1

SALES:

1. G.R. No. 200602 December 11, 2013

ACE FOODS, INC., Petitioner,

vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD.1, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari2are the Decision3 dated October 21, 2011 and Resolution4 dated
February 8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which reversed and set aside the Decision5
dated February 28, 2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in Civil Case No. 02-1248, holding
petitioner ACE Foods, Inc. (ACE Foods) liable to respondent Micro Pacific Technologies Co., Ltd. (MTCL) for the
payment of Cisco Routers and Frame Relay Products (subject products) amounting to ₱646,464.00 pursuant to a
perfected contract of sale.

The Facts

ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and
retail bases,6 while MTCL is one engaged in the supply of computer hardware and equipment.7

On September 26, 2001, MTCL sent a letter-proposal8 for the delivery and sale of the subject products to be
installed at various offices of ACE Foods. Aside from the itemization of the products offered for sale, the said
proposal further provides for the following terms, viz.:9

TERMS : Thirty (30) days upon delivery

VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.

DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase
Order]

WARRANTY : One (1) year on parts and services. Accessories not included in warranty.

On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No. 10002310
(Purchase Order) for the subject products amounting to ₱646,464.00 (purchase price). Thereafter, or on March 4,
2002, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733 11 (Invoice Receipt). The fine
print of the invoice states, inter alia, that "[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO.,
LTD. until full compliance of the terms and conditions of above and payment of the price"12 (title reservation
stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s premises. MTCL’s
demands against ACE Foods to pay the purchase price, however, remained unheeded.13 Instead of paying the
purchase price, ACE Foods sent MTCL a Letter14 dated September 19, 2002, stating that it "ha[s] been returning
the [subject products] to [MTCL] thru [its] sales representative Mr. Mark Anteola who has agreed to pull out the
said [products] but had failed to do so up to now."

Eventually, or on October 16, 2002, ACE Foods lodged a Complaint15 against MTCL before the RTC, praying that the
latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations
to it, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the
purchase of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the subject
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products. 16 ACE Foods likewise claimed that the subject products MTCL delivered are defective and not
working.17

For its part, MTCL, in its Answer with Counterclaim,18 maintained that it had duly complied with its obligations to
ACE Foods and that the subject products were in good working condition when they were delivered, installed and
configured in ACE Foods’s premises. Thereafter, MTCL even conducted a training course for ACE Foods’s
representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported
"after delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the
subject products despite the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that
ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction.19

The RTC Ruling

On February 28, 2007, the RTC rendered a Decision, 20 directing MTCL to remove the subject products from ACE
Foods’s premises and pay actual damages and attorney fees in the amounts of ₱200,000.00 and ₱100,000.00,
respectively.21

At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its
conclusion was based on the fine print of the Invoice Receipt which expressly indicated that "title to sold property
is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above
and payment of the price," noting further that in a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, and said transfer is conditioned upon the full payment of the purchase
price.22 Thus, notwithstanding the execution of the Purchase Order and the delivery and installation of the subject
products at the offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and signed
by ACE Foods, i.e., the title reservation stipulation, it is still the former who holds title to the products until full
payment of the purchase price therefor. In this relation, it noted that the full payment of the price is a positive
suspensive condition, the non-payment of which prevents the obligation to sell on the part of the seller/vendor
from materializing at all.23 Since title remained with MTCL, the RTC therefore directed it to withdraw the subject
products from ACE Foods’s premises. Also, in view of the foregoing, the RTC found it unnecessary to delve into the
allegations of breach since the non-happening of the aforesaid suspensive condition ipso jure prevented the
obligation to sell from arising.24

Dissatisfied, MTCL elevated the matter on appeal.25

The CA Ruling

In a Decision26 dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering ACE Foods to pay
MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum to be computed from April 4,
2002, and attorney’s fees amounting to ₱50,000.00.27

It found that the agreement between the parties is in the nature of a contract of sale, observing that the said
contract had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered
the subject products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods’s
premises.28 Thus, considering that MTCL had already complied with its obligation, ACE Foods’s corresponding
obligation arose and was then duty bound to pay the agreed purchase price within thirty (30) days from March 5,
2002.29 In this light, the CA concluded that it was erroneous for ACE Foods not to pay the purchase price therefor,
despite its receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity in a
contract of sale.30 The CA also dismissed ACE Foods’s claim regarding MTCL’s failure to perform its "after delivery
services" obligations since the letter-proposal, Purchase Order and Invoice Receipt do not reflect any agreement to
that effect.31

Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution 32 dated February 8,
2012, hence, this petition.
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The Issue Before the Court

The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the subject products.

The Court’s Ruling

The petition lacks merit.

A contract is what the law defines it to be, taking into consideration its essential elements, and not what the
contracting parties call it.33 The real nature of a contract may be determined from the express terms of the written
agreement and from the contemporaneous and subsequent acts of the contracting parties. However, in the
construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. The
denomination or title given by the parties in their contract is not conclusive of the nature of its contents.34

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised. 35 This
may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows:

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

A contract of sale may be absolute or conditional. (Emphasis supplied)

Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected by
mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and
the vendor may require the vendee to pay the thing sold.36

In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment
of the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon
the happening of a contingent event which may or may not occur.37

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract
to sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected at the
precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s
proposal to sell the subject products in consideration of the purchase price of ₱646,464.00. From that point in
time, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE
Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from
delivery – already arose and consequently may be demanded. Article 1475 of the Civil Code makes this clear:

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

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

At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of ownership of the
subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of
the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said
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stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise
moment ACE Foods accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive
or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes
the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. In either case, however, novation is never presumed, and the animus
novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too
clear and unequivocal to be mistaken.38

In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had
been included or had subsequently modified or superseded the original agreement of the parties. The fact that the
Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus novandi since:
(a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate
the original agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of
ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the
consummation stage of the contract and not its perfection, and have been even treated as documents which are
not actionable per se, although they may prove sufficient delivery. 39 Thus, absent any clear indication that the title
reservation stipulation was actually agreed upon, the Court must deem the same to be a mere unilateral imposition
on the part of MTCL which has no effect on the nature of the parties’ original agreement as a contract of sale.
Perforce, the obligations arising thereto, among others, ACE Foods’s obligation to pay the purchase price as well as
to accept the delivery of the goods,40 remain enforceable and subsisting.1âwphi1

As a final point, it may not be amiss to state that the return of the subject products pursuant to a rescissory
action41 is neither warranted by ACE Foods’s claims of breach – either with respect to MTCL’s breach of its
purported "after delivery services" obligations or the defective condition of the products - since such claims were
not adequately proven in this case. The rule is clear: each party must prove his own affirmative allegation; one who
asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by
law to obtain a favorable judgment, which in civil cases, is by preponderance of evidence. 42 This, however, ACE
Foods failed to observe as regards its allegations of breach. Hence, the same cannot be sustained.

WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and Resolution dated
February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are hereby AFFIRMED.

SO ORDERED.

2. G.R. No. 177685 January 26, 2011

HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN BUILDERS, Petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE CORPORATION, Respondents.

DECISION

VILLARAMA, JR., J.:

This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks to reverse
and set aside the Decision1 dated June 27, 2006 and Resolution2 dated April 20, 2007 of the Court of Appeals (CA)
in CA-G.R. CV No. 58790. The CA affirmed with modification the Decision3 dated July 3, 1997 of the Regional Trial
Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328 (43083) and 40755.

The facts are as follows:

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On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its
President, Jose C. Reyes, entered into a contract4 with Rhogen Builders (Rhogen), represented by Ramon C. Gaite,
for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for the price of ₱7,600,000.00. On
July 18, 1980, to secure Rhogen’s compliance with its obligation under the contract, Gaite and FGU Insurance
Corporation (FGU) executed a surety bond in the amount of ₱1,155,000.00 in favor of The Plaza. On July 28, 1980,
The Plaza paid ₱1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced
construction of the restaurant building.

In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality
of Makati, ordered Gaite to cease and desist from continuing with the construction of the building for violation of
Sections 301 and 302 of the National Building Code (P.D. 1096) and its implementing rules and regulations.5 The
letter was referred to The Plaza’s Project Manager, Architect Roberto L. Tayzon.

On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of the
restaurant was revoked for non-compliance with the provisions of the National Building Code and for the additional
temporary construction without permit.6 The Memorandum Report of Building Inspector Victor Gregory
enumerated the following violations of Rhogen in the construction of the building:

1) No permit for Temporary Structure.

2) No notice of concrete pouring.

3) Some workers have no safety devices.

4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated September 10, 1980.

5) Mr. Ramon Gaite [is] questioning the authority of the Building Official’s Inspector.

6) Construction plans use[d] on the job site is not in accordance to the approved plan.7

On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his evaluation of
Progress Billing #1 submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that the finished
works fall short of Rhogen’s claimed percentage of accomplishment and Rhogen was entitled to only ₱32,684.16
and not ₱260,649.91 being demanded by Rhogen. Further, he recommended that said amount payable to Rhogen
be withheld pending compliance with Construction Memo #18, resolution of cases regarding unauthorized
withdrawal of materials from jobsite and stoppage of work by the Municipal Engineer’s Office of Makati.8

On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his actions/observations on the
stoppage order issued. On the permit for temporary structure, Gaite said the plans were being readied for
submission to the Engineering Department of the Municipality of Makati and the application was being resent to
Reyes for his appropriate action. As to the notice for concrete pouring, Gaite said that their construction set-up
provides for a Project Manager to whom the Pouring Request is first submitted and whose job is to clear to
whoever parties are involved (this could still be worked out with the Building Inspector). Regarding the safety
devices for workers, Gaite averred that he had given strict rules on this but in the course of construction some
workers have personal preferences. On the refusal of the secretary and construction foreman to receive the
stoppage order dated September 10, 1980, Gaite took responsibility but insisted it was not a violation of the
National Building Code. Likewise, questioning the authority of the Building Inspector is not a violation of the Code
although Gaite denied he ever did so. Lastly, on the construction plans used in the jobsite not being in accordance
with the approved plan, Gaite said he had sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes’ office and make
a copy of the only approved plan which was in the care of Reyes, but the latter did not give it to Engr. Laurel. Gaite
thus thought that Reyes would handle the matter by himself.9
6

On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the Project
Manager cooperate to resolve the issue he had raised to address the problem.10 This was followed by another
letter dated November 18, 1980 in which Gaite expressed his sentiments on their aborted project and reiterated
that they can still resolve the matter with cooperation from the side of The Plaza.11 In his reply-letter dated
November 24, 1980, Reyes asserted that The Plaza is not the one to initiate a solution to the situation, especially
after The Plaza already paid the agreed down payment of ₱1,155,000.00, which compensation so far exceeds the
work completed by Rhogen before the municipal authorities stopped the construction for several violations. Reyes
made it clear they have no obligation to help Rhogen get out of the situation arising from non-performance of its
own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest.12

Subsequently, the correspondence between Gaite and Reyes involved the custody of remaining bags of cement in
the jobsite, in the course of which Gaite was charged with estafa for ordering the removal of said items. Gaite
complained that Reyes continued to be uncooperative in refusing to meet with him to resolve the delay. Gaite
further answered the estafa charge by saying that he only acted to protect the interest of the owner (prevent
spoilage/hardening of cement) and that Reyes did not reply to his request for exchange.13

On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the Contractor’s Right
to Stop Work or Terminate Contracts as provided for in the General Conditions of the Contract. In his letter, Gaite
accused Reyes of not cooperating with Rhogen in solving the problem concerning the revocation of the building
permits, which he described as a "minor problem." Additionally, Gaite demanded the payment of ₱63,058.50 from
The Plaza representing the work that has already been completed by Rhogen.14

On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully responsible for
failure to comply with the terms of the contract and to deliver the finished structure on the stipulated date. Reyes
argued that the down payment made by The Plaza was more than enough to cover Rhogen’s expenses.15

In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogen’s undertaking to complete the
construction within 180 calendar days from July 16, 1980 or up to January 12, 1981, and to pay the agreed payment
of liquidated damages for every month of delay, chargeable against the performance bond posted by FGU. Reyes
invoked Section 121 of the Articles of General Conditions granting the owner the right to terminate the contract if
the contractor fails to execute the work properly and to make good such deficiencies and deducting the cost from
the payment due to the contractor. Reyes also informed Gaite that The Plaza will continue the completion of the
structure utilizing the services of a competent contractor but will charge Rhogen for liquidated damages as
stipulated in Article VIII of the Contract. After proper evaluation of the works completed by Rhogen, The Plaza shall
then resume the construction and charge Rhogen for all the costs and expenses incurred in excess of the contract
price. In the meantime that The Plaza is still evaluating the extent and condition of the works performed by Rhogen
to determine whether these are done in accordance with the approved plans, Reyes demanded from Gaite the
reimbursement of the balance of their initial payment of ₱1,155,000.00 from the value of the works correctly
completed by Rhogen, or if none, to reimburse the entire down payment plus expenses of removal and
replacement. Rhogen was also asked to turn over the jobsite premises as soon as possible.16 The Plaza sent copy of
said letter to FGU but the latter replied that it has no liability under the circumstances and hence it could not act
favorably on its claim against the bond.17

On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for the work it had
completed because the evaluation of the extent, condition, and cost of work done revealed that in addition to the
violations committed during the construction of the building, the structure was not in accordance with plans
approved by the government and accepted by Ayala. Hence, The Plaza demanded the reimbursement of the down
payment, the cost of uprooting or removal of the defective structures, the value of owner-furnished materials, and
payment of liquidated damages.18

On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and damages against
Gaite and FGU in the Court of First Instance (CFI) of Rizal.19 The Plaza later amended its complaint to include
Cynthia G. Gaite and Rhogen.20 The Plaza likewise filed Civil Case No. 1328 (43083) against Ramon C. Gaite,
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Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal for nullification of the project development contract
executed prior to the General Construction Contract subject of Civil Case No. 40755, which was allegedly in
violation of the provisions of R.A. No. 545 (Architectural Law of the Philippines).21 After the reorganization of the
Judiciary in 1983, the cases were transferred to the RTC of Makati and eventually consolidated.

On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza against Rhogen,
the Gaites and FGU, and the cross-claim of FGU against Rhogen and the Gaites. The trial court ruled that the
Project Manager was justified in recommending that The Plaza withhold payment on the progress billings
submitted by Rhogen based on his evaluation that The Plaza is liable to pay only ₱32,684.16 and not ₱260,649.91.
The other valid grounds for the withholding of payment were the pending estafa case against Gaite, non-
compliance by Rhogen with Construction Memorandum No. 18 and the non-lifting of the stoppage order.22

Regarding the non-lifting of the stoppage order, which the trial court said was based on simple infractions, the
same was held to be solely attributable to Rhogen’s willful inaction. Instead of readily rectifying the violations,
Rhogen continued with the construction works thereby causing more damage. The trial court pointed out that
Rhogen is not only expected to be aware of standard requirements and pertinent regulations on construction work,
but also expressly bound itself under the General Construction Contract to comply with all the laws, city and
municipal ordinances and all government regulations. Having failed to complete the project within the stipulated
period and comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and
is liable for damages under Articles 1170 and 1167 of the Civil Code.23

The dispositive portion of the trial court’s decision reads:

WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders are jointly and
severally ordered to pay plaintiff:

1. the amount of ₱525,422.73 as actual damages representing owner-furnished materials with legal interest from
the time of filing of the complaint until full payment;

2. the amount of ₱14,504.66 as actual damages representing expenses for uprooting with interest from the time of
filing the complaint until full payment;

3. the amount of ₱1,155,000.00 as actual damages representing the downpayment with legal interest from the
time of filing the complaint until full payment;

4. the amount of ₱150,000.00 for moral damages;

5. the amount of ₱100,000.00 for exemplary damages;

6. the amount of ₱500,000.00 as liquidated damages;

7. the amount of ₱100,000.00 as reasonable attorney’s fees; and,

8. the cost of suit.

Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff the amount of
₱1,155,000.00 with legal interest from the time of filing the complaint until full payment. In the event [that] FGU
pays the said amount, third-party defendants are jointly and severally ordered to pay the same amount to FGU plus
₱50,000.00 as reasonable attorney’s fees, the latter having been forced to litigate, and the cost of suit.

Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.

SO ORDERED.24
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Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.25 In view of the death of Ramon C.
Gaite on April 21, 1999, the CA issued a Resolution dated July 12, 2000 granting the substitution of the former by
his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and Roman Juan G. Gaite.26

In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following errors, to wit:

I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-APPELLANT RHOGEN
BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;

II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN
MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGEN’S WILLFUL
INACTION;

III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF PLAINTIFF-APPELLEE
WHICH MADE IT IMPOSSIBLE FOR DEFENDANT–APPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS UNDER THE
CONTRACT;

IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY, AND LIQUIDATED
DAMAGES AND ATTORNEY’S FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND

V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S
FEES IN FAVOR OF DEFENDANTS-APPELLANTS.27

For its part, FGU interposed the following assignment of errors:

I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-APPELLANT RAMON GAITE VALIDLY
TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.

II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT RAMON GAITE RESPONSIBLE FOR THE
STOPPAGE OF THE CONSTRUCTION.

III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY THE AMOUNT
OF P525,422.73 FOR THE OWNER FURNISHED MATERIALS.

IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY PLAINTIFF-
APPELLEE THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE PERFORMED.

V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO REFUND THE
DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.

VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-APPELLEE.

VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE.

VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE.

IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES TO PLAINTIFF-APPELLEE.

X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE CORPORATION
LIABLE TO PLAINTIFF-APPELLEE.28

On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages as follows:
9

WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City, Branch 63 in Civil
Case Nos. 40755 and 1328 is AFFIRMED with the modification that: (a) the award for actual damages representing
the owner-furnished materials and the expenses for uprooting are deleted, and in lieu thereof, the amount of
P300,000.00 as temperate damages is awarded; and (b) the awards for moral, exemplary, liquidated and attorney’s
fees are likewise deleted.

SO ORDERED.29

According to the CA, The Plaza cannot now be demanded to comply with its obligation under the contract since
Rhogen has already failed to comply with its own contractual obligation. Thus, The Plaza had every reason not to
pay the progress billing as a result of Rhogen’s inability to perform its obligations under the contract. Further, the
stoppage and revocation orders were issued on account of Rhogen’s own violations involving the construction as
found by the local building official. Clearly, Rhogen cannot blame The Plaza for its own failure to comply with its
contractual obligations. The CA stressed that Rhogen obliged itself to comply with "all the laws, city and municipal
ordinances and all government regulations insofar as they are binding upon or affect the parties [to the contract] ,
the work or those engaged thereon."30 As such, it was responsible for the lifting of the stoppage and revocation
orders. As to Rhogen’s act of challenging the validity of the stoppage and revocation orders, the CA held that it
cannot be done in the present case because under Section 307 of the National Building Code, appeal to the
Secretary of the Department of Public Works and Highways (DPWH) – whose decision is subject to review by the
Office of the President -- is available as remedy for Rhogen.31

However, the CA modified the award of damages holding that the claim for actual damages of ₱525,422.73
representing the damaged owner-furnished materials was not supported by any evidence. Instead, the CA granted
temperate damages in the amount of ₱300,000.00. As to moral damages, no specific finding for the factual basis of
said award was made by the trial court, and hence it should be deleted. Likewise, liquidated damages is not proper
considering that this is not a case of delay but non-completion of the project. The Plaza similarly failed to establish
that Rhogen and Gaite acted with malice or bad faith; consequently, the award of exemplary damages must be
deleted. Finally, there being no bad faith on the part of the defendants, the award of attorneys’ fees cannot be
sustained.32

The motion for reconsideration of the aforesaid Decision was denied in the Resolution dated April 20, 2007 for lack
of merit. Hence, this appeal.

Before us, petitioners submit the following issues:

I.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it found that Petitioner Rhogen had no factual or legal basis to
terminate the General Construction Contract.

II.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, as a consequence of its finding that Petitioners did not have
valid grounds to terminate the Construction Contract, it directed Petitioners to return the downpayment paid by
The Plaza, with legal interest.

III.
10

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, in addition thereto, it awarded temperate damages to The
Plaza.

IV.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it failed to award damages in favor of Petitioners.33

Petitioners contend that the CA gravely erred in not holding that there were valid and legal grounds for Rhogen to
terminate the contract pursuant to Article 1191 of the Civil Code and Article 123 of the General Conditions of the
Construction Contract. Petitioners claim that Rhogen sent Progress Billing No. 1 dated September 10, 1980 and
demanded payment from The Plaza in the net amount of ₱473,554.06 for the work it had accomplished from July
28, 1980 until September 7, 1980. The Plaza, however, failed to pay the said amount. According to petitioners,
Article 123 of the General Conditions of the Construction Contract gives The Plaza seven days from notice within
which to pay the Progress Billing; otherwise, Rhogen may terminate the contract. Petitioners also invoke Article
1191 of the Civil Code, which states that the power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

We deny the petition.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be
performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of
the other. Respondent The Plaza predicated its action on Article 119134 of the Civil Code, which provides for the
remedy of "rescission" or more properly resolution, a principal action based on breach of faith by the other party
who violates the reciprocity between them. The breach contemplated in the provision is the obligor’s failure to
comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is
the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation.35

The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latter’s
obligation to pay the contract price or progress billing is conditioned on the former’s performance of its
undertaking to complete the works within the stipulated period and in accordance with approved plans and other
specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid the
agreed down payment. It also exercised the option of furnishing and delivering construction materials at the jobsite
pursuant to Article III of the Construction Contract. However, just two months after commencement of the project,
construction works were ordered stopped by the local building official and the building permit subsequently
revoked on account of several violations of the National Building Code and other regulations of the municipal
authorities.

Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that when the new
contractor (ACK Construction, Inc.) took over the project, the local government of Makati allowed the construction
of the building using the old building permit; moreover, the basement depth of only two meters was retained, with
no further excavation made. They cite the testimony of the late Ramon Gaite before the trial court that at the time,
he had incurred the ire of then Mayor of Makati because his (Gaite) brother was the Mayor’s political opponent;
hence, they sought to file whatever charge they could against him in order to call the attention of his brother. This
"political harassment" defense was raised by petitioners in their Amended Answer. Gaite’s testimony was intended
to explain the circumstances leading to his decision to terminate the construction contract and not to question the
revocation of the building permit. As the available remedy was already foreclosed, it was thus error for the CA to
suggest that Rhogen should have appealed the stoppage and revocations orders issued by the municipal authorities
to the DPWH and then to the OP.36
11

Article 123 of the Articles of General Conditions states the grounds for the termination of the work or contract by
the Contractor:

123. CONTRACTOR’S RIGHT TO STOP WORK OR TERMINATE

CONTRACT

If work should be stopped under order of any court, or other public authority, for period of three (3) months
through no act or fault of Contractor or of anyone employed by him, or if Owner’s Representative should fail to
issue any certificate of payment within seven (7) days after its maturity and presentation of any sum certified by
Owner’s Representative or awarded arbitrator, then contractor, may, stop work or terminate Contract, recover from
Owner payment for work executed, loss sustained upon any plant or materials, reasonable profit, damages.37
(Emphasis supplied.)

Petitioners may not justify Rhogen’s termination of the contract upon grounds of non-payment of progress billing
and uncooperative attitude of respondent The Plaza and its employees in rectifying the violations which were the
basis for issuance of the stoppage order. Having breached the contractual obligation it had expressly assumed, i.e.,
to comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault. Respondent The
Plaza, on the other hand, was justified in withholding payment on Rhogen’s first progress billing, on account of the
stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have
the stoppage and revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with its
contractual undertaking, thus:

In the performance of the works, services, and obligations subject of this Contract, the CONTRACTOR binds itself to
observe all pertinent and applicable laws, rules and regulations promulgated by duly constituted authorities and to
be personally, fully and solely liable for any and all violations of the same.38 (Emphasis supplied.)

Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a victim of abuse by a
local official and this was the primary reason for the problems besetting the project. On the contrary, the site
appraisal inspection conducted on February 12 and 13, 1981 in the presence of representatives from The Plaza,
Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in addition to the violations committed by
Rhogen which resulted in the issuance of the stoppage order, Rhogen built the structure not in accordance with
government approved plans and/or without securing the approval of the Municipal Engineer before making the
changes thereon.39

Such non-observance of laws and regulations of the local authorities affecting the construction project constitutes
a substantial violation of the Construction Contract which entitles The Plaza to terminate the same, without
obligation to make further payment to Rhogen until the work is finished or subject to refund of payment exceeding
the expenses of completing the works. This is evident from a reading of Article 122 which states:

122. OWNER’S RIGHT TO TERMINATE CONTRACT

A. If Contractor should be adjudged bankrupt, or if he should make general assignment for benefit of his creditors,
or if receiver should be appointed on account of his insolvency, or if he should persistently or repeatedly refuse or
should fail, except in cases for which extension of time is provided, to supply enough properly skilled workmen or
proper materials, or if he should fail to make prompt payment to Sub-Contractors or for materials of labor, or
persistently disregard laws, ordinances, or instructions of Owner’s Representative or otherwise be guilty of
substantial violation of any provision of [the] Contract, then Owner, upon certification by Owner’s Representative
that sufficient cause exists to justify such action, may, without prejudice to any right or remedy, after giving
Contractor seven days written notice, terminate contract with Contractor, take possession of premises, materials,
tools, appliances, thereon, finish work by whatever method he may deem expedient. In such cases, Contractor shall
not be entitled to receive any further payment until work is finished.
12

B. If unpaid balance of Contract sum shall exceed expense of finishing work including compensation for additional
managerial and administrative services, such excess, paid to Contractor. Refund the difference to Owner if such
expense shall exceed unpaid balance.40 (Emphasis supplied.)

Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a serious breach of
its contract with The Plaza, which justified the latter in terminating the contract. Petitioners are thus liable for
damages for having breached their contract with respondent The Plaza. Article 1170 of the Civil Code provides that
those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any
manner contravene the tenor thereof are liable for damages.

Petitioners assail the order for the return of down payment, asserting that the principle of quantum meruit
demands that Rhogen as contractor be paid for the work already accomplished.

We disagree.

Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or
services rendered despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit
means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably
deserves. To deny payment for a building almost completed and already occupied would be to permit unjust
enrichment at the expense of the contractor.41

Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two months
from the start of construction. Despite the down payment received from The Plaza, Rhogen, upon evaluation of the
Project Manager, was able to complete a meager percentage much lower than that claimed by it under the first
progress billing between July and September 1980. Moreover, after it relinquished the project in January 1981, the
site inspection appraisal jointly conducted by the Project Manager, Building Inspector Engr. Gregory and
representatives from FGU and Rhogen, Rhogen was found to have executed the works not in accordance with the
approved plans or failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit
on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may
be decreed that what has been poorly done be undone.

In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be entitled to
receive further payment "until the work is finished." As the works completed by Rhogen were not in accordance
with approved plans, it should have been executed at its cost had it not relinquished the project in January 1981.
The CA thus did not err in sustaining the trial court’s order for the return of the down payment given by The Plaza
to Rhogen.

As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate damages, which are
more than nominal but less than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The
rationale behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss
cannot be offered. When the court is convinced that there has been such loss, the judge is empowered to calculate
moderate damages, rather than let the complainant suffer without redress from the defendant’s wrongful act.42
Petitioners’ contention that such award is improper because The Plaza could have presented receipts to support
the claim for actual damages, must fail considering that Rhogen never denied the delivery of the owner-furnished
materials which were under its custody at the jobsite during the work stoppage and before it terminated the
contract. Since Rhogen failed to account either for those items which it had caused to be withdrawn from the
premises, or those considered damaged or lost due spoilage, or disappeared for whatever reason – there was no
13

way of determining the exact quantity and cost of those materials.1âwphi1 Hence, The Plaza was correctly allowed
to recover temperate damages.

Upon the foregoing, we find petitioners’ claim for actual, moral and exemplary damages and attorney’s fees lacking
in legal basis and undeserving of further discussion.

WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated April 20, 2007 of
the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.

With costs against petitioners.

SO ORDERED.

3. G.R. No. 194785 July 11, 2012

VIRGILIO S. DAVID, Petitioner,

vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC., Respondent.

DECISION

MENDOZA, J.:

Before this Court is a petition for review under Rule 45 of the Rules of Court assailing the July 8, 2010 Decision1 of
the Court of Appeals (CA), in CA-G.R. CR No. 91839, which affirmed the July 17, 2008 Decision2 of the Regional Trial
Court, Branch VIII, Manila (RTC) in Civil Case No. 94-69402, an action for specific performance and damages.

The Facts:

Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a company engaged in the
business of supplying electrical hardware including transformers for rural electric cooperatives like respondent
Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in Ozamis City.

To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed its intention to
purchase a 10 MVA power transformer from David. For this reason, its General Manager, Engr. Reynaldo Rada (Engr.
Rada), went to meet David in the latter’s office in Quezon City. David agreed to supply the power transformer
provided that MOELCI would secure a board resolution because the item would still have to be imported.

On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of procurement, returned to
Manila and presented to David the requested board resolution which authorized the purchase of one 10 MVA
power transformer. In turn, David presented his proposal for the acquisition of said transformer. This proposal was
the same proposal that he would usually give to his clients.

After the reading of the proposal and the discussion of terms, David instructed his then secretary and bookkeeper,
Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the proposal. Both signed the document
under the word "conforme." The board resolution was thereafter attached to the proposal.

As stated in the proposal, the subject transformer, together with the basic accessories, was valued at
P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as downpayment and
the remaining balance to be paid upon delivery. Freight handling, insurance, customs duties, and incidental
expenses were for the account of the buyer.
14

The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be financed
through a loan from the National Electrification Administration (NEA). As there was no immediate action on the
loan application, Engr. Rada returned to Manila in early December 1992 and requested David to deliver the
transformer to them even without the required downpayment. David granted the request provided that MOELCI
would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. On December 17, 1992, the goods
were shipped to Ozamiz City via William Lines. In the Bill of Lading, a sales invoice was included which stated the
agreed interest rate of 24% per annum.

When nothing was heard from MOELCI for sometime after the shipment, Emanuel Medina (Medina), David’s
Marketing Manager, went to Ozamiz City to check on the shipment. Medina was able to confer with Engr. Rada who
told him that the loan was not yet released and asked if it was possible to withdraw the shipped items. Medina
agreed.

When no payment was made after several months, Medina was constrained to send a demand letter, dated
September 15, 1993, which MOELCI duly received. Engr. Rada replied in writing that the goods were still in the
warehouse of William Lines again reiterating that the loan had not been approved by NEA. This prompted Medina
to head back to Ozamiz City where he found out that the goods had already been released to MOELCI evidenced by
the shipping company’s copy of the Bill of Lading which was stamped "Released," and with the notation that the
arrastre charges in the amount of P5,095.60 had been paid. This was supported by a receipt of payment with the
corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz, Inc.

Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount plus the balance
of previous purchases of other electrical hardware. Aside from the formal demand letters, David added that several
statements of accounts were regularly sent through the mails by the company and these were never disputed by
MOELCI.

On February 17, 1994, David filed a complaint for specific performance with damages with the RTC. In response,
MOECLI moved for its dismissal on the ground that there was lack of cause of action as there was no contract of
sale, to begin with, or in the alternative, the said contract was unenforceable under the Statute of Frauds. MOELCI
argued that the quotation letter could not be considered a binding contract because there was nothing in the said
document from which consent, on its part, to the terms and conditions proposed by David could be inferred. David
knew that MOELCI’s assent could only be obtained upon the issuance of a purchase order in favor of the bidder
chosen by the Canvass and Awards Committee.

Eventually, pursuant to Rule 16, Section 5 of the Rules of Court, MOELCI filed its Motion for Preliminary Hearing of
Affirmative Defenses and Deferment of the Pre-Trial Conference which was denied by the RTC to abbreviate
proceedings and for the parties to proceed to trial and avoid piecemeal resolution of issues. The order denying its
motion was raised with the CA, and then with this Court. Both courts sustained the RTC ruling.

Trial ensued. By reason of MOELCI’s continued failure to appear despite notice, David was allowed to present his
testimonial and documentary evidence ex parte, pursuant to Rule 18, Section 5 of the Rules. A Very Urgent Motion
to Allow Defendant to Present Evidence was filed by MOELCI, but was denied.

In its July 17, 2008 Decision, the RTC dismissed the complaint. It found that although a contract of sale was
perfected, it was not consummated because David failed to prove that there was indeed a delivery of the subject
item and that MOELCI received it.3

Aggrieved, David appealed his case to the CA.

On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed decision, the CA reasoned out that although
David was correct in saying that MOELCI was deemed to have admitted the genuineness and due execution of the
"quotation letter" (Exhibit A), wherein the signatures of the Chairman and the General Manager of MOELCI
appeared, he failed to offer any textual support to his stand that it was a contract of sale instead of a mere price
15

quotation agreed to by MOELCI representatives. On this score, the RTC erred in stating that a contract of sale was
perfected between the parties despite the irregularities that tainted their transaction. Further, the fact that
MOELCI’s representatives agreed to the terms embodied in the agreement would not preclude the finding that said
contract was at best a mere contract to sell.

A motion for reconsideration was filed by David but it was denied.4

Hence, this petition.

Before this Court, David presents the following issues for consideration:

I.

WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.

II.

WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED THE CONTRACT.

The Court finds merit in the petition.

I.

On the issue as to whether or not there was a perfected contract of sale, this Court is required to delve into the
evidence of the case. In a petition for review on certiorari under Rule 45 of the Rules of Court, the issues to be
threshed out are generally questions of law only, and not of fact.

This was reiterated in the case of Buenaventura v. Pascual,5 where it was written:

Time and again, this Court has stressed that its jurisdiction in a petition for review on certiorari under Rule 45 of
the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of fact complained of are
devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts.
The trial court, having heard the witnesses and observed their demeanor and manner of testifying, is in a better
position to decide the question of their credibility. Hence, the findings of the trial court must be accorded the
highest respect, even finality, by this Court.

That being said, the Court is not unmindful, however, of the recognized exceptions well-entrenched in
jurisprudence. It has always been stressed that when supported by substantial evidence, the findings of fact of the
CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of
the following recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;

(2) When the inference made is manifestly mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion:

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee;
16

(7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are without citation of specific evidence on which the conclusions are based;

(9) When the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by
the respondents; and

(10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record. 6 [Emphasis supplied]

In this case, the CA and the RTC reached different conclusions on the question of whether or not there was a
perfected contract of sale. The RTC ruled that a contract of sale was perfected although the same was not
consummated because David failed to show proof of delivery.7

The CA was of the opposite view. The CA wrote:

Be that as it may, it must be emphasized that the appellant failed to offer any textual support to his insistence that
Exhibit "A" is a contract of sale instead of a mere price quotation conformed to by MOELCI representatives. To that
extent, the trial court erred in laying down the premise that "indeed a contract of sale is perfected between the
parties despite the irregularities attending the transaction." x x x

That representatives of MOELCI conformed to the terms embodied in the agreement does not preclude the finding
that such contract is, at best, a mere contract to sell with stipulated costs quoted should it ultimately ripen into one
of sale. The conditions upon which that development may occur may even be obvious from statements in the
agreement itself, that go beyond just "captions." Thus, the appellant opens with, "WE are pleased to submit our
quotation xxx." The purported contract also ends with. "Thank you for giving us the opportunity to quote on your
requirements and we hope to receive your order soon" apparently referring to a purchase order which MOELCI
contends to be a formal requirement for the entire transaction.8

In other words, the CA was of the position that Exhibit A was at best a contract to sell.

A perusal of the records persuades the Court to hold otherwise.

The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its
equivalent.9 It is the absence of the first element which distinguishes a contract of sale from that of a contract to
sell.

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning,
the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase price.
What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes
of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus,
ownership is retained by the prospective seller without further remedies by the prospective buyer.10

In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of the
thing sold. Unlike in a contract to sell, the first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract
of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the
sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further
17

act having to be performed by the seller. The vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded.11

An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would show that said
document, with all the stipulations therein and with the attendant circumstances surrounding it, was actually a
Contract of Sale. The rule is that it is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties.12 First, there was meeting of minds as to the transfer of
ownership of the subject matter. The letter (Exhibit A), though appearing to be a mere price quotation/proposal,
was not what it seemed. It contained terms and conditions, so that, by the fact that Jimenez, Chairman of the
Committee on Management, and Engr. Rada, General Manager of MOELCI, had signed their names under the word
"CONFORME," they, in effect, agreed with the terms and conditions with respect to the purchase of the subject 10
MVA Power Transformer. As correctly argued by David, if their purpose was merely to acknowledge the receipt of
the proposal, they would not have signed their name under the word "CONFORME."

Besides, the uncontroverted attending circumstances bolster the fact that there was consent or meeting of minds
in the transfer of ownership. To begin with, a board resolution was issued authorizing the purchase of the subject
power transformer. Next, armed with the said resolution, top officials of MOELCI visited David’s office in Quezon
City three times to discuss the terms of the purchase. Then, when the loan that MOELCI was relying upon to
finance the purchase was not forthcoming, MOELCI, through Engr. Rada, convinced David to do away with the 50%
downpayment and deliver the unit so that it could already address its acute power shortage predicament, to which
David acceded when it made the delivery, through the carrier William

Lines, as evidenced by a bill of lading.

Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA Power
Transformer with corresponding KV Line Accessories. And third, the document stated categorically the price certain
in money which was P5,200,000.00 for one (1) unit of 10 MVA Power Transformer and P2,169,500.00 for the KV
Line Accessories.

In sum, since there was a meeting of the minds, there was consent on the part of David to transfer ownership of
the power transformer to MOELCI in exchange for the price, thereby complying with the first element. Thus, the
said document cannot just be considered a contract to sell but rather a perfected contract of sale.

II.

Now, the next question is, was there a delivery?

MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of Lading which David was
relying upon was not conclusive. It argued that although the bill of lading was stamped "Released," there was
nothing in it that indicated that said power transformer was indeed released to it or delivered to its possession. For
this reason, it is its position that it is not liable to pay the purchase price of the 10 MVA power transformer.

This Court is unable to agree with the CA that there was no delivery of the items. On the contrary, there was
delivery and release.

To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:

2. Delivery – Ninety (90) working days upon receipt of your purchase order and downpayment.

C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the account of MOELCI
II. 13 (Emphasis supplied)
18

On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the freight,
handling, insurance, custom duties, and incidental expenses shall be shouldered by it.

On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable.1âwphi1 It provides:

Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer
delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer
is deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, first, second
and third paragraphs, or unless a contrary intent appears. (Emphasis supplied)

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed to be a
delivery to MOELCI. David was authorized to send the power transformer to the buyer pursuant to their
agreement. When David sent the item through the carrier, it amounted to a delivery to MOELCI.

Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,14 it was pointed out that a specification in a
contract relative to the payment of freight can be taken to indicate the intention of the parties with regard to the
place of delivery. So that, if the buyer is to pay the freight, as in this case, it is reasonable to suppose that the
subject of the sale is transferred to the buyer at the point of shipment. In other words, the title to the goods
transfers to the buyer upon shipment or delivery to the carrier.

Of course, Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should
have presented evidence to the contrary. The burden of proof was shifted to MOELCI, who had to show that the
rule under Article 1523 was not applicable. In this regard, however, MOELCI failed.

There being delivery and release, said fact constitutes partial performance which takes the case out of the
protection of the Statute of Frauds. It is elementary that the partial execution of a contract of sale takes the
transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the
contracting parties, object and cause of the obligation concur and are clearly established to be present.15

That being said, the Court now comes to David’s prayer that MOELCI be made to pay the total sum of ₱
5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the complaint. Although the Court
agrees that MOELCI should pay interest, the stipulated rate is, however, unconscionable and should be equitably
reduced. While there is no question that parties to a loan agreement have wide latitude to stipulate on any interest
rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable may still be
reduced to a reasonable and fair level. There is nothing in the said circular which grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.16 Accordingly, the excessive interest of 24% per annum stipulated in the sales invoice should be
reduced to 12% per annum.

Indeed, David was compelled to file an action against MOELCI but this reason alone will not warrant an award of
attorney’s fees. It is settled that the award of attorney's fees is the exception rather than the rule. Counsel's fees
are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on
the right to litigate. Attorney's fees, as part of damages, are not necessarily equated to the amount paid by a
litigant to a lawyer. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a lawyer
by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be
awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney's
fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code 17 which
demands factual, legal, and equitable justification. Its basis cannot be left to speculation or conjecture. In this
regard, none was proven.
19

Moreover, in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiffs
action or defendant's stand is so untenable as to amount to gross and evident bad faith.18 is MOELCI's case cannot
be similarly classified.

Also, David's claim for the balance of P73,059.76 plus the stipulated interest is denied for being unsubstantiated.

WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of the Court of Appeals Is REVERSED and SET
ASIDE. Respondent Misamis Occidental II Electric Cooperative, Inc. is ordered to pay petitioner Virgilio S. David the
total sum of P5,472,722.27 with interest at the rate of 12o/o per annum reckoned from the filing of the complaint
until fully paid.

SO ORDERED.

4. G.R. No. L-20871 April 30, 1971

KER & CO., LTD., petitioner,

vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.

Ross, Selph and Carrascoso for petitioner.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr.
for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a
commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the
vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way.
The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent
case of Commissioner of Internal Revenue v. Constantino.1 The decisive test, as therein set forth, is the retention of
the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers,
the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical
consequences must inevitably follow. We affirm.

It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the
sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period
from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the cancellation of such
assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals.
In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such
amount as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of
Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being
fixed at P19,772.33.

Such liability arose from a contract of petitioner with the United States Rubber International, the former being
referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to
transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until
terminated by either party giving to the other sixty days' notice.2 The shipments would cover products "for
consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao",
petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above places unless
written consent would first be obtained from the Company.3 Petitioner, as Distributor, is required to exert every
20

effort to have the shipment of the products in the maximum quantity and to promote in every way the sale
thereof.4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to
change in the discretion of the Company.5

Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the
Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this
agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation
and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all
goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold
by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in
which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with
the provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the
Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the
Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative
4 of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to
create any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind
the Company in any manner or thing whatsoever."6

All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor,
required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in
its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the
Company's neighboring branches, subsidiaries or other sources of Company's brands.7 Shipments were to be
invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of
the Company.8 Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to
be subject to the approval of the Company and to change from time to time in its discretion.9 The dealer, as
Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such
agreement. 10 On a date to be determined by the Company, the petitioner, as Distributor, was required to report to
it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes
and types together with such information as may be required for accounting purposes, with the Company
rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor,
petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its
option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The
Company, at its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a
result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed
full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any
time, it was to render inventory of the existing stock which could be subject to change. 12 There was furthermore
this equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on
consignment shall be held by the Distributor for the account of the Company, without expense to the Company,
until such time as provision can be made by the Company for disposition." 13

The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor
and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the
categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the
Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it
should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a
whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not
misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual
stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the
products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the
contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the
products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to
promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the
company (Par. 12); that on dates determined by the rubber company, petitioner shall render a detailed report
21

showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of
inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured
under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber company at any
time, petitioner shall render an inventory of the existing stock which may be checked by an authorized
representative of the former (Par. 15); and that upon termination or cancellation of the Agreement, all goods held
on consignment shall be held by petitioner for the account of the rubber company until their disposition is
provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an
independent merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together
with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the relationship
between them is one of brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief
filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal.

1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than
importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about
sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate
freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors
or consignees of freight carried by vessels or other means of transportation. The term includes commission
merchants." 16 The controlling decision as to the test to be followed as to who falls within the above definition of a
commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L.
Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price and terms of which were subject to the company's
control, the relationship between the company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v.
Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and
the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may
be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to
the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a
resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the owner and has the right to control sales, fix the
price, and terms, demand and receive the proceeds less the agent's commission upon sales made.' " 20 The
opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of
whom wrote treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or
presence of these mutual requirements and obligations on any theory other than that of a contract of agency.
Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of
lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account
therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of
interest on the money advanced and for services as agent. These requirements and stipulations are in tent with any
other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be
ignored. They were placed there for some purpose, doubtless as the result of definite antecedent negotiations
therefore, consummated by the final written expression of the agreement." 21 Hence the Constantino opinion
could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or
legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent
merchant if the control over the goods for resale of the goods consigned is pervasive in character. The Court of Tax
Appeals decision now under review pays fealty to such an applicable doctrine.

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither
did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the
contract by both the United States Rubber International and petitioner, as was contended in the second assignment
of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract,
as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to
what was contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not
22

one of seller and purchaser. If it were thus intended, then it would not have included covenants which in their
totality would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were
so worded as to lead to no other conclusion than that the control by the United States Rubber International over
the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship
opposed to that apparent from the language employed might even yield the impression that such a mode of
construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory.
Certainly, such a result is to be avoided.

Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed
an expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not
prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the
objective for which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their
appraisal on a matter that forms the staple of their specialized competence. While it is to be admitted that counsel
for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its
flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal.
Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent
Constantino decision gave the imprimatur of its approval.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner.

Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ.,
concur.

5. G.R. No. 75198 October 18, 1988

SCHMID & OBERLY, INC., petitioner,

vs.
RJL MARTINEZ FISHING CORPORATION, respondent.

Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

CORTES, J.:

Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc.
(hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing
Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be
referred to simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus consequential
damages, and attorneys fees.

The facts as found by the Court of Appeals, are as follows:

The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff RJL Martinez
Fishing Corporation is engaged in deep-sea fishing, and in the course of its business, needed electrical generators
for the operation of its business; that the defendant sells electrical generators with the brand of "Nagata", a
Japanese product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of Japan, that the defendant
Schmid & Oberly Inc. advertised the 12 Nagata generators for sale; that the plaintiff purchased 12 brand new
Nagata generators, as advertised by herein defendant; that through an irrevocable line of credit, the D. Nagata Co.,
Ltd., shipped to the plaintiff 12 electric generators, and the latter paid the amount of the purchase price; that the
12 generators were found to be factory defective; that the plaintiff informed the defendant herein that it shall
return the 12 generators as in fact three of the 12 were actually returned to the defendant; that the plaintiff sued
23

the defendant on the warranty; asking for rescission of the contract; that the defendant be ordered to accept the
generators and be ordered to pay back the purchase money; and that the plaintiff asked for damages. (Record on
Appeal, pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.]

On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to
private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay
s and attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the motion for
reconsideration, the Court of Appeals further modified the trial courts decision as to the award of consequential
damages.

Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's
decisions under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a review of
the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la
Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983,
121 SCRA 865; Baniqued v. Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the
appealed judgment is premised on a misapprehension of
facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26
(1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.]

Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals
indeed misapprehended the facts could not be determined without a thorough review of the records.

Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete.
It failed to include certain material facts.

The facts are actually as follows:

RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for
some of its boats and SCHMIID sold electric generators of different brands, negotiations between them for the
acquisition thereof took place. The parties had two separate transactions over "Nagata"-brand generators.

The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the
vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which
invoiced the sale.

The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand
generators. 'These are the facts surrounding this particular transaction:

As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975
[Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications:

"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio
suppressor,, 5KVA (5KW) $546.75 @

It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO.
Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following:

Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the
face of this memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port,
permitting partial shipments and providing that in the event the shippers are unable to ship within the specified
period due to strikes, lack of shipping space or other circumstances beyond their reasonable control, Buyer agrees
24

to extend the said Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject to the
conditions stated in this memorandum of contract. [Emphasis supplied.]

Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO.
Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12)
generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading
and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to RJL
MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets was—bought
by order and for account risk of Messrs. RJL Martinez Fishing Corporation.

For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators
to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]

All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed
SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976,
NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of
the burned out generators, which by then had been delivered to the premises of SCHMID.

The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the
capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual
capacity was only 4 KVA.

SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand.

As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL
MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were repaired
by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither repaired nor
replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request for spare
parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for
repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".]

As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the
cost of the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the twelve
(12) generators and thus refused to refund the purchase price therefor. Hence, on February 14, 1977, RJL
MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators
and, as such vendor, was liable under its warranty against hidden defects.

Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor
in the second transaction and was liable under its warranty. Accordingly, the courts a quo rendered judgment in
favor of RJL MARTINEZ. Hence, the instant recourse to this Court.

In this petition for review, SCHMID seeks reversal on the following grounds:

(i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the
exporter and RJL Martinez, the importer;

(ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not
having personally assumed any such warranty.

(iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against
hidden defects in the sale of these twelve (12) generators because these were sold under their trade name
"Nagata"; and
25

(iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's
unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees and costs.
[Petition, p. 6.]

1. As may be expected, the basic issue confronting this Court is whether the second transaction between the
parties was a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it
was a sale.

At the outset, it must be understood that a contract is what the law defines it to be, considering its essential
elements, and not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501
(1918).]

The Civil Code defines a contract of sale, thus:

ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price
paid or promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA
779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an
agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.]

On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors"
together with "commercial brokers" and "commission merchants" in this manner:

... A foreign firm which does business through the middlemen acting in their own names, such as indentors,
commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the
Philippines [Part I, Rule I, Section 1, par. g (1).]

Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get
an Idea of what an indentor is, a look at the definition of those in his class may prove helpful.

A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the negotiator between other parties, never acting in his
own name but in the name of those who employed him; he is strictly a middleman and for some purpose the agent
of both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's Law Dictionary.) A broker is one whose
occupation it is to bring parties together to bargain, or to bargain for them, in matters of trade, commerce or
navigation. Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on Agency, defines
a broker as an agent employed to make bargains and contracts between other persons, in matters of trade,
commerce or navigation, for compensation commonly called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer
and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-80 (1916).]

A commission merchant is one engaged in the purchase or sale for another of personal property which, for this
purpose, is placed in his possession and at his disposal. He maintains a relation not only with his principal and the
purchasers or vendors, but also with the property which is subject matter of the transaction. [Pacific Commercial
Co. v. Yatco, 68 Phil. 398, 401 (1939).]

Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are
merely intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction.
26

Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." [Webster's
Ninth New Collegiate Dictionary 612 (1986).] It would appear that there are three parties to an indent transaction,
namely, the buyer, the indentor, and the supplier who is usually a non-resident manufacturer residing in the
country where the goods are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R.
No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who, for
compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and
a local purchaser.

Coming now to the case at bar, the admissions of the parties and the facts appearing on record more than suffice
to warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction.

In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on
Appeal, p. 6.] In the same vein, it admitted in its demand letter previously sent to SCHMID that twelve (12) of en
(15) Nagata-brand generators "were purchased through your company (SCHMID), by indent order and three (3) by
direct purchase." [Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the
generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to
the former. The only participation of SCHMID was to act as an intermediary or middleman between NAGATA CO.
and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which
the company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".]

The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from
its own stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment
directly from the purchaser.

These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the
following grounds:

First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not
necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve
(12) generators in that:

(i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale
(impliedly, as between the signatories thereto—i.e., RJL MARTINEZ and SCHMID);

(ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of
payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating
delivery of payment instead to NAGATA CO. as supplier);

Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative
of its awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to
these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately
asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID likewise
informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID
made available its technicians, its shop and its testing equipment. After the generators were found to have factory
defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after their repair, back to the
Philippines [Memorandum for the Respondent, p. 8.]

Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the
generators indicated that the latter was "within the purview of a seller." [Ibid.]

Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed
to do business in the Philippines, then the officers and employees of the former may be penalized for violation of
the old Corporation Law which provided:
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Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign corporation not
having the license prescribed shall be punished by imprisonment for not less than six months nor more than two
years or by a fine 'of not less than two hundred pesos nor more than one thousand pesos or both such
imprisonment and fine, in the discretion of the Court.

The facts do not bear out these contentions.

The first contention disregards the circumstances surrounding the second transaction as distinguished from those
surrounding the first transaction, as noted above.

Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the
former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client
complains about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the
seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have
to act considerably. towards his clients.

Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not
replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so
that the latter could repair the defective generators.

The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective
generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the
latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the
second transaction or was acting "within the purview of a seller."

Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and
employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is
the circumvention by foreign corporations of licensing requirements through the device of employing local
representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In
fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which
was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such
that when a foreign corporation does business through such indentor, the foreign corporation is not deemed doing
business in the Philippines.

In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase
and sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be
held liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, et seq.]

2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting
that twelve (12) generators subject of the second transaction are free from any hidden defects. In other words,
SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound itself. As stated
above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may
expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.)

The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to
warrant that the twelve (12) generators are free of any hidden defects.

Again, we consider the facts.

The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID.
Notably, nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. There
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being no allegation nor any proof that the Quotation does not express the true intent and agreement of the
contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]

The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of
RJL MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects.

Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the
nature or terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators would
be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the
specifications indicated in the Quotation? Considering the different kinds of warranties that may be contracted,
unless the nature or terms and conditions of the warranty are known, it would not be possible to determine
whether there has been a breach thereof.

Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that
they merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art.
1546, Civil Code.]

We quote from Balagtas' testimony:

Atty. CATRAL:

Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only participation you had in the
acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own
company for the purchase of the units?

ATTY. AQUINO:

Misleading, your Honor.

Atty. CATRAL:

I am asking the witness.

COURT:

He has the right to ask that question because he is on cross. Moreover, if I remember, he mentioned something like
that. Witness may answer.

A Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the beat generators they can recommend
because we are looking for generators. The representative of Schmid and Oberly said that Nagata is very good. That
is why I recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.]

At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the
receipts covering the sale. (At this point, it may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO.
and nowhere is it stated therein that SCHMID warranted the generators against defects.) When confronted with a
copy of the invoice issued by NAGATA CO., he changed his assertion and claimed that what he meant was that the
date of the commencement of the period of SCHMID's warranty would be based on the date of the invoice. On
further examination, he again changed his mind and asserted that the warranty was given verbally [TSN, October
14, 1977, pp. 19-22.] But then again, as stated earlier, the witness failed to disclose the nature or terms and
conditions of the warranty allegedly given by SCHMID.

On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not warrant
goods bought on indent and that the company warrants only the goods bought directly from it, like the three
29

generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp. 63-64.] It must be recalled that
SCHMID readily replaced the three generators from its own stock. In the face of these conflicting testimonies, this
Court is of the view that RJL has failed to prove that SCHMID had given a warranty on the twelve (12) generators
subject of the second transaction. Even assuming that a warranty was given, there is no way to determine whether
there has been a breach thereof, considering that its nature or terms and conditions have not been shown.

3. In view of the foregoing, it becomes unnecessary to pass upon the other issues.

WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the
appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing
Corporation is hereby DISMISSED. No costs.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.

Feliciano, J., took no part.