G.R. No.

L-41233 November 21, 1979

J.M. TUASON & CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, ALFONSO DE LEON and ROSARIO G. DE LEON, respondents.

DE CASTRO, J.:
Appeal by certiorari from the decision of respondent Court of Appeals (CA-G.R. No. 54695-R) affirming with
modification the decision of the Court of First Instance of Manila in Civil Case No. 89119, which is an action
based on warranty against eviction, and to recover the value of a subdivision lot at the time of eviction, plus
damages.
The following facts may be regarded as without any dispute:
On January 31, 1952, petitioner J.M. Tuason & Co., Inc. executed, in favor of Ricardo de Leon, a contract to
sell Lot No. 15, Block 460 of the Sta. Mesa Heights Subdivision containing an area of 1,703.6 square meters
with the agreed price of P24.60 per square meter or a total of P41,908.56. At the execution of the contract,
Ricardo de Leon paid the down-payment of P4,190.86 and agreed to pay the balance in the monthly
installment of P498.63 including the agreed annual interest of 10% (Exhibit A).
Meanwhile, on April 10, 1953, petitioner signed a compromise agreement with the Deudors (in another Civil
Case No. Q-135, captioned Florencio Deudor, et al. vs. J.M. Tuason, et al.).
On July 19, 1965 with the consent of the petitioner, Ricardo de Leon transferred all his rights to the lot in favor
of his parents, herein private respondents Alfonso and Rosario de Leon (exhibit B). On the same date, private
respondents paid the outstanding balance of the purchase price (Exhibit 1-B). On August 5, 1965 petitioner
executed in favor of private respondents the deed of sale over the lot (Exhibit C) and upon its registration, the
Register of Deeds issued to the respondents the Transfer Certificate of Title No. 96143 (Exhibit 3; Annex B,
Rollo, 39-40).
At the time of the execution of the contract to sell, the contracting parties knew that a portion of the lot in
question was actually occupied by Ramon Rivera. However, it was their understanding that the latter will be
ejected by the petitioner from the premises (Annex B, Id).
On May 13, 1958, herein petitioner filed a complaint of ejectment against Ramon Rivera before the Court of
First Instance of Rizal (Civil Case No. Q-2989) and later petitioner petitioner Ricardo de Leon and respondents
Alfonso and Rosario de Leon as necessary parties. In this Civil Case No. Q-2989, the decision of the lower
court, principally based on the compromise agreement executed in another Civil Case No. Q-135
entitled Florencio Deudor, et al. vs. J.M. Tuason, et al. has the following dispositive portion:
WHEREFORE, the complaint against the defendant Ramon Rivera is hereby
DISMISSSED ordering the plaintiff to enter into an agreement with Ramon Rivera allowing said
defendant to purchase 1,050 square meters to land now covered by Lot 15, Block 460 of the
Sta. Mesa Heights Subdivision to be priced at the prevailing cost in the year 1958 which is
placed by this Court to be P60.00 per square meters; to pay attorney's fees of P3,000.00 to
defendant Ramon Rivera, with costs against the plaintiff ... (Emphasis supplied)
The Court of Appeals wholly affirmed this decision with costs against plaintiff-appellant J.M. Tuason & Co., Inc.
(CA-G.R. No. 38212-R), and denied the motion for reconsideration filed by the other plaintiffs-appellants
Alfonso and Rosario de Leon, stating among others: ... We believe, however, that these questions should be
properly ventilated in the proper action which the plaintiffs- appellants, the De Leons, may file against the
plaintiff-appellant (J.M. Tuason & Co., Inc.) for failure of the latter to deliver to them the possession of the
whole of Lot 15, Block 460 of the Sta. Mesa Heights Subdivision ... (Annex E, 4-5).
This decision of the Court of Appeals became final and executory in September, 1971 when the De Leons
were evicted from the premises in question (Annex E, 6).
Pursuing the step as suggested by the Court of Appeals advising herein private respondents to file the proper
action the latter instituted on December 5,1972 before the Court of First Instance of Manila, Branch XXIX, Civil
Case No. 89119, an action against J.M. Tuason & Co., Inc. to enforce the vendor's warranty against eviction or
to recover the value of the land amounting to P315,000.00, plus damages.
The lower court decided the case against herein petitioner J.M. & Co., Inc. (defendant below) disposing as
follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant:
(1) Ordering defendant to pay plaintiffs the sum of TWO HUNDRED TEN THOUSAND
(P210,000.00) PESOS representing the value of the 1,050 square meters at P200.00 per
square meter, from which the latter were evicted, with legal interest from December 5, 1972, the
date of filing of the complaint;
(2) Ordering defendant to pay plaintiffs the sum of TWENTY FIVE THOUSAND (P25,000.00)
PESOS, by lay of moral damages, TEN THOUSAND (P10,000.00) PESOS, by way of
exemplary damages, and FIFTEEN THOUSAND (P15,000.00) PESOS, for and as attorney's
fees; and
(3) For costs of this suit.
This decision of the lower court was appealed to herein respondent Court of Appeals (CA-G.R. No. 54695-R),
which on July 2, 1975 affirmed it with the sole modification on the reduction of the awarded moral damages
from P25,000.00 to P5,000.00 (Annex B, Rollo, p. 52).
Hence, this petition before Us with the prayer that the decision of respondent court be reversed and another
rendered, 'dismissing the complaint and ordering respondents De Leons to accept from petitioner J.M. Tuason
& Co., Inc. the sum of P60.00 per square meter for the 1,050 square meters which the petitioner was ordered
to sell to Ramon Rivera, and to pay petitioner P30,000.00 as attorney's fees plus costs.
Petitioner J. M. Tuason & Co., Inc. alleges that dent court erred: (1) in holding that the compromise agreement
was the proximate cause of its failure to comply with its contract to self in favor of Ricardo de Leon; (2) in
holding that it entered into the compromise agreement without the knowledge and behind the back of Ricardo
de Leon and thereafter continued the collection of the installments until the purchase price was fully paid and
thus it wilfully committed fraud against him; (3) in not considering that Ricardo de Leon was guilty of bad faith
in entering into the contract to sell and therefore he is not entitled to the warranty against eviction; and (4) in
granting moral and exemplary damages.
The real point in issue is whether respondents De Leon are entitled to the vendor's warranty against eviction
and damages.
The appellate court, in this action of warranty against eviction, found that petitioner J.M. Tuason & Co., Inc.
failed to comply with its obligation to transfer ownership over the lot to the De Leons due to the compromise
agreement it entered with the Deudors, and that petitioner is guilty of "wilful deception, intentional forsaking of
one to whom defendant was bound in a contract to convey, and worse yet, even at that, after the compromise,
defendant still continued to collect installments from buyer ...
Contrary to these findings, this Court holds that it was not petitioner's own making that it executed the
compromise agreement with the Deudors. This agreement was sanctioned by the court after the Deudors filed
an action against petitioner in Civil Case No. Q-135 entitled "Florencio Deudor, et al. vs. J.M. Tuason et
al." The prior right of Ramon Rivera to purchase the lot in litigation was based more on his prior occupancy to
the same since 1949, about which fact respondents De Leon were informed by petitioner at the time of the
execution of the contract to sell. The execution of the compromise agreement merely recognized this prior
right, under the condition as stipulated in said agreement, that it was possible to do so.
Petitioner claims, without having been contradicted, that it executed the compromise agreement with the
Deudors in the honest belief that the lots it already sold. like the lot in question, were excluded from the
coverage of the agreement. This claim finds support in paragraph "SEVENTH" of the compromise agreement
which reads ... It shall be the joint and solidary obligation of the Deudors to make the buyers of the lots
purportedly sold by them recognize the title of the OWNERS over the property purportedly bought by them,
and to make them sign, whenever possible, new contracts of purchase for the said property at the current
prices and terms specified by the OWNERS in their sales of lots in their subdivision known as Sta. Mesa
Heights Subdivision ... " (Annex C, Rollo, p. 55). In fact, in their brief as appellants in CA-G.R. No. 38212-R,
private respondents stated that "as correctly pointed out in the brief for plaintiff-appellant, it was not the
intention of the signatories of the Compromise Agreement to include within its coverage those parcels of land
already sold by plaintiff-appellant (petitioner herein) to third parties," and "We reproduce herein by way of
reference the arguments in pp. 1-2 to 39 of plaintiffs- appellants' brief." (See Annex C, Petition, pp. 3-4).
Private respondents should not be allowed to turn back from what they stated in their brief in CA-G.R. No.
38212-R, to impute "wilful deception" as the respondent court said in its decision under review.
This particular stipulation in the compromise agreement discloses an understanding between the petitioner and
the Deudors that the buyers of lots from the Deudors, like Ramon Rivera, may, acquire lots from the
subdivision being sold by petitioner and sign new contracts of purchase with the latter 6 whenever possible", or
only when said lots have not already been sold to third 'parties. Relying on the above-quoted provision,
petitioner believed in good faith that said lot sold to the De Leons would not be adversely affected.
Nonetheless, with the inevitable and admitted fact that Ramon Rivera was a prior occupant thereof, petitioner
was compelled by judicial fiat in Civil Case No. 2989 of the Court of First Instance of Rizal, to recognize the
preferential right of Rivera to rightfully purchase the lot. This fact is not of itself a proof under the circumstance
just cited, of bad faith on the part of the petitioner or that it is guilty of committing fraud and deception upon the
respondents as the respondent court found. Its good faith in with Ricardo de Leon who was the one branded
as a "buyer in bad faith" by the Court of Appeals in its decision affirming of the Court of First Instance of Rizal
in CA-G.R. No. No. 38212-R seems beyond question.
If petitioner continued the collection of the outstanding monthly after the execution of the compromise
agreement on April 10,1953 pursuant to the agreements embodied in the contract to sell (Exhibit A), its act
only proved its honest belief that it found no barrier against the enforceability of the contract to sell, the terms
of which have the force of law between the parties and must be complied with in good faith (Lazo vs. Republic
Surety & Insurance Co., Inc., 311 SCRA 329; Ramos vs. Central Bank of the Philippines, 41 SCRA 565;
Enriquez vs. Ramos, 73 SCRA 116; De Cortes vs, Venturanza, 79 SCRA 709). The collection of the monthly
installment payments terminated upon the fun payment of the purchase price on July 19, 1965, long before the
ejectment case against Ramon Rivera was finally resolved by the appellate court in September, 1971 (Civil
Case No. Q-2989; CA-G.R. No. 38212-R). As properly claimed by the petitioner, it had the right to hopefully
expect to win the ejectment case. It was not exactly its fault that it lost the case. Private respondents joined in a
common cause with it.
The subsequent execution of a deed of sale upon the total payment of the purchase price in favor of herein
respondents on August 5, 1965 in lieu of the previous contract to sell made in favor of Ricardo de Leon,
through which deed of sale the respondents acquired a transfer certificate of title over the questioned lot, is
further evidence of the honesty and good faith of petitioner in dealing with private respondents. Petitioner owns
vast tracts of land, with the lot in question possibly put an insignificant part in terms of value, and it would be
much too difficult to make the serious imputations made to petitioner.
In fulfillment of the assurance made to eject the occupant from the lot, petitioner, on May 13, 1958, later joined
by Ricardo de Leon and respondents Alfonso and Rosario de Leon, instituted a complaint of ejectment against
Ramon Rivera in Civil Case No. Q- 2989. Unfortunately, however, the decision of the lower court dismissing
the complaint of ejectment was affirmed by the appellate court in CA-G.R. No. 38212-R, which decision, of the
latter upon its finality in September, 1971 resulted in the eviction of herein respondents from the lot. It is meet,
at this juncture, to repeat that in its decision, the Court of Appeals branded Ricardo de Leon as a buyer in bad
faith.
In manifesting its desire to compensate respondents, as disclosed by prayer in the instant petition in the sum of
P60.00 per square meter for the 1,050 meters which it was ordered by the courts, in Civil Case No. Q-2989
and CA-G.R. No. 38212-R, to sell to Ramon Rivera, again reveals how fair petitioner would want to be to
private respondents, not to defraud them as the respondent court would ascribe such base intent to petitioner,
which is by no means not a disreputable but a respectable, corporation.
For all the foregoing circumstances, We have no hesitation to give to petitioner the benefit of the doubt of its
having acted in good faith, which is always presumed,, without any intention of taking advantage of the other
party dealing with it. "Good faith consists in an honest intention to abstain from taking any unconscientious
advantage of another. Good faith is an opposite of fraud and of bad faith and its non-existence must be
established by competent proof." (Leung Yee vs. Strong Machinery Company, 37 PhiL 645; Cui vs. Henson,
51 Phil. 606, 612; Fule vs. De Legare, 7 SCRA 351).
Moreover, at the time of the execution of the contract to sell it is an admitted fact that Ricardo de Leon knew
that a third party was occupying a part of the lot subject of the sale. Ricardo de Leon ought to have known that
he was buying a property with the distinct possibility of not being able to possess and own the land due to the
occupancy of another person on the same. So there had to be an understanding between him and the
petitioner for the latter to eject the occupant, something which, by the facts then obtaining and the law relevant
thereto, would make the ejectment more speculative than certain. Nonetheless, Ricardo de Leon knowingly
assumed the risk when he bought the, land, and was even called a vendee in bad faith by the Court of Appeals
in doing so, clearly not an innocent purchaser in good faith. If petitioner that it would eject Ramon Rivera, he
did so, not knowing that the compromise agreement would stand on the way, as it had thought, in all good
faith, that paragraph 7 of the compromise agreement excluded the lot in question, having been already sold to
Ricardo de Leon before the agreement was executed in court.
This Court is impelled to declare that private respondents were lacking in good faith for knowing beforehand, at
the time of the sale, the presence of an obstacle to their taking over the possession of the land, which, in
effect, would amount to eviction from said land, and still they bought the land without first removing that
obstacle. (Angelo vs. Pacheco, 56 Phil. 70; Andaya vs. Manansala, 107 Phil 1151).
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith, as against the true owner of the land or of an interest therein; and the
same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser
cannot close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted
in good faith under the belief that there was no defect in the title of the vendor (Leung Yee vs. Strong
Machinery Company, supra; Manancop Jr. vs. Cansino, 1 SCRA 572; Paylago vs. Jarabe, 22-SCRA 1247;
Barrios vs. Court of Appeals, 78 SCRA 427; Emphasis supplied).
Without being shown to be vendees in good faith, herein respondents are not entitled to the warranty against
eviction nor are they On titled to recover damages (Article 1555 of the Civil Code). However, for justice and
equity sake, and in consonance with the salutary principle of non-enrichment at another's expense, herein
petitioner J.M. Tuason & Co., Inc. should compensate respondents De Leons in the total sum of ONE
HUNDRED TWENTY SIX THOUSAND (P126,000.00) PESOS, representing the aggregate value of the 1,050
square meters (which petitioner was judicially ordered to sell to Ramon Rivera at the year 1958 prevailing rate
of P60.00 per square meter) at the value of P120.00 per square meter, doubling the price of P60.00 per square
meter which amount petitioner voluntarily offered to pay herein respondents following how indemnity for death
had been raised from P6,000.00 to P12,060.00 (People vs. Pantoja, 25 SCRA 468, 474 [1968]) based on
grounds of equity, due to the reduced purchasing power of the peso, with the legal rate of interest from
December 5, 1972, the date respondents filed their complaint, until the said total sum is fully paid.
WHEREFORE, the judgment of respondent court is hereby modified by ordering petitioner J.M. Tuason & Co.,
Inc. to pay the respondents the amount of ONE HUNDRED TWENTY-SIX THOUSAND (Pl26,000.00) PESOS
plus the legal rate of interest from December 5, 1972, the date of filing the complaint until the s aid total sum is
fully paid. No costs.
SO ORDERED.
 [G.R. No. 119745. June 20, 1997]
POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,
SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and PHILIPPINE NATIONAL
BANK, respondents.
DECISION
PANGANIBAN, J.:
Is the sellers failure to eject the lessees from a lot that is the subject of a contract of sale with assumption
of mortgage a ground (1) for rescission of such contract and (2) for a return by the mortgagee of the
amortization payments made by the buyer who assumed such mortgage?
Petitioner posits an affirmative answer to such question in this petition for review on certiorari of the March
27, 1995 Decision[1] of the Court of Appeals, Eighth Division, in CA-G.R. CV Case No. 32298 upholding the
validity of the contract of sale with assumption of mortgage and absolving the mortgagee from the liability of
returning the mortgage payments already made.[2]
The Facts
Petitioner Power Commercial & Industrial Development Corporation, an industrial asbestos
manufacturer, needed a bigger office space and warehouse for its products. For this purpose, on January 31,
1979, it entered into a contract of sale with the spouses Reynaldo and Angelita R. Quiambao, herein private
respondents. The contract involved a 612-sq. m. parcel of land covered by Transfer Certificate of Title No. S-
6686 located at the corner of Bagtican and St. Paul Streets, San Antonio Village, Makati City. The parties
agreed that petitioner would pay private respondents P108,000.00 as down payment, and the balance
of P295,000.00 upon the execution of the deed of transfer of the title over the property. Further, petitioner
assumed, as part of the purchase price, the existing mortgage on the land. In full satisfaction thereof, he
paid P79,145.77 to Respondent Philippine National Bank (PNB for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee a loan
of P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner agreed to assume payment
of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage which
contained the following terms and conditions:[3]
That for and in consideration of the sum of Two Hundred Ninety-Five Thousand Pesos (P295,000.00)
Philippine Currency, to us in hand paid in cash, and which we hereby acknowledge to be payment in full and
received to our entire satisfaction, by POWER COMMERCIAL AND INDUSTRIAL DEVELOPMENT
CORPORATION, a 100% Filipino Corporation, organized and existing under and by virtue of Philippine Laws
with offices located at 252-C Vito Cruz Extension, we hereby by these presents SELL, TRANSFER and
CONVEY by way of absolute sale the above described property with all the improvements existing thereon
unto the said Power Commercial and Industrial Development Corporation, its successors and assigns, free
from all liens and encumbrances.
We hereby certify that the aforesaid property is not subject to nor covered by the provisions of the Land
Reform Code -- the same having no agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and absolute owners of the above described property, free from
any lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial Development Corporation, its successors and
assigns, against any claims whatsoever of any and all third persons; subject, however, to the provisions
hereunder provided to wit:
That the above described property is mortgaged to the Philippine National Bank, Cubao, Branch, Quezon City
for the amount of one hundred forty-five thousand pesos, Philippine, evidenced by document No. 163, found
on page No. 34 of Book No. XV, Series of 1979 of Notary Public Herita L. Altamirano registered with the
Register of Deeds of Pasig (Makati), Rizal xxx;
That the said Power Commercial and Industrial Development Corporation assumes to pay in full the entire
amount of the said mortgage above described plus interest and bank charges, to the said mortgagee bank,
thus holding the herein vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and approval of the said Philippine National
Bank to the herein sale of this property, hereby agreeing to abide by any and all requirements of the said bank,
agreeing that failure to do so shall give to the bank first lieu (sic) over the herein described property.
On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation, submitted to
PNB said deed with a formal application for assumption of mortgage.[4]
On February 15, 1980, PNB informed respondent spouses that, for petitioners failure to submit the papers
necessary for approval pursuant to the formers letter dated January 15, 1980, the application for assumption of
mortgage was considered withdrawn; that the outstanding balance of P145,000.00 was deemed fully due and
demandable; and that said loan was to be paid in full within fifteen (15) days from notice.[5]
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980, payments
which were to be applied to the outstanding loan. On December 23, 1980, PNB received a letter from petitioner
which reads:[6]
With regard to the presence of the people who are currently in physical occupancy of the (l)ot xxx it is our
desire as buyers and new owners of this lot to make use of this lot for our own purpose, which is why it is our
desire and intention that all the people who are currently physically present and in occupation of said lot should
be removed immediately.
For this purpose we respectfully request that xxx our assumption of mortgage be given favorable
consideration, and that the mortgage and title be transferred to our name so that we may undertake the
necessary procedures to make use of this lot ourselves.
It was our understanding that this lot was free and clear of problems of this nature, and that the previous owner
would be responsible for the removal of the people who were there. Inasmuch as the previous owner has not
been able to keep his commitment, it will be necessary for us to take legal possession of this lot inorder (sic) to
take physical possession.
On February 19, 1982, PNB sent petitioner a letter as follows:[7]
(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was assumed by you on June 4, 1979
for P101,500.00. It was last renewed on December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past due from last maturity with interest arrearages amounting
to P25,826.08 as of February 19, 1982. The last payment received by us was on December 24, 1980
for P20,283.14. In order to place your account in current form, we request you to remit payments to cover
interest, charges, and at least part of the principal.
On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission and
damages before the Regional Trial Court of Pasig, Branch 159. Then, in its reply to PNBs letter of February 19,
1982, petitioner demanded the return of the payments it made on the ground that its assumption of mortgage
was never approved. On May 31, 1983,[8] while this case was pending, the mortgage was foreclosed. The
property was subsequently bought by PNB during the public auction. Thus, an amended complaint was filed
impleading PNB as party defendant.
On July 12, 1990, the trial court[9] ruled that the failure of respondent spouses to deliver actual possession
to petitioner entitled the latter to rescind the sale, and in view of such failure and of the denial of the latters
assumption of mortgage, PNB was obliged to return the payments made by the latter. The dispositive portion
of said decision states:[10]
IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor of plaintiff and against
defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage executed between plaintiff and
defendants Spouses Quiambao, dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount of P187,144.77 (P108,000.00
plus P79,145.77) with legal interest of 12% per annum from date of filing of herein complaint, that is, March 17,
1982 until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59 (P41,880.45 and P20,283.14) with
12% interest thereon from date of herein judgment until the same is fully paid.
No award of other damages and attorneys fees, the same not being warranted under the facts and
circumstances of the case.
The counterclaim of both defendants spouses Quiambao and PNB are dismissed for lack of merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the trial court. In the
assailed Decision, it held that the deed of sale between respondent spouses and petitioner did not obligate the
former to eject the lessees from the land in question as a condition of the sale, nor was the occupation thereof
by said lessees a violation of the warranty against eviction. Hence, there was no substantial breach to justify
the rescission of said contract or the return of the payments made. The dispositive portion of said Decision
reads:[11]
WHEREFORE, the Decision appealed from is hereby REVERSED and the complaint filed by Power
Commercial and Industrial Development Corporation against the spouses Reynaldo and Angelita Quiambao
and the Philippine National Bank is DISMISSED. No costs.
Hence, the recourse to this Court .
Issues
Petitioner contends that: (1) there was a substantial breach of the contract between the parties warranting
rescission; and (2) there was a mistake in payment made by petitioner, obligating PNB to return such
payments. In its Memorandum, it specifically assigns the following errors of law on the part of Respondent
Court:[12]
A. Respondent Court of Appeals gravely erred in failing to consider in its decision that a breach of implied
warranty under Article 1547 in relation to Article 1545 of the Civil Code applies in the case-at-
bar.
B. Respondent Court of Appeals gravely erred in failing to consider in its decision that a mistake in
payment giving rise to a situation where the principle of solutio indebiti applies is obtaining in the
case-at-bar.
The Courts Ruling
The petition is devoid of merit. It fails to appreciate the difference between a condition and a warranty and
the consequences of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged failure of respondent spouses to eject the lessees from the lot in question and to deliver actual
and physical possession thereof cannot be considered a substantial breach of a condition for two reasons: first,
such failure was not stipulated as a condition -- whether resolutory or suspensive -- in the contract; and
second, its effects and consequences were not specified either.[13]
 The provision adverted to by petitioner does not impose a condition or an obligation to eject the lessees
from the lot. The deed of sale provides in part:[14]
We hereby also warrant that we are the lawful and absolute owners of the above described property, free from
any lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial Development Corporation, its successors and
assigns, against any claims whatsoever of any and all third persons; subject, however, to the provisions
hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of petitioner-corporation, did not ask the
corporations lawyers to stipulate in the contract that Respondent Reynaldo was guaranteeing the ejectment of
the occupants, because there was already a proviso in said deed of sale that the sellers were guaranteeing the
peaceful possession by the buyer of the land in question.[15] Any obscurity in a contract, if the above-quoted
provision can be so described, must be construed against the party who caused it.[16] Petitioner itself caused
the obscurity because it omitted this alleged condition when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the obligation to eject the tenants from the lot
sold, it should have included in the contract a provision similar to that referred to in Romero vs. Court of
Appeals,[17] where the ejectment of the occupants of the lot sold by private respondent was the operative act
which set into motion the period of petitioners compliance with his own obligation, i.e., to pay the balance of the
purchase price. Failure to remove the squatters within the stipulated period gave the other party the right to
either refuse to proceed with the agreement or to waive that condition of ejectment in consonance with Article
1545 of the Civil Code. In the case cited, the contract specifically stipulated that the ejectment was a condition
to be fulfilled; otherwise, the obligation to pay the balance would not arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to make its nonfulfillment a ground
for rescission. If they did intend this, their contract should have expressly stipulated so.In Ang vs.
C.A.,[18] rescission was sought on the ground that the petitioners had failed to fulfill their obligation to remove
and clear the lot sold, the performance of which would have given rise to the payment of the consideration by
private respondent. Rescission was not allowed, however, because the breach was not substantial and
fundamental to the fulfillment by the petitioners of the obligation to sell.
As stated, the provision adverted to in the contract pertains to the usual warranty against eviction, and not
to a condition that was not met. The terms of the contract are so clear as to leave no room for any other
interpretation.[19]
Futhermore, petitioner was well aware of the presence of the tenants at the time it entered into the sales
transaction. As testified to by Reynaldo,[20] petitioners counsel during the sales negotiation even undertook the
job of ejecting the squatters. In fact, petitioner actually filed suit to eject the occupants. Finally, petitioner in its
letter to PNB of December 23, 1980 admitted that it was the buyer(s) and new owner(s) of this lot.
Effective Symbolic Delivery
The Court disagrees with petitioners allegation that the respondent spouses failed to deliver the lot
sold. Petitioner asserts that the legal fiction of symbolic delivery yielded to the truth that, at the execution of the
deed of sale, transfer of possession of said lot was impossible due to the presence of occupants on the lot
sold. We find this misleading.
Although most authorities consider transfer of ownership as the primary purpose of sale, delivery remains
an indispensable requisite as our law does not admit the doctrine of transfer of property by mere
consent.[21] The Civil Code provides that delivery can either be (1) actual (Article 1497) or (2) constructive
(Articles 1498-1501). Symbolic delivery (Article 1498), as a species of constructive delivery, effects the transfer
of ownership through the execution of a public document. Its efficacy can, however, be prevented if the vendor
does not possess control over the thing sold,[22] in which case this legal fiction must yield to reality.
The key word is control, not possession, of the land as petitioner would like us to believe. The Court has
consistently held that:[23]
x x x (I)n order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor
shall have had such control over the thing sold that xxx its material delivery could have been made. It is not
enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed
in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is
sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality -- the
delivery has not been effected.
Considering that the deed of sale between the parties did not stipulate or infer otherwise, delivery was
effected through the execution of said deed. The lot sold had been placed under the control of petitioner; thus,
the filing of the ejectment suit was subsequently done. It signified that its new owner intended to obtain for itself
and to terminate said occupants actual possession thereof. Prior physical delivery or possession is not legally
required and the execution of the deed of sale is deemed equivalent to delivery.[24] This deed operates as a
formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of
ownership. Nothing more is required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach of the warranty
against eviction. Despite its protestation that its acquisition of the lot was to enable it to set up a warehouse for
its asbestos products and that failure to deliver actual possession thereof defeated this purpose, still no breach
of warranty against eviction can be appreciated because the facts of the case do not show that the requisites
for such breach have been satisfied. A breach of this warranty requires the concurrence of the following
circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of
the vendee.[25]
In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be
declared.
Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot, and not that it
has been evicted therefrom. As correctly pointed out by Respondent Court, the presence of lessees does not
constitute an encumbrance of the land,[26] nor does it deprive petitioner of its control thereof.
We note, however, that petitioners deprivation of ownership and control finally occurred when it failed
and/or discontinued paying the amortizations on the mortgage, causing the lot to be foreclosed and sold at
public auction. But this deprivation is due to petitioners fault, and not to any act attributable to the vendor-
spouses.
Because petitioner failed to impugn its integrity, the contract is presumed, under the law, to be valid and
subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner that a return of the payments it made to PNB is warranted under
Article 2154 of the Code, solutio indebiti does not apply in this case. This doctrine applies where: (1) a
payment is made when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment, and (2) the payment is made through mistake, and not through liberality or
some other cause.[27]
In this case, petitioner was under obligation to pay the amortizations on the mortgage under the contract of
sale and the deed of real estate mortgage. Under the deed of sale (Exh. 2),[28] both parties agreed to abide by
any and all the requirements of PNB in connection with the real estate mortgage. Petitioner was aware that the
deed of mortgage (Exh. C) made it solidarily and, therefore, primarily[29] liable for the mortgage obligation:[30]
(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell or dispose of the same in any
manner, without the written consent of the Mortgagee. However, if not withstanding this stipulation and during
the existence of this mortgage, the property herein mortgaged, or any portion thereof, is xxx sold, it shall be the
obligation of the Mortgagor to impose as a condition of the sale, alienation or encumbrance that the vendee, or
the party in whose favor the alienation or encumbrance is to be made, should take the property subject to the
obligation of this mortgage in the same terms and condition under which it is constituted, it being understood
that the Mortgagor is not in any manner relieved of his obligation to the Mortgagee under this mortgage by
such sale, alienation or encumbrance; on the contrary both the vendor and the vendee, or the party in whose
favor the alienation or encumbrance is made shall be jointly and severally liable for said mortgage
obligations. xxx.
Therefore, it cannot be said that it did not have a duty to pay to PNB the amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a mistake because PNB disapproved its
assumption of mortgage after it failed to submit the necessary papers for the approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of the land purchased, the payment of the
loan by petitioner was a condition clearly imposed by the contract of sale. This fact alone disproves petitioners
insistence that there was a mistake in payment. On the contrary, such payments were necessary to protect its
interest as a the buyer(s) and new owner(s) of the lot.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no
one shall enrich himself unjustly at the expense of another.[31] But as shown earlier, the payment of the
mortgage was an obligation petitioner assumed under the contract of sale. There is no unjust enrichment
where the transaction, as in this case, is quid pro quo, value for value.
All told, respondent Court did not commit any reversible error which would warrant the reversal of the
assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the assailed Decision is AFFIRMED.
SO ORDERED.
G.R. No. L-22488 February 2, 1925
ENRIQUE JOVELLANO and ISABEL JOYOSA, plaintiffs-appellees,
vs.
ANTONIA LUALHATI, ET AL., defendants.
LUCIO SOLMIRANO, appellant.

MALCOLM, J.:
Defendant as appellant rest his case on this legal proposition: There is no cause of action against the vendor
of real property to make him responsible for warranty in case of eviction unless said vendor is given notice of
the suit for eviction. Although our local jurisdiction is silent on the subject, we think that counsel is right.
On November 6, 1911, Dionisia Solmirano, Lucio Solmirano, and Macario Solmirano sold to Enrique Jovellano
a parcel of land situated in the municipality of Nagcarlan, Laguna, for P150. The deed of sale contained the
usual covenant against eviction, namely: "That we, Dionisia, Lucio and Macario Solmirano, the vendors herein,
agree, to answer in case of eviction and to warrant the property hereby sold." In pursuance of this agreement,
Jovellano entered upon the land.
On March 4, 1913, one Maxima Dorado instituted action in the justice of the peace court of Nagcarlan against
Jovellano to recover the possession of the land. Maxima Dorado won her case against Jovellano. Instead of
appealing from the decision, Jovellano presented a new complaint in the Court of First Instance of Laguna
against the same Maxima Dorado to determine the ownership of the property. Jovellano was defeated again,
and on appeal, this judgment was affirmed by the Supreme Court. (Jovellano vs. Dorado, R.G. No. 11881.1)
The present action was initiated by Enrique Jovellano and his wife Isabel Joyosa against Lucio Solmirano,
Macario Solmirano, and Antonia Lualhati, the daughter of Dionisio Solmirano, to recover from the defendants
the price paid for the land, together with all the expenses incurred in improving it and in maintaining the suits.
One of the grounds of the demurrer and one of the allegations of the defense was that defendants had not
been notified as provided by law. The lower court decided the case in favor of the plaintiffs and against the
defendant Lucio Solmirano who was ordered to pay the plaintiffs the sum of P462.73, with legal interest.
As supplemental to the foregoing statement of the case and the facts, it is only necessary to add that in none
of the above cited cases were the Solmiranos cited to appear or made parties. However, Dionisia Solmirano
was a witness and Lucio Solmirano may have been present in the court at the time of the trial. The trial judge
argued that this was a substantial compliance with the law.
Section III of Chapter IV of Title IV of Book IV of the Civil Code, is given up to the subject of warranty. Article
1475 of the Code provides that eviction exists when by final judgment based upon a right prior to the sale, the
vendee is deprived of the whole or any part of the thing purchased. The vendors shall be liable for the eviction
even though the contract is silent on the subject. Then with other articles intervening, come articles 1481 and
1482 here applicable. They read:
ART. 1481. The vendor shall be bound to make good the warranty whenever it is proved that he was
given notice, at the instance of the vendee, of the suit for eviction. In the absence of such notice the
vendor shall not be bound to the warranty.
ART. 1482. The defendant vendee, within the time fixed by the Law of Civil Procedure for answering
the complaint, shall cause notice thereof to be served upon the vendor or vendors within the shortest
period possible.
This notification shall be made in the manner established in said law for the summoning of defendants.
The time to answer granted to the vendee shall be extended until the expiration of that granted the
vendor or vendors to appear and answer the complaint, which periods shall be the same as those
granted all defendants by the Law of Civil Procedure, counted from the notification prescribed by the
first paragraph of this article.
Should the persons summoned to defend against the eviction fail to appear at the proper time and in
the proper manner, the period in which to answer the complaint shall continue with regard to the
vendee.
With all the silent facts and legal provisions before us, it is well to recall a few controlling points. The purchaser
has been forced to surrender possession of the land to a third person having a paramount title. The purchaser
now relies upon his covenant of warranty. The purchaser has given the vendor no formal notice of the suits for
eviction. Nevertheless, the purchaser expects to recover from the seller of the land the purchase price and an
additional amount sufficient to cover his losses.
Our researches disclose that the Spanish law on the subject of notice to the vendor in the case of covenants of
warranty is much more rigorous than the French and Roman law. By the Code Napoleon, as adapted in the
State of Louisiana, the warranty is lost in the absence of notification to the vendor, provided that the vendor
can prove that he had good grounds of defense which he had lost in consequence of the vendee's failure to
call him. (Delacroix vs. Cenas' Heirs [1829], 10 Martin [La.], 187; Kelly vs. Wiseman & Hinson [1859], 14 La
Ann., 661; Bonvillain vs. Bodenheimer [1906], 117 La., VI La. Digest Ann., pp. 617 et seq.) Not so by the
Spanish law. That law speaks both affirmatively and negatively. The buyer who fails to cite his vendor in
warranty loses all recourse against him.
The commentator Manresa says:
No discussion, therefore, should be made here as to whether or not the vendor had means of defense. All of
this counts very little. There is only one condition to be complied with by the vendee, and that is to give notice
of the complaint. Once this is proven, his right to the warranty is perfect, and the vendor cannot set up anything
against it. This is the preparation for the exercise of the action for eviction spoken of by us the commentary on
the preceding article; the warranty, according to article 1480, cannot be enforced until a final judgment is
rendered, but the action for eviction is prepared, before that judgment, by causing a notice of the complaint to
be given to the vendor. (Comentarios al Codigo Civil Español, Tomo X, p. 212.)
The only doubtful point relates to that part of article 1482 of the Civil Code which refers to the Law of Civil
Procedure. But as the Spanish Ley de Enjuiciamiento Civil has disappeared, the article must be considered as
referring to the present Code of Civil Procedure. (Willard's Notes to the Spanish Civil Code, p. 85.) Section 114
of the Code of Civil Procedure could easily be taken advantage of to join the vendor as codefendant. The
purchaser threatened with eviction, who wishes to preserve his right of warranty against his vendor, should call
in the vendor to defend the action which has been instituted against the purchaser.
We hold articles 1481 and 1482 of the Civil Code as in full force and effect, said articles to be supplemented by
such pertinent sections of Code of Civil Procedure as should be invoked in particular cases.
In accordance with the prayer of the appellant, the judgment is reversed and the complaint dismissed without
special pronouncement as to costs in either instance. So ordered.
Johnson, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
 [G.R. No. 152219. October 25, 2004]
NUTRIMIX FEEDS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES EFREN AND
MAURA EVANGELISTA, respondents.
DECISION
CALLEJO, SR., J.:
For review on certiorari is the Decision[1] of the Court of Appeals in CA-G.R. CV No. 59615 modifying, on
appeal, the Joint Decision[2] of the Regional Trial Court of Malolos, Bulacan, Branch 9, in Civil Case No. 1026-
M-93[3] for sum of money and damages with prayer for issuance of writ of preliminary attachment, and Civil
Case No. 49-M-94[4] for damages. The trial court dismissed the complaint of the respondents, ordering them to
pay the petitioner the unpaid value of the assorted animal feeds delivered to the former by the latter, with legal
interest thereon from the filing of the complaint, including attorneys fees.
The Factual Antecedents
On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein, started to directly
procure various kinds of animal feeds from petitioner Nutrimix Feeds Corporation. The petitioner gave the
respondents a credit period of thirty to forty-five days to postdate checks to be issued in payment for the
delivery of the feeds. The accommodation was made apparently because of the company presidents close
friendship with Eugenio Evangelista, the brother of respondent Efren Evangelista. The various animal feeds
were paid and covered by checks with due dates from July 1993 to September 1993. Initially, the respondents
were good paying customers. In some instances, however, they failed to issue checks despite the deliveries of
animal feeds which were appropriately covered by sales invoices. Consequently, the respondents incurred an
aggregate unsettled account with the petitioner in the amount of P766,151.00. The breakdown of the unpaid
obligation is as follows:
Sales Invoice Number Date Amount
21334 June 23, 1993 P 7,260.00
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00
21722 July 12, 1993 45,185.00
22048 July 26, 1993 44,540.00
22054 July 27, 1993 45,246.00
22186 August 2, 1993 84,900.00
Total: P275,631.00
=========
Bank Check Number Due Date Amount
United Coconut
Planters Bank BTS052084 July 30, 1993 P 47,760.00
-do- BTS052087 July 30, 1993 131,340.00
-do- BTS052091 July 30, 1993 59,700.00
-do- BTS062721 August 4, 1993 47,860.00
-do- BTS062720 August 5, 1993 43,780.00
-do- BTS062774 August 6, 1993 15,000.00
-do- BTS062748 September 11, 1993 47,180.00
-do- BTS062763 September 11, 1993 48,440.00
-do- BTS062766 September 18, 1993 49,460.00
Total: P490,520.00
=========
When the above-mentioned checks were deposited at the petitioners depository bank, the same were,
consequently, dishonored because respondent Maura Evangelista had already closed her account. The
petitioner made several demands for the respondents to settle their unpaid obligation, but the latter failed and
refused to pay their remaining balance with the petitioner.
On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos, Bulacan, a complaint,
docketed as Civil Case No. 1026-M-93, against the respondents for sum of money and damages with a prayer
for issuance of writ of preliminary attachment. In their answer with counterclaim, the respondents admitted their
unpaid obligation but impugned their liability to the petitioner. They asserted that the nine checks issued by
respondent Maura Evangelista were made to guarantee the payment of the purchases, which was previously
determined to be procured from the expected proceeds in the sale of their broilers and hogs. They contended
that inasmuch as the sudden and massive death of their animals was caused by the contaminated products of
the petitioner, the nonpayment of their obligation was based on a just and legal ground.
On January 19, 1994, the respondents also lodged a complaint for damages against the petitioner,
docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of their animals supposedly
effected by the adulterated animal feeds the petitioner sold to them. Within the period to file an answer, the
petitioner moved to dismiss the respondents complaint on the ground of litis pendentia. The trial court denied
the same in a Resolution[5] dated April 26, 1994, and ordered the consolidation of the case with Civil Case No.
1026-M-93. On May 13, 1994, the petitioner filed its Answer with Counterclaim, alleging that the death of the
respondents animals was due to the widespread pestilence in their farm. The petitioner, likewise, maintained
that it received information that the respondents were in an unstable financial condition and even sold their
animals to settle their obligations from other enraged and insistent creditors. It, moreover, theorized that it was
the respondents who mixed poison to its feeds to make it appear that the feeds were contaminated.
A joint trial thereafter ensued.
 During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant Manager, as its lone
witness. He testified that on the first week of August 1993, Nutrimix President Efren Bartolome met the
respondents to discuss the possible settlement of their unpaid account. The said respondents still pleaded to
the petitioner to continue to supply them with animal feeds because their livestock were supposedly suffering
from a disease.[6]
For her part, respondent Maura Evangelista testified that as direct buyers of animal feeds from the
petitioner, Mr. Bartolome, the company president, gave them a discount of P12.00 per bag and a credit term of
forty-five to seventy-five days.[7] For the operation of the respondents poultry and piggery farm, the assorted
animal feeds sold by the petitioner were delivered in their residence and stored in an adjacent bodega made of
concrete wall and galvanized iron sheet roofing with monolithic flooring.[8]
It appears that in the morning of July 26, 1993, three various kinds of animal feeds, numbering 130 bags,
were delivered to the residence of the respondents in Sta. Rosa, Marilao, Bulacan. The deliveries came at
about 10:00 a.m. and were fed to the animals at approximately 1:30 p.m. at the respondents farm in Balasing,
Sta. Maria, Bulacan. At about 8:30 p.m., respondent Maura Evangelista received a radio message from a
worker in her farm, warning her that the chickens were dying at rapid intervals. When the respondents arrived
at their farm, they witnessed the death of 18,000 broilers, averaging 1.7 kilos in weight, approximately forty-one
to forty-five days old. The broilers then had a prevailing market price of P46.00 per kilo.[9]
On July 27, 1993, the respondents received another delivery of 160 bags of animal feeds from the
petitioner, some of which were distributed to the contract growers of the respondents. At that time, respondent
Maura Evangelista requested the representative of the petitioner to notify Mr. Bartolome of the fact that their
broilers died after having been fed with the animal feeds delivered by the petitioner the previous day. She,
likewise, asked that a technician or veterinarian be sent to oversee the untoward occurrence. Nevertheless, the
various feeds delivered on that day were still fed to the animals. On July 27, 1993, the witness recounted that
all of the chickens and hogs died.[10] Efren Evangelista suffered from a heart attack and was hospitalized as a
consequence of the massive death of their animals in the farm. On August 2, 1993, another set of animal feeds
were delivered to the respondents, but the same were not returned as the latter were not yet cognizant of the
fact that the cause of the death of their animals was the polluted feeds of the petitioner.[11]
When respondent Maura Evangelista eventually met with Mr. Bartolome on an undisclosed date, she
attributed the improbable incident to the animal feeds supplied by the petitioner, and asked Mr. Bartolome for
indemnity for the massive death of her livestock. Mr. Bartolome disavowed liability thereon and, thereafter, filed
a case against the respondents.[12]
After the meeting with Mr. Bartolome, respondent Maura Evangelista requested Dr. Rolando Sanchez, a
veterinarian, to conduct an inspection in the respondents poultry. On October 20, 1993, the respondents took
ample amounts remaining from the feeds sold by the petitioner and furnished the same to various government
agencies for laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the Supervising Agriculturist of the Bureau of
Animal Industry, testified that on October 20, 1993, sample feeds for chickens contained in a pail were
presented to her for examination by respondent Efren Evangelista and a certain veterinarian.[13] The Clinical
Laboratory Report revealed that the feeds were negative of salmonella[14] and that the very high aflatoxin
level[15] found therein would not cause instantaneous death if taken orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the Bureau of Animal Industry, testified that
sometime in October 1993, Efren sought for his advice regarding the death of the respondents chickens. He
suggested that the remaining feeds from their warehouse be brought to a laboratory for examination. The
witness claimed that the feeds brought to the laboratory came from one bag of sealed Nutrimix feeds which
was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist of the Philippine Nuclear Research
Institute, informed the trial court that respondent Maura Evangelista and Dr. Garcia brought sample feeds and
four live and healthy chickens to him for laboratory examination. In his Cytogenetic Analysis,[16] Dr. Medina
reported that he divided the chickens into two categories, which he separately fed at 6:00 a.m. with the animal
feeds of a different commercial brand and with the sample feeds supposedly supplied by the petitioner. At
noon of the same day, one of the chickens which had been fed with the Nutrimix feeds died, and a second
chicken died at 5:45 p.m. of the same day. Samples of blood and bone marrow were taken for chromosome
analysis, which showed pulverized chromosomes both from bone marrow and blood chromosomes. On cross-
examination, the witness admitted that the feeds brought to him were merely placed in a small unmarked
plastic bag and that he had no way of ascertaining whether the feeds were indeed manufactured by the
petitioner.
Another witness for the respondents, Aida Viloria Magsipoc, Forensic Chemist III of the Forensic Chemist
Division of the National Bureau of Investigation, affirmed that she performed a chemical analysis [17] of the
animal feeds, submitted to her by respondent Maura Evangelista and Dr. Garcia in a sealed plastic bag, to
determine the presence of poison in the said specimen. The witness verified that the sample feeds yielded
positive results to the tests for COUMATETRALYL Compound, [18] the active component of RACUMIN, a brand
name for a commercially known rat poison.[19] According to the witness, the presence of the compound in the
chicken feeds would be fatal to internal organs of the chickens, as it would give a delayed blood clotting effect
and eventually lead to internal hemorrhage, culminating in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau of Plants Industry, conducted a
laboratory examination to determine the presence of pesticide residue in the animal feeds submitted by
respondent Maura Evangelista and Dr. Garcia. The tests disclosed that no pesticide residue was detected in
the samples received[20] but it was discovered that the animal feeds were positive for Warfarin, a rodenticide
(anticoagulant), which is the chemical family of Coumarin.[21]
After due consideration of the evidence presented, the trial court ruled in favor of the petitioner. The
dispositive portion of the decision reads:
WHEREFORE, in light of the evidence on record and the laws/jurisprudence applicable thereon, judgment is
hereby rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses Efren and Maura Evangelista to pay unto
plaintiff Nutrimix Feeds Corporation the amount of P766,151.00 representing the unpaid value of
assorted animal feeds delivered by the latter to and received by the former, with legal interest
thereon from the filing of the complaint on December 15, 1993 until the same shall have been paid
in full, and the amount of P50,000.00 as attorneys fees. Costs against the aforenamed defendants;
and
2) dismissing the complaint as well as counterclaims in Civil Case No. 49-M-94 for inadequacy of
evidence to sustain the same. No pronouncement as to costs.
SO ORDERED.[22]
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court cannot sustain the Evangelistas contention that
Nutrimix is liable under Articles 1561 and 1566 of the Civil Code governing hidden defects of commodities sold.
As already explained, the Court is predisposed to believe that the subject feeds were contaminated sometime
between their storage at the bodega of the Evangelistas and their consumption by the poultry and hogs fed
therewith, and that the contamination was perpetrated by unidentified or unidentifiable ill-meaning mischief-
maker(s) over whom Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy of proof to the contrary, Nutrimix was not responsible
at all for the contamination or poisoning of the feeds supplied by it to the Evangelistas which precipitated the
mass death of the latters chickens and hogs. By no means and under no circumstance, therefore, may
Nutrimix be held liable for the sundry damages prayed for by the Evangelistas in their complaint in Civil Case
No. 49-M-94 and answer in Civil Case No. 1026-M-93. In fine, Civil Case No. 49-M-94 deserves dismissal.
Parenthetically, vis--vis the fulminations of the Evangelistas in this specific regard, the Court does not perceive
any act or omission on the part of Nutrimix constitutive of abuse of rights as would render said corporation
liable for damages under Arts. 19 and 21 of the Civil Code. The alleged callous attitude and lack of concern of
Nutrimix have not been established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the Court is perfectly convinced that the deliveries of
animal feeds by Nutrimix to the Evangelistas constituted a simple contract of sale, albeit on a continuing basis
and on terms or installment payments.[23]
Undaunted, the respondents sought a review of the trial courts decision to the Court of Appeals (CA),
principally arguing that the trial court erred in holding that they failed to prove that their broilers and hogs died
as a result of consuming the petitioners feeds.
On February 12, 2002, the CA modified the decision of the trial court. The fallo of the decision reads:
WHEREFORE, premises considered, the appealed decision is hereby MODIFIED such that the complaint in
Civil Case No. 1026-M-93 is DISMISSED for lack of merit.
SO ORDERED.[24]
In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled that the respondents were not
obligated to pay their outstanding obligation to the petitioner in view of its breach of warranty against hidden
defects. The CA gave much credence to the testimony of Dr. Rodrigo Diaz, who attested that the sample feeds
distributed to the various governmental agencies for laboratory examination were taken from a sealed sack
bearing the brand name Nutrimix. The CA further argued that the declarations of Dr. Diaz were not effectively
impugned during cross-examination, nor was there any contrary evidence adduced to destroy his damning
allegations.
On March 7, 2002, the petitioner filed with this Court the instant petition for review on the sole ground that
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CLAIMS OF HEREIN
PETITIONER FOR COLLECTION OF SUM OF MONEY AGAINST PRIVATE RESPONDENTS MUST BE
DENIED BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz can hardly be considered as conclusive
evidence of hidden defects that can be attributed to the petitioner. Parenthetically, the petitioner asserts,
assuming that the sample feeds were taken from a sealed sack bearing the brand name Nutrimix, it cannot
decisively be presumed that these were the same feeds brought to the respondents farm and given to their
chickens and hogs for consumption.
It is the contention of the respondents that the appellate court correctly ordered the dismissal of the
complaint in Civil Case No. 1026-M-93. They further add that there was sufficient basis for the CA to hold the
petitioner guilty of breach of warranty thereby releasing the respondents from paying their outstanding
obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45. However, this rule is not absolute. The Court may review the factual findings of the
CA should they be contrary to those of the trial court. Conformably, this Court may review findings of facts
when the judgment of the CA is premised on a misapprehension of facts.[25]
 The threshold issue is whether or not there is sufficient evidence to hold the petitioner guilty of breach of
warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the New Civil
Code of the Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against hidden defects which the thing sold may have,
should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a
lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have
known them.
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been known to the vendee.[26] Under the law,
the requisites to recover on account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the contract;
(d) the defect, must be important (renders thing UNFIT or considerably decreases FITNESS);
(e) the action must be instituted within the statute of limitations.[27]
In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be used for
the purpose which both parties contemplated.[28] To be able to prove liability on the basis of breach of implied
warranty, three things must be established by the respondents. The first is that they sustained injury because
of the product; the second is that the injury occurred because the product was defective or unreasonably
unsafe; and finally, the defect existed when the product left the hands of the petitioner. [29] A manufacturer
or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of
any proof that the product in question was defective.[30] The defect must be present upon the delivery or
manufacture of the product;[31] or when the product left the sellers or manufacturers control;[32] or when the
product was sold to the purchaser;[33] or the product must have reached the user or consumer without
substantial change in the condition it was sold. Tracing the defect to the petitioner requires some evidence that
there was no tampering with, or changing of the animal feeds. The nature of the animal feeds makes it
necessarily difficult for the respondents to prove that the defect was existing when the product left the premises
of the petitioner.
A review of the facts of the case would reveal that the petitioner delivered the animal feeds, allegedly
containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the animal feeds
examined only on October 20, 1993, or barely three months after their broilers and hogs had died. On cross-
examination, respondent Maura Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that believing that the 250 bags of feeds delivered to
(sic) the Nutrimix Feeds Corporation on August 2, 1993 were poison (sic), allegedly your husband
Efren Evangelista burned the same with the chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as according to you, used (sic) any of these
deliveries made on August 2, 1993?
A We were able to feed (sic) some of those deliveries because we did not know yet during that time
that it is the cause of the death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not used by you because you believe (sic) that
they were poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the cause of the death of the chickens.
Q And you stated that this last delivery on August 2 were poison (sic) also and you did not use them,
is that right?
Atty. Roxas:
That is misleading.
Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know yet of the poisoning.
Court:
And when the chickens died, they stopped naturally feeding it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you believe (sic) that the chickens were allegedly
poisoned, you used the same for feeding your animals?
A We did not know yet during that time that the feeds contained poison, only during that time when we
learned about the same after the analysis.
 Q Therefore you have known only of the alleged poison in the Nutrimix Feeds only after you have
caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the months of October to November, Sir.
Q So, before this analysis of about October and November, you were not aware that the feeds of
Nutrimix Feeds Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we were sure that the feeds were the cause of the
death of our animals.[34]
We find it difficult to believe that the feeds delivered on July 26 and 27, 1993 and fed to the broilers and
hogs contained poison at the time they reached the respondents. A difference of approximately three months
enfeebles the respondents theory that the petitioner is guilty of breach of warranty by virtue of hidden defects.
In a span of three months, the feeds could have already been contaminated by outside factors and subjected
to many conditions unquestionably beyond the control of the petitioner. In fact, Dr. Garcia, one of the witnesses
for the respondents, testified that the animal feeds submitted to her for laboratory examination contained very
high level of aflatoxin, possibly caused by mold (aspergillus flavus).[35] We agree with the contention of the
petitioner that there is no evidence on record to prove that the animal feeds taken to the various governmental
agencies for laboratory examination were the same animal feeds given to the respondents broilers and hogs
for their consumption. Moreover, Dr. Diaz even admitted that the feeds that were submitted for analysis came
from a sealed bag. There is simply no evidence to show that the feeds given to the animals on July 26 and 27,
1993 were identical to those submitted to the expert witnesses in October 1993.
It bears stressing, too, that the chickens brought to the Philippine Nuclear Research Institute for laboratory
tests were healthy animals, and were not the ones that were ostensibly poisoned. There was even no attempt
to have the dead fowls examined. Neither was there any analysis of the stomach of the dead chickens to
determine whether the petitioners feeds really caused their sudden death. Mere sickness and death of the
chickens is not satisfactory evidence in itself to establish a prima facie case of breach of warranty.[36]
Likewise, there was evidence tending to show that the respondents combined different kinds of animal
feeds and that the mixture was given to the animals. Respondent Maura Evangelista testified that it was
common practice among chicken and hog raisers to mix animal feeds. The testimonies of respondent Maura
Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster mash from Nutrimix Feeds Corporation
because in July 1993 you were taking care of many chickens, as a matter of fact, majority of the
chickens you were taking care [of] were chicks and not chickens which are marketable?
A What I can remember was that I ordered chicken booster mash on that month of July 1993 because
we have some chicks which have to be fed with chicken booster mash and I now remember that
on the particular month of July 1993 we ordered several bags of chicken booster mash for the
consumption also of our chicken in our other poultry and at the same time they were also used to
be mixed with the feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing chicken booster mash which is specifically
made for chick feeds you are feeding the same to the hogs, is that what you want the Court to
believe?
A Yes, Sir, because when you mix chicken booster mash in the feeds of hogs there is a better
result, Sir, in raising hogs.[37]
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27, 1993, various types of Nutrimix feeds were
delivered to you like chicks booster mash, broiler starter mash and hog finisher or hog grower
mash. What is the reason for simultaneous deliveries of various types of feeds?
A Because we used to mix all those together in one feeding, Sir.
Q And what is the reason for mixing the chick booster mash with broiler starter mash?
A So that the chickens will get fat, Sir.
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these feeds by you is your own concuction (sic)
and without the advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two feeds, Sir.
Q By yourself, Madam Witness, who advised you to do the mixing of these two types of feeds for
feeding your chickens?
A That is common practice of chicken raisers, Sir.[38]
Even more surprising is the fact that during the meeting with Nutrimix President Mr. Bartolome, the
respondents claimed that their animals were plagued by disease, and that they needed more time to settle
their obligations with the petitioner. It was only after a few months that the respondents changed their
justification for not paying their unsettled accounts, claiming anew that their animals were poisoned with the
animal feeds supplied by the petitioner. The volte-face of the respondents deserves scant consideration for
having been conjured as a mere afterthought.
 In essence, we hold that the respondents failed to prove that the petitioner is guilty of breach of warranty
due to hidden defects. It is, likewise, rudimentary that common law places upon the buyer of the product the
burden of proving that the seller of the product breached its warranty. [39] The bevy of expert evidence adduced
by the respondents is too shaky and utterly insufficient to prove that the Nutrimix feeds caused the death of
their animals. For these reasons, the expert testimonies lack probative weight. The respondents case of
breach of implied warranty was fundamentally based upon the circumstantial evidence that the chickens and
hogs sickened, stunted, and died after eating Nutrimix feeds; but this was not enough to raise a reasonable
supposition that the unwholesome feeds were the proximate cause of the death with that degree of certainty
and probability required.[40] The rule is well-settled that if there be no evidence, or if evidence be so slight as
not reasonably to warrant inference of the fact in issue or furnish more than materials for a mere conjecture,
the court will not hesitate to strike down the evidence and rule in favor of the other party.[41] This rule is both fair
and sound. Any other interpretation of the law would unloose the courts to meander aimlessly in the arena of
speculation.[42]
It must be stressed, however, that the remedy against violations of warranty against hidden defects is
either to withdraw from the contract (accion redhibitoria) or to demand a proportionate reduction of the price
(accion quanti minoris), with damages in either case.[43] In any case, the respondents have already admitted,
both in their testimonies and pleadings submitted, that they are indeed indebted to the petitioner for the unpaid
animal feeds delivered to them. For this reason alone, they should be held liable for their unsettled obligations
to the petitioner.
WHEREFORE, in light of all the foregoing, the petition is GRANTED. The assailed Decision of the Court of
Appeals, dated February 12, 2002, is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
Malolos, Bulacan, Branch 9, dated January 12, 1998, is REINSTATED. No costs.
SO ORDERED.
G.R. No. 73913 January 31, 1989
JERRY T. MOLES, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and MARIANO M. DIOLOSA, respondents.

REGALADO, J.:
This petition for review on certiorari assails the decision of the then Intermediate Appellate Court 1 dismissing
the complaint filed by herein petitioner against the herein private respondent in the former Court of First
Instance of Negros Occidental in Civil Case No. 13821 thereof. 2
The factual backdrop of this controversy, as culled from the records, 3 shows that on May 17, 1978, petitioner
Jerry T. Moles commenced a suit against private respondent Mariano M. Diolosa in the aforesaid trial court,
Branch IV in Bacolod City, for rescission of contract with damages. Private respondent moved to dismiss on
the ground of improper venue, invoking therefor Sales Invoice No. 075A executed between petitioner and
private respondent on April 23, 1977 which provides that all judicial actions arising from this contract shall be
instituted in the City of Iloilo. 4 This was opposed by petitioner who averred that there is no formal document
evidencing the sale which is substantially verbal in character. In an order dated June 23, 1978, the trial court
denied the motion to dismiss, holding that the question of venue could not be resolved at said stage of the
case. The subsequent motion for reconsideration was likewise denied.
Consequently, private respondent, invoking the aforesaid venue stipulation, preceeded to this Court on a
petition for prohibition with preliminary injunction in G.R. No. 49078, questioning the validity of the order
denying his aforesaid two motions and seeking to enjoin the trial court from further proceeding with the case.
This petition was dismissed for lack of merit in a resolution of the Court, dated February 7, 1979, and which
became final on March 15, 1979. Thereafter, private respondent filed his answer and proceeded to trial.
The aforecited records establish that sometime in 1977, petitioner needed a linotype printing machine for his
printing business, The LM Press at Bacolod City, and applied for an industrial loan with the Development Bank
of the Philippines. (hereinafter, DBP) for the purchase thereof. An agent of Smith, Bell and Co. who is a friend
of petitioner introduced the latter to private respondent, owner of the Diolosa Publishing House in Iloilo City,
who had two available machines. Thereafter, petitioner went to Iloilo City to inspect the two machines offered
for sale and was informed that the same were secondhand but functional.
On his second visit to the Diolosa Publishing House, petitioner together with Rogelio Yusay, a letter press
machine operator, decided to buy the linotype machine, Model 14. The transaction was basically verbal in
nature but to facilitate the loan application with the DBP, a pro forma invoice, dated April 23, 1977 and
reflecting the amount of P50,000.00 as the consideration of the sale, was signed by petitioner with an
addendum that payment had not yet been made but that he promised to pay the full amount upon the release
of his loan from the aforementioned bank on or before the end of the month. 5 Although the agreed selling price
was only P40,000.00, the amount on the invoice was increased by P10,000.00, said increase being intended
for the purchase of new matrices for said machine.
Sometime between April and May, 1977, the machine was delivered to petitioner's publishing house at
Tangub, Bacolod City where it was installed by one Crispino Escurido, an employee of respondent Diolosa.
Another employee of the Diolosa Publishing House, Tomas Plondaya, stayed at petitioners house for almost a
month to train the latter's cousin in operating the machine. 6
Under date of August 29, 1977, private respondent issued a certification wherein he warranted that the
machine sold was in A-1 condition, together with other express warranties. 7
Prior to the release of the loan, a representative from the DBP, Bacolod, supposedly inspected the machine
but he merely looked at it to see that it was there . 8 The inspector's recommendation was favorable and,
thereafter, petitioner's loan of P50,000.00 was granted and released. However, before payment was made to
private respondent, petitioner required the former, in a letter dated September 30, 1977, to accomplish the
following, with the explanations indicated by him:
1.) Crossed check for P15,407.10 representing.
a) P 10,000.00-Overprice in the machine:
b) P203.00-Freight and handling of the machine;
c) P203.00-Share in the electric repair; and
d) P5,000.00- Insurance that Crispin will come back and repair the linotype machine at seller's
account as provided in the contract; after Crispin has put everything in order when he goes
home on Sunday he will return the check of P15,000.00.
2) Official receipt in the amount of P 50,000.00 as full payment of the linotype machine.
These were immediately complied with by private respondent and on the same day, September 30,1977, he
received the DBP check for P50,000.00. 9
It is to be noted that the aforesaid official receipt No. 0451, dated September 30, 1977 and prepared and
signed by private respondent, expressly states that he received from the petitioner the DBP check for
P50,000.00 issued in our favor in full payment of one (1) Unit Model 14 Linotype Machine as per Pro
forma Invoice dated April 23, 1977. 10
On November 29, 1977, petitioner wrote private respondent that the machine was not functioning properly as it
needed a new distributor bar. In the same letter, petitioner unburdened himself of his grievances and
sentiments in this wise.
We bought this machine in good faith because we trusted you very much being our elder
brother in printing and publishing business. We did not hire anybody to look over the machine,
much more ask for a rebate in your price of P40,000.00 and believed what your trusted two
 men, Tomas and Crispin, said although they were hiding the real and actual condition of the
machine for your business protection.
Until last week, we found out the worst ever to happen to us. We have been cheated because
the expert of the Linotype machine from Manila says, that the most he will buy your machine is
at P5,000.00 only. ... 11
Private respondent made no reply to said letter, so petitioner engaged the services of other technicians. Later,
after several telephone calls regarding the defects in the machine, private respondent sent two technicians to
make the necessary repairs but they failed to put the machine in running condition. In fact, since then petitioner
was never able to use the machine.12
On February 18, 1978, not having received from private respondent the action requested in his preceding letter
as herein before stated, petitioner again wrote private respondent, this time with the warning that he would be
forced to seek legal remedies to protect his interest. 13
Obviously in response to the foregoing letter, private respondent decided to purchase a new distributor bar
and, on March 16, 1978, private respondent delivered this spare part to petitioner through one Pedro Candido.
However, when thereafter petitioner asked private respondent to pay for the price of the distributor bar, the
latter asked petitioner to share the cost with him. Petitioner thus finally decided to indorse the matter to his
lawyer.
An expert witness for the petitioner, one Gil Legaspina, declared that he inspected the linotype machine
involved in this case at the instance of petitioner. In his inspection thereof, he found the following defects: (1)
the vertical automatic stop lever in the casting division was worn out; (2) the justification lever had a slight
breach (balana in the dialect); (3) the distributor bar was worn out; (4) the partition at the entrance channel had
a tear; (5) there was no "pie stacker" tube entrance; and (6) the slouch arm lever in the driving division was
worn out.
It turned out that the said linotype machine was the same machine that witness Legaspina had previously
inspected for Sy Brothers, a firm which also wanted to buy a linotype machine for their printing establishment.
Having found defects in said machine, the witness informed Sy Brother about his findings, hence the purchase
was aborted. In his opinion, major repairs were needed to put the machine back in good running condition.14
After trial, the court a quo rendered a decision the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered as follows:
(1) Decreeing the rescission of the contract of sale involving one linotype machine No. 14
between the defendant as seller and the plaintiff as buyer;
(2) Ordering the plaintiff to return to the defendant at the latter's place of business in Iloilo City
the linotype machine aforementioned together with all accessories that originally were delivered
to the plaintiff;
(3) Ordering the defendant to return to the plaintiff the sum of Forty Thousand Pesos
(P40,000.00) representing the price of the linotype machine, plus interest at the legal rate
counted from May 17, 1978 when this action was instituted, until fully paid;
(4) Ordering the defendant to indemnify the plaintiff the sum of Four Thousand Five Hundred
Pesos (P4,500.00) representing unearned income or actual damages;
(5) Ordering the defendant to pay the plaintiff the sum of One Thousand Pesos (Pl,000.00) for
attorney's fees.
Costs against the defendant.15
From this decision, private respondent appealed to the Intermediate Appellate Court which reversed the
judgment of the lower court and dismissed petitioner's complaint, hence the present petition.
We find merit in petitioner's cause.
On the matter of venue, private respondent relies on the aforementioned Sales Invoice No. 076A which
allegedly requires that the proper venue should be Iloilo City and not Bacolod City. We agree with petitioner
that said document is not the contract evidencing the sale of the linotype machine, it being merely a preliminary
memorandum of a proposal to buy one linotype machine, using for such purpose a printed form used for
printing job orders in private respondent's printing business. As hereinbefore explained, this issue on venue
was brought to Us by private respondent in a special civil action for prohibition with preliminary injunction in
G.R. No. 49078. After considering the allegations contained, the issues raised and the arguments adduced in
said petition, as well as the comments thereto, the Court dismissed the petition for lack of merit. Respondent
court erred in reopening the same issue on appeal, with a contrary ruling.
Furthermore, it was error for the respondent court, after adopting the factual findings of the lower court, to
reverse the latter's holding that the sales invoice is merely a pro forma memorandum. The records do not show
that this finding is grounded entirely on speculation, surmises or conjectures as to warrant a reversal
thereof. 16 In fact, as hereinbefore stated, private respondent expressly admitted in his official receipt No. 0451,
dated September 30, 1977, that the said sales invoice was merely a pro forma invoice. Consequently, the
printed provisions therein, especially since the printed form used was for purposes of other types of
transactions, could not have been intended by the parties to govern their transaction on the printing machine. It
is obvious that a venue stipulation, in order to bind the parties, must have been intelligently and deliberately
intended by them to exclude their case from the reglementary rules on venue. Yet, even such intended
variance may not necessarily be given judicial approval, as, for instance, where there are no restrictive or
qualifying words in the agreement indicating that venue cannot be laid in any place other than that agreed
upon by the parties, 17 and in contracts of adhesion. 18
Now, when an article is sold as a secondhand item, a question arises as to whether there is an implied
warranty of its quality or fitness. It is generally held that in the sale of a designated and specific article sold as
secondhand, there is no implied warranty as to its quality or fitness for the purpose intended, at least where it
is subject to inspection at the time of the sale. On the other hand, there is also authority to the effect that in a
sale of a secondhand articles there may be, under some circumstances, an implied warranty of fitness for the
ordinary purpose of the article sold or for the particular purpose of the buyer. 19
In a line of decisions rendered by the United States Supreme Court, it had theretofore been held that there is
no implied warranty as to the condition, adaptation, fitness, or suitability for the purpose for which made, or the
quality, of an article sold as and for a secondhand article. 20
Thus, in finding for private respondent, the respondent court cited the ruling in Sison vs. Ago, et al. 21 to the
effect that unless goods are sold as to raise an implied warranty, as a general rule there is no implied warranty
in the sale of secondhand articles.22
Said general rule, however, is not without exceptions. Article 1562 of our Civil Code, which was taken from the
Uniform Sales Act, provides:
Art. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness
of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty
that the goods shall be reasonably fit for such purpose;
xxx
In Drumar Mining Co. vs. Morris Ravine Mining Co., 23 the District Court of Appeals, 3rd District, California, in
applying a similar provision of law, ruled:
'There is nothing in the Uniform Sales Act declaring there is no implied warranty in the sale of
secondhand goods. Section 1735 of the Civil Code declares there is no implied warranty or
condition as to the quality or fitness for any particular purpose, of goods supplied under a
contract to sell or a sale, except (this general statement is followed by an enumeration of
several exceptions). It would seem that the legislature intended this section to apply to all sales
of goods, whether new or secondhand. In subdivision 1 of this section, this language is used:
where the buyer ... makes known to the seller the particular purpose for which the goods are
required, and it appears that the buyer relies on the seller's skill or judgment ... there is an
implied warranty that the goods shall be reasonably fit for such purpose.'
Furthermore, and of a more determinative role in this case, a perusal of past American decisions 24 likewise
reveals a uniform pattern of rulings to the effect that an express warranty can be made by and also be binding
on the seller even in the sale of a secondhand article.
In the aforecited case of Markman vs. Hallbeck, while holding that there was an express warranty in the sale of
a secondhand engine, the court said that it was not error to refuse an instruction that upon the sale of
secondhand goods no warranty was implied, since secondhand goods might be sold under such
circumstances as to raise an implied warranty.
To repeat, in the case before Us, a certification to the effect that the linotype machine bought by petitioner was
in A-1 condition was issued by private respondent in favor of the former. This cannot but be considered as an
express warranty. However, it is private respondent's submission, that the same is not binding on him, not
being a part of the contract of sale between them. This contention is bereft of substance.
It must be remembered that the certification was a condition sine qua non for the release of petitioner's loan
which was to be used as payment for the purchase price of the machine. Private respondent failed to refute
this material fact. Neither does he explain why he made that express warranty on the condition of the machine
if he had not intended to be bound by it. In fact, the respondent court, in declaring that petitioner should have
availed of the remedy of requiring repairs as provided for in said certification, thereby considered the same as
part and parcel of the verbal contract between the parties.
On the basis of the foregoing circumstances, the inescapable conclusion is that private respondent is indeed
bound by the express warranty he executed in favor of herein petitioner.
We disagree with respondent court that private respondents express warranty as to the A-1 condition of the
machine was merely dealer's talk. Private respondent was not a dealer of printing or linotype machines to
whom could be ascribed the supposed resort to the usual exaggerations of trade in said items. His certification
as to the condition of the machine was not made to induce petitioner to purchase it but to confirm in writing for
purposes of the financing aspect of the transaction his representations thereon. Ordinarily, what does not
appear on the face of the written instrument should be regarded as dealer's or trader's talk; 25 conversely, what
is specifically represented as true in said document, as in the instant case, cannot be considered as mere
dealer's talk.
On the question as to whether the hidden defects in the machine is sufficient to warrant a rescission of the
contract between the parties, we have to consider the rule on redhibitory defects contemplated in Article 1561
of the Civil Code. A redhibitory defect must be an imperfection or defect of such nature as to engender a
certain degree of importance. An imperfection or defect of little consequence does not come within the
category of being redhibitory.26
As already narrated, an expert witness for the petitioner categorically established that the machine required
major repairs before it could be used. This, plus the fact that petitioner never made appropriate use of the
machine from the time of purchase until an action was filed, attest to the major defects in said machine, by
reason of which the rescission of the contract of sale is sought. The factual finding, therefore, of the trial court
that the machine is not reasonably fit for the particular purpose for which it was intended must be upheld, there
being ample evidence to sustain the same.
At a belated stage of this appeal, private respondent came up for the first time with the contention that the
action for rescission is barred by prescription. While it is true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action a cursory reading of the ten preceding articles to which
it refers will reveal that said rule may be applied only in case of implied warranties. The present case involves
one with and express warranty. Consequently, the general rule on rescission of contract, which is four
years 27 shall apply. Considering that the original case for rescission was filed only one year after the delivery
of the subject machine, the same is well within the prescriptive period. This is aside from the doctrinal rule that
the defense of prescription is waived and cannot be considered on appeal if not raised in the trial court, 28 and
this case does not have the features for an exception to said rule.
WHEREFORE, the judgment of dismissal of the respondent court is hereby REVERSED and SET ASIDE, and
the decision of the court a quo is hereby REINSTATED.
SO ORDERED.
G.R. No. 154554 November 9, 2005
GOODYEAR PHILIPPINES, INC., Petitioner,
vs.
ANTHONY SY and JOSE L. LEE, Respondents.
DECISION
PANGANIBAN, J.:
complaint must contain a concise statement of the ultimate facts constituting the plaintiff’s cause of action. To
determine whether a cause of action is stated, the test is as follows: admitting arguendo the truth of the facts
alleged, can the court render a
_____________________
* On official leave.
** On medical leave.
valid judgment in accordance with the prayer? If the answer is "no," the complaint does not state a cause of
action and should be dismissed forthwith. If "yes," then it does and must be given due course.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the June 5, 2002
Decision2 and the August 8, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 61229. The
dispositive portion of the challenged Decision reads as follows:
"WHEREFORE, the instant appeal is GRANTED. The Order dated May 27, 1998 of the Regional Trial Court of
Legazpi City, Branch 9, is hereby REVERSED and the case is remanded to the court a quo for the appropriate
further proceedings."4
The assailed Resolution denied petitioner’s Motion for Reconsideration.
The Antecedents
The CA narrated the antecedents of the case as follows:
"The subject of this case involves a motor vehicle, particularly described as:
MAKE: 1984 Isuzu JCR 6-Wheeler
PLATE NUMBER: PEL 685
MOTOR NO.: 6BD1-371305
SERIAL NO.: JCR500BOF-21184
"The vehicle was originally owned by Goodyear Philippines, Inc. ([Goodyear]) which it purchased from
Industrial and Transport Equipment, Inc. in 1983. It had since been in the service of [Goodyear] until April 30,
1986 when it was hijacked. This hijacking was reported to the Philippine National Police (PNP) which issued
out an alert alarm on the said vehicle as a stolen one. It was later on recovered also in 1986.
"The vehicle was used by [Goodyear] until 1996, when it sold it to Anthony Sy on September 12, 1996.
"Sy, in turn, sold it to Jose L. Lee on January 29, 1997. But the latter on December 4, 1997, filed an action for
rescission of contract with damages against Sy[,] because he could not register the vehicle in his name due to
the certification from the PNP Regional Traffic Management Office in Legazpi City that it was a stolen vehicle
and the alarm covering the same was not lifted. Instead, the PNP in Legazpi City impounded the vehicle and
charged Lee criminally.
"Upon being informed by Sy of the denial of the registration of the vehicle in Lee’s name, [Goodyear] requested
on July 10, 1997 the PNP to lift the stolen vehicle alarm status. This notwithstanding, [Goodyear] was
impleaded as third-party defendant in the third-party complaint filed by Sy on January 9, 1998.
"A motion to dismiss was filed by [Goodyear] on March 24, 1998 on the twin grounds that the third-party
complaint failed to state a cause of action and even if it did, such cause of action was already extinguished. An
opposition thereto was interposed by Sy on April 17, 1998.
"The Regional Trial Court [(RTC)] resolved to dismiss the third-party complaint on the basis of the first
proffered ground in its challenged Order dated May 27, 1998. It ratiocinated:
‘A perusal of the third party complaint does not expressly show any act or omission committed by the third
party defendant which violates a right of the third party complainant. The third party complaint failed to show
that the vehicle in question belongs to a person other than the third party defendant at the time the said motor
vehicle was sold by the third party defendant to the third party plaintiff. On the contrary[,] the third party
defendant has not denied having sold to the third party plaintiff the said motor vehicle which had been in its
possession as owner from 1986 to 1996. The fact that the said motor vehicle was included by the PNP in its
alert status as stolen vehicle[,] resulted only following the report by the third party defendant that it was
hijacked in 1986. But when the said motor vehicle was recovered, the third party defendant informed the PNP
about the said recovery and requested the lifting of the alert status on it as stolen vehicle.
‘If the PNP has not removed the said vehicle from its alert status as a stolen vehicle, [then] that does not make
[Goodyear] not the owner thereof. Hence, [Goodyear], the third party defendant, is not guilty of any breach
resulting from any flaw in the title over the said vehicle. This is confirmed by the allegation of the third party
plaintiff as answering defendant in paragraph 6 of its Answer with Counterclaim and Affirmative Defenses
dated January 9, 1998, hereunder quoted as follows:
"6. Defendant specifically denies the allegations contained in paragraph 9 of [p]laintiff’s complaint, the truth of
the matter is that [d]efendant help[ed] plaintiff in removing the impediments in the registration and transfer of
ownership and that defendant ha[d] no knowledge of any flaw [in] the title of Goodyear Philippines, Inc."
‘Under Rules 16, a motion to dismiss may be made on any of the following grounds:
"g) That the pleading asserting the claim states no cause of action."
‘WHEREFORE, for failure of the third party complaint to state a cause of action, the same is hereby ordered
DISMISSED.’"5
Ruling of the Court of Appeals
In granting the appeal, the CA reasoned that the Third-Party Complaint had stated a cause of action. First,
petitioner did not make good its warranty in the Deed of Sale: to convey the vehicle to Respondent Anthony Sy
free from all liens, encumbrances and legal impediments. The reported hijacking of the vehicle was a legal
impediment that prevented its subsequent sale.
Second, Respondent Sy had a right to protect and a warranty to enforce, while petitioner had the
corresponding obligation to honor that warranty. The latter caused the impairment of that right, though, when
the vehicle it had sold to him was refused registration, because of the non-lifting of the alert status issued at its
instance. That petitioner had to execute all documents necessary to confer a perfect title to him before he
could seek recourse to the courts was deemed a ludicrous condition precedent, because it could easily refuse
to fulfill that condition in order to obviate the filing of a case against it.
Hence, this Petition.6
The Issues
Petitioner raises the following issues for the Court’s consideration:
"I.
Whether or not the Court of Appeals erred in reversing and setting aside the decision of the Regional Trial
Court, dismissing the complaint against petitioner for lack of a cause of action.
"II.
Whether or not the Court of Appeals erred in failing to find that petitioner did not breach any warranty in the
absence of proof that at the time it sold the subject vehicle to Sy, petitioner was not the owner thereof.
"III.
Whether or not the Court of Appeals erred in failing to find that the cause of action, if ever it existed, was
already extinguished."7
The foregoing issues actually point to one main question: did the Third-Party Complaint state a cause of action
against petitioner?
The Court’s Ruling
The Petition has merit.
Main Issue:
Whether a Cause of Action
Was Stated in the Third-Party Complaint
A cause of action is a formal statement of the operative facts that give rise to a remedial right.8 The question of
whether the complaint states a cause of action is determined by its averments regarding the acts committed by
the defendant.9 Thus, it "must contain a concise statement of the ultimate or essential facts constituting the
plaintiff’s cause of action."10 Failure to make a
11
sufficient allegation of a cause of action in the complaint "warrants its dismissal."
Elements of a
Cause of Action
A cause of action, which is an act or omission by which a party violates the right of another, 12 has these
elements:
"1) the legal right of the plaintiff;
"2) the correlative obligation of the defendant to respect that legal right; and
"3) an act or omission of the defendant that violates such right."13
In determining whether an initiatory pleading states a cause of action, "the test is as follows: admitting the truth
of the facts alleged, can the court render a valid judgment in accordance with the prayer?" 14 To be taken into
account are only the material allegations in the complaint; extraneous facts and circumstances or other
matters aliunde are not considered.15 The court may consider -- in addition to the complaint -- the appended
annexes or documents, other pleadings of the plaintiff, or admissions in the records.16
No Cause of Action
Against Petitioner
In the present case, the third element is missing. The Third-Party Complaint filed by Sy is inadequate, because
it did not allege any act or omission that petitioner had committed in violation of his right to the subject vehicle.
The Complaint capitalized merely on the fact that the vehicle -- according to the records of the PNP, which was
a stranger to the case -- was "a stolen vehicle." The pleading did not contain "sufficient notice of the cause of
action"17 against petitioner.
Without even going into the veracity of its material allegations, the Complaint is insufficient on its face.18 No
connection was laid out between the owner’s sale of the vehicle and its impounding by the PNP. That the
police did not lift the alert status did not make petitioner less of an owner.
The Deed of Sale between petitioner and Respondent Sy was attached as Annex A19 to the Third-Party
Complaint filed by the latter against the former. The Deed stated that petitioner was the absolute owner of the
subject vehicle. No contrary assertion was made in the Complaint. Hence, the trial court correctly observed
that the Complaint had failed to show that, at the time of its sale to Respondent Sy, the vehicle belonged to a
person other than petitioner.20
To reiterate, the Third-Party Complaint absolutely failed to state an act or omission of petitioner that had
proximately caused injury or prejudice to Sy. Indeed, based on that pleading alone, the latter’s claim for relief
against petitioner does not appear to exist.
Warranties Passed On
By the Vendor to the Vendee
In a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing that is the object
of the sale.21 Moreover, the implied warranties are as follows: first, the vendor has a right to sell the thing at the
time that its ownership is to pass to the vendee, as a result of which the latter shall from then on have and
enjoy the legal and peaceful possession of the thing;22 and, second, the thing shall be free from any charge or
encumbrance not declared or known to the vendee.23
Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the vehicle to
Respondent Sy.24 No other owner or possessor of the vehicle had been alleged, and the ownership and
possession rights of petitioner over it had never been contested. The Deed of Sale executed on September 12,
1996 showed that petitioner was the absolute owner. Therefore, at the time that ownership passed to Sy,
petitioner alone had the right to sell the vehicle.
In the same manner, when he sold the same truck to Jose L. Lee,25 Respondent Sy was exercising his right as
absolute owner. Unfortunately, though, from the time Respondent Lee attempted to register the truck in his
name, he could not have or enjoy the legal and peaceful possession of the vehicle, because it had been
impounded by the PNP, which also opposed its registration.
The impoundment of the vehicle and the failure to register it were clearly acts that were not deliberately caused
by petitioner, but that resulted solely from the failure of the PNP to lift the latter’s own alarm over the vehicle.
Pursuant to Republic Act 6975,26 these matters were purely administrative and governmental in nature.
Petitioner had no authority, much less power, over the PNP. Hence, the former did not breach its obligation as
a vendor to Respondent Sy; neither did it violate his right for which he could maintain an action for the recovery
of damages. Without this crucial allegation of a breach or violation, no cause of action exists.27
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold. As such, a
warranty has a natural tendency to induce the vendee -- relying on that affirmation or promise -- to purchase
the thing.28 The vendor impliedly warrants that that which is being sold is free from any charge or encumbrance
not declared or known to the vendee. The decisive test is whether the vendor assumes to assert a fact of
which the vendee is ignorant.29
No Lien or Breach
of Warranty
In the present case, petitioner did not breach the implied warranty against hidden encumbrances. The subject
vehicle that had earlier been stolen by a third party was subsequently recovered by the authorities and
restored to petitioner, its rightful owner. Whether Sy had knowledge of the loss and subsequent recovery, the
fact remained that the vehicle continued to be owned by petitioner, free from any charge or encumbrance
whatsoever.
A lien is "a legal right or interest that a creditor has in another’s property, lasting usually until a debt or duty that
it secures is satisfied."30 An encumbrance is "a claim or liability that is attached to property or some other right
and that may lessen its value, such as a lien or mortgage." 31 A legal impediment is a legal "hindrance or
obstruction."32
The Third-Party Complaint did not allege that petitioner had a creditor with a legal right to or interest in the
subject vehicle. There was no indication either of any debt that was secured by the vehicle. In fact, there was
not even any claim, liability or some other right attached to the vehicle that would lessen its value. Its
impoundment, as well as the refusal of its registration, was not the hindrance or obstruction in the
contemplation of law that the vendor warranted against. Neither of those instances arose from any liability or
obligation that could be satisfied by a legal claim or charge on, or property right to -- other than an ownership
interest in -- the subject vehicle.33
No Notice of Any
Breach of Warranty
Gratia argumenti that there was a breach of the implied warranty against hidden encumbrances, notice of the
breach was not given to petitioner within a reasonable time. Article 1586 of the Civil Code requires that notice
be given after the breach, of which Sy ought to have known. In his Third-Party Complaint against petitioner,
there was no allegation at all that respondent had given petitioner the requisite notice. 34
More important, an action for damages for a breach of implied warranties must be brought within six
months from the delivery of the thing sold.35 The vehicle was understood to have been delivered to Sy when it
was placed in his control or possession.36 Upon execution of the Deed of Sale on September 12, 1996, control
and possession of the vehicle was transferred to respondent. That the vehicle had been delivered is bolstered
by the fact that no contrary allegation was raised in the Third-Party Complaint. Whether the period should be
reckoned from the actual or from the constructive delivery through a public instrument, more than six months
had lapsed before the filing of the Third-Party Complaint.
Finally, the argument that there was a breach of the implied warranty against eviction does not hold water, for
there was never any final judgment based on either a right prior to the sale; or an act that could be imputed37 to
petitioner and deprive Sy of ownership or possession of the vehicle purchased.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and Resolution are REVERSED.
The May 27, 1998 Order of the Regional Trial Court is REINSTATED. No costs.
SO ORDERED.
MAVEST (U.S.A.) INC., and MAVEST G.R. No. 127454
Manila Liaison Office,
Petitioners, Present:

PANGANIBAN, J., Chairman

SANDOVAL-GUTIERREZ,
CORONA,
CARPIO MORALES, and
- versus - GARCIA, JJ.

Promulgated:

SAMPAGUITA GARMENT
CORPORATION, September 21, 2005
Respondent.
x----------------------------------------------------------------------------------x

DECISION

GARCIA, J.:

Assailed and sought to be set aside in this petition for review on certiorari under Rule 45 of the Rules of Court
is the Decision[1] dated 10 December 1996of the Court of Appeals in CA-G.R. No. 48232-CV, affirming, with
modifications, an earlier decision of the Regional Trial Court at Makati City in Civil Case No. 90-1131, an action
for a sum of money thereat commenced by the herein respondent Sampaguita Garment Corporation against
the herein petitioners MAVEST (U.S.A), Inc. and MAVEST Manila Liaison Office and two (2) others.

Petitioner MAVEST (U.S.A.), Inc. (MAVEST, U.S.A., for short) is a corporation duly organized and existing
under the laws of the United States of America but registered with the Philippine Board of Investments, while
co-petitioner MAVEST Manila Liaison Office is MAVEST U.S.A.s representative in the Philippines. On the
other hand, respondent Sampaguita Garment Corporation is a domestic corporation engaged in the
business of manufacturing and exporting garments.

As found by the appellate court in the decision under review, the factual antecedents are:

1. Sometime in July and August 1989, [petitioners Mavest U.S.A. and Mavest
Manila Liaison Office] entered into a series of transactions with [respondent]
Sampaguita Garment Corporation, whereby the former would furnish from abroad
raw materials to be manufactured by the latter into finished products, for shipment
to [petitioners] foreign buyers, Sears Roebuck and JC Penney.

2. Each transaction was embodied in a purchase order [PO] specifying the style
and description, as follows;

a. Style 33303 (SZ-217), 100% Cotton Pigment Twill

Shorts, [PO] dated August 9, 1989 . . . . ;

b. Style 45712 (S/44759), Nylon Swim Trunks, [PO] dated July 24, 1989 . . . . ;

c. Style 45714 (S/SZ-218), Nylon Swim Trunks, [PO] dated July 24, 1989 . . . . ;

d. Style 45715 (S/SZ219), Nylon Swim Trunks, [PO] dated July 24, 1989 . . . . ;

e. Style 7511, Solid Woven Hooded Jacket, (PO] dated July 12, 1989 . . . . ;

f. Style Nos. DJ-1 BR and DJ-1 XT, Cotton Woven Pants [PO] dated August 10,
1989 . . . . ;

as well as the quantity, mode and date of delivery.

3. Styles (33303, 45712, 45714, 45715) were upon the orders of Sears Roebuck
,while Styles (7511, DJ-1 BR and DJ-1 XT) were upon the orders of JC Penney.
 4. The orders of Sears Roebuck were duly paid in full by way of letter of credit.
The JC Penney orders consisting of 8,000 pcs. Cotton Woven Pants (Styles DJ-1
BR and DJ-1 XT x x x at $3.65 per piece or a total of $29,200.00 were not covered
by a letter of credit.

5. Despite shipment and receipt by JC Penney of said orders, no payment was

made, thus prompting [respondent] to send demand letters which remained
unheeded.

6. On April 27, 1990, [respondent] filed a complaint for collection of a sum of money
amounting to US$29,200.00 with damages [before the Regional Trial Court at
Makati City against the herein petitioners and two (2) others, namely, MAVEST
International Co., LTD and Patrick Wang, former General Manager of MLO].

7. In their Answer with Counterclaim filed on June 21, 1990, [petitioners and their
two co-defendants] countered that plaintiff [Sampaguita Garment Corporation] has
already been paid by virtue of legal compensation, and that it is plaintiff which
owes defendants US5, 799.57 due to the damages and losses it (sic) incurred as a
result of the breaches committed in the previous shipments to Sears Roebuck. The
damages and losses refer to: i) failure to observe specifications and quantity
requirements; ii) delay in shipping out the garments; iii) over declaration of value in
Style No. 33303; iv) shortshipment of garments; v) failure to return raw materials
for the unshipped garments, amounting to US$34,999.57. Moreover, [petitioners
and their co-defendants] alleged that they also suffered losses on account of
delays in the JC Penney shipments.

8. During the pre-trial, the parties came up with the following stipulation of facts:

xxx xxx xxx

1. That the defendant(s) ordered from plaintiff an aggregate volume of

8,000 pieces Youngmens Cotton Woven Pants at US$29,200.00 and which were
delivered to JC PenneyCorporation of California, the consignee;

2. That the total costs of the goods remained unpaid, subject to the
defense of compensation.

However, as further proposed by the plaintiff, the defendant(s) denied that

the goods were accepted by the consignee and that it was properly inspected by
them.
9. On September 9, 1991, a partial stipulation of facts duly signed by counsels of
both parties was submitted, with the following statements:

22. That all the foregoing garments Style Nos. 45712, 45714, 45715, 7511 and SZ-217
were airshipped after inspection and acceptance and upon the instruction of
defendant Mavest Intl. Corp, as evidenced by the following documents to be
marked as plaintiffs exhibits xxx.

10. On August 6, 1993, [petitioners and their co-defendants] filed an Amended

Answer (To Conform To Evidence) with counterclaim . . . .

11. In said Amended Answer with Counterclaim, [defendants] alleged that by virtue of
legal compensation, plaintiff has already been paid as, in fact, it still owes
defendants US$101,259.47, more or less. (Words in bracket, underscoring and
italicization ours).

After a protracted trial that lasted for four (4) years, the trial court rendered judgment in favor of herein
respondent, as plaintiff and against the petitioners and their co-defendants, thus:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the

defendants ordering the defendants jointly and severally to pay plaintiff, as follows:

1) the amount of US$29,200.00 or its equivalent in Philippine

Pesos at the time of payment plus interest at the rate of six percent (6%) per annum from the
time of filing of this complaint until fully paid as actual damages;
 2) the amount of P300,000.00 as and for attorneys fees; and
3) costs of suit.

SO ORDERED.
Therefrom, petitioners and their co-defendants a quo appealed to the Court of Appeals (CA) whereat their
recourse was docketed as CA-G.R. No. 48232-CV. And, in a decision[2] dated 10 December 1996, the
appellate court modified that of the trial court in the sense that petitioners co-defendants were in effect
released from any liability and the award of attorneys fees and costs of suit deleted. Dispositively, the appellate
courts decision reads:

WHEREFORE, the appealed decision in Civil Case No. 90-1131 is AFFIRMED with the
following MODIFICATIONS:

1. The complaint against defendants Mavest International Co.,

Ltd. and Patrick Wang is DISMISSED;

2. {Petitioner] Mavest-U.S.A., Inc./Mavest Manila Liaison

Office is ordered to pay [respondent] the amount of US$29,200.00 or its
equivalent in Philippine Pesos at the time of payment plus interest at the rate of
six percent (6%) per annum from the time of filing of this complaint until fully paid
as actual damages;

3. The attorney’s fees and costs of suit are deleted.

No costs.

SO ORDERED. (Words in bracket ours).

Undaunted, petitioners are now with us via the instant recourse, contending that the appellate court erred

IN AFFIRMING THE TRIAL COURTS DECISION THAT LEGAL COMPENSATION

DOES NOT APPLY IN THIS CASE;

II

IN APPLYING ARTICLE 1719 OF THE NEW CIVIL CODE AS SUPPORT TO THE

TRIAL COURTS FINDING THAT PETITIONERS ACCEPTED THE FINISHED
GARMENTS WITHOUT PROTEST AND IN NOT CONSIDERING THE SAME AS AN
EXERCISE TO MITIGATE DAMAGE;

III

IN NOT ACCORDING PROBATIVE VALUE TO THE EVIDENCE SUPPORTING

PETITIONERS DAMAGE;

IV

IN HOLDING THAT MAVEST LIAISON OFFICE IS SOLIDARILY LIABLE WITH

MAVEST USA, INC.;

IN RULING THAT PETITIONERS ARE LIABLE TO PAY RESPONDENT ACTUAL

DAMAGES IN THE AMOUNT OF US$29,200.00 OR ITS EQUIVALENT IN
PHILIPPINES PESOS AT THE TIME OF PAYMENT PLUS INTEREST AT THE RATE
OF SIX PERCENT (6%) PER ANNUM FROM THE TIME OF FILING OF THE
COMPLAINT UNTIL FULLY PAID AND IN NOT HOLDING RESPONDENT LIABLE TO
PAY PETITIONERS.
The interrelated first, second and fifth assigned errors converged on petitioners main submission that the
amount of US$29,200.00 claimed by respondent for garments delivered to J.C. Penney is compensable and
has in fact been compensated by the damages/losses petitioners suffered from previous transactions involving
deliveries to Sears Roebuck. Expounding, petitioners assert that respondent, with respect to the Sears
Roebuck shipment, inter alia failed to observe the specifications and quantity requirements, missed delivery
dates and incurred delay in the shipment of certain goods. Upon this postulate, petitioners argue that the
unpaid amount due respondent has thereby been extinguished by reason of legal compensation.

We are not persuaded.

Concededly, the Civil Code lists compensation as one of the modes of extinguishing the obligations of persons
who, in their own right, are creditors and debtors of each other.[3] Compensation may be legal or conventional.
Legal compensation takes place ipso jure when all the requisites of law are present,[4]as opposed to
conventional or voluntary compensation which occurs when the parties agree to the mutual extinguishment of
their credits or to compensate their mutual obligations even in the absence of some of the legal requisites.[5]

For compensation to validly take place, the governing Civil Code provisions[6] require the concurrence of well-
defined conditions. At its minimum, compensation presupposes two persons who, in their own right and as
principals, are mutually indebted to each other respecting equally demandable and liquidated obligations over
any of which no retention or controversy commenced and communicated in due time to the debtor exists. But
while compensation, be it legal or conventional, requires the confluence in the parties of the characters of
mutual debtors and creditors, their rights as such creditors, or their obligations as such debtors, need not
spring from one and the same contract or transaction.[7]
With the view we take of this controversy, legal compensation could not have occurred in this case. The
appellate court delved on the reason why legal compensation does not obtain herein. It pointed to the fact that
petitioners, on one hand, and respondent, on the other, are not mutually bound as creditors and debtors. As
correctly found by the Court of Appeals, it was only the petitioners debt to the respondent that had been
rightfully established. The same court added the observation that petitioners even acknowledged their
obligation to respondent in the amount of US$29,200.00. Said the appellate court, quoting with approval the
trial courts decision:

It is likewise observed that [petitioners] had acknowledged their obligation to

[respondent] in the amount of US$29,200.00. On February 15, 1990, defendant Patrick Wang,
general manager of Mavest Manila Liaison Office, wrote [respondent] stating that they would not
want to give the impression that we are holding the payment for DJ-1 Twill Pants. x x x We
honor our word that we will issue corresponding check valued at US$29,200.00. (Words in
bracket ours).

Not to be overlooked on the acknowledgment-of-debt angle is what the parties stipulated during the
pre-trial conference before the trial court, to wit:

1. That the defendant ordered from plaintiff an aggregate volume of 8,000 pieces of
young mens cotton woven pants at US$3.65 per piece or a total amount of
US$29,200.00 and which were delivered to JC Penney Corporation of California, the
consignee;

2. That the total cost of the goods remains unpaid, subject to the
defense of compensation.[8]
In contrast, petitioners failed to establish respondents purported liability to them which would have then set the
automatic operation of legal compensation in motion. As may be recalled, petitioners unyielding stance is that
respondent is indebted to them to the liquidated tune of US$34,999.57, the money value of the
damages/losses they incurred respecting the previous shipments to Sears Roebuck. These damages/losses,
they add, arose out of respondents alleged failure to observe specifications and quantity requirements; short
shipment and delay in shipment; and other breaches of contract. It cannot be overemphasized, however, that,
as found by the appellate court, petitioners appeared not to have objected to the quality or quantity of the work
done by respondent or to the production or delivery schedule it observed. In fact, their actuations relative to
the Sears Roebuck shipments, particularly their having paid in full for such shipments, argue against the notion
of respondent reneging on its faithful part of the bargain. Aptly wrote the Court of Appeals in this regard:

Defendants [petitioners] base their defense of compensation, as in set-off, on

previously delivered goods covered by different [POs]. However, these [POs] had been
completely settled and paid before this case was instituted. It was also established
that defendants accepted those deliveries made without any qualification, protest or
challenge. All goods were properly inspected by the defendants and/or the defendants
buyers. The acceptance of the goods by defendants buyers . . . is an indication that they
were satisfied with the goods delivered, thus, the consummation of the contract with
respect to the goods accepted. The defendants never informed plaintiff [respondent] that
they had suffered any loss with respect to the previous shipments sent to their buyers.
Therefore, the defendants cannot now claim compensation for the damages they
allegedly incurred for the plaintiffs allegedly incurred (Underscoring and words in bracket
added]
It may be that petitioners acceptance of the goods delivered does not preclude them from subsequently
raising objections about the existence of hidden defects in the finished and delivered products of respondent.
In fact, Article 1719 of the Civil Code admits of two (2) exceptions to the rule that acceptance relieves the
contractor of liability for any defect in the work, to wit: (1) the defect is hidden and the employer is not, by his
special knowledge, expected to recognize the same; and (2) the employer expressly reserves his right against
the contractor by reason of hidden defects.

Sadly, however, petitioners, with respect to defects, if any, in the manufactured clothes which were not
discoverable upon a casual examination thereof, appeared to have kept silent. Neither did they, upon
acceptance of the garments, expressly reserve the right to take such action as may be appropriate against
respondent. Quite the contrary, in the stipulation of facts signed by counsels of both parties, it is even
acknowledged

22. That all the foregoing garments Style Nos. 45712, 45714, 45715, 7511 and SZ 217
were airshipped after inspection and acceptance and upon the instruction of
defendant Mavest Intl Corp., as evidenced by the following documents to be
marked as plaintiffs exhibits, xxx..[9] (Emphasis supplied)

Given the foregoing perspective, we rule without hesitancy that what petitioners take as losses and
damages incurred while transacting with respondent cannot plausibly be categorized as respondents
compensable debt to them. And since the parties are not mutually creditors and debtors of each other, there
can be no valid set-off. In short, petitioners still owe respondent the amount of US$29,200.00.
 On their third assigned error, petitioners fault the appellate court for not giving probative value to their
evidence in support of their claim for damages.

Section 1, Rule 131 of the Rules of Court,[10] assigns the burden of proof upon the party who alleges the
truth of his claim or defense, or any fact in issue. And this, he must discharge by the amount of evidence
required by law. In civil cases, the burden of proof is on the defendant if he alleges, in his answer, an
affirmative defense, which is not a denial of an essential ingredient in the plaintiffs cause of action, but is one
which, if established, will be a good defense i.e., an avoidance of the claim, which prima facie, the plaintiff
already has because of the defendants own admissions in the pleadings.[11]

Petitioners defense in this case is doubtless affirmative in character. As it were, they did not deny owing
respondent the amount of US$29,200.00. What they averred was that their obligation to pay was deemed
extinguished because of legal compensation. They also maintained having incurred losses and damages due
to respondents actions or inaction, as the case may be. Because these are allegations in petitioners pleadings,
the burden is on them to prove their averments by the quantum of proof required in civil cases, namely,
preponderance of evidence,[12] i.e., evidence which is of greater weight, or more convincing than that which is
offered in opposition to it.[13]
The categorical conclusion of the Court of Appeals, confirmatory of that of the trial court, is that that
petitioners evidence, albeit numerous, failed to sufficiently establish, by the required quantum of evidence, the
underlying causes of their losses/ damages which they alleged to be respondents doing. As earlier mentioned,
these causes stemmed from respondents failure to meet specifications and quantity standards, delay in
shipment, under - shipment, over declaration of value in Style 33303 and its failure to return raw materials from
unshipped garments. To the appellate court, what petitioners adduced could not support a solid inference that
respondent should be held liable for the damages and losses they allegedly sustained that would justify the
application, under the premises, of legal compensation.

It is evident that the issue tendered under petitioners third assignment of error relates to the
correctness of the Court of Appeals factual determination as to whether or not they incurred losses/damages
as a result of what they regard as contractual breaches committed by respondent in the shipment of garments
to meet Sears Roebuck job orders. Such issue, however, is contextually beyond the purview of the Courts
reviewing power. For, it is not the function of this Court to analyze or weigh all over again the evidence or
premises supportive of such factual determination,[14] except for the most compelling and well-defined cogent
reasons.[15] As nothing in the record indicates any of such exceptions, the factual conclusion of the appellate
court that petitioners evidence did not adequately support their claim for damages must be affirmed.
In their fourth assigned error, petitioners submits that Mavest Manila Liaison Office (MLO), being
merely an agent of Mavest U.S.A, should not be held solidarily liable with the principal.

Petitioners were two (2) of the original four (4) defendants impleaded in the basic complaint, the other
two (2) being Mavest International Co., Ltd. (MICL), a firm organized under the laws of Taiwan, and Mr. Patrick
Wang, a former manager of MICL and MLO. Both MICL and Mr. Wang, while adjudged liable in solidum with
the petitioners by the trial court, were eventually absolved from any liability by the Court of Appeals.
 In holding MLO solidarily liable with Mavest U.S.A., the appellate court proceeded on the postulate that
MLO is the liaison office of Mavest U.S.A and the extension office of both Mavest U.S.A. and MILC.

The Court of Appeals holding commends itself for concurrence.

As it were, Mavest U.S.A. appears to have constituted MLO as its representative and its fully
subsidized extension office in the Philippines. As such, MLO can be charged for the liabilities incurred by
Mavest U.S.A. in the country. And if MLO can be so charged, there is no rhyme nor reason why it cannot be
adjudged, as did the appellate court, as solidarily liable with head office, Mavest U.S.A.
WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of
Appeals AFFIRMED in toto.

Costs against petitioners.

SO ORDERED.