FIRST DIVISION
[G.R. No. 125088. April 14, 2004]
LAGRIMAS A. BOY, petitioner, vs. COURT OF APPEALS,
ISAGANI P. RAMOS and ERLINDA GASINGAN
RAMOS, respondents.
DECISION
AZCUNA, J.:
Before us is a petition for review on certiorari of the
decision of the Court of Appeals in an ejectment case, docketed
as CA-G.R. SP No. 38716, which reversed and set aside the
decision[1] of the Regional Trial Court of Manila, Branch
54,[2] and reinstated the decision[3] of the Metropolitan Trial Court
of Manila, Branch 14,[4] ordering petitioner to vacate the disputed
premises and to pay rent until the premises are vacated and
possession is turned over to private respondents.
The facts, as stated by the Court of Appeals, are as
follows:
On September 24, 1993, the spouses Isagani P. Ramos
and Erlinda Gasingan Ramos, private respondents herein, filed
an action for ejectment against Lagrimas A. Boy (Lagrimas),
petitioner herein, with the Metropolitan Trial Court of Manila. In
their Complaint, the spouses Ramos alleged that they are the
owners of a parcel of land with an area of 55.75 square meters,
and the house existing thereon, situated at 1151 Florentino
Torres St., Singalong, Manila. They acquired the said properties
from Lagrimas who sold the same to them by virtue of a Deed of
Absolute Sale,[5] which was executed on June 4, 1986. However,
Lagrimas requested for time to vacate the premises, and they
agreed thereto, because they were not in immediate need of the
premises. Time came when they needed the said house as they
were only renting their own residence. They then demanded that
Lagrimas vacate the subject premises, but she refused to do
so. Hence, they initiated this action for ejectment against
Lagrimas.[6]
In her Answer, Lagrimas alleged that sometime in
September 1984, in order to accommodate her brothers need for
a placement fee to work abroad, she borrowed P15,000 from the
spouses Ramos, who asked for the subject property as
collateral. On June 4, 1986, the spouses Ramos caused her to
sign a Deed of Absolute Sale purporting to show that she sold
the property in question to them for the sum of P31,000. The
balance of P16,000 was promised to be paid on that date, but
the promise was never fulfilled.Sometime in May 1988, Erlinda
Ramos and Lagrimas executed an agreement
(Kasunduan)[7] acknowledging that the subject parcel of land,
together with the upper portion of the house thereon, had been
sold by Lagrimas to the spouses Ramos for P31,000; that of the
said price, the sum of P22,500 (representing P15,000 cash loan
plus P7,500 as interest from September 1984 to May 1988) had
been paid; that the balance of P8,500 would be paid on the last
week of August 1988; and that possession of the property would
be transferred to the spouses Ramos only upon full payment of
the purchase price.[8]
Lagrimas admitted that the counsel of the spouses Ramos
sent her a letter demanding that she vacate the
premises. Lagrimas alleged that the demand for her to pay the
sum of P6,000 per month has no legal basis. Lagrimas was
summoned by the Punong Barangay for conciliation, but no
settlement was reached.[9]
The Metropolitan Trial Court (MeTC) noted the existence of
a Deed of Absolute Sale executed by the spouses Ramos and
Lagrimas on June 4, 1986. The Deed was duly acknowledged
before a Notary Public and the parties therein did not deny its
due execution. The MeTC observed that Lagrimas defense that
the spouses Ramos still had to pay the amount of P16,000 to
complete the full consideration of P31,000 was nowhere to be
found in the Deed of Absolute Sale.[10]
The MeTC held that the Kasunduan, which Lagrimas
attached to her Answer, cannot be given binding effect. The
MeTC stated that while Erlinda Ramos admitted the existence of
said document, she thought that Lagrimas was only asking for
an additional amount. Erlinda Ramos claimed that after signing
and reading the document, she realized that it did not contain the
true facts of the situation since they had already purchased the
subject property and were, therefore, the owners thereof. Erlinda
Ramos, thereafter, refused to give her residence certificate and
asked the notary public not to notarize the document. Said
incident was attested to by way of affidavit by Lutgarda Reyes,
the friend and companion of Lagrimas.[11]
Moreover, the MeTC ruled that the continued occupation by
Lagrimas of said property after the sale, without payment of rent,
was by mere tolerance. It held that since the spouses Ramos,
who were staying in a rented place, were asked to vacate the
same, they were in need to take possession of their own
property.[12]
The MeTC thus rendered judgment in favor of private
respondents, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs [herein private respondents] and against the defendant
[herein petitioner], ordering the latter and the persons claiming
rights under her to vacate the premises known as 1151
Florentino [Torres] Street, Singalong, Manila. The defendant is
likewise ordered to pay plaintiffs the sum of P1,000.00 per month
as reasonable compensation for the use and occupation of the
premises from the filing of this complaint until the premises is
vacated and possession is turned over to the plaintiffs; the
further sum of P5,000.00 as attorneys fees plus the costs of the
suit.
Defendants counterclaim is hereby dismissed for lack of merit.
SO ORDERED.[13]
Petitioner appealed said decision to the Regional Trial
Court, which rendered judgment in her favor, thus:
In view of the foregoing, this Court hereby reverses the assailed
Decision and dismisses the complaint. Costs against the
appellee.
The order previously issued granting execution pending appeal
is accordingly recalled.
SO ORDERED.[14]
The Regional Trial Court (RTC) held that
the Kasunduan was binding between the parties and was the
true agreement between them. It ruled that pending the
determination of the question of ownership, it cannot deprive the
party in actual possession of the right to continue peacefully with
said possession. Since the question of ownership was
inextricably woven with that of possession, the RTC held that the
MeTC should have dismissed the case because jurisdiction
pertains to another tribunal.[15]
Private respondents filed a petition for review of the
decision of the RTC with the Court of Appeals. They faulted the
respondent Judge for giving credence to the Kasunduanand
holding that it prevailed over the Deed of Absolute Sale. The
Court of Appeals ruled in favor of private respondents, thus:
WHEREFORE, the decision of the respondent Judge herein
appealed from is hereby REVERSED and SET ASIDE, and the
decision of the Metropolitan Trial Court is hereby REINSTATED.
SO ORDERED.[16]
The Court of Appeals found, thus:
A review of the records discloses that the private respondent
[herein petitioner Lagrimas] acquired the subject property from
one Marianita C. Valera by virtue of two instruments. The first
one is a Deed of Sale dated September 27, 1984, in which the
vendor Marianita C. Valera sold a house of light wooden
materials and her rights as a bonafide tenant of the land on
which it stands, to the vendee Lagrimas A. Boy for P31,000.00
(Annex 1 to the Affidavit of Lagrimas A. Boy, p. 67, Record). The
second one is a deed of absolute sale and assignment of rights
dated March 18, 1985, in which the vendor Ma. Nita C. Valera
sold a residential house and her rights and interests over a
parcel of land in which it is located, to vendee Lagrimas A. Boy,
for the price of P31,000.00 (Annex 2, Affidavit of Lagrimas A.
Boy, pp. 68-69, Record).
It appears from the foregoing that Marianita C. Valera was
originally one of the tenants/residents of 669 square meters of
land owned by the PNB. She constructed a house on a 55.75
square meter portion of the said land. In 1984, she sold the
house and only her rights as tenant of the land to private
respondent, because the PNB had not yet sold the land to the
residents. In 1985, the sale of the land to the residents had
already been accomplished. Hence, she sold the house and
her rights and interests to the land to the private respondent.
Significantly, these contracts coincide with certain events in the
relationship between the petitioners [herein private respondents
spouses Ramos] and private respondent. According to the
Answer of private respondent, sometime in September, 1984,
she borrowed the sum of P15,000.00 from the petitioners to
accommodate her brothers placement fee to work abroad (par.
7, Answer, p. 19, Record). And on March 19, 1985, the private
respondent executed a deed of real estate mortgage (Annex a to
the Affidavit of Erlinda C. Ramos, pp. 54-55, Record), in which
she mortgaged the properties she has acquired from Marianita
C. Valera to the petitioners, to secure a loan in the amount
of P26,200.00, payable within three months.
One year later, on June 4, 1986, the private respondent
executed a deed of absolute sale in which she sold the same
property acquired from Marianita C. Valera to the petitioners, for
the price ofP31,000.00. [17]
1
 Considering that petitioner borrowed P26,200 from private
respondents, which loan was covered by a real estate mortgage
of the subject house and lot, and the subsequent sale of the
property to private respondents for P31,000 after non-payment
of the loan, the Court of Appeals did not give credence to the
statement in the Kasunduan that private respondents paid
only P22,500 to petitioner since her indebtedness already
reached P26,200. The Court of Appeals gave weight to the
argument of private respondents that Erlinda Ramos was merely
tricked into signing the Kasunduan. It gave credence to the
version of private respondents on how the Kasunduan came to
be executed but not notarized, thus:
x x x Erlinda G. Ramos alleged in her affidavit that sometime in
May, 1988, the exact date of which she cannot recall, Lagrimas
Boy went to their residence and pleaded that even if they have
already fully paid the subject house and lot, she was asking for
an additional amount because she needed the money and there
was no one for her to approach (walang ibang
matatakbuhan). She [Erlinda Ramos] claimed she committed a
mistake because she agreed to give an additional amount and
went with [Lagrimas] to Atty. Estacio at the City Hall. [Lagrimas]
arrive[d] ahead [of] Atty. Estacio in company with her friend
Lutgarda Bayas. Atty. Estacio told her [Erlinda Ramos] that she
will give an additional amount and she agreed without the
knowledge of her husband.Atty. Estacio handed to her a piece of
paper and she was made to sign and she acceded and signed it
without reading. After [Lagrimas] and her witnesses including her
companion Lutgarda Bayas signed the paper, she [Erlinda
Ramos] go[t] it and read it. It was at that point that she
discovered that what were written thereon were not in
accordance with the true and real fact and situation that the
subject house and lot already belongs to them because they
have purchased it already and {Lagrimas} only requested for an
addition. She [Erlinda Ramos] told Atty. Estacio to change
(baguhin) the statement because she was not agreeable and
she did not give her residence certificate (Cedula). Notary Public
Estacio said that he cannot notarize the document
(purportedKasunduan) because she [Erlinda Ramos] refused
saying she was Pumapalag. He said that Erlinda Ramos and
[Lagrimas] should talk to each other again. She [Erlinda Ramos]
committed another mistake because she left the place leaving
the piece of paper -- purported Kasunduan without knowing that
[Lagrimas] kept it. Erlinda Ramos innocently failed to demand
the said piece of paper which [Lagrimas] is now using. She
returned to Atty. Estacio to get the piece of paper but he
answered her saying naibasura na and she trusted him but this
time, it turned out that [Lagrimas] kept it which she is using now
in this case.[18]
The Court of Appeals stated that the fact that petitioner has
remained in possession of the property sold, and paid its real
estate taxes, would have made out a case for equitable
mortgage. However, it noted that petitioner did not raise this
defense, but admitted having sold the property to private
respondents, alleging only that they have not paid the purchase
price in full. It, therefore, ruled that the preponderance of
evidence is against petitioner.
Hence, this petition, with the following assigned errors:
I correctly ruled that private respondents have a right of material
THE RESPONDENT COURT GRAVELY ERRED AND ABUSED
ITS DISCRETION IN NOT INTERPRETING THAT THE
KASUNDUAN EXECUTED BY AND BETWEEN PETITIONER
(DEFENDANT) AND PRIVATE RESPONDENT (PLAINTIFF)
SUPERSEDES THE DEED OF SALE WHICH HAS NOT BEEN
CONSUMMATED.
II
THE RESPONDENT COURT GRAVELY ERRED AND ABUSED
ITS DISCRETION IN MISINTERPRETING AND
DISREGARDING THE KASUNDUAN AS NOT APPLICABLE IN
THE CASE AT BAR.
III
THE RESPONDENT COURT ERRED AND ABUSED ITS
DISCRETION IN REVERSING AND DISMISSING THE
DECISION OF THE REGIONAL TRIAL COURT AND [IN
REINSTATING] THE DECISION OF THE COURT A QUO.[19]
Petitioner contends that, as ruled by the RTC, since the
question of ownership in this case is interwoven with that of
possession, the MeTC should have dismissed the case because
jurisdiction pertains to another tribunal.
The contention is without merit.
The only issue for resolution in an unlawful detainer case is
physical or material possession of the property involved,
independent of any claim of ownership by any of the party
litigants.[20]
Prior to the effectivity of Batas Pambansa Blg. 129 (The
Judiciary Reorganization Act of 1980), the jurisdiction of inferior
courts was confined to receiving evidence of ownership in order
to determine only the nature and extent of possession, by reason
of which such jurisdiction was lost the moment it became
apparent that the issue of possession was interwoven with that
of ownership.[21]
With the enactment of Batas Pambansa Blg. 129, inferior
courts were granted jurisdiction to resolve questions of
ownership provisionally in order to determine the issue of
possession, thus:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts in Civil Cases.-
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts shall exercise:
xxx
(2) Exclusive original jurisdiction over cases of
forcible entry and unlawful
detainer: Provided, That when in
such cases, the defendant raises the
question of ownership in his
pleadings and the question of
possession cannot be resolved
without deciding the issue of
ownership, the issue of ownership
shall be resolved only to determine
the issue of possession.
Section 16, Rule 70 (Forcible Entry and Unlawful Detainer)
of the Rules of Court, as amended, similarly provides:
Sec.16. Resolving defense of ownership.- When the defendant
raises the defense of ownership in his pleadings and the
question of possession cannot be resolved without deciding the
issue of ownership, the issue of ownership shall be resolved only
to determine the issue of possession.
Thus, in forcible entry and unlawful detainer cases, if the
defendant raises the question of ownership in his pleadings and
the question of possession cannot be resolved without deciding
the issue of ownership, the inferior courts have the undoubted
competence provisionally to resolve the issue of ownership for
the sole purpose of determining the issue of possession. [22] The
MeTC, therefore, did not err in taking cognizance of the instant
case.
Petitioner also contends that the Court of Appeals erred by
misinterpreting and disregarding the Kasunduan, which is
binding between the parties and expressed their true
intent. Petitioner asserts that the Kasunduan supersedes the
Deed of Absolute Sale, which is actually a contract to sell. In
effect, petitioner is asking this Court to review the factual finding
of Court of Appeals on the true nature of the Kasunduan.
As a rule, the findings of the fact of the Court of Appeals
are final and cannot be reviewed on appeal by this Court,
provided they are borne out by the record or are based on
substantial evidence.[23] After reviewing the records herein, this
Court finds no ground to change the factual finding of the Court
of Appeals on the Kasunduan, with the resulting holding that it is
not binding on the parties.
The remaining issue is whether the Court of Appeals
possession over the disputed property.
It has been established that petitioner sold the subject
property to private respondents for the price of P31,000, as
evidenced by the Deed of Absolute Sale,[24] the due execution of
which was not controverted by petitioner. The contract is
absolute in nature, without any provision that title to the property
is reserved in the vendor until full payment of the purchase
price.[25] By the contract of sale,[26] petitioner (as vendor),
obligated herself to transfer the ownership of, and to deliver, the
subject property to private respondents (as vendees) after they
paid the price of P31,000. Under Article 1477 of the Civil Code,
the ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof. In addition,
Article 1498 of the Civil Code provides that when the sale is
made through a public instrument, as in this case, 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. In this case, the Deed of
Absolute Sale does not contain any stipulation against the
constructive delivery of the property to private respondents. In
the absence of stipulation to the contrary, the ownership of the
property sold passes to the vendee upon the actual or
constructive delivery thereof.[27] The Deed of Absolute Sale,
therefore, supports private respondents right of material
possession over the subject property.
2
 The finding of the MeTC, sustained by the Court of
Appeals, is that the continued occupation by petitioner of said
property after the sale, without payment of rent, was by mere
tolerance. Private respondents claimed that petitioner requested
for time to vacate the premises and they agreed thereto because
they did not need the property at that time. However, when
private respondents were asked to vacate their rented residence,
they demanded that petitioner vacate the subject property, but
petitioner refused to do so. A person who occupies the land of
another at the latters tolerance or permission, without any
contract between them, is bound by an implied promise that he
will vacate the same upon demand, failing which a summary
action for ejectment is the proper remedy against him.[28]
WHEREFORE, the assailed decision of the Court of
Appeals, in CA-G.R. SP No. 38716, which reversed and set
aside the decision of the Regional Trial Court, and reinstated the
decision of the Metropolitan Trial Court, is hereby
AFFIRMED. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-
Santiago, and Carpio, JJ., concur.

[1] CA Rollo, p. 23.

[2] In Civil Case No. 95-73140.
[3] CA Rollo, p. 28.
[4] In Civil Case No. 142623 CV.
[5] CA Rollo, pp. 33-34.
[6] Decision of the Court of Appeals, Rollo, pp. 25-26.
[7] CA Rollo, p. 35.
[8] Rollo, p. 26.
[9] CA Rollo, p. 29.
[10] Ibid.
[11] CA Rollo, p. 30.
[12] Ibid.
[13] CA Rollo, p. 30.
[14] CA Rollo, pp. 26-27.
[15] Ibid.
[16] Rollo, p. 31.
[17] Rollo, pp. 29-30.
[18] Rollo, pp. 27-28.
[19] Rollo, pp. 13-14.
[20] Anicete, et al. v. Balanon, G.R. Nos. 150820-21, April 30,

2003.
[21] Refugia v. Court of Appeals, 258 SCRA 347, 362 (1996).
[22] Anicete v. Balanon, supra, note 20; Refugia v. Court of

Appeals, supra, note 21.

[23] Bantingal v. Court of Appeals, 351 SCRA 60, 66 (2001).
[24] Annex F, CA Rollo, p. 33.
[25] Dignos v. Court of Appeals, 158 SCRA 375, 382 (1988).
[26] Civil Code, Art. 1458. By the contract of sale one of the

contracting parties obligates himself to transfer the

ownership of and to deliver a determinate thing, and the
other to pay therefore a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
[27] Dignos v. Court of Appeals, supra, note 25, at 383; Froilan v.

Pan Oriental Shipping Co., et al., 12 SCRA 276, 285

(1964).
[28] Rivera v. Rivera, G.R. No. 154203, July 8, 2003.; Refugia v.

Court of Appeals, supra, note 21, at 370.

3
Republic of the Philippines The petitioner now comes to the Court raising the following
SUPREME COURT questions:
Manila A.
THIRD DIVISION WHETHER OR NOT THE HONORABLE
G.R. No. 92989 July 8, 1991 COURT OF APPEALS MISAPPREHENDED
PERFECTO DY, JR. petitioner, THE FACTS AND ERRED IN NOT
vs. AFFIRMING THE TRIAL COURT'S FINDING
COURT OF APPEALS, GELAC TRADING INC., and ANTONIO THAT OWNERSHIP OF THE FARM
V. GONZALES, respondents. TRACTOR HAD ALREADY PASSED TO
Zosa & Quijano Law Offices for petitioner. HEREIN PETITIONER WHEN SAID
Expedito P. Bugarin for respondent GELAC Trading, Inc. TRACTOR WAS LEVIED ON BY THE
SHERIFF PURSUANT TO AN ALIAS WRIT
GUTIERREZ, JR., J.:p OF EXECUTION ISSUED IN ANOTHER
This is a petition for review on certiorari seeking the reversal of CASE IN FAVOR OF RESPONDENT GELAC
the March 23, 1990 decision of the Court of Appeals which ruled TRADING INC.
that the petitioner's purchase of a farm tractor was not validly B.
consummated and ordered a complaint for its recovery WHETHER OR NOT THE HONORABLE
dismissed. COURT OF APPEALS EMBARKED ON
The facts as established by the records are as follows: MERE CONJECTURE AND SURMISE IN
The petitioner, Perfecto Dy and Wilfredo Dy are brothers. HOLDING THAT THE SALE OF THE
Sometime in 1979, Wilfredo Dy purchased a truck and a farm AFORESAID TRACTOR TO PETITIONER
tractor through financing extended by Libra Finance and WAS DONE IN FRAUD OF WILFREDO DY'S
Investment Corporation (Libra). Both truck and tractor were CREDITORS, THERE BEING NO EVIDENCE
mortgaged to Libra as security for the loan. OF SUCH FRAUD AS FOUND BY THE TRIAL
The petitioner wanted to buy the tractor from his brother so on COURT.
August 20, 1979, he wrote a letter to Libra requesting that he be C.
allowed to purchase from Wilfredo Dy the said tractor and WHETHER OR NOT THE HONORABLE
assume the mortgage debt of the latter. COURT OF APPEALS MISAPPREHENDED
In a letter dated August 27, 1979, Libra thru its manager, THE FACTS AND ERRED IN NOT
Cipriano Ares approved the petitioner's request. SUSTAINING THE FINDING OF THE TRIAL
Thus, on September 4, 1979, Wilfredo Dy executed a deed of COURT THAT THE SALE OF THE TRACTOR
absolute sale in favor of the petitioner over the tractor in BY RESPONDENT GELAC TRADING TO ITS
question. CO-RESPONDENT ANTONIO V. GONZALES
At this time, the subject tractor was in the possession of Libra ON AUGUST 2, 1980 AT WHICH TIME BOTH
Finance due to Wilfredo Dy's failure to pay the amortizations. RESPONDENTS ALREADY KNEW OF THE
Despite the offer of full payment by the petitioner to Libra for the FILING OF THE INSTANT CASE WAS
tractor, the immediate release could not be effected because VIOLATIVE OF THE HUMAN RELATIONS
Wilfredo Dy had obtained financing not only for said tractor but PROVISIONS OF THE CIVIL CODE AND
also for a truck and Libra insisted on full payment for both. RENDERED THEM LIABLE FOR THE
The petitioner was able to convince his sister, Carol Dy-Seno, to MORAL AND EXEMPLARY DAMAGES
purchase the truck so that full payment could be made for both. SLAPPED AGAINST THEM BY THE TRIAL
On November 22, 1979, a PNB check was issued in the amount COURT. (Rollo, p. 13)
of P22,000.00 in favor of Libra, thus settling in full the The respondents claim that at the time of the execution of the
indebtedness of Wilfredo Dy with the financing firm. Payment deed of sale, no constructive delivery was effected since the
having been effected through an out-of-town check, Libra consummation of the sale depended upon the clearance and
insisted that it be cleared first before Libra could release the encashment of the check which was issued in payment of the
chattels in question. subject tractor.
Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, In the case of Servicewide Specialists Inc. v. Intermediate
Inc. v. Wilfredo Dy", a collection case to recover the sum of Appellate Court. (174 SCRA 80 [1989]), we stated that:
P12,269.80 was pending in another court in Cebu. xxx xxx xxx
On the strength of an alias writ of execution issued on December The rule is settled that the chattel mortgagor
27, 1979, the provincial sheriff was able to seize and levy on the continues to be the owner of the property, and
tractor which was in the premises of Libra in Carmen, Cebu. The therefore, has the power to alienate the same;
tractor was subsequently sold at public auction where Gelac however, he is obliged under pain of penal
Trading was the lone bidder. Later, Gelac sold the tractor to one liability, to secure the written consent of the
of its stockholders, Antonio Gonzales. mortgagee. (Francisco, Vicente, Jr., Revised
It was only when the check was cleared on January 17, 1980 Rules of Court in the Philippines, (1972),
that the petitioner learned about GELAC having already taken Volume IV-B Part 1, p. 525). Thus, the
custody of the subject tractor. Consequently, the petitioner filed instruments of mortgage are binding, while
an action to recover the subject tractor against GELAC Trading they subsist, not only upon the parties
with the Regional Trial Court of Cebu City. executing them but also upon those who later,
On April 8, 1988, the RTC rendered judgment in favor of the by purchase or otherwise, acquire the
petitioner. The dispositive portion of the decision reads as properties referred to therein.
follows: The absence of the written consent of the
WHEREFORE, judgment is hereby rendered mortgagee to the sale of the mortgaged
in favor of the plaintiff and against the property in favor of a third person, therefore,
defendant, pronouncing that the plaintiff is the affects not the validity of the sale but only the
owner of the tractor, subject matter of this penal liability of the mortgagor under the
case, and directing the defendants Gelac Revised Penal Code and the binding effect of
Trading Corporation and Antonio Gonzales to such sale on the mortgagee under the Deed of
return the same to the plaintiff herein; directing Chattel Mortgage.
the defendants jointly and severally to pay to xxx xxx xxx
the plaintiff the amount of P1,541.00 as The mortgagor who gave the property as security under a chattel
expenses for hiring a tractor; P50,000 for mortgage did not part with the ownership over the same. He had
moral damages; P50,000 for exemplary the right to sell it although he was under the obligation to secure
damages; and to pay the cost. (Rollo, pp. 35- the written consent of the mortgagee or he lays himself open to
36) criminal prosecution under the provision of Article 319 par. 2 of
On appeal, the Court of Appeals reversed the decision of the the Revised Penal Code. And even if no consent was obtained
RTC and dismissed the complaint with costs against the from the mortgagee, the validity of the sale would still not be
petitioner. The Court of Appeals held that the tractor in question affected.
still belonged to Wilfredo Dy when it was seized and levied by Thus, we see no reason why Wilfredo Dy, as the chattel
the sheriff by virtue of the alias writ of execution issued in Civil mortgagor can not sell the subject tractor. There is no dispute
Case No. R-16646. that the consent of Libra Finance was obtained in the instant
4
case. In a letter dated August 27, 1979, Libra allowed the time constructive delivery was already effected. Hence, the
petitioner to purchase the tractor and assume the mortgage debt subject tractor was no longer owned by Wilfredo Dy when it was
of his brother. The sale between the brothers was therefore valid levied upon by the sheriff in December, 1979. Well settled is the
and binding as between them and to the mortgagee, as well. rule that only properties unquestionably owned by the judgment
Article 1496 of the Civil Code states that the ownership of the debtor and which are not exempt by law from execution should
thing sold is acquired by the vendee from the moment it is be levied upon or sought to be levied upon. For the power of the
delivered to him in any of the ways specified in Articles 1497 to court in the execution of its judgment extends only over
1501 or in any other manner signing an agreement that the properties belonging to the judgment debtor. (Consolidated Bank
possession is transferred from the vendor to the vendee. We and Trust Corp. v. Court of Appeals, G.R. No. 78771, January
agree with the petitioner that Articles 1498 and 1499 are 23, 1991).
applicable in the case at bar. The respondents further claim that at that time the sheriff levied
Article 1498 states: on the tractor and took legal custody thereof no one ever
Art. 1498. When the sale is made through a protested or filed a third party claim.
public instrument, the execution thereof shall It is inconsequential whether a third party claim has been filed or
be equivalent to the delivery of the thing which not by the petitioner during the time the sheriff levied on the
is the object of the contract, if from the deed subject tractor. A person other than the judgment debtor who
the contrary does not appear or cannot clearly claims ownership or right over levied properties is not precluded,
be inferred. however, from taking other legal remedies to prosecute his
xxx xxx xxx claim. (Consolidated Bank and Trust Corp. v. Court of
Article 1499 provides: Appeals, supra) This is precisely what the petitioner did when he
Article 1499. The delivery of movable property filed the action for replevin with the RTC.
may likewise be made by the mere consent or Anent the second and third issues raised, the Court accords
agreement of the contracting parties, if the great respect and weight to the findings of fact of the trial court.
thing sold cannot be transferred to the There is no sufficient evidence to show that the sale of the
possession of the vendee at the time of the tractor was in fraud of Wilfredo and creditors. While it is true that
sale, or if the latter already had it in his Wilfredo and Perfecto are brothers, this fact alone does not give
possession for any other reason. (1463a) rise to the presumption that the sale was fraudulent. Relationship
In the instant case, actual delivery of the subject tractor could not is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]).
be made. However, there was constructive delivery already upon Moreover, fraud can not be presumed; it must be established by
the execution of the public instrument pursuant to Article 1498 clear convincing evidence.
and upon the consent or agreement of the parties when the thing We agree with the trial court's findings that the actuations of
sold cannot be immediately transferred to the possession of the GELAC Trading were indeed violative of the provisions on
vendee. (Art. 1499) human relations. As found by the trial court, GELAC knew very
The respondent court avers that the vendor must first have well of the transfer of the property to the petitioners on July 14,
control and possession of the thing before he could transfer 1980 when it received summons based on the complaint for
ownership by constructive delivery. Here, it was Libra Finance replevin filed with the RTC by the petitioner. Notwithstanding
which was in possession of the subject tractor due to Wilfredo's said summons, it continued to sell the subject tractor to one of its
failure to pay the amortization as a preliminary step to stockholders on August 2, 1980.
foreclosure. As mortgagee, he has the right of foreclosure upon WHEREFORE, the petition is hereby GRANTED. The decision
default by the mortgagor in the performance of the conditions of the Court of Appeals promulgated on March 23, 1990 is SET
mentioned in the contract of mortgage. The law implies that the ASIDE and the decision of the Regional Trial Court dated April 8,
mortgagee is entitled to possess the mortgaged property 1988 is REINSTATED.
because possession is necessary in order to enable him to have SO ORDERED.
the property sold. Fernan, C.J., Feliciano and Bidin, JJ., concur.
While it is true that Wilfredo Dy was not in actual possession and Davide, Jr., J., took no part.
control of the subject tractor, his right of ownership was not
divested from him upon his default. Neither could it be said that
Libra was the owner of the subject tractor because the
mortgagee can not become the owner of or convert and
appropriate to himself the property mortgaged. (Article 2088,
Civil Code) Said property continues to belong to the mortgagor.
The only remedy given to the mortgagee is to have said property
sold at public auction and the proceeds of the sale applied to the
payment of the obligation secured by the mortgagee.
(See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no
showing that Libra Finance has already foreclosed the mortgage
and that it was the new owner of the subject tractor. Undeniably,
Libra gave its consent to the sale of the subject tractor to the
petitioner. It was aware of the transfer of rights to the petitioner.
Where a third person purchases the mortgaged property, he
automatically steps into the shoes of the original mortgagor.
(See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]).
His right of ownership shall be subject to the mortgage of the
thing sold to him. In the case at bar, the petitioner was fully
aware of the existing mortgage of the subject tractor to Libra. In
fact, when he was obtaining Libra's consent to the sale, he
volunteered to assume the remaining balance of the mortgage
debt of Wilfredo Dy which Libra undeniably agreed to.
The payment of the check was actually intended to extinguish
the mortgage obligation so that the tractor could be released to
the petitioner. It was never intended nor could it be considered
as payment of the purchase price because the relationship
between Libra and the petitioner is not one of sale but still a
mortgage. The clearing or encashment of the check which
produced the effect of payment determined the full payment of
the money obligation and the release of the chattel mortgage. It
was not determinative of the consummation of the sale. The
transaction between the brothers is distinct and apart from the
transaction between Libra and the petitioner. The contention,
therefore, that the consummation of the sale depended upon the
encashment of the check is untenable.
The sale of the subject tractor was consummated upon the
execution of the public instrument on September 4, 1979. At this
5

SPOUSES AVELINO and G.R. No. 135900
EXALTACION SALERA,
Petitioners,
Present:
-versus- PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
SPOUSES CELEDONIO CORONA,
and AZCUNA, and
POLICRONIA RODAJE, GARCIA, JJ.
Respondents.
Promulgated:
August 17, 2007
SANDOVAL-GUTIERREZ, J.:
Challenged in this Petition for Review on Certiorari is
the Decision[1] dated October 9, 1998 of the Court of Appeals
(Seventeenth Division) in CA-G.R. CV No. 51480,
entitled Spouses Avelino Salera and Exaltacion Salera, plaintiffs-
appellees, v. Spouses Celedonio Rodaje and Policronia Rodaje,
defendants-appellants.
On May 7, 1993, spouses Avelino and Exaltacion
Salera, now petitioners, filed with the Regional Trial Court (RTC),
Branch 11, Calubian, Leyte, a complaint for quieting of title,
docketed as Civil Case No. CN-27, against spouses Celedonio
and Policronia Rodaje, herein respondents. Petitioners alleged
that they are the absolute owners of a parcel of land situated at
Basud, San Isidro, Leyte with an area of 448.98 square meters,
more or less. They acquired the property from the heirs of
Brigido Tonacao as shown by a Deed of Absolute Sale executed
on June 23, 1986. They had the document registered in the
Registry of Deeds of Iloilo on July 1, 1986. When they asked the
Provincial Assessor to declare the property under their names
for taxation purposes, they found that Tax Declaration No.
2994 (R-5) in the name of Brigido was already cancelled and
another one, Tax Declaration No. 2408, was issued in the names
of respondents. Petitioners further alleged that they have been in
possession of the property and the house they built thereon
because they had paid the purchase price even before the
execution of the deed of sale.
In their answer to the complaint, respondents claimed
that they are the absolute owners of the same property. They
acquired it from Catalino Tonacao, the father of Brigido, in a
Deed of Absolute Sale dated June 6, 1986. The sale was
registered in the Registry of Deeds of Leyte on June 10,
1986 and Tax Declaration No. 2408 was issued in their
names. Prior thereto, or on January 11, 1984, they had a verbal
contract of sale with Catalino. They paid him P1,000.00 as
downpayment. They agreed that the balance of P4,000.00 shall
be paid upon execution of the deed of sale. Since then, they
have been exercising their right of ownership over the property
and the building constructed thereon peacefully, publicly,
adversely and continuously. Apart from being the first
registrants, they are buyers in good faith.
On July 17, 1995, the RTC rendered a Decision
declaring petitioners the rightful and legal owners of the property,
thus:
In view of all the foregoing, judgment is hereby
rendered in favor of the plaintiffs and against
the defendants, declaring the plaintiffs the
rightful and legal owners of the property
described in paragraph 3 of the complaint;
declaring as null and void the sale (Exhibits 1
and 2) made by Catalino Tonacao to herein
defendants for lack of capacity to sell; and
ordering the cancellation of Tax Declaration
No. 2408 issued in favor of Sps. Celedonio
Rodaje and Policronia Rodaje by the
Provincial Assessor of Leyte and directing
defendants to pay the costs.
In declaring null and void the Deed of Absolute Sale
between Catalino and herein respondents and ordering the
cancellation of Tax Declaration No. 2408 issued in the latters
names, the RTC ratiocinated as follows:
Assessing the validity of the sale in
favor of plaintiffs by the heirs of Brigido
Tonacao vis--vis the sale by Catalino
Tonacao, father of Brigido Tonacao, to the
defendants of the property, the Court believes
that the former must survive over the latter.
To begin with, defendants admit that
Brigido Tonacao was the declared owner of
the land in question before defendants
purchased such land from Catalino
Tonacao.Defendants also admit that the wife
and children of Brigido Tonacao indeed
partitioned the land in question extrajudicially
among themselves and that such wife and
children of Brigido Tonacao sold the land to
plaintiffs although defendants question the
capacity of some children to sell the property
for being minors.
These admissions tend to establish
ownership of the land in question by Brigido
Tonacao. Upon his death, therefore, the
property subject of the case at bar would by
operation of law on succession, pass to the
heirs of Brigido Tonacao, namely: to the
surviving spouse and his children.
Catalino Tonacao, the father of the
deceased Brigido Tonacao, is excluded by
operation of law by the presence of the
compulsory heirs who are the children of
Brigido Tonacao. Whatever sale Catalino
Tonacao may have executed in favor of the
defendants is a sale by one who has no legal
personality or authority to do so. Thus, the
sale by Catalino Tonacao to defendants is
invalidated by his lack of personality to
execute such sale, which conferred no rights
to the defendants nor did it impair the right of
Brigido Tonacaos heirs to dispose of their
inheritance in favor of the plaintiffs.
On appeal, the Court of Appeals, in a Decision
dated October 9, 1998, reversed and set aside the trial courts
Decision, declaring respondents the true and lawful owners of
the property in dispute, thus:
WHEREFORE, the decision, dated July 17,
1995, of the Regional Trial Court (Branch 11)
in Calubian, Leyte is hereby REVERSED AND
SET ASIDE. Therewithal, another judgment is
rendered declaring the order of the trial court
null and void, hereby: declaring the
defendants-appellants to have the superior
right to the property in question and to be the
true and lawful owners thereof; directing the
Register of Deeds of Leyte to cancel the Deed
of Absolute Sale, dated June 23, 1986, in
favor of the plaintiffs-appellees and to reinstate
the Deed of Absolute Sale in favor of the
defendants-appellants and Tax Declaration
No. 2408 be issued in favor of spouses
Celedonio Rodaje and Policronia Rodaje; and
directing the plaintiffs-appellees and other
persons claiming rights under them, and
residing in the premises of the land in
question, to immediately vacate the same and
to remove whatever improvements they had
placed in the premises. No pronouncement as
to costs.
Hence, this petition.
The issue before us is which of the two contracts of
sale is valid.
Petitioners contend that the sale between Catalino and
respondents is void because the former was not the owner of the
lot, hence had no legal capacity to sue.The true owner was
Brigido as shown by Tax Declaration No. 2994 (R-5) in his
name. Thus, his spouse and children, being his successors-in-
interest, could validly sell the property to them (petitioners).
On the other hand, respondents insist that they
are buyers in good faith. They bought the property, had the deed
of sale registered, and took possession thereof ahead
of petitioners. They also constructed a house thereon which they
6
used as a store. They paid the real estate taxes corresponding
to the period from 1974 up to 1993.
The Court of Appeals, in upholding the validity of the
sale in favor of respondents, relied on Article 1544 of the Civil
Code on double sale, thus:
As between two purchasers, the one who
registered the sale in his favor has a preferred
right over the other who has not registered his
title, even if the latter is in actual possession of
the immovable property (Taedo v. Court of
Appeals, 252 SCRA 80). A fortiori the
defendants-appellants have a superior right
over the contested property inasmuch as they
have both actual possession and prior
registration of the conveyance (Exhibit 2; page
6, TSN, August 9, 1994; page 5, TSN, August
23, 1994). Dominium a possessione cepisse
dicitur.Right is said to have its beginning from
possession.
The applicable provision of the New
Civil Code provides:
Art. 1544. If the same thing
should have been sold to different
vendees, the ownership shall be
transferred to the person who may
have taken possession thereof in
good faith, if it should be movable
property.
Should it be immovable
property, the ownership shall
belong to the person acquiring it
who in good faith first recorded it in
the Registry of Property.
Should there be no inscription,
the ownership shall pertain to the
person who in good faith was first in
the possession; and, in the absence
thereof, to the person who presents
the oldest title, provided there is
good faith.
xxx
Since the controversy involves two
deeds of sale over the same property, Article
1544 properly applies thereto (Vda. De
Alcantara v. Court of Appeals, 252 SCRA
457).Following the above-quoted provision,
the court a quo was not justified in according
preferential rights to the plaintiffs-appellees,
who had registered the sale in their favor later,
as against the defendants-appellants.
The Court of Appeals is wrong. Article 1544 of the Civil
Code contemplates a case of double sale or multiple sales by
a single vendor. More specifically, it covers a situation where a
single vendor sold one and the same immovable property to two
or more buyers.[2] It cannot be invoked where the two different
contracts of sale are made by two different persons, one of them
not being the owner of the property sold.[3] In the instant case,
the property was sold by two different vendors to different
purchasers. The first sale was between Catalino and herein
respondents, while the second was between Brigidos heirs and
herein petitioners.
Settled is the principle that this Court is not a trier of
facts. In Gabriel v. Mabanta[4] we said that (t)his rule, however, is
not an iron-clad rule. One of the recognized exceptions is when
the findings of fact of the Court of Appeals are contrary to those
of the trial court, as in this case.
Here, the trial court which had the opportunity to
observe the demeanor of the parties and first to consider the
evidence submitted by them, concluded that respondents are not
purchasers in good faith, thus:
The court finds no merit in the claim
of good faith by the defendants in purchasing
the land in question. Exhibit 14, which is Tax
Declaration No. 2408, shows that such
declaration is a transfer from Tax Declaration
No. 2994 (R-5) in the name of Brigido
Tonacao. Defendants, therefore, knew when
they bought the property that they were buying
the property from Catalino who is not the
registered owner. The Deed of Sale (Exh. 2)
showcases defendants bad faith in that they
purchased the property from Catalino Tonacao
and Lourdes Tonacao and not from the
declared owner, Brigido Tonacao.
In reversing the trial courts findings, the appellate court
found, thus:
Since the plaintiffs-appellees had
prior knowledge of the sale of the questioned
property to the defendants-appellantsand even
recognized and respected the latters
possession thereofthey acted with gross and
evident bad faith in perfecting a contract of
sale in their favor. Accordingly, since it has
been proven that the defendants-appellants
were the anterior possessors in good faith,
ownership of the questioned property vested in
them by sheer force of law. Besides, the
defendants-appellants subsequently registered
the deed of sale in their favor on June 10,
1986. For all intents and purposes, they were
the first to register the deed of
conveyance. Irrefragably, since they were the
first vendees, their registration enjoyed the
presumption of good faith.
Good faith is something internal. Actually, it is a
question of intention. In ascertaining ones intention, this Court
must rely on the evidence of ones conduct andoutward
acts.[5] Good faith, or want of it, is capable of being ascertained
only from the acts of one claiming its presence, for it is a
condition of the mind which can be judged by actual or fancied
tokens or signs.[6] Good faith consists in the possessors belief
that the person from whom he received the thing was the owner
of the same and could convey his title. Good faith, while it is
always to be presumed in the absence of proof to the contrary,
requires a well founded belief that the person from whom title
was received was himself the owner of the land, with the right to
convey it. There is good faith where there is an honest intention
to abstain from taking any unconscientious advantage of
another.[7]
Contrastingly, in Magat, Jr. v. Court of Appeals,[8] the
Court explained that [b]ad faith does not simply connote bad
judgment or negligence. It imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It means a breach
of a known duty through some motive or interest or ill will that
partakes of the nature of fraud. In Arenas v. Court of
Appeals,[9] the Court held that the determination of whether one
acted in bad faith is evidentiary in nature. Thus, [s]uch acts (of
bad faith) must be substantiated by evidence. Indeed, the
unbroken jurisprudence is that [b]ad faith under the law cannot
be presumed; it must be established by clear and convincing
evidence.
Evidence submitted to the court, oral and documentary,
established that respondents knew beforehand that the property
was declared in the name of Brigido Tonacao for taxation
purposes. Respondent Celedonio Rodaje testified as follows:
Q: Mr. Celedonio Rodaje, you said the
property you bought in this case was
bought from Catalino Tonacao?
A: It was from Catalino Tonacao.
Q: And the Deed of Absolute Sale was
executed in the year 1986?
A: Yes.
Q: It was likewise Catalino Tonacao who
signed and executed the Deed of
Absolute Sale?
A: Yes, including his wife.
Q: Before you purchased this property, did you
find for yourself the ownership of the
property you were supposed to buy?
A: Yes, I did.
Q: Did Catalino Tonacao presented to you a
document showing that he really
owns the property?
A: The Tax Declaration of his son Brigido
Tonacao signed by Catalino
Tonacao.
Q: It was presented to you, the Tax
Declaration declared in the name of
Brigido Tonacao?
A: It was presented to me.[10]
7
 Respondents claim that they have been in possession SO ORDERED.
of the lot even before the execution of the Deed of Absolute Sale
on June 6, 1986. Catalino allowed them to take possession after ANGELINA SANDOVAL-
they made an initial payment on January 11, 1984. They GUTIERREZ
constructed a house thereon which they use as a store. They are Associate Justice
the ones paying the electric bills and realty taxes.
However, a perusal of the records of the case shows
that petitioners are the ones in prior possession of the
property. After they purchased it from the heirs of Brigido in WE CONCUR:
1981, they started building a house thereon. The construction
was completed in 1984. The house was declared in the name of
their daughter Aida Salera[11]under Tax Declaration No. 4403 REYNATO S. PUNO
issued on October 11, 1984.[12] She occupied the house and Chief Justice
used it as a sari-sari store until 1985 when she had to close it Chairperson
because business was bad.[13] Even the electrical connection of
the house was registered in her name.[14] In fact, respondent
Celedonio Rodaje testified that the electric bills are in the name RENATO C. CORONA ADOLFO S. AZCUNA
of Aida Salera,[15] thus: Associate Justice Associate Justice
Q: Aida Salera testified that she is the owner
of the house, plaintiffs daughter in
this case. She presented the electric
bills in her name, what can you say to CANCIO C. GARCIA
that? Associate Justice
A: The electric bills are in her name, but I was
the one paying.

Q: How did it come that the electric bills are in

her name?
A: It was a time when the house was newly
constructed where she lived for a
while.
Q: You said you were the one paying her
electric bills, do you have any
evidence to prove your allegation?
A: I have.
Q: What is your proof?
A: A certification from the electric bill collector
that I have paid the electric bills from
the beginning.
The certification referred to by
respondent Celedonio states that Mr. Celedonio C. Rodaje, Jr. is
the one paying the electric bills of Aida Salera whose dwelling
unit is situated in barangay Basud, San Isidro, Leyte since
1986. The certification clearly shows that the house is owned by
Aida Salera and that respondents started paying the electric bills
only in 1986.[16]
Respondent Celedonio Rodaje likewise testified that he
paid the realty taxes for the lot from 1974 to 1984 up to the
present.[17] However, it appears from his Realty Tax Clearance
that he paid only in 1984 and that the payment was in lump
sum.[18]
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it
is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
R
EYNATO
S. PUNO
Chief Justice
[1] Penned by Justice Ramon Mabutas, Jr. and concurred in by
Justices Hilarion L. Aquino and Renato C. Dacudao (all
retired).
[2] Consolidated Rural Bank (Cagayan Valley) Inc. v. Court of
Appeals, G.R. No. 132161, January 17, 2004, 448 SCRA
347.
[3] Ibid.
[4] G.R.
No. 142403, March 26, 2003, 399 SCRA 573,
citing Alipoon v. Court of Appeals, 305 SCRA 118 (1999).
[5] Ibid.
[6] Philippine National Bank v. Heirs of Estanislao Militar, G.R.
Nos. 164801 & 165165, June 30, 2006, 494 SCRA 308.
[7] Ibid. citing Sigaya v. Mayuga, 467 SCRA 341 (2005).
[8] G.R. No. 124221, August 4, 2000, 337 SCRA 298, cited

As stated earlier, respondents knew, prior to the sale to in Philippine National Bank v. Heirs of Estanislao Militar,
them, that the lot was declared for taxation purposes under the ibid.
[9] G.R. No. 126640, November 23, 2000, 345 SCRA 617.
name of Brigido. Thus, respondents should have been wary in
[10] TSN, pp. 71-72 dated August 9, 1994.
buying the property. Any lot buyer is expected to be vigilant,
[11] TSN, p. 7 dated November 23, 1993.
exercising utmost care in determining whether the seller is the
true owner of the property and whether there are other [12] Documentary Exhibits of Plaintiffs, p. 6.
[13] TSN, pp. 8-9 dated November 23, 1993.
claimants. There is no indication from the record that
[14] Documentary Exhibits of Plaintiffs, pp. 11-12.
respondents first determined the status of the lot.
[15] TSN, p. 69 dated August 9, 1994.
While tax declarations are not conclusive proofs of
ownership, however, they are good indicia of possession in the [16] Documentary Exhibits of Defendants, p. 13.
[17] TSN, p. 64 dated August 9, 1994.
concept of owner, for no one in his right mind would be paying
[18] Documentary Exhibits of Defendants, p. 5.
taxes for a property that is not in his actual or at least
[19] Palomo v. Court of Appeals, G.R. No. 95608, January 21,
constructive possession.[19] Hence, as between Brigido and
Catalino, the former had better right to the property. In other 1997, 266 SCRA 392; Heirs of Simplicio Santiago v. Heirs of
words, Catalino, not being the owner or possessor, could not Mariano Santiago, G.R. No. 151440, June 17, 2003, 404
validly sell the lot to respondents. SCRA 193; Heirs of Severo Legaspi, Sr. v. Vda. De Dayot,
The Court is convinced that respondents had G.R. No. 83904, August 13, 1990, 188 SCRA 508,
knowledge that the disputed property was previously sold to citing Ramos v. Court of Appeals, 112 SCRA 542 (1982).
petitioners by Brigidos heirs. Obviously, aware that the sale to
petitioners was not registered, they purchased the property and
have the sale registered ahead of petitioners, who although in
possession, failed to have their contract of sale registered
immediately in the Registry of Deeds.
WHEREFORE, the petition is GRANTED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 51480
is REVERSED and the Decision of the trial court
is REINSTATED.
8
THIRD DIVISION
[G.R. No. 115158. September 5, 1997]
EMILIA M. URACA, CONCORDIA D. CHING and ONG SENG,
represented by ENEDINO H. FERRER, petitioners,
vs. COURT OF APPEALS, JACINTO VELEZ, JR.,
CARMEN VELEZ TING, AVENUE MERCHANDISING,
INC., FELIX TING AND ALFREDO GO, respondents.
DECISION
PANGANIBAN, J.:
Novation is never presumed; it must be sufficiently
established that a valid new agreement or obligation has
extinguished or changed an existing one. The registration of a
later sale must be done in good faith to entitle the registrant to
priority in ownership over the vendee in an earlier sale.
Statement of the Case
These doctrines are stressed by this Court as it resolves
the instant petition challenging the December 28, 1993
Decision[1] of Respondent Court of Appeals[2] in CA-G.R. SP No.
33307, which reversed and set aside the judgment of the
Regional Trial Court of Cebu City, Branch 19, and entered a new
one dismissing the petitioners complaint. The dispositive portion
of the RTC decision reads:[3]
WHEREFORE, judgment is hereby rendered:
1) declaring as null and void the three (3) deeds of sale executed
by the Velezes to Felix C. Ting, Manuel Ting and Alfredo Go;
2) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to
execute a deed of absolute sale in favor of Concordia D. Ching
and Emilia M. Uraca for the properties in question
for P1,400,000.00, which sum must be delivered by the plaintiffs
to the Velezes immediately after the execution of said contract;
3) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to
reimburse Felix C. Ting, Manuel C. Ting and Alfredo Go
whatever amount the latter had paid to the former;
4) ordering Felix C. Ting, Manuel C. Ting and Alfredo Go to
deliver the properties in question to the plaintiffs within fifteen
(15) days from receipt of a copy of this decision;
5) ordering all the defendants to pay, jointly and severally, the
plaintiffs the sum of P20,000.00 as attorneys fees.
SO ORDERED.
The Antecedent Facts
The facts narrated by the Court of Appeals are as follows: [4]
The Velezes (herein private respondents) were the owners of the
lot and commercial building in question located at Progreso and
M.C. Briones Streets in Cebu City.
Herein (petitioners) were the lessees of said commercial
building.[5]
On July 8, 1985, the Velezes through Carmen Velez Ting wrote
a letter to herein (petitioners) offering to sell the subject property
for P1,050,000.00 and at the same time requesting (herein
petitioners) to reply in three days.
On July 10, 1985, (herein petitioners) through Atty. Escolastico
Daitol sent a reply-letter to the Velezes accepting the aforesaid
offer to sell.
On July 11, 1985, (herein petitioner) Emilia Uraca went to see
Carmen Ting about the offer to sell but she was told by the latter
that the price was P1,400,000.00 in cash or managers check
and not P1,050,000.00 as erroneously stated in their letter-offer
after some haggling. Emilia Uraca agreed to the price
of P1,400,000.00 but counter-proposed that payment be paid in
installments with a down payment of P1,000,000.00 and the
balance of P400,000 to be paid in 30 days. Carmen Velez Ting
did not accept the said counter-offer of Emilia Uraca although
this fact is disputed by Uraca.
No payment was made by (herein petitioners) to the Velezes on
July 12, 1985 and July 13, 1985.
On July 13, 1985, the Velezes sold the subject lot and
commercial building to the Avenue Group (Private Respondent
Avenue Merchandising Inc.) for P1,050,000.00 net of taxes,
registration fees, and expenses of the sale.
At the time the Avenue Group purchased the subject property on
July 13, 1985 from the Velezes, the certificate of title of the said
property was clean and free of any annotation of adverse claims
or lis pendens.
On July 31, 1985 as aforestated, herein (petitioners) filed the
instant complaint against the Velezes.
On August 1, 1985, (herein petitioners) registered a notice of lis
pendens over the property in question with the Office of the
Register of Deeds.[6]
On October 30, 1985, the Avenue Group filed an ejectment case
against (herein petitioners) ordering the latter to vacate the
commercial building standing on the lot in question.
Thereafter, herein (petitioners) filed an amended complaint
impleading the Avenue Group as new defendants (after about 4
years after the filing of the original complaint).
The trial court found two perfected contracts of sale
between the Velezes and the petitioners, involving the real
property in question. The first sale was for P1,050,000.00 and
the second was for P1,400,000.00. In respect to the first sale,
the trial court held that [d]ue to the unqualified acceptance by the
plaintiffs within the period set by the Velezes, there consequently
came about a meeting of the minds of the parties not only as to
the object certain but also as to the definite consideration or
cause of the contract.[7]And even assuming arguendo that the
second sale was not perfected, the trial court ruled that the same
still constituted a mere modificatory novation which did not
extinguish the first sale. Hence, the trial court held that the
Velezes were not free to sell the properties to the Avenue
Group.[8] It also found that the Avenue Group purchased the
property in bad faith.[9]
Private respondents appealed to the Court of Appeals. As
noted earlier, the CA found the appeal meritorious. Like the trial
court, the public respondent held that there was a perfected
contract of sale of the property for P1,050,000.00 between the
Velezes and herein petitioners. It added, however, that such
perfected contract of sale was subsequently novated. Thus, it
ruled: Evidence shows that that was the original
contract. However, the same was mutually withdrawn, cancelled
and rescinded by novation, and was therefore abandoned by the
parties when Carmen Velez Ting raised the consideration of the
contract [by] P350,000.00, thus making the price P1,400,000.00
instead of the original price of P1,050,000.00. Since there was
no agreement as to the second price offered, there was likewise
no meeting of minds between the parties, hence, no contract of
sale was perfected.[10] The Court of Appeals added that,
assuming there was agreement as to the price and a second
contract was perfected, the later contract would be
unenforceable under the Statute of Frauds. It further held that
such second agreement, if there was one, constituted a mere
promise to sell which was not binding for lack of acceptance or a
separate consideration.[11]
The Issues
Petitioners allege the following errors in the Decision of
Respondent Court:
I
Since it ruled in its decision that there was no meeting of the
minds on the second price offered (P1,400,000.00), hence no
contract of sale was perfected, the Court of Appeals erred in not
holding that the original written contract to buy and sell
for P1,050,000.00 the Velezes property continued to be valid
and enforceable pursuant to Art. 1279 in relation with Art. 1479,
first paragraph, and Art. 1403, subparagraph 2 (e) of the Civil
Code.
II
The Court of Appeals erred in not ruling that petitioners have
better rights to buy and own the Velezes property for registering
their notice of lis pendens ahead of the Avenue Groups
registration of their deeds of sale taking into account Art. 1544,
2nd paragraph, of the Civil Code.[12]
The Courts Ruling
The petition is meritorious.
First Issue: No Extinctive Novation
The lynchpin of the assailed Decision is the public
respondents conclusion that the sale of the real property in
controversy, by the Velezes to petitioners for P1,050,000.00,
was extinguished by novation after the said parties negotiated to
increase the price to P1,400,000.00. Since there was no
agreement on the sale at the increased price, then there was no
perfected contract to enforce. We disagree.
The Court notes that the petitioners accepted in writing and
without qualification the Velezes written offer to sell
at P1,050,000.00 within the three-day period stipulated
therein. Hence, from the moment of acceptance on July 10,
1985, a contract of sale was perfected since undisputedly the
contractual elements of consent, object certain and cause
concurred.[13] Thus, this question is posed for our
resolution: Was there a novation of this perfected contract?
Article 1600 of the Civil Code provides that (s)ales are
extinguished by the same causes as all other obligations, x x
x. Article 1231 of the same Code states that novation is one of
the ways to wipe out an obligation. Extinctive novation requires:
(1) the existence of a previous valid obligation; (2) the
agreement of all the parties to the new contract;(3) the
extinguishment of the old obligation or contract; and (4) the
validity of the new one.[14] The foregoing clearly show that
9
novation is effected only when a new contract has extinguished
an earlier contract between the same parties. In this light,
novation is never presumed; it must be proven as a fact either by
express stipulation of the parties or by implication derived from
an irreconcilable incompatibility between old and new obligations
or contracts.[15] After a thorough review of the records, we find
this element lacking in the case at bar.
As aptly found by the Court of Appeals, the petitioners and
the Velezes did not reach an agreement on the new price
of P1,400,000.00 demanded by the latter. In this case, the
petitioners and the Velezes clearly did not perfect a new contract
because the essential requisite of consent was absent, the
parties having failed to agree on the terms of the payment. True,
petitioners made a qualified acceptance of this offer by
proposing that the payment of this higher sale price be made by
installment, with P1,000,000.00 as down payment and the
balance of P400,000.00 payable thirty days thereafter. Under
Article 1319 of the Civil Code,[16] such qualified acceptance
constitutes a counter-offer and has the ineludible effect of
rejecting the Velezes offer.[17] Indeed, petitioners counter-offer
was not accepted by the Velezes. It is well-settled that (a)n offer
must be clear and definite, while an acceptance must be
unconditional and unbounded, in order that their concurrence
can give rise to a perfected contract. [18] In line with this basic
postulate of contract law, a definite agreement on the manner of
payment of the price is an essential element in the formation of a
binding and enforceable contract of sale.[19] Since the parties
failed to enter into a new contract that could have extinguished
their previously perfected contract of sale, there can be no
novation of the latter. Consequently, the first sale of the property
in controversy, by the Velezes to petitioners for P1,050,000.00,
remained valid and existing.
In view of the validity and subsistence of their original
contract of sale as previously discussed, it is unnecessary to
discuss public respondents theses that the second agreement is
unenforceable under the Statute of Frauds and that the
agreement constitutes a mere promise to sell.
Second Issue: Double Sale of an Immovable
The foregoing holding would have been simple and
straightforward. But Respondent Velezes complicated the matter
by selling the same property to the other private respondents
who were referred to in the assailed Decision as the Avenue
Group.
Before us therefore is a classic case of a double sale --
first, to the petitioner; second, to the Avenue Group. Thus, the
Court is now called upon to determine which of the two groups of
buyers has a better right to said property.
Article 1544 of the Civil Code provides the statutory
solution:
xxx xxx xxx
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
Under the foregoing, the prior registration of the disputed
property by the second buyer does not by itself confer ownership
or a better right over the property. Article 1544 requires that such
registration must be coupled with good faith. Jurisprudence
teaches us that (t)he governing principle is primus tempore,
potior jure (first in time, stronger in right). Knowledge gained by
the first buyer of the second sale cannot defeat the first buyers
rights except where the second buyer registers in good faith the
second sale aheadof the first, as provided by the Civil
Code. Such knowledge of the first buyer does not bar her from
availing of her rights under the law, among them, to
register first her purchase as against the second buyer. But in
converso knowledge gained by the second buyer of the first sale
defeats his rights even if he is first to register the second sale,
since such knowledge taints his prior registration with bad
faith This is the price exacted by Article 1544 of the Civil Code
for the second buyer being able to displace the first buyer; that
before the second buyer can obtain priority over the first, he
must show that he acted in good faith throughout (i.e. in
ignorance of the first sale and of the first buyers rights) ---- from
the time of acquisition until the title is transferred to him by
registration or failing registration, by delivery of
possession.[20] (Emphasis supplied)
After a thorough scrutiny of the records of the instant case,
the Court finds that bad faith tainted the Avenue Groups
purchase on July 13, 1985 of the Velezes real property subject
of this case, and the subsequent registration thereof on August
1, 1995. The Avenue Group had actual knowledge of the
Velezes prior sale of the same property to the petitioners, a fact
antithetical to good faith. For a second buyer like the Avenue
Group to successfully invoke the second paragraph, Article 1544
of the Civil Code, it must possess good faith from the time of the
sale in its favor until the registration of the same. This
requirement of good faith the Avenue Group sorely failed to
meet. That it had knowledge of the prior sale, a fact undisputed
by the Court of Appeals, is explained by the trial court thus:
The Avenue Group, whose store is close to the properties in
question, had known the plaintiffs to be the lessee-occupants
thereof for quite a time. Felix Ting admitted to have a talk with
Ong Seng in 1983 or 1984 about the properties. In the cross-
examination, Manuel Ting also admitted that about a month after
Ester Borromeo allegedly offered the sale of the properties Felix
Ting went to see Ong Seng again. If these were so, it can be
safely assumed that Ong Seng had consequently told Felix
about plaintiffs offer on January 11, 1985 to buy the properties
forP1,000,000.00 and of their timely acceptance on July 10,
1985 to buy the same at P1,050,000.00.
The two aforesaid admissions by the Tings, considered together
with Uracas positive assertion that Felix Ting met with her on
July 11th and who was told by her that the plaintiffs had
transmitted already to the Velezes their decision to buy the
properties at P1,050,000.00, clinches the proof that the Avenue
Group had prior knowledge of plaintiffs interest. Hence, the
Avenue Group defendants, earlier forewarned of the plaintiffs
prior contract with the Velezes, were guilty of bad faith when
they proceeded to buy the properties to the prejudice of the
plaintiffs.[21]
The testimony of Petitioner Emilia Uraca supports this
finding of the trial court. The salient portions of her testimony
follow:
BY ATTY. BORROMEO: (To witness)
Q According to Manuel Ting in his testimony, even if
they know, referring to the Avenue Group, that
you were tenants of the property in question and
they were neighbors to you, he did not inquire
from you whether you were interested in buying
the property, what can you say about that?
A It was Felix Ting who approached me and asked
whether I will buy the property, both the house
and the land and that was on July 10, 1985.
ATTY BORROMEO: (To witness)
Q What was your reply, if any?
A Yes, sir, I said we are going to buy this property
because we have stayed for a long time there
already and we have a letter from Carmen Ting
asking us whether we are going to buy the
property and we have already given our answer
that we are willing to buy.
COURT: (To witness)
Q What do you mean by that, you mean you told Felix
Ting and you showed him that letter of Carmen
Ting?
WITNESS:
A We have a letter of Carmen Ting where she offered
to us for sale the house and lot and I told him
that I have already agreed with Concordia
Ching, Ong Seng and my self that we buy the
land. We want to buy the land and the
building.[22]
We see no reason to disturb the factual finding of the trial
court that the Avenue Group, prior to the registration of the
property in the Registry of Property, already knew of the first sale
to petitioners. It is hornbook doctrine that findings of facts of the
trial court, particularly when affirmed by the Court of Appeals,
are binding upon this Court[23] save for exceptional
circumstances[24] which we do not find in the factual milieu of the
present case. True, this doctrine does not apply where there is a
variance in the factual findings of the trial court and the Court of
Appeals. In the present case, the Court of Appeals did not
explicitly sustain this particular holding of the trial court, but
neither did it controvert the same. Therefore, because the
registration by the Avenue Group was in bad faith, it amounted
to no inscription at all. Hence, the third and not the second
paragraph of Article 1544 should be applied to this case. Under
this provision, petitioners are entitled to the ownership of the
property because they were first in actual possession, having
been the propertys lessees and possessors for decades prior to
the sale.
10
 Having already ruled that petitioners actual knowledge of
the first sale tainted their registration, we find no more reason to
pass upon the issue of whether the annotation oflis
pendens automatically negated good faith in such registration.
WHEREFORE, the petition is GRANTED. The assailed
Decision of the Court of Appeals is hereby SET ASIDE and the
dispositive portion of the trial courts decision dated October 19,
1990 is REVIVED with the following MODIFICATION -- the
consideration to be paid under par. 2 of the disposition
is P1,050,000.00 and not P1,400,000.00. No Costs.
SO ORDERED.
Narvasa, C.J., (Chairman), and Melo, JJ., concur.
Davide Jr., J., (in the results).

[1] Rollo, pp. 46-52. Penned by J. Segundino G. Chua and

concurred in by JJ. Fermin A. Martin, Jr. and
Buenaventura J. Guerrero.
[2] Twelfth Division.
[3] Ibid., p. 138; Record of the Court of Appeals, p. 126. Penned

by Judge Leopoldo Abarquez.

[4] Decision of the Court of Appeals, pp. 4-5; rollo, pp. 49-50.
[5] Emilia Uraca, Concordia Ching and Ong Seng -- plaintiffs of

the original complaint -- occupied the building since

1947, 1964 and 1948, respectively. Decision of the
Regional Trial Court, p. 8; record of the Court of
Appeals, p. 120.
[6] On August 1, 1985 at 10:45 A.M. the petitioners registered a

notice of lis pendens over the land in controversy; and

at 3:30 P.M. Private Respondents Avenue
Merchandising Inc., Felix C. Ting and Alfredo Go
registered the respective deeds of sale whereby the
same property was sold to them. See Decision of the
Regional Trial Court, p.4; record of the Court of
Appeals, p. 116.
[7] RTC Decision, p. 7; rollo, p. 144.
[8] See Decision of the Regional Trial Court, pp. 6-10; record of

the Court of Appeals, p. 118-122.

[9] Ibid., pp. 10-12; record of the Court of Appeals, pp. 122-124.
[10] Decision of the Court of Appeals, p. 5; rollo, p. 50.
[11] Ibid.
[12] Petition, pp. 7-8; rollo, pp. 8-9.
[13] Article 1318, Civil Code of the Philippines.

Art. 1318 There is no contract unless the following requisites

concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
[14] Justice Vitug, Jose C., Compendium of Civil Law and

Jurisprudence (1993 ed.), p. 528; citing Tiu vs. Habana,

45 Phil. 707. See also Tolentino, Arturo
M., Commentaries and Jurisprudence on the Civil Code
of the Philippines (1991 ed.), p. 382,; citing Clark vs.
Billings, 59 Ind. 508, 509, and
Zapanta vs. De Rostaeche, 21 Phil. 54.
[15]
Ibid.
[16] Art. 1319. Consent is manifested by the meeting of the offer

and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.
xxx xxx xxx
[17] See Vitug, supra, p. 541.
[18] Maria Cristina Fertilizer Corporation and Marcelo Steel

Corporation represented by Mr. Jose

P. Marcelo vs. The Hon. Court of Appeals and Ceferina
Argallon-Jocson assisted by her husband Mr. Marcelino
Jocson, G.R. No. 123905, p. 7, June 9, 1997, per
Vitug, J.
[19] Toyota Shaw, Inc. vs. Court of Appeals, 244 SCRA 320, 328,

May 23, 1995, per Davide, J.

[20] Cruz vs. Cabana, 129 SCRA 656, 663, June 22, 1984, per

Teehankee, J.
[21] Decision of the Regional Trial Court, p. 11; record of the

Court of Appeals, p. 123.

[22] TSN, March 12, 1990, pp. 19-23.
[23] Maximino Fuentes vs. The Hon. Court of Appeals, Thirteenth

Division, and Virgilio Uy, Brigido Saguindang, Leoncio

Caligang, et. al., G.R. No. 109849, p. 9, February 26,
1997.
[24] See Ibid., p. 6-8.

11
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-55665 February 8, 1989
DELTA MOTOR CORPORATION, petitioner,
vs.
EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr.,
VICTOR S. GENUINO, HECTOR S. GENUINO, EVELYN S.
GENUINO, and The COURT OF APPEALS, respondents.
Alcasid, Villanueva & Associates for petitioner.
Luna, Puruganan, Sison & Ongkiko for respondents.
CORTES, J.:
Petitioner, through this petition for review by certiorari, appeals
from the decision of respondent appellate court in CA-G.R. No.
59848-R entitled "Eduarda Samson Genuino, et al. v. Delta
Motor Corporation" promulgated on October 27, 1980.
The facts are as follows:
Petitioner Delta Motor Corporation (hereinafter referred to as
Delta) is a corporation duly organized and existing under
Philippine laws.
On the other hand, private respondents are the owners of an
iceplant and cold storage located at 1879 E. Rodriguez Sr.
Avenue, Quezon City doing business under the name "Espaa
Extension Iceplant and Cold Storage."
In July 1972, two letter-quotations were submitted by Delta to
Hector Genuino offering to sell black iron pipes. T
The letter dated July 3, 1972 quoted Delta's selling price for
1,200 length of black iron pipes schedule 40, 2" x 20' including
delivery at P66,000.00 with the following terms of payment:
a. 20% of the net contract price or P13,200.00
will be due and payable upon signing of the
contract papers.
b. 20% of the net contract price or P13,200.00
will be due and payable before
commencement of delivery.
c. The balance of 60% of the net contract price
or P39,600.00 with 8% financing charge per
annum will be covered by a Promissory Note
bearing interest at the rate of 14% per annum
and payable in TWELVE (12) equal monthly
installment (sic), the first of which will become
due thirty (30) days after the completion of
delivery. Additional 14% will be charged for all
delayed payments. [Exh. "A"; Exh. 1.]
The second letter-quotation dated July 18, 1972 provides for the
selling price of 150 lengths of black iron pipes schedule 40, 1
1/4" x 20' including delivery at P5,400.00 with the following terms
of payment:
a. 50% of the net contract price or P 2,700.00
will be due and payable upon signing of the
contract papers.
b. 50% of the net contract price or P 2,700.00
will be due and payable before
commencement of delivery. [Exh. "C"; Exh.
"2".]
Both letter-quotations also contain the following stipulations as to
delivery and price offer:
DELIVERY
Ex-stock subject to prior sales.
xxx xxx xxx
Our price offer indicated herein shall remain
firm within a period of thirty (30) days from the
date hereof. Any order placed after said period
will be subject to our review and confirmation.
[Exh. "A" and "C"; Exhs. "l" and "2".]
Hector Genuino was agreeable to the offers of Delta hence, he
manifested his conformity thereto by signing his name in the
space provided on July 17, 1972 and July 24, 1972 for the first
and second letter-quotations, respectively.
It is undisputed that private respondents made initial payments
on both contracts for the first contract, P13,200.00 and, for
the second, P2,700.00 for a total sum of P15,900.00 on July
28, 1972 (Exhs. "B" and "D"].
Likewise unquestionable are the following. the non-delivery of
the iron pipes by Delta; the non-payment of the subsequent
installments by the Genuinos; and the non-execution by the
Genuinos of the promissory note called for by the first contract.
The evidence presented in the trial court also showed that
sometime in July 1972 Delta offered to deliver the iron pipes but
the Genuinos did not accept the offer because the construction
of the ice plant building where the pipes were to be installed was
not yet finished.
Almost three years later, on April 15, 1975, Hector Genuino, in
behalf of Espaa Extension Ice Plant and Cold Storage, asked
Delta to deliver the iron pipes within thirty (30) days from its
receipt of the request. At the same time private respondents
manifested their preparedness to pay the second installment on
both contracts upon notice of Delta's readiness to deliver.
Delta countered that the black iron pipes cannot be delivered on
the prices quoted as of July 1972. The company called the
attention of the Genuinos to the stipulation in their two (2)
contracts that the quoted prices were good only within thirty (30)
days from date of offer. Whereupon Delta sent new price
quotations to the Genuinos based on its current price of black
iron pipes, as follows:
P241,800.00 for 1,200 lengths of black iron
pjpes schedule 40, 2" x 20' [Exh. "G-1".]
P17,550.00 for 150 lengths of black iron pipes
schedule 40, 1 1/4" x 20' [Exh. "G-2".]
The Genuinos rejected the new quoted prices and instead filed a
complaint for specific performance with damages seeking to
compel Delta to deliver the pipes. Delta, in its answer prayed for
rescission of the contracts pursuant to Art. 1191 of the New Civil
Code. The case was docketed as Civil Case No. Q-20120 of the
then Court of First Instance of Rizal, Branch XVIII, Quezon City.
After trial the Court of First Instance ruled in favor of Delta,the
dispositive portion of its decision reading as follows:
WHEREFORE, premises considered,
judgment is rendered:
1. Declaring the contracts, Annexes "A" and
"C" of the complaint rescinded;
2. Ordering defendant to refund to plaintiffs the
sum of P15,900.00 delivered by the latter as
downpayments on the aforesaid contracts;
3. Ordering plaintiffs to pay defendant the sum
of P10,000.00 as attorney's fees; and,
4. To pay the costs of suit. [CFI Decision, pp.
13-14; Rollo, pp. 53-54.]
On appeal, the Court of Appeals reversed and ordered private
respondents to make the payments specified in "Terms of
Payment (b)" of the contracts and to execute the promissory
note required in the first contract and thereafter, Delta should
immediately commence delivery of the black iron pipes.* [CA
Decision, p. 20; Rollo, p. 75.]
The Court of Appeals cited two main reasons why it reversed the
trial court, namely:
1. As Delta was the one who prepared the
contracts and admittedly, it had knowledge of
the fact that the black iron pipes would be
used by the Genuinos in their cold storage
plant which was then undergoing construction
and therefore, would require sometime before
the Genuinos would require delivery, Delta
should have included in said contracts a
deadline for delivery but it did not. As a matter
of fact neither did it insist on delivery when the
Genuinos refused to accept its offer of
delivery. [CA Decision, pp. 16-17; Rollo, pp.
71-72.]
2. Delta's refusal to make delivery in 1975
unless the Genuinos pay a price very much
higher than the prices it previously quoted
would mean an amendment of the contracts. It
would be too unfair for the plaintiffs if they will
be made to bear the increase in prices of the
black iron pipes when they had already paid
quite an amount for said items and defendant
had made use of the advance payments. That
would be unjust enrichment on the part of the
defendant at the expense of the plaintiffs and
is considered an abominable business
practice. [CA Decision, pp. 18-19; Rollo, pp.
73-74.]
Respondent court denied Delta's motion for reconsideration
hence this petition for review praying for the reversal of the Court
of Appeals decision and affirmance of that of the trial court.
Petitioner argues that its obligation to deliver the goods under
both contracts is subject to conditions required of private
respondents as vendees. These conditions are: payment of 20%
of the net contract price or P13,200.00 and execution of a
promissory note called for by the first contract; and payment of
50% of the net contract price or P2,700.00 under the second
contract. These, Delta posits, are suspensive conditions and
12
only upon their performance or compliance would its obligation
to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 1720.]
Thus, when private respondents did not perform their
obligations; when they refused to accept petitioner's offer to
deliver the goods; and, when it took them three (3) long years
before they demanded delivery of the iron pipes that in the
meantime, great and sudden fluctuation in market prices have
occurred; Delta is entitled to rescind the two (2) contracts.
Delta relies on the following provision of law on rescission:
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation,
with the payment of damages in either case.
He may also seek rescission, even after he
has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to
the rights of third persons who have acquired
the thing, in accordance with articles 1385 and
1388 and the Mortgage Law.
In construing Art. 1191, the Supreme Court has stated that,
"[r]escission will be ordered only where the breach complained of
is substantial as to defeat the object of the parties in entering
into the agreement. It will not be granted where the breach is
slight or casual." [Phil. Amusement Enterprises, Inc. v. Natividad,
G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.]
Further, "[t]he question of whether a breach of a contract is
substantial depends upon the attendant circumstances."
[Universal Food Corporation v. Court of Appeals, G. R. No. L-
29155, May 13,1970,33 SCRA 1, 18].
In the case at bar, the conduct of Delta indicates that the
Genuinos' non-performance of its obligations was not a
substantial breach, let alone a breach of contract, as would
warrant rescission.
Firstly, it is undisputed that a month after the execution of the
two (2) contracts, Delta's offer to deliver the black iron pipes was
rejected by the Genuinos who were "not ready to accept delivery
because the cold storage rooms have not been constructed yet.
Plaintiffs (private respondents herein) were short-funded, and did
not have the space to accommodate the pipes they ordered"
[CFI Decision, p. 9; Rollo, p. 49].
Given this answer to its offer, Delta did not do anything. As
testified by Crispin Villanueva, manager of the Technical Service
department of petitioner:
Q You stated that you sent a
certain Evangelista to the
Espaa Extension and Cold
Storage to offer the delivery
subject matter of the
contract and then you said
that Mr. Evangelista
reported (sic) to you that
plaintiff would not accept
delivery, is that correct, as a
summary of your statement?
A A Yes, sir.
Q Now, what did you do in
the premises (sic)?
A Yes, well, we take the
word of Mr. Evangelista. We
could not deliver the said
black iron pipes, because as
per information the Ice Plant
is not yet finished.
Q Did you not report that
fact to ... any other
defendant-officials of the
Delta Motor Corporation?
A No.
Q And you did not do
anything after that?
A Because taking the word
of my Engineer we did not
do anything. [TSN,
December 8, 1975, pp. 18-
19.]
xxx xxx xxx
And secondly, three (3) years later when the Genuinos offered to
make payment Delta did not raise any argument but merely
demanded that the quoted prices be increased. Thus, in its
answer to private respondents' request for delivery of the pipes,
Delta countered:
Thank you for your letter dated April 15, 1975,
requesting for delivery of Black Iron pipes;.
We regret to say, however, that we cannot
base our price on our proposals dated July 3
and July 18, 1972 as per the following
paragraph quoted on said proposal:
Our price offer indicated
herein shall remain firm
within a period of thirty (30)
days from the date hereof.
Any order placed after said
period will be subject to our
review and confirmation.
We are, therefore, enclosing our re-quoted
proposal based on our current price. [Exh.
"G".]
Moreover, the power to rescind under Art. 1191 is not
absolute. "[T]he act of a party in treating a contract as cancelled
or resolved on account of infractions by the other contracting
party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the
proper court." [University of the Phils. v. De los Angeles, G. R.
No. L-28602, September 29, 1970, 35 SCRA 102, 107;
Emphasis supplied.]
In the instant case, Delta made no manifestation whatsoever that
it had opted to rescind its contracts with f-he Genuinos. It only
raised rescission as a defense when it was sued for specific
performance by private respondents.
Further, it would be highly inequitable for petitioner Delta to
rescind the two (2) contracts considering the fact that not only
does it have in its possession and ownership the black iron
pipes, but also the P15,900.00 down payments private
respondents have paid. And if petitioner Delta claims the right to
rescission, at the very least, it should have offered to return the
P15,900.00 down payments [See Art. 1385, Civil Code and
Hodges v. Granada, 59 Phil. 429 (1934)].
It is for these same reasons that while there is merit in Delta's
claim that the sale is subject to suspensive conditions, the Court
finds that it has, nevertheless, waived performance of these
conditions and opted to go on with the contracts although at a
much higher price. Art. 1545 of the Civil Code provides:
Art. 1545. Where the obligation of either party
to a contract of sale is subject to any condition
which is not performed, such party may refuse
to proceed with the contract or he may waived
performance of the condition. . . . [Emphasis
supplied.]
Finally, Delta cannot ask for increased prices based on the price
offer stipulation in the contracts and in the increase in the cost of
goods. Reliance by Delta on the price offer stipulation is
misplaced. Said stipulation makes reference to Delta's price offer
as remaining firm for thirty (30) days and thereafter, will be
subject to its review and confirmation. The offers of Delta,
however, were accepted by the private respondents within the
thirty (30)-day period. And as stipulated in the two (2) letter-
quotations, acceptance of the offer gives rise to a contract
between the parties:
In the event that this proposal is acceptable to
you, please indicate your conformity by signing
the space provided herein below which also
serves as a contract of this proposal. [Exhs.
"A" and "C"; Exhs. "1" and "2".]
And as further provided by the Civil Code:
Art. 1319. Consent is manifested by the
meeting of the offer and the acceptance upon
the thing and the cause which are to constitute
the contract.
Art. 1475. The contract of sale is perfected at
the moment there is a meeting of minds upon
thing which is the object of the contract and
upon the price.
Thus, the moment private respondents accepted the offer of
Delta, the contract of sale between them was perfected and
neither party could change the terms thereof.
Neither could petitioner Delta rely on the fluctuation in the market
price of goods to support its claim for rescission. As testified to
by petitioner's Vice-President of Marketing for the Electronics,
Airconditioning and Refrigeration division, Marcelino Caja, the
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stipulation in the two (2) contracts as to delivery, ex-stock
subject to prior sales, means that "the goods have not been
delivered and that there are no prior commitments other than the
sale covered by the contracts.. . once the offer is accepted, the
company has no more option to change the price." [CFI
Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner
cannot claim for higher prices for the black iron pipes due to the
increase in the cost of goods. Based on the foregoing, petitioner
Delta and private respondents Genuinos should comply with the
original terms of their contracts.
WHEREFORE, the decision of the Court of Appeals is hereby
AFFIRMED.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Footnotes
* The Court of Appeals decision was penned
by Justice German. Justice de la Fuente wrote
a separate concurring opinion. Justice Cenzon
concurred both with Justice German's decision
and Justice de la Fuente's opinion. Justice
Gancayco, however, wrote a separate
dissenting opinion to which Justice Patajo
concurred.

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