petitioner liable for actual damages for breach of contract.
Petitioner Asset Privatization Trust[5] (petitioner) was a government
entity created for the purpose to conserve, to provisionally manage and to
dispose assets of government institutions. [6] Petitioner had acquired from
the Development Bank of the Philippines (DBP) assets consisting of
machinery and refrigeration equipment which were then stored
at Golden City compound, Pasay City. The compound was then leased to
and in the physical possession of Creative Lines, Inc., (Creative Lines).
These assets were being sold on an as-is-where-is basis.
On 7 November 1990, petitioner and respondent entered into an
absolute deed of sale over certain machinery and refrigeration equipment
identified as Lots Nos. 2, 3 and 5. Respondent paid the full amount
of P84,000.00 as evidenced by petitioners Receipt No. 12844. After two (2)
days, respondent demanded the delivery of the machinery it had
purchased. Sometime in March 1991, petitioner issued Gate Pass No.
4955. Respondent was able to pull out from the compound the properties
designated as Lots Nos. 3 and 5. However, during the hauling of Lot No. 2
consisting of sixteen (16) items, only nine (9) items were pulled out by
respondent. The seven (7) items that were left behind consisted of the
following: (1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1)
Reefer Unit 3; (4) one (1) unit blast freezer with all accessories; (5) one (1)
unit chest freezer; (6) one (1) unit room air-conditioner; and (7) one (1) unit
air compressor. Creative Lines employees prevented respondent from
hauling the remaining machinery and equipment.
Respondent filed a complaint for specific performance and damages
against petitioner and Creative Lines. [7] During the pendency of the case,
respondent was able to pull out the remaining machinery and equipment.
However, upon inspection it was discovered that the machinery and
equipment were damaged and had missing parts.

Petitioner argued that upon the execution of the deed of sale it had
complied with its obligation to deliver the object of the sale since there was
no stipulation to the contrary. It further argued that being a sale on an as-iswhere-is basis, it was the duty of respondent to take possession of the
property. Petitioner claimed that there was already a constructive delivery
of the machinery and equipment.
The RTC ruled that the execution of the deed of absolute sale did not
result in constructive delivery of the machinery and equipment. It found that
at the time of the sale, petitioner did not have control over the machinery
and equipment and, thus, could not have transferred ownership by
constructive delivery. The RTC ruled that petitioner is liable for breach of
contract and should pay for the actual damages suffered by respondent.

On petitioners appeal, the Court of Appeals affirmed in toto the

decision of the RTC.
Hence this petition.
Before this Court, petitioner raises issues by attributing the following
errors to the Court of Appeals, to wit:
I.
The Court of Appeals erred in not finding that petitioner
had complied with its obligation to make delivery of the
properties subject of the contract of sale.
II.
The Court of Appeals erred in not considering that the
sale was on an as-is-where-is basis wherein the
properties were sold in the condition and in the place
where they were located.

III.
The Court of Appeals erred in not considering that
respondents acceptance of petitioners disclaimer of
warranty forecloses respondents legal basis to enforce
any right arising from the contract.
IV.
The reason for the failure to make actual delivery of the
properties was not attributable to the fault and was
beyond the control of petitioner. The claim for damages
against petitioner is therefore bereft of legal basis. [8]

The first issue hinges on the determination of whether there was a

constructive delivery of the machinery and equipment upon the execution
of the deed of absolute sale between petitioner and respondent.
The ownership of a thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof. [9] The thing sold shall be
understood as delivered when it is placed in the control and possession of
the vendee.[10]
As a general rule, when the sale is made through a public instrument,
the execution thereof shall be equivalent to the delivery of the thing which
is the object of the contract, if from the deed the contrary does not appear
or cannot clearly be inferred. And with regard to movable property, its
delivery may also be made by the delivery of the keys of the place or
depository where it is stored or kept. [11] In order for the execution of a public
instrument to effect tradition, the purchaser must be placed in control of the
thing sold.[12]

However, the execution of a public instrument only gives rise to

a prima facie presumption of delivery. Such presumption is destroyed when
the delivery is not effected because of a legal impediment. [13] It is necessary
that the vendor shall have control over the thing sold that, at the moment of
sale, its material delivery could have been made. [14] Thus, a person who
does not have actual possession of the thing sold cannot transfer
constructive possession by the execution and delivery of a public
instrument.[15]
In this case, there was no constructive delivery of the machinery and
equipment upon the execution of the deed of absolute sale or upon the
issuance of the gate pass since it was not petitioner but Creative Lines
which had actual possession of the property. The presumption of
constructive delivery is not applicable as it has to yield to the reality that the
purchaser was not placed in possession and control of the property.
On the second issue, petitioner posits that the sale being in an as-iswhere-is basis, respondent agreed to take possession of the
things sold in the condition where they are found and from the place

where they are located. The phrase as-is where-is basis pertains solely to
the physical condition of the thing sold, not to its legal situation. [16] It is
merely descriptive of the state of the thing sold. Thus, the as-is whereis basis merely describes the actual state and location of the machinery
and equipment sold by petitioner to respondent. The depiction does not
alter petitioners responsibility to deliver the property to respondent.
Anent the third issue, petitioner maintains that the presence of the
disclaimer of warranty in the deed of absolute sale absolves it from all
warranties, implied or otherwise. The position is untenable.
The vendor is bound to transfer the ownership of and deliver, as well
as warrant the thing which is the object of the sale. [17] Ownership of the
thing sold is acquired by the vendee from the moment it its delivered to him

in any of the ways specified in articles 1497 to 1501, or in any other

manner signifying an agreement that the possession is transferred from the
vendor to the vendee.[18] A perusal of the deed of absolute sale shows that
both the vendor and the vendee represented andwarranted to each other
that
each
had
all
the
requisite
power
and
authority to enter into the deed of absolute sale and that they shall

perform each of their respective obligations under the deed of absolute in

accordance with the terms thereof.[19] As previously shown, there was no
actual or constructive delivery of the things sold. Thus, petitioner has not
performed its obligation to transfer ownership and possession of the things
sold to respondent.
As to the last issue, petitioner claims that its failure to make actual
delivery was beyond its control. It posits that the refusal of Creative Lines to
allow the hauling of the machinery and equipment was unforeseen and
constituted a fortuitous event.
The matter of fortuitous events is governed by Art. 1174 of the Civil
Code which provides that except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the
obligation requires assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which though foreseen, were
inevitable. The elements of a fortuitous event are: (a) the cause of the
unforeseen and unexpected occurrence, must have been independent of
human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the
occurrence must have been such as to render it impossible for the debtors
to fulfill their obligation in a normal manner, and; (d) the obligor must have
been free from any participation in the aggravation of the resulting injury to
the creditor.[20]

A fortuitous event may either be an act of God, or natural occurrences

such as floods or typhoons, or an act of man such as riots, strikes or wars.
[21]
However, when the loss is found to be partly the result of a persons
participationwhether by active intervention, neglect or failure to actthe
whole occurrence is humanized and removed from the rules applicable to a
fortuitous event.[22]
We quote with approval the following findings of the Court of Appeals,
to wit:
We find that Creative Lines refusal to surrender the
property to the vendee does not constitute force majeure which
exculpates APT from the payment of damages. This event
cannot be considered unavoidable or unforeseen. APT knew for
a fact that the properties to be sold were housed in the
premises leased by Creative Lines. It should have made
arrangements with Creative Lines beforehand for the smooth
and orderly removal of the equipment. The principle embodied
in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and all
human agencies are to be excluded from creating or entering
into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or
neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable
to the acts of God.[23]
Moreover, Art. 1504 of the Civil Code provides that where actual
delivery has been delayed through the fault of either the buyer or seller the
goods are at the risk of the party in fault. The risk of loss or deterioration of
the goods sold does not pass to the buyer until there is actual or
constructive delivery thereof. As previously discussed, there was no actual
or constructive delivery of the machinery and equipment. Thus, the risk of
loss or deterioration of property is borne by petitioner. Thus, it should be
liable for the damages that may arise from the delay.

Assuming arguendo that Creative Lines refusal to allow the hauling of

the machinery and equipment is a fortuitous event, petitioner will still be
liable for damages. This Court agrees with the appellate courts findings on
the matter of damages, thus:
Article 1170 of the Civil Code states: Those who in the
performance of their obligations are guilty of fraud, negligence,
or delay and those who in any manner contravene the tenor
thereof are liable for damages. In contracts and quasicontracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the
parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted. [24] The trial court correctly
awarded actual damages as pleaded and proven during trial. [25]

WHEREFORE, the Court AFFIRMS in toto the Decision of the Court

of Appeals dated 31 August 2004. Cost against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 52267

January 24, 1996

ENGINEERING & MACHINERY CORPORATION, petitioner,

vs.
COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.
DECISION
PANGANIBAN, J.:

Is a contract for the fabrication and installation of a central air-conditioning

system in a building, one of "sale" or "for a piece of work"? What is the
prescriptive period for filing actions for breach of the terms of such
contract?
These are the legal questions brought before this Court in this Petition for
review on certiorari under Rule 45 of the Rules of Court, to set aside the
Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated on
November 28, 1978 (affirming in toto the decision3 dated April 15, 1974 of
the then Court of First Instance of Rizal, Branch II 4 , in Civil Case No.
14712, which ordered petitioner to pay private respondent the amount
needed to rectify the faults and deficiencies of the air-conditioning system
installed by petitioner in private respondent's building, plus damages,
attorney's fees and costs).
By a resolution of the First Division of this Court dated November 13, 1995,
this case was transferred to the Third. After deliberating on the various
submissions of the parties, including the petition, record on appeal, private
respondent's comment and briefs for the petitioner and the private
respondent, the Court assigned the writing of this Decision to the
undersigned, who took his oath as a member of the Court on October 10,
1995.
The Facts
Pursuant to the contract dated September 10, 1962 between petitioner and
private respondent, the former undertook to fabricate, furnish and install the
air-conditioning system in the latter's building along Buendia Avenue,
Makati in consideration of P210,000.00. Petitioner was to furnish the
materials, labor, tools and all services required in order to so fabricate and
install said system. The system was completed in 1963 and accepted by
private respondent, who paid in full the contract price.
On September 2, 1965, private respondent sold the building to the National
Investment and Development Corporation (NIDC). The latter took
possession of the building but on account of NIDC's noncompliance with
the terms and conditions of the deed of sale, private respondent was able
to secure judicial rescission thereof. The ownership of the building having
been decreed back to private respondent, he re-acquired possession

sometime in 1971. It was then that he learned from some NIDC, employees
of the defects of the air-conditioning system of the building.
Acting on this information, private respondent commissioned Engineer
David R. Sapico to render a technical evaluation of the system in relation to
the contract with petitioner. In his report, Sapico enumerated the defects of
the system and concluded that it was "not capable of maintaining the
desired room temperature of 76F - 2F (Exhibit C)" 5 .
On the basis of this report, private respondent filed on May 8, 1971 an
action for damages against petitioner with the then Court of First Instance
of Rizal (Civil Case No. 14712). The complaint alleged that the airconditioning system installed by petitioner did not comply with the agreed
plans and specifications. Hence, private respondent prayed for the amount
of P210,000.00 representing the rectification cost, P100,000.00 as
damages and P15,000.00 as attorney's fees.
Petitioner moved to dismiss the complaint, alleging that the prescriptive
period of six months had set in pursuant to Articles 1566 and 1567, in
relation to Article 1571 of the Civil Code, regarding the responsibility of a
vendor for any hidden faults or defects in the thing sold.
Private respondent countered that the contract dated September 10, 1962
was not a contract for sale but a contract for a piece of work under Article
1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the
same Code, the complaint was timely brought within the ten-year
prescriptive period.
In its reply, petitioner argued that Article 1571 of the Civil Code providing for
a six-month prescriptive period is applicable to a contract for a piece of
work by virtue of Article 1714, which provides that such a contract shall be
governed by the pertinent provisions on warranty of title and against hidden
defects and the payment of price in a contract of sale 6 .
The trial court denied the motion to dismiss. In its answer to the complaint,
petitioner reiterated its claim of prescription as an affirmative defense. It
alleged that whatever defects might have been discovered in the airconditioning system could have been caused by a variety of factors,
including ordinary wear and tear and lack of proper and regular
maintenance. It pointed out that during the one-year period that private
respondent withheld final payment, the system was subjected to "very rigid

inspection and testing and corrections or modifications effected" by

petitioner. It interposed a compulsory counterclaim suggesting that the
complaint was filed "to offset the adverse effects" of the judgment in Civil
Case No. 71494, Court of First Instance of Manila, involving the same
parties, wherein private respondent was adjudged to pay petitioner the
balance of the unpaid contract price for the air-conditioning system installed
in another building of private respondent, amounting to P138,482.25.
Thereafter, private respondent filed an ex-parte motion for preliminary
attachment on the strength of petitioner's own statement to the effect that it
had sold its business and was no longer doing business in Manila. The trial
court granted the motion and, upon private respondent's posting of a bond
of F'50,000.00, ordered the issuance of a writ of attachment.
In due course, the trial court rendered a decision finding that petitioner
failed to install certain parts and accessories called for by the contract, and
deviated from the plans of the system, thus reducing its operational
effectiveness to the extent that 35 window-type units had to be installed in
the building to achieve a fairly desirable room temperature. On the question
of prescription, the trial court ruled that the complaint was filed within the
ten-year court prescriptive period although the contract was one for a piece
of work, because it involved the "installation of an air-conditioning system
which the defendant itself manufactured, fabricated, designed and
installed."
Petitioner appealed to the Court of Appeals, which affirmed the decision of
the trial court. Hence, it instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three issues. First, it contended that
private respondent's acceptance of the work and his payment of the
contract price extinguished any liability with respect to the defects in the airconditioning system. Second, it claimed that the Court of Appeals erred
when it held that the defects in the installation were not apparent at the
time of delivery and acceptance of the work considering that private
respondent was not an expert who could recognize such defects. Third, it
insisted that, assuming arguendo that there were indeed hidden defects,
private respondent's complaint was barred by prescription under Article
1571 of the Civil Code, which provides for a six-month prescriptive period.

Private respondent, on the other hand, averred that the issues raised by
petitioner, like the question of whether there was an acceptance of the work
by the owner and whether the hidden defects in the installation could have
been discovered by simple inspection, involve questions of fact which have
been passed upon by the appellate court.
The Court's Ruling
The Supreme Court reviews only errors of law in petitions for review
on certiorari under Rule 45. It is not the function of this Court to re-examine
the findings of fact of the appellate court unless said findings are not
supported by the evidence on record or the judgment is based on a
misapprehension of facts7 of Appeals erred when it held that the defects in
the installation were not apparent at the time of delivery and acceptance of
the work considering that private respondent was not an expert who could
recognize such defects. Third. it insisted that, assuming arguendothat there
were indeed hidden defects, private respondent's complaint was barred by
prescription under Article 1571 of the Civil Code, which provides for a sixmonth prescriptive period.
Private respondent, on the other hand, averred that the issues raised by
petitioner, like the question of whether here was an acceptance of the work
by the owner and whether the hidden defects in the installation could have
been discovered by simple inspection, involve questions of fact which have
been passed upon by the appellate court.
The Court has consistently held that the factual findings of the trial
court, as well as the Court of Appeals, are final and conclusive and
may not be reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts found by the lower
courts is allowed are when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; when the inference
made is manifestly absurd, mistaken or impossible; when there is
grave abuse of discretion in the appreciation of facts; when the
judgment is premised on a misapprehension of facts; when the
findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above grounds
present to justify the re-evaluation of the findings of fact made by the
courts below.8

We see no valid reason to discard the factual conclusions of the

appellate court. . . . (I)t is not the function of this Court to assess and
evaluate all over again the evidence, testimonial and documentary,
adduced by the parties, particularly where, such as here, the findings
of both the trial court and the appellate court on the matter
coincide.9 (Emphasis supplied)
Hence, the first two issues will not be resolved as they raise questions of
fact.
Thus, the only question left to be resolved is that of prescription. In their
submissions, the parties argued lengthily on the nature of the contract
entered into by them, viz., whether it was one of sale or for a piece of work.
Article 1713 of the Civil Code defines a contract for a piece of work thus:
By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain
price or compensation. The contractor may either employ only his
labor or skill, or also furnish the material.
A contract for a piece of work, labor and materials may be distinguished
from a contract of sale by the inquiry as to whether the thing transferred is
one not in existence and which would never have existed but for the order,
of the person desiring it10 . In such case, the contract is one for a piece of
work, not a sale. On the other hand, if the thing subject of the contract
would have existed and been the subject of a sale to some other person
even if the order had not been given, then the contract is one of sale 11 .
Thus, Mr. Justice Vitug12 explains that A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the
time or not is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order,
and not for the general market, it is a contract for a piece of work (Art.
1467, Civil Code). The mere fact alone that certain articles are made
upon previous orders of customers will not argue against the
imposition of the sales tax if such articles are ordinarily manufactured

by the taxpayer for sale to the public (Celestino Co. vs. Collector, 99
Phil. 841).
To Tolentino, the distinction between the two contracts depends on the
intention of the parties. Thus, if the parties intended that at some future
date an object has to be delivered, without considering the work or labor of
the party bound to deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of some plan, taking into
account the work he will employ personally or through another, there is a
contract for a piece of work13 .
Clearly, the contract in question is one for a piece of work. It is not
petitioner's line of business to manufacture air-conditioning systems to be
sold "off-the-shelf." Its business and particular field of expertise is the
fabrication and installation of such systems as ordered by customers and in
accordance with the particular plans and specifications provided by the
customers. Naturally, the price or compensation for the system
manufactured and installed will depend greatly on the particular plans and
specifications agreed upon with the customers.
The obligations of a contractor for a piece of work are set forth in Articles
1714 and 1715 of the Civil Code, which provide:
Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer
and transfer dominion over the thing. This contract shall be governed
by the following articles as well as by the pertinent provisions on
warranty of title and against hidden defects and the payment of price
in a contract of sale.
Art. 1715. The contractor shall execute the work in such a manner
that it has the qualities agreed upon and has no defects which
destroy or lessen its value or fitness for its ordinary or stipulated use.
Should the work be not of such quality, the employer may require that
the contractor remove the defect or execute another work. If the
contractor fails or refuses to comply with this obligation, the employer
may have the defect removed or another work executed, at the
contractor's cost.
The provisions on warranty against hidden defects, referred to in Art. 1714
above-quoted, are found in Articles 1561 and 1566, which read as follows:

Art. 1561. The vendor shall be responsible for warranty against the
hidden defects which the thing sold may have, should they render it
unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a
lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.
xxx

xxx

xxx

Art. 1566. The vendor is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not aware
thereof.
This provision shall not apply if the contrary has been stipulated, and
the vendor was not aware of the hidden faults or defects in the thing
sold.
The remedy against violations of the warranty against hidden defects is
either to withdraw from the contract (redhibitory action) or to demand a
proportionate reduction of the price (accion quanti manoris), with damages
in either case14 .
In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article
1571 of the Civil Code provides for a prescriptive period of six months for a
redhibitory action, a cursory reading of the ten preceding articles to which it
refers will reveal that said rule may be applied only in case of implied
warranties"; and where there is an express warranty in the contract, as in
the case at bench, the prescriptive period is the one specified in the
express warranty, and in the absence of such period, "the general rule on
rescission of contract, which is four years (Article 1389, Civil Code) shall
apply"16 .
Consistent with the above discussion, it would appear that this suit is
barred by prescription because the complaint was filed more than four
years after the execution of the contract and the completion of the airconditioning system.

However, a close scrutiny of the complaint filed in the trial court reveals that
the original action is not really for enforcement of the warranties against
hidden defects, but one for breach of the contract itself. It alleged 17 that the
petitioner, "in the installation of the air conditioning system did not comply
with the specifications provided" in the written agreement between the
parties, "and an evaluation of the air-conditioning system as installed by the
defendant showed the following defects and violations of the specifications
of the agreement, to wit:
GROUND FLOOR:
"A. RIGHT WING:
Equipped with Worthington Compressor, Model 2VC4 directly driven
by an Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts,
complete with starter evaporative condenser, circulating water pump,
air handling unit air ducts.
Defects Noted:
1. Deteriorated evaporative condenser panels, coils are full of scales
and heavy corrosion is very evident.
2. Defective gauges of compressors;
3. No belt guard on motor;
4. Main switch has no cover;
5. Desired room temperature not attained;
Aside from the above defects, the following were noted not installed
although provided in the specifications.
1. Face by-pass damper of G.I. sheets No. 16. This damper regulates
the flow of cooled air depending on room condition.
2. No fresh air intake provision were provided which is very
necessary for efficient comfort cooling..
3. No motor to regulate the face and by-pass damper.

4. Liquid level indicator for refrigerant not provided.

5. Suitable heat exchanger is not installed. This is an important
component to increase refrigeration efficiency.
6. Modulating thermostat not provided.
7. Water treatment device for evaporative condenser was not
provided.
8. Liquid receiver not provided by sight glass.
B. LEFT WING:
Worthington Compressor Model 2VC4 is installed complete with 15
Hp electric motor, 3 phase, 220 volts 60 cycles with starter.
Defects Noted:
Same as right wing. except No. 4, All other defects on right wing are
common to the left wing.
SECOND FLOOR: (Common up to EIGHT FLOORS)
Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800
RPM, -220 volts, 60 cycles, 3 phase, Thrige electric motor with
starters.
As stated in the specifications under, Section No. IV, the MELCO
compressors do not satisfy the conditions stated therein due to the
following:
1. MELCO Compressors are not provided with automatic capacity
unloader.
2. Not provided with oil pressure safety control.
3. Particular compressors do not have provision for renewal sleeves.
Out of the total 15 MELCO compressors installed to serve the 2nd
floor up to 8th floors, only six (6) units are in operation and the rest

were already replaced. Of the remaining six (6) units, several of them
have been replaced with bigger crankshafts.
NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60
cycles, 1750 rpm, Higgs motors with starters.
Defects Noted are similar to ground floor.
GENERAL REMARKS:
Under Section III, Design conditions of specification for air
conditioning work, and taking into account "A" & "B" same, the
present systems are not capable of maintaining the desired
temperature of 76 = 2F (sic).
The present tenant have installed 35 window type air conditioning
units distributed among the different floor levels. Temperature
measurements conducted on March 29. 1971, revealed that 78F
room (sic) is only maintained due to the additional window type units.
The trial court, after evaluating the evidence presented, held that, indeed,
petitioner failed to install items and parts required in the contract and
substituted some other items which were not in accordance with the
specifications18 , thus:
From all of the foregoing, the Court is persuaded to believe the
plaintiff that not only had the defendant failed to install items and
parts provided for in the specifications of the air-conditioning system
be installed, like face and by-pass dampers and modulating
thermostat and many others, but also that there are items, parts and
accessories which were used and installed on the air-conditioning
system which were not in full accord with contract specifications.
These omissions to install the equipments, parts and accessories
called for in the specifications of the contract, as well as the
deviations made in putting into the air-conditioning system
equipments, parts and accessories not in full accord with the contract
specification naturally resulted to adversely affect the operational
effectiveness of the air-conditioning system which necessitated the
installation of thirty-five window type of air-conditioning units

distributed among the different floor levels in order to be able to

obtain a fairly desirable room temperature for the tenants and actual
occupants of the building. The Court opines and so holds that the
failure of the defendant to follow the contract specifications and said
omissions and deviations having resulted in the operational
ineffectiveness of the system installed makes the defendant liable to
the plaintiff in the amount necessary to rectify to put the air
conditioning system in its proper operational condition to make it
serve the purpose for which the plaintiff entered into the contract with
the defendant.
The respondent Court affirmed the trial court's decision thereby making the
latter's findings also its own.
Having concluded that the original complaint is one for damages arising
from breach of a written contract - and not a suit to enforce warranties
against hidden defects - we here - with declare that the governing law is
Article 1715 (supra). However, inasmuch as this provision does not contain
a specific prescriptive period, the general law on prescription, which is
Article 1144 of the Civil Code, will apply. Said provision states, inter alia,
that actions "upon a written contract" prescribe in ten (10) years. Since the
governing contract was executed on September 10, 1962 and the
complaint was filed on May 8, 1971, it is clear that the action has not
prescribed.
What about petitioner's contention that "acceptance of the work by the
employer relieves the contractor of liability for any defect in the work"? This
was answered by respondent Court19 as follows:
As the breach of contract which gave rise to the instant case
consisted in appellant's omission to install the equipments (sic), parts
and accessories not in accordance with the plan and specifications
provided for in the contract and the deviations made in putting into
the air conditioning system parts and accessories not in accordance
with the contract specifications, it is evident that the defect in the
installation was not apparent at the time of the delivery and
acceptance of the work, considering further that plaintiff is not an
expert to recognize the same. From the very nature of things, it is
impossible to determine by the simple inspection of air conditioning

system installed in an 8-floor building whether it has been furnished

and installed as per agreed specifications.
Verily, the mere fact that the private respondent accepted the work does
not, ipso facto, relieve the petitioner from liability for deviations from and
violations of the written contract, as the law gives him ten (10) years within
which to file an action based on breach thereof.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is
AFFIRMED. No costs.
SO ORDERED.