G.R. No. 19009           September 26, 1922E.C. MCCULLOUGH & CO., plaintiff-appelle, vs.S. M. BERGER, defendant-appellant.Fisher & DeWitt for appellant.Perkins & Kincaid for appellee.

STATEMENTFor cause of action it is alleged that in the month of February, 1918, plaintiff and defendant and defendant entered into an agreement by which the defendant was to deliver plaintiff 501 bales of tobacco of New York City in good condition. That delivery was made and the plaintiff paid the full purchase price. That upon an examination later the tobacco was found to be in must condition, and its value was $12,000 less than it would have been if the tobacco had been in the condition

which defendant agreed that it should be, as a result of which plaintiff claims damages for P12,000, United States currency, or P24,000, Philippine currency. That when the condition of the tobacco was discovered, plaintiff promptly notified the defendant, who ignored the protest.

Wherefore, the plaintiff prays judgment for the amount of P24,000, Philippine currency, for costs and general relief.

For answer, the defendant denies all the material allegation of the complaint, and, as a further and separate defense, alleges that on August 15, 1918, he was advised by the plaintiff that the latter was dissatisfied with the quality of the tobacco, and he made him a formal written offer to

repurchase the tobacco at the original selling price with accrued interest, and that plaintiff rejected the offer.

That defendant has been ready and willing at all reasonable times to accept the return of the tobacco and to return the amount of the purchase price with legal interest, and has a repeatedly tendered to the plaintiff such purchase price in exchange for the return of the tobacco, and that plaintiff had refused to return it. That any damages which plaintiff may have suffered have been

wholly due to his willful refusal to return and redeliver the tobacco.Upon such issues there was a stipulation of facts, and after trial the lower court rendered judgment against the defendant and in favor of the plaintiff for the sum of P11,867.98 or

P23,735.96 with legal interest from January 6, 192, and costs, from which, after his motion for a new trial was overruled, the defendant appeals, claiming that the court erred: First, in finding that

the tobacco was not in good condition when it arrived in New York; second, in holding that the plaintiff is entitled to maintain an action for breach of contract after having agreed with the

defendant to rescind and to make restitution of the subject-matter and the price after a violation of the agreement; third in holding that the plaintiff, having elected to rescind and notified the defendant of such an election, may now refused it and affirm the same and recover from the alleged breach of warranty; fourth, in holding that this action should be maintained, no claim

having been made for the alleged breach of warranty of quality within the statutory period; and, fifth, in overruling the defendant's motion for a new trial.

JOHNS, J.:In February, 1918, the defendant met the plaintiff in the city of Manila and advised him that he had made a shipment of 501 bales of tobacco to new York City consigned to S. Lowenthal & Sons, who had refused to honor the draft which was drawn upon them. He asked the plaintiff whether he could use the tobacco provided it was "perfectly sound." At the plaintiff's request the defendant made and signed a writing as follows:Referring to the shipment of 501 bales of tobacco sold you consisting of 188 200-pound bales of scrap and 313 200-pound bales of booked tobacco, I beg to confirm my verbal conversation with you in stating that I guarantee the arrival of the tobacco in New York in good condition, subject, of course, to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance. (Stipulation par. 1.)Upon the strength of this the plaintiff cabled his New York office to honor the defendant's draft, which was ninety days' sight for $33,109, and was the same draft and amount which had been refused by S. Lowenthal & Sons. The draft was honored by his New York office at plaintiff's request. The shipment consisted of 188 bales of "scrap," invoiced at 28 cents, gold, per pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per pound, and was made c.i.f. New York. Before its arrival in New York the plaintiff had found purchasers for a large portion of it with whom he had made contracts for sale subject to examination as to condition. The tobacco

arrived in two shipments. The first of 213 bales on April 26, and the second of 288 bales on May 18, 1918, and it was at once placed in warehouses by plaintiff. With the exception of four or five bales, it appeared from an examination that the tobacco was well baled, and to all outward appearances was in good condition after the shipment. After it was placed in the warehouse, the tobacco itself was examined as to its condition and quality by the different buyers to whom the plaintiff had contracted to sell it, and after such physical inspection, they refused to accept it and complete their purchase because it was "musty." It appears that the plaintiff had sold 188 bales of the tobacco before its arrival in New York to a customer in Red Lion, Pennsylvania, to whom he shipped 75 bales of it after its arrival. This customer refused to receive any of the remaining bales which he had purchased, and the plaintiff was compelled to again reship it back to New York. Complying with his agreement, on May 21, 1918, the plaintiff paid the defendant's draft which he had previously accepted, thus completing his part of the contract with the defendant.On May 23, 1918, and as a result of physical inspection, the plaintiff cabled the defendant that the tobacco was unsatisfactory, and on June 13, he again cabled that there would likely be a loss. On June 28, 1918, the plaintiff wrote a letter to the defendant in which, among other things, he says:. . . The tobacco has a very strong ground smell and somewhat of a musty smell as though it had been mixed up with must tobacco. In other words, it appears like this tobacco assorted from bales which were mildewed and this is that part of the bale which was not mildewed. It does not seem possible that this odor, or musty smell, could have developed in transit as it seems perfectly clear that the tobacco was packed in that same condition. In all the bales which we have examined, which have been considerable, the tobacco seems to be perfectly dry. In view of that I can see nothing but every indication that the tobacco was originally a bad lot.In this letter he also advised the defendant that he was doing everything he could to sell the tobacco, and that he did not have any prospective buyer even at a loss of 25 per cent.August 9, 1918, the defendant acknowledge the receipt of the letter and cables, saying that he was "not in a position to lose between seventeen and twenty thousand pesos, and that he would consent to a reduction of four thousand pesos, if that was acceptable, and, if it was not, to have the bank pay back the amount of the draft with interest and take charge of the tobacco until the defendant would arrive in New York." The plaintiff did not receive this cable until August 21, when he cabled in reply that he would turn the tobacco over to the defendant, and that he "awaited telegraphic instruction in regard to it. That at least twenty dealers had passed on the tobacco." At that time the plaintiff had sold 66 bales of scattered samples from which, with the 75 bales sold to the Red Lion customer, he realized $9,031.71.September 5, 1918, the defendant wrote the New York Agency of the Philippine National Bank in which he said that the plaintiff had advised him that the tobacco on arrival was satisfactory, and that there would be a loss, and that the had assured its arrival at destination "in good condition." That he was taking it back. That the bank should pay plaintiff $33,109 plus interest upon delivery to it of the 501 bales. That "on no account should they agree to accept any shortage in the number of bales."October 18, 1918, without any knowledge of the defendant's instruction to the bank, the plaintiff wrote him that his proposition to take the tobacco back was satisfactory in which he said that he had not heard from the bank "at the time of writing with reference to taking back of the tobacco."October 30, 1918, the bank wrote the plaintiff that it would take back the identical 501 bales, and pay him the amount of the draft and interest. The plaintiff then wrote the bank a complete history of the transaction, and explained why the identical 501 bales could not be returned. That he had realized $9,031.71 from 141 bales of it which he had sold, for which he would account and return the balance of the tobacco which was then unsold and in the New York warehouse. The $9,031.71 was more than the actual agreed purchase price of the 141 bales. This offer was cabled to the defendant, who replied:The instructions given you in my letter dated September 5, 1918, will not be modified.The bank notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and in turn notified the defendant that the plaintiff would sell the tobacco at public auction, and then sue him for the balance of the purchase price, and later the plaintiff did sell the remainder of the tobacco upon which there was a net actual loss to him of $11,867.98, over and above all actual charges and expenses.

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Although at the time of the making of the contract between them the plaintiff and defendant were in Manila, the tobacco involved was on the high seas in transit to New York. From necessity the plaintiff could not see or examine it and would not know anything about its grade or quality, and, for that reason, insisted that the defendant should make and sign the writing above quoted in which he says:I guarantee the arrival of the tobacco in New York in good condition, subject, of course to, to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance.The trial court found and the testimony is conclusive that the tobacco did not arrive in New York "in good condition," and that , as a matter of fact, it was not "in good condition" when it left Manila.The plaintiff and defendant had known each other for about ten years, and had mutual confidence in each other, and were experienced business men.Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to take the tobacco and honor the draft, with the proviso that the defendant would guarantee its arrival "in good condition."The evidence shows that in the whole transaction, the plaintiff acted in good faith and made an earnest effort to protect the defendant and minimized his loss. Defendant knew that in the very nature of things the plaintiff bought the tobacco for the purpose of resale, and that in the ordinary course of business, he would resell it. The record shows that he found purchasers for portions of it before its arrival in New York. The only reason why plaintiff's sales were not consummated was because the tobacco did not stand inspection and was not "in good condition" at the time of its arrival in New York. In other words, plaintiff bought and paid the defendant for tobacco which was not "in good condition," and bought it for the purpose of resale. In the very nature of things, the defendant knew that the plaintiff bought the tobacco for the purpose of resale, and he also knew that , if the tobacco was not "in good condition," it was not worth the amount of the purchase price which plaintiff paid.The defense cites and relies upon articles 336 and 342 of the Code of Commerce which are as follows:A purchaser who, at the time of receiving the merchandise, fully examines the vendor, alleging a defect in the quantity or quality of the merchandise.A purchaser shall have a right of action against a vendor for defects in the quantity or quality of merchandise receive in bales or packages, provided he brings his action within the four days following it receipt, and that the damage is not due to accident or to natural defect of the merchandise or to fraud.In such cases the purchaser may choose between the rescission of the contract or its fulfillment in accordance with what has been agreed upon, but always with the payment of the damages he may have suffered by reason of the defects or faults.The vendor may avoid this claim by demanding when making the delivery that the merchandise be examined by the purchaser for his satisfaction with regard to the quantity and quality thereof.Article 342:A purchaser who has not made any claim based on the inherent defects in the article sold, within the thirty days following its delivery, shall lose all rights of action against the vendor for such defects.Whatever may be the rule as to sales which are completed within the jurisdiction of the Philippine Islands, those sections do not, and were never intended to, apply to a case founded upon the facts shown in the record. Although it is true that the contract between the plaintiff and the defendant was made in Manila, yet at the time it was made the tobacco was on the high seas, and under the contract, it was to be delivered "in good condition" in the City of New York, in consideration of which the plaintiff agreed to pay the draft. That is to say, the transaction was not complete until after the arrival of the tobacco in New York "in good condition," and the payment of the draft. It must be conceded that if, for any reason, the tobacco did not arrive in New York, the defendant could not recover upon the draft from the plaintiff. Hence, it must follow that the delivery of the tobacco at New York was a condition precedent which devolved upon the defendant to perform without which he would not have a cause of action against the plaintiff.It is true that the writing recites "the shipment of 501 bales of tobacco sold you." Yet, the fact remains that it was necessary to deliver the tobacco in New York to complete the sale.

Contracts of this nature should be construed with reference to the surrounding conditions and the relative situation of the parties.At the time this contract was made both parties were in Manila, the tobacco was in transit to New York, and the defendant knew that the plaintiff entered into the contract for the purpose of a resale. Soon after the contract was made, the plaintiff left Manila and went to New York where, relying upon this contract with the defendant, he found purchasers for the tobacco on the assumption that it was "in good condition."Although the word "sold" is used in the written contract, the transaction shows that the sale was not complete until the arrival of the goods in New York.The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which the court says:I think that the fair construction to be put upon the contract is, that on the arrival of the ship containing the goods, the defendants should deliver them, and the plaintiffs should pay the contract price. And the authorities hold that the arrival of the goods, in such case, is a condition precedent, which must be shown to have taken place before either party can bring suit.In the instant case, the contract was at least executory as to the delivery of the tobacco in New York.Cyc., vol. 35, pp. 274, 275 and 276, says:In order to pass the title to goods as against the seller or those claiming under him there must be a valid existing and completed contract of sale. Under a complete contract of sale the property in the goods passes at once from the seller to the buyer, at the place where the contract becomes complete, and for this reason the agreement is frequently called an executed contract. The sale is, however, an executory contract, if the seller merely promises to transfer the property at some future day, or the agreement contemplates the performance of some act or condition necessary to complete the transfer. Under such a contract until the act is performed or the condition fulfilled which is necessary to convert the executory into an executed contract, no title passes to the buyer as against the seller or persons claiming under him. While certain terms and expressions standing alone import an executed or executory contract, they are by no means conclusive but must be construed with reference to other provisions of the contract and according to what appears to have been the real intention of the parties, and so a mere recital in the writing evidencing the contract that the article is "sold" or that the buyer has "purchased" it does not necessarily make the contract executed; while on the other hand a recital that the seller "agrees to sell" is not conclusive that the title was not intended to pass immediately.The trial court found and the evidence sustains the finding that that plaintiff acted in good faith. The contract was made in February, 1918 the draft was payable ninety days after date; the first shipment of 213 bales arrived on April 26, and the second of 288 bales on May 18, and the plaintiff the draft on May 21 1918, and the transaction between the parties then became complete. On May 23, he cabled the defendant that the tobacco was unsatisfactory. On June 13, he cabled that there would be a loss. On June 28, he wrote the letter above quoted. September 5, the defendant wrote the New York Agency of the Philippine National Bank that he would take the tobacco back on condition that there was not any shortage in the number of bales. During all of this time, the defendant had the use of plaintiff's money. It is true that the defendant offered to take the tobacco back and refund the money, but this offer was not actually made to the plaintiff until October , and was upon the condition that the full amount of the 501 bales should be returned, which was an impossible condition for the plaintiff to perform. But the plaintiff did offer to account to the defendant for the tobacco which he had sold and to return all of the unsold tobacco which was then in his warehouse, and the defendant declined the offer. As a business man, he knew that the plaintiff has then purchased the tobacco for the purpose of a resale, and that the tobacco had arrived at New York about five months before the offer was made, and he also knew that the plaintiff was using every effort to sell it and convert it into money, and that he would sell the whole or any part of it if a purchaser could be found at a reasonable price. At the time the defendant's offer was communicated to the plaintiff by the bank the plaintiff in turn offered to account to the defendant for the entire proceeds of the 141 bales which he had already sold, and to deliver to him all of the unsold tobacco. This was all that the plaintiff could do under the existing conditions. The fact that the defendant did not accept this offer is strong evidence that he was seeking an undue advantage, and that his offer to plaintiff was not made in good faith.

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The second shipment arrived in New York on May 18, and the plaintiff could not be expected to take any final action until the las shipment arrived. On learning the true condition of the tobacco, the plaintiff cabled the defendant on May 23 that it was unsatisfactory, and again on June 13, that there would be a substantial loss, which was followed by the letter of June 28th above quoted.The defects in the tobacco were inherent and could not be ascertained without opening the bales and making a physical examination. When this was done, the plaintiff promptly cabled the defendant that the tobacco was not satisfactory. In the nature of things, the plaintiff could not then render the defendant a statement of the amount of this claim. By the terms of the contract, the defendant guaranteed the arrival of the tobacco in New York "in good condition."Plaintiff's first cable sent ten days after the arrival of the tobacco advised the defendant that it was unsatisfactory, and the second, twenty-six days after its arrival, advised him that there would be a loss.Appellant's attorneys have submitted a very able and adroit brief in which they severely criticize the evidence on the part of the plaintiff. Upon all of the material questions of fact, the trial court found for the plaintiff, and, in our opinion, the evidence sustains the findings.It must be remembered that during all these times there was about ten thousand miles of ocean between them.The plaintiff had parted with his money and honored the draft, expecting to sell the tobacco and get his money back with a profit.The testimony is conclusive that the plaintiff in good faith tried to sell the tobacco, and that he sold the 141 bales at the best obtainable price; that the only reason why he did not sell the remainder was because the tobacco was not "in good condition;" and that when he first knew that it was not "in good condition," he promptly cabled that defendant that it was unsatisfactory.As we construe the record, after the tobacco was inspected, the plaintiff promptly advised the defendant that it was unsatisfactory, and that he would have to sustain a loss, and in goo faith undertook to protect the defendant and to minimize the loss, and plaintiff's claim is not barred by the provisions of either article 336 or 342 of the Code of Commerce.The judgment is affirmed, with costs. So ordered.Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.

Separate OpinionsSTREET, J., concurring:I concur in the conclusion reached in this case and in accord with most that is said in the opinion. But in the view I take of the case, it ought not to be said that the sale was not complete until the arrival of the tobacco in New York.In view of the express guaranty given by the defendant to the effect that the tobacco would arrive in good condition, barring certain contingencies, and it having been clearly proved that the tobacco was not in good condition upon arrival there, a right of action accrued to the plaintiff to be indemnified to the extent allowed, and this independently of article 342 of the Code of Commerce. But, even supposing this provision to be applicable, claim was made within thirty days after complete delivery had been effected. The maneuvers of the defendant relative to taking back the tobacco — on terms which he must have believed would be impossible of fulfillment — were ruse to gain an advantage in the impending legal controversy; and the contention that there was a rescission, or accepted offer or rescission, is untenable.

G.R. No. L-17441             July 31, 1962WELGO DICHOSO, ET AL., plaintiffs-appellees, vs.LAURA ROXAS, ET AL., defendants, CELSO BORJA and NELIA ALANGUILAN, defendants-appellants.Zosimo D. Tanalega for plaintiffs-appellees.Manuel A. Alvero for defendant Laura A. Roxas.Brion, Baldo, Chozas and Alcantara for defendants-appellants.DIZON, J.:Appeal from the following decision of the Court of First Instance of Laguna:WHEREFORE, the Court renders judgment ordering the plaintiffs to deposit with the Clerk of this Court for the account of defendant Laura A. Roxas the amount of P320.00 and, upon the deposit of the said amount, defendant Laura A. Roxas is ordered to execute a document transferring her rights, title and interest in the land in controversy to plaintiffs Welgo Dichoso and Emilia Hernandez within five (5) days from such deposit. In the event that Laura A. Roxas fails to execute the document within the aforementioned period, the same shall executed by the Clerk of Court in her behalf.Defendants Celso Borja and Nelia Alanguilan are order to execute a deed of re-sale of the land in controversy and the improvements thereon in favor of plaintiffs Welgo Dichoso and Emilia Hernandez within five (5) days after the document transfer has been executed by or on behalf of Laura A. Roxas. If defendants Celso Borja and Nelia Alanguilan fail to do so, the Clerk of Court shall execute the document in their behalf. At any time after the execution of the deed of re-sale, defendants Celso Borja and Nelia Alanguilan may withdraw from the People's Bank and Trust Company of San Pablo City the amount of P850.00 which had been deposited by plaintiff Welgo Dichoso as repurchase price and the People's Bank & Tru Company is ordered to deliver the said amount to the aforementioned defendants.The Court considers defendants Celso Borja and Nelia Alanguilan as possessors in good faith and are not required account for the fruits that they have received from the Ian it controversy up to the time this decision becomes final.Laura A. Roxas is ordered to return to defendants Celso Borja and Nelia Alanguilan the amount of P1,684.00 which she received as additional purchase price for the land in controversy.All defendants are jointly and severally ordered to pay the costs.The complaint alleged, in substance, that on December 13, 1954, Laura A. Roxas sold to appellants for the sum of P850.00 a parcel of unregistered coconut land with an area of 16,965 square meters and with 393 coconut trees, situated in Barrio San Diego, San Pablo, Laguna, subject to the condition, inter alia, that the vendor could repurchase it for the same amount within five years, but not earlier than three years, from the date of the sale, which was evidenced by a public document attached to the complaint as Annex A; that from November 26, 1955 to July 5, 1957, Roxas had received from appellees several sums of money amounting to P770.00, their agreement being that after December 13, 1957, Roxas would sell the same property, by absolute sale, to appellees for the total sum of P2,000.00, the aforesaid sum of P770.00 to be considered as initial or advance payment on the purchase price; that out of the balance of P1,230.00, appellees would use the sum of P850.00 to repurchase the property from appellants after December 13, 1954 but within the five years stipulated for the exercise of Roxas' right to repurchase; that on October 22, 1957, pursuant to Roxas' request made on July 23, 1957, appellees sent her a check for the sum of P320.00 "in full payment of the P2,000.00 consideration for the deed of absolute sale" and thereafter they informed appellants of their readiness to repurchase the property; that on November 29, 1957 Roxas sent them back the check just referred to with the request that they endorse the same to appellants when they made the repurchase, because it appeared that, aside from the P850.00 consideration of the pacto de retro sale, Roxas had received additional sums from appellants; that again, after December 13, 1957, appellees made representations to appellants that they were ready to make the repurchase, as well as to Roxas for the latter to be ready to execute the corresponding deed of absolute sale in their favor after they had made the repurchase; that notwithstanding these demand and representations, Roxas and appellants had deliberately failed to execute the corresponding deed of absolute sale and deed of resale already mentioned.On January 8, 1958 appellants filed a motion to dismiss the complaint upon the ground that

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appellees had no cause of action against them because their contract was not them but with Laura A. Roxas. After due hearing, lower court sustained the motion and dismissed the complaint because, according to the same, "there exists no written contract of assignment of rights executed by Laura A. Roxas in favor of the herein plaintiffs concerning property which said Laura A. Roxas sold to her co-defendants under a deed of pacto de retro sale, and that the purpose of the present action is precisely to compel Laura A. Roxas to execute the corresponding deed of assignment."However, on July 31, 1958, over appellants' objection, the lower court admitted the amended complaint previously filed by appellees. The principal amendment introduced consisted in the allegation that on July 5, 1957, for sum of P770.00, Laura A. Roxas had ceded to appellees her right to repurchase the property from appellants; that on November 29, 1957, Roxas had "ordered and author the said plaintiffs spouses to repurchase the said parcel land from the defendants vendee-a-retro after the 3 years period, which would terminate on December 13, 1957," and that on December 13, 1957, appellees tendered to appellants the required sum with which to effect the repurchase, but that the latter refused to accept the same, thus compelling appellees to consign the amount with the Office of Clerk, Court of First Instance of Laguna.Upon petition of appellants, the lower court on August 18, 1958, ordered appellees to furnish, and the latter furnished appellants, with a copy of the alleged deed of assignment dated July 8, 1958, referred to in paragraph 4 of the amended complaint, which deed reads as follows:TALASTASIN NG SINO MAN:Tinangap ko ngayong Julio 5, 1957 ang halagang Pit Dean at Pitong Pong (P770.00) peso cuartang pang kasal yan sa mag- asawa ni Welgo Dichoso at Emilia Hernandez, lang paunang bayad sa isang puesto kong lupa humigit kumulang sa apat na raang tanim na niog.Ang aming pinagkasondoan pag dating ng dalagang wang libong (P2,000.00) pesong pagkakautang pate tobos walong daan at limang pong (P850.00) peso sa pagka pag na mabibiling muli o sanla) sa magasawa ni Celso Borja Nelia Alanguilan ay mag gagawaan ng documento o kasulatan bilihang toloyan o bintarial absoluta sa halagang dalawang libong (P2,000.00) peso na nasabe sa itaas nito.Ang nasabing lupa ay nakatayo sa Salang lupa kung tawagin Bo. San Diego sakop ng Ciudad ng San Pablo. Sa katonayan na hinde ako sisira sa pinagusapan ay lumagda ako ng pangalan at apellido na kaharap ang isang testigo.(Lgda.) Cosme Punto (Lgda.) Laura A. RoxasA motion to dismiss the amended complaint was denied by the lower court for the reason that the grounds relied upon therein did not appear to be indubitable and their consideration was deferred until after trial on the merits. Thereafter appellants filed their answer in which, after making specific denial of some facts averred in the amended complaint, they alleged the following affirmative defenses:1. That the alleged transfer of right to repurchase supposedly executed by defendant Laura A. Roxas in favor of plaintiffs herein is not in any manner a transfer of right to repurchase but at most a receipt of indebtedness;2. That even assuming although not admitting that there was a transfer of right to repurchase made by the defendant Laura A. Roxas in favor of the plaintiffs regarding the property in question, yet said right to repurchase could not be exercised by the plaintiffs considering that before December 13, 1957 arrived, the period within which the repurchase might be made, said land in question had already become the absolute and exclusive property of the answering defendants herein.3. That defendants spouses in the exercise of the rights of dominion over the property, had since December 13, 1957 harvested and are harvesting the fruits to date; and paid the taxes therefor; and had attended to the disposition of the pro. proceeds therefrom;4. That whatever alleged agreement may have been entered into between plaintiffs and defendant Laura Roxas cannot in any way affect third persons like defendants spouses Celso Boria and Nelia Alanguilan, unless the same is in a public document;5. That even assuming, although not admitting, that the Plaintiffs tendered into the answering defendants the repurchase price of the land in question on or immediately after December 13, 1947, yet the answering defendants have all the reasons and are justified in refusing to accept the said repurchase price considering that before said date of December 13, 1957, answering defendants were already the absolute and exclusive owners of the land in question, subject to

no other conditions.As counterclaim, appellants alleged in their answer following facts:1. That the answering defendants incorporate and part hereof paragraph 1 of the plaintiffs' amended complaint;2. That before this case was filed, plaintiffs knew f well that the property in question is already owned absolute by answering defendants; and which therefore, cannot be subject of repurchase anymore;3. That plaintiff Welgo Dichoso was the agent who responsible for the consummation of the sale with right to purchase as a matter of fact he was the witness to the s document;4. That a parcel of land abutting this parcel in quest was likewise offered by plaintiff Welgo Dichoso to defend spouses who acceded to buy the same on the representation the former Dichoso that inasmuch as answering defendant are now the owners of the land in question, this smaller if united with the bigger piece of property here in quest would not only enhance agriculture but would afford t greater benefits as to two parcels are adjoining to each other.5. Defendants spouses would not have bought the p property in question if not for the assurance of Welgo Dichoso t co- defendant would sooner or later sell same to them by of absolute sale;6. That in filing this case, plaintiffs have acted w evident bad faith, considering that this case was only intended to harass answering defendants who are his first cousins a therefore ore must be required to pay answering defendants amount of P500.00 as exemplary damages;7. That because of the unwarranted and unjustified filing this case, the answering defendants suffered damages in amount of P500.00 and will continue to suffer the same by of litigation expenses; and at the same time were compel to retain the services of counsel and are obliged to pay amount of P1,000.00 in the concept of attorney's fees,On September 19, 1958, appellees filed a reply in which they alleged, inter alia, that when they offered to repurchase the property from appellants, on behalf of La A. Roxas, appellants had not become absolute and exclusive owners of the property in question; that after the offer to repurchase made on December 13, 1957, appellate became possessors in bad faith and were in duty bound to account for the fruits of the property; that although the agreement between appellees, on the ore hand, a Roxas, on the other, was not contained in a public instrument appellants were bound by it because they knew the agreement. Appellees also denied the facts alleged in the counterclaim.On April 1, 1959, appellees filed a supplementary complaint wherein, on the claim that after July 23, 1958 the price of coconuts had considerably gone up, they prayed that the judgment for damages they sought in the amended complaint be increased in amount accordingly.After trial upon the issues stated above, the lower court rendered the appealed judgment, from which the Borja spouses appealed claiming that the court committed the following errors:1. In not finding defendant-appellants Celso Boria and Nelia Alanguilan as the true, lawful and absolute owners of the land in question, their title thereto being evidenced by public and private documents coupled by possession in good faith and for value.2. In not finding appellants Celso Borja and Nelia Alanguilan possessors as absolute owners from December 8, 1957, the date of the execution of the deed of absolute sale (Exh. "7") in their favor.3. In not giving weight to the deed of confirmation (Exh. "8"), a public document executed to cure defects in proof only.4. In construing Exhibit "I" (a private document) as a document of sale and in extending its effects to third parties (appellants) who are total strangers to it.5. In not sustaining the plea of res judicata by the defendant-appellants.The pertinent portions of the decision appealed from are the following:It appears from the evidence that Laura A. Roxas had sold her rights to the land in controversy to two (2) different parties. The first one was on July 5, 1957, in favor of the plaintiffs Welgo Dichoso and Emilia Hernandez (Exh. "I"), and the second one allegedly on December 8, 1957 in favor of defendants Celso Borja and Nelia Alanguilan (Exh. "7"). The principal question to be determined is which of these two documents shall prevail. Both the documents in favor of the plaintiffs Exh. "I" and that in favor of the defendants Exh. "7" are private documents same not having been acknowledged before a Notary Public.The Court is of the opinion that the document in favor of the plaintiffs being of an earlier date than the document in favor of the defendants shall prevail in accordance with the provisions of

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paragraph 3 of Article 1544 of the Civil Code of the Philippines which read as follows:'If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.'Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (Emphasis supplied)While it may be true that the defendants were in possession of the land in controversy at the time Laura A. Roxas executed the deed of sale in favor of the plaintiffs, such possession was merely that of a "vendee a retro" and not as vendee in an absolute sale. It has also been held that with reference to unregistered lands, an earlier instrument, be it a sale or a mortgage, shall prevail over a later one, and the registration of any one of them is immaterial (Nisce vs. Milo, G.R. No. 42546, Jan. 1936; Nota vs. Concepcion, 56 Phil. 712, cited in Noblejas, Land Titles and Deeds, 1955 ed., p. 207).The deed of confirmation of sale executed by Laura A. Roxas in favor of defendants Celso Borja and Nelia Alanguilan on September 5, 1958, Exhibits "8", cannot in any manner prejudice the rights of the plaintiffs because the said deed of confirmation was made more than nine (9) months after this case was filed. If the execution of the said deed of confirmation. It also proves the joint efforts of all the "I" executed by Laura A. Roxas in plaintiffs' favor.It is obvious that, in deciding the case, the lower court failed to give due weight to the private document Exhibit 7 (deed of absolute sale) executed by Laura A. Roxas in favor of appellants on December 8, 1957 — in effect superseding the pacto de retro sale mentioned heretofore for a total consideration of P1,684.00, of which the amount of P850.00 paid as consideration for the pacto de retro sale was considered as a part. There is no dispute at all as to the genuineness of this private deed of absolute sale nor as to its execution on December 8, 1957. that is, five days prior to December 13, 1957, when. according to appellees themselves, they made the first attempt to repurchase the property in question, and on which occasion appellants refused to allow the repurchase "because Laura A. Roxas was not with them", according to the lower court. After December 8, 1957, appellants' rights were no longer based on the superseded pacto de retro sale but on the aforesaid deed of absolute sale — which was a perfectly valid contract as between the parties. In plain words, after that date Laura A. Roxas no longer had any right to repurchase the property.Upon the other hand, appellees' contention that appellants were aware of their agreement with Laura A. Roxas has not been sufficiently substantiated. Appellees' own evidence shows that appellants became aware of their claim to the property when they tried, for the first time, to exercise the right to repurchase on December 18, 1957 five days after the deed of absolute sale in favor of said appellants. After a careful consideration of the issues and the evidence, we believe that the lower court also erred in considering Exhibit I, executed on July 5, 1957, as a deed of sale of the land in question in favor of appellees.In the first place, the phraseology employed therein shows that the contract between the parties was a mere promise to sell, on the part of Roxas, because the latter merely promised to execute a deed of absolute sale upon appellees complaining payment to her of the total sum of P2,000.00, of which the P850.00 to be paid to appellants for the repurchase of the property would be an integral part. This repurchase had not yet been made on July 5, 1957, when this Exhibit I was executed. In the second place, an that date all that Roxas could possibly sell or convey in relation to the property in question was her right to repurchase the same from appellants. Consequently, the best consideration that could be given to the private document Exhibit I is that it was an assignment by Roxas to appellees of her right to repurchase of which — according to the evidence — appellants had no knowledge until December 13, 1957 when appellees attempted to make the repurchase. Such being its condition, it could not possibly give rise to the case of one and the same property having been sold to two different purchasers. The salt — in favor of appellants was of the property itself, while the one in favor of appellees, if not a mere promise to assign, was at most an actual assignment of the right to repurchase the same property. The provisions of paragraph 3, Article 1544 of the Civil Code of the Philippines do not, therefore, apply.Having arrived at the above conclusions, we are constrained to hold that, upon the facts of the case, appellees are not entitled to the reliefs sought in their amended complaint and that

whatever remedy they have is exclusively against Laura A. Roxas to recover from her, among other things, what they paid as consideration for the execution of the private document Exhibit I.WHEREFORE, the decision appealed from is reversed, with the result that this case is dismissed, with costs, reserving to appellees, however, the right to file a separate action against Laura A. Roxas to enforce whatever rights they may have against her in consonance with this decision.Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ., concur.Padilla, J., took no part.

G.R. No. L-25885 January 31, 1972LUZON BROKERAGE CO., INC., plaintiff-appellee, vs.MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-appellant.Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee.C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers Building Co., Inc.Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc. REYES, J.B.L., J.:pDirect appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from a decision of the Court of First Instance of Manila (in its Civil Case No. 47319), the dispositive part of which provides as follows:FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring that the Myers Building Co., Inc. is entitled to receive the rentals which the plaintiff has been paying, including those already deposited in Court, thereby relieving the plaintiff of any obligation to pay the same to any other party, and ordering the Maritime Building Co., Inc. to pay the commission fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum of P3,000.00 as and for attorney's fees.On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co., Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum of P10,000.00 damages, plus the sum of P30,000.00, representing rentals wrongfully collected by it from the plaintiff corresponding to the months of March, April and May, 1961 and the costs hereof.The antecedents of the litigation are summarized in the appealed judgment thus:This is an action for interpleading.It appears that on April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc., owner of three parcels of land in the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of Conditional Sale" in favor of Bary Building Co., Inc., later known as Maritime Building Co., Inc., whereby the former sold the same to the latter for P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the execution of the

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said contract and the parties agreed that the balance of P950,000.00 was to be paid in monthly installments at the rate of P10,000.00 with interest of 5% per annum until the same was fully paid.In Par. (O), they agreed that in case of failure on the part of the vendee to pay any of the installments due and payable, the contract shall be annulled at the option of the vendor and all payments already made by vendee shall be forfeited and the vendor shall have right to re-enter the property and take possession thereof.Later, the monthly installment of P10,000.00 above-stipulated with 5% interest per annum was amended or decreased to P5,000.00 per month and the interest was raised to 5-1/2% per annum. The monthly installments under the contract was regularly paid by the Bary Building Co., Inc. and/or the Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly installment corresponding to the month of March 1961, for which the Vice-President, George Schedler, of the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C. Parsons, requesting for a moratorium on the monthly payment of the installments until the end of the year 1961, for the reason that the said company was encountering difficulties in connection with the operation of the warehouse business. However, Mr. C. Parsons, in behalf of the Myers Estate, answered that the monthly payments due were not payable to the Myers Estate but to the Myers Building Co., Inc., and that the Board of Directors of the Myers Co., Inc. refused to grant the request for moratorium for suspension of payments under any condition.Notwithstanding the denial of this request for moratorium by the Myers Board of Directors the Maritime Building Co., Inc. failed to pay the monthly installments corresponding to the months of March, April and May, 1961. Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime Building Co., Inc., for the payment of the installments that had become due and payable, which letter, however, was returned unclaimed.Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another letter advising it of the cancellation of the Deed of Conditional Sale entered into between them and demanding the return of the possession of the properties and holding the Maritime Building Co., Inc. liable for use and occupation of the said properties at P10,000.00 monthly.In the meantime, the Myers Building Co., Inc. demanded upon the Luzon Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the properties, the payment of monthly rentals of P10,000.00 and the surrender of the same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in a payment to the wrong party, filed this action for interpleader against the Maritime Building Co., Inc.After the filing of this action, the Myers Building Co., Inc. in its answer filed a cross-claim against the Maritime Building Co., Inc. praying for the confirmation of its right to cancel the said contract. In the meantime, the contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. was extended by mutual agreement for a period of four (4) more years, from April, 1964 to March 31, 1968.The Maritime Building Co., Inc. now contends (1) that the Myers Building Co., Inc. cannot cancel the contract entered into by them for the conditional sale of the properties in question extrajudicially and (2) that it had not failed to pay the monthly installments due under the contract and, therefore, is not guilty of having violated the same.It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc. (hereinafter called Maritime) of the payment of installments due from it to appellee Myers Building Co., Inc. (hereinafter designated as Myers Corporation) arose from an award of backwages made by the Court of Industrial Relations in favor of members of Luzon Labor Union who served the Fil-American forces in Bataan in early 1942 at the instance of the employer Luzon Brokerage Co. and for which F. H. Myers, former majority stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify E. M. Schedler (who controlled Maritime) when the latter purchased Myers' stock in the Brokerage Company. Schedler contended that he was being sued for the backpay award of some P325,000, when it was a liability of Myers, or of the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11", Maritime) dated 7 April 1961 (two months and ten days before the initial complaint in the case at bar), Schedler claimed the following:At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San Francisco, the Myers Estate or heirs assumed the defense of the Labor Union claims and led us to believe that they would indemnify us therefrom.

Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers Estates were closed, we have been notified that the F. H. Myers indemnity on the Labor Union case will not be honored, and in fact Mrs. Schedler and I have been sued in the Philippines by my successor in interest, Mr. Wentholt, and have been put to considerable expense.You are advised that my wife and I, as the owners of the Maritime Building Company, intend to withhold any further payments to Myers Building Company or Estate, in order that we can preserve those funds and assets to set off against the potential liability to which I am now exposed by the failure of the Myers heirs to honor the indemnity agreement pertaining to the Labor claims.The trial court found the position of Schedler indefensible, and that Maritime, by its failure to pay, committed a breach of the sale contract; that Myers Company, from and after the breach, became entitled to terminate the contract, to forfeit the installments paid, as well as to repossess, and collect the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the terms of the conditional contract of sale stipulating that:(d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the vendee of the unpaid balance of the purchase price hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party.xxx xxx xxx(o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided, or fails to perform any of the covenants or agreements hereof, this contract shall, at the option of the Vendor, be annulled and, in such event, all payments made by the Vendee to the Vendor by virtue of this contract shall be forfeited and retained by the Vendor in full satisfaction of the liquidated damages by said Vendor sustained; and the said Vendor shall have the right to forthwith re-enter, and take possession of, the premises subject-matter of this contract."The remedy of forfeiture stated in the next-preceding paragraph shall not be exclusive of any other remedy, but the Vendor shall have every other remedy granted it by virtue of this contract, by law, and by equity."From the judgment of the court below, the dispositive portion whereof has been transcribed at the start of this opinion, Myers duly appealed to this Court.The main issue posed by appellant is that there has been no breach of contract by Maritime; and assuming that there was one, that the appellee Myers was not entitled to rescind or resolve the contract without recoursing to judicial process.It is difficult to understand how appellant Maritime can seriously contend that its failure or refusal to pay the P5,000 monthly installments corresponding to the months of March, April and May, 1961 did not constitute a breach of contract with Myers, when said agreement (transcribed in the Record on Appeal, pages 59-71) expressly stipulated that the balance of the purchase price (P950,000) —shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the 10th day of each month with interest at 5% per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof; and the failure to pay any installment or interest when due shall ipso facto cause the whole unpaid balance of the principal and interest to be and become immediately due and payable. (Contract, paragraph b; Record on Appeal, page 63)Contrary to appellant Maritime's averments, the default was not made in good faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of a deliberate course of action on the part of appellant, designed to coerce the appellee Myers Corporation into answering for an alleged promise of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder of appellant, for any payments to be made to the members of the Luzon Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", Maritime):... I do not wish to deposit pesos representing the months of March, April and May, since the

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Myers refusal to honor the indemnity concerning the labor claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos for March, April and May and will also post a monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until:a) The Myers people indemnify me fully the labor cases;b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists;c) The Myers people pay any judgment entered on the labor cases thereby releasing me; ord) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised when I purchased Luzon Brokerage Company.Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E. M. Schedler) could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of Schedler with respect to the Luzon Brokerage labor case was not, and could not have been, an obligation of appellee corporation (Myers Building Company). No proof exists that the board of directors of the Myers Corporation had agreed to assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had allowed the estate proceedings of the late F. M. Myers to close without providing for any contingent liability in Schedler's favor; so that by offsetting the alleged debt of Myers to him, against the balance of the price due under the "Deed of Conditional Sale", appellant Maritime was in fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against the estate of F. H. Myers was already barred.Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and intentional design to evade the normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116).Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed no error in refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability and obligatory force of contracts.From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious, for as pointed out by this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 —The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case.But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale with Myers, the latter could not extrajudicially rescind or resolve the contract, but must first recourse to the courts. While recognizing that paragraph (d) of the deed of conditional sale expressly provides inter alia —that should the Vendee fail to pay any of the monthly installments when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof shall be considered as rentals.. (Emphasis supplied)herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be brought in court for a judicial declaration of rescission. The paragraph relied upon by Maritime is couched in the following, terms:

(e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor rescind this Deed of Conditional Sale, for any of the reasons stipulated in the preceding paragraph, the Vendee by these presents obligates itself to peacefully deliver the properties subject of this contract to the Vendor, and in the event that the Vendee refuses to peacefully deliver the possession of the properties subject of this contract to the Vendor in case of rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of rescission and take possession of the properties subject of this contract, the Vendee hereby obligates itself to pay all the expenses to be incurred by reason of such suit and in addition obligates itself to pay the sum of P10,000.00, in concept of damages, penalty and attorney's fees.Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional Sale (quoted in page 5 of this opinion) reveals no incompatibility between the two; and the suit to "be brought in Court by the Vendor to seek judicial declaration of rescission" is provided for by paragraph(e) only in the eventuality that, notwithstanding the automatic annulment of the deed under paragraph (d), the Vendee "refuses to peacefully deliver the possession of the properties subject of this contract". The step contemplated is logical since the Vendor can not, by himself, dispossess the Vendee manu militari, if the latter should refuse to vacate despite the violation of the contract, since no party can take the law in his own hands. But the bringing of such an action in no way contradicts or restricts the automatic termination of the contract in case the Vendee (i.e., appellant Maritime) should not comply with the agreement.Anyway, this Court has repeatedly held that —Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and cases cited therein). 1 (Emphasis supplied.)Resort to judicial action for rescission is obviously not contemplated.... The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504).The obvious remedy of the party opposing the rescission for any reason being to file the corresponding action to question the rescission and enforce the agreement, as indicated in our decision in University of the Philippines vs. Walfrido de los Angeles, L-28602, 29 September 1970, 35 SCRA 107.Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its default:ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.

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Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against Maritime in the court below constituted a judicial demand for rescission that satisfies the requirements of said article.But even if it were not so, appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession of the building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to comply with the specified condition precedent, which is to pay the installments as they fell due.The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated decisions 2 upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in the case at bar.Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already paid to Myers, as a result of its failure to make good a balance of only P319,300.65, payable at P5,000 monthly, becomes unimpressive when it is considered that while obligated to pay the price of one million pesos at P5,000 monthly, plus interest, Maritime, on the other hand, had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos in rentals to Maritime. Even adding to Maritime's losses of P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial court, it is undeniable that appellant Maritime has come out of the entire transaction still at a profit to itself.There remains the procedural objection raised by appellant Maritime to this interpleader action filed by the Luzon Brokerage Co., the lessee of the building conditionally sold by Myers to Maritime. It should be recalled that when Maritime defaulted in its payments to Myers, and the latter notified the former that it was cancelling the contract of conditional sale, Myers also notified Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and demanded that Luzon should pay to Myers the rentals of the building beginning from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15). In doubt as to who was entitled to the rentals, Luzon filed this action for interpleader against Myers and Maritime, and deposited the rentals in court as they fell due. The appellant Maritime moved to dismiss on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid since Luzon had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers had no right to cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor appellee Myers. The court below overruled Maritime's objections and We see no plausible reason to overturn the order. While Myers was not a party to the lease, its cancellation of the conditional sale of the premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as to the continuation of the lease, for the termination of the lessor's right of possession of the premises necessarily ended its right to the rentals falling due thereafter. The preceding portion of our opinion is conclusive that Luzon's doubts were grounded under the law and the jurisprudence of this Court.No adequate proof exists that Luzon was favoring any one of the contending parties. It was interested in being protected against prejudice deriving from the result of the controversy, regardless of who should win. For the purpose it was simpler for Luzon to compel the disputants to litigate between themselves, rather than chance being sued by Myers, and later being compelled to proceed against Maritime to recoup its losses. In any event, Maritime ultimately confirmed the act of Luzon in suing for interpleader, by agreeing to renew Luzon's lease in 1963 during the pendency of the present action, and authorizing Luzon to continue depositing the rentals in court "until otherwise directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The procedural objection has thus become moot.PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and

appellant Maritime Building Co., as well as appellee Luzon Brokerage Co., are further ordered to surrender the premises to the appellee Myers Building Co. Costs against appellant.Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.Fernando, J., took no part.

G.R. No. 156171 April 22, 2005Spouses RICARDO and FERMA PORTIC, Petitioners, vs.ANASTACIA CRISTOBAL, Respondent,D E C I S I O NPANGANIBAN, J.:An agreement in which ownership is reserved in the vendor and is not to pass to the vendee until full payment of the purchase price is known as a contract to sell. The absence of full payment suspends the vendors’ obligation to convey title. This principle holds true between the parties, even if the sale has already been registered. Registration does not vest, but merely serves as evidence of, title to a particular property. Our land registration laws do not give title holders any better ownership than what they actually had prior to registration.The CaseBefore us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the January 29, 2002 Decision2 and the November 18, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66393. The assailed Decision disposed as follows:"WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. A new one is hereby entered ORDERING defendant-appellant to pay the unpaid balance of P55,000.00 plus legal interest of 6% per annum counted from the filing of this case. The ownership of defendant-appellant over the subject property is hereby confirmed."No pronouncement as to costs."4

In the challenged Resolution,5 the CA denied petitioners’ Motion for Partial Reconsideration.The FactsThe facts were summarized by the appellate court as follows:"Spouses Clodualdo Alcantara and Candelaria Edrosalam were the original registered owners of a parcel of land with three-door apartment, located at No. 9, 1st Street BBB, Marulas, Valenzuela City. Transfer Certificate of Title No. T-71316 was issued in the names of spouses Clodualdo Alcantara and Candelaria Edrosalam."On October 2, 1968, spouses Clodualdo Alcantara and Candelaria Edrosalam sold the subject property in favor of [petitioners] with the condition that the latter shall assume the mortgage executed over the subject property by spouses Clodualdo Alcantara and Candelaria Edrosalam in favor of the Social Security System."[Petitioners] defaulted in the payment of the monthly amortizations due on the mortgage. The Social Security System foreclosed the mortgage and sold the subject property at public auction with the Social Security System as the highest bidder."On May 22, 1984, before the expiration of the redemption period, [petitioners] sold the subject property in favor of [respondent] in consideration of P200,025.89. Among others, the parties agreed that [respondent] shall pay the sum of P45,025.89 as down payment and the balance of P155,000.00 shall be paid on or before May 22, 1985. The parties further agreed that in case

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[respondent] should fail to comply with the conditions, the sale shall be considered void and [petitioners] shall reimburse [respondent] of whatever amount already paid."On the same date, [petitioners] and [respondent] executed a ‘Deed of Sale with Assumption of Mortgage’ whereby [petitioners] sold the subject property in favor of [respondent] in consideration of P80,000.00, P45,000.00 thereof shall be paid to the Social Security System."On July 30, 1984, spouses Clodualdo Alcantara and Candelaria Edrosalam, the original owners of the subject property, sold the subject property in favor of [respondent] for P50,000.00."On the same date, [respondent] executed a ‘Deed of Mortgage’ whereby [respondent] constituted a mortgage over the subject property to secure a P150,000.00 indebtedness in favor of [petitioners]."[Respondent] paid the indebtedness due over the subject property to the Social Security System."On August 6, 1984, Transfer Certificate of Title No. T-71316 in the names of spouses Clodualdo Alcantara and Candelaria Edrosalam was cancelled and in lieu thereof Transfer Certificate of Title No. T-113299 was issued in the name of [respondent]."On May 20, 1996, [petitioners] demanded from [respondent] the alleged unpaid balance of P55,000.00. [Respondent] refused to pay."On June 6, 1996, [petitioners] filed this instant civil case against [respondent] to remove the cloud created by the issuance of TCT No. T-113299 in favor of [respondent]. [Petitioners] claimed that they sold the subject property to [respondent] on the condition that [respondent] shall pay the balance on or before May 22, 1985; that in case of failure to pay, the sale shall be considered void and [petitioners] shall reimburse [respondent] of the amounts already paid; that [respondent] failed to fully pay the purchase price within the period; that on account of this failure, the sale of the subject property by [petitioners] to [respondent] is void; that in spite of this failure, [respondent] required [petitioners] to sign a lease contract over the apartment which [petitioners] occupy; that [respondent] should be required to reconvey back the title to the subject property to [petitioners]."[Respondent] on her part claimed that her title over the subject property is already indefeasible; that the true agreement of the parties is that embodied in the Deed of Absolute Sale with Assumption of Mortgage; that [respondent] had fully paid the purchase price; that [respondent] is the true owner of the subject property; that [petitioners’] claim is already barred by laches."6

After trial, the Regional Trial Court (RTC) of Valenzuela City rendered this judgment in favor of petitioners:"WHEREFORE, premises considered, this Court hereby adjudicates on this case as follows:1.) The Court hereby orders the quieting of title or removal of cloud over the [petitioners’] parcel of land and three (3) door apartment now covered by Transfer Certificate of Title No. T-113299 of the Registry of Deeds for Caloocan City and Tax Declaration Nos. C-018-00235 & C-031-012077 respectively, of Valenzuela City;2.) The Court hereby orders the [respondent] to reconvey in favor of the [petitioners] the parcel of land and three (3) door apartment now covered by Transfer Certificate of Title No. T-113299 of the Registry of Deeds of Caloocan City after reimbursement by the [petitioners] of the amount actually paid by the [respondent] in the total amount of P145,025.89;3.) The Court hereby DENIES damages as claimed by both parties."7

Ruling of the Court of AppealsThe Court of Appeals opined that the first Memorandum of Agreement (MOA) embodied the real agreement between the parties, and that the subsequent Deeds were executed merely to secure their respective rights over the property.8 The MOA stated that Cristobal had not fully paid the purchase price. Although this statement might have given rise to a cause of action to annul the Deed of Sale, prescription already set in because the case had been filed beyond the ten-year reglementary period,9 as observed by the CA. Nonetheless, in conformity with the principle of unjust enrichment, the appellate court ordered respondent to pay petitioners the remaining balance of the purchase price.10

In their Motion for Partial Reconsideration, petitioners contended that their action was not one for the enforcement of a written contract, but one for the quieting of title -- an action that was imprescriptible as long as they remained in possession of the premises.11 The CA held, however, that the agreement between the parties was valid, and that respondent’s title to the property was amply supported by the evidence.12 Therefore, their action for the quieting of title would not

prosper, because they failed to show the invalidity of the cloud on their title.Hence, this Petition.13

The IssueIn its Memorandum, petitioners raise the following issues for our consideration:"(1) Whether or not the [petitioners’] cause of action is for quieting of title."(2) Whether or not the [petitioners’] cause of action has prescribed."14

The main issue revolves around the characterization of the parties’ agreement and the viability of petitioners’ cause of action.This Court’s RulingThe Petition has merit.Main Issue:Nature of the Action: Quieting of Title or

Enforcement of a Written ContractPetitioners argue that the action they filed in the RTC was for the quieting of title. Respondent’s demand that they desist from entering into new lease agreements with the tenants of the property allegedly attests to the fact of their possession of the subject premises.15 Further, they point to the existence of Civil Case No. 7446, an action for unlawful detainer that respondent filed against them,16 as further proof of that fact. Being in continuous possession of the property, they argue that their action for the quieting of title has not prescribed.17

On the other hand, respondent joins the appellate court in characterizing the action petitioners filed in the RTC as one for the enforcement of the MOA. Being based on a written instrument, such action has already prescribed, respondent claims.18 She adds that petitioners could not have been in continuous possession of the subject property because, under a duly notarized lease agreement, they have been paying her a monthly rental fee of P500, which was later increased to P800.Two questions need to be answered to resolve the present case; namely, (1) whether Cristobal’s title to the property is valid; and (2) whether the Portics are in possession of the premises, a fact that would render the action for quieting of title imprescriptible.Validity of TitleThe CA held that the action for the quieting of title could not prosper, because Cristobal’s title to the property was amply supported by evidence.Article 476 of the Civil Code provides as follows:"Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title."An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein."Suits to quiet title are characterized as proceedings quasi in rem.19 Technically, they are neither in rem nor in personam. In an action quasi in rem, an individual is named as defendant.20 However, unlike suits in rem, a quasi in rem judgment is conclusive only between the parties.21

Generally, the registered owner of a property is the proper party to bring an action to quiet title. However, it has been held that this remedy may also be availed of by a person other than the registered owner because, in the Article reproduced above, "title" does not necessarily refer to the original or transfer certificate of title.22 Thus, lack of an actual certificate of title to a property does not necessarily bar an action to quiet title. As will be shown later, petitioners have not turned over and have thus retained their title to the property.On the other hand, the claim of respondent cannot be sustained. The transfer of ownership of the premises in her favor was subject to the suspensive condition stipulated by the parties in paragraph 3 of the MOA, which states as follows:"3. That while the balance of P155,000.00 has not yet been fully paid the FIRST PARTY OWNERS shall retain the ownership of the above described parcel of land together with its improvements but the SECOND PARTY BUYER shall have the right to collect the monthly rentals due on the first door (13-A) of the said apartment;"23

The above-cited provision characterizes the agreement between the parties as a contract to sell, not a contract of sale. Ownership is retained by the vendors, the Portics; it will not be passed to the vendee, the Cristobals, until the full payment of the purchase price. Such payment is a

9

positive suspensive condition, and failure to comply with it is not a breach of obligation; it is merely an event that prevents the effectivity of the obligation of the vendor to convey the title.24 In short, until the full price is paid, the vendor retains ownership.The mere issuance of the Certificate of Title in favor of Cristobal did not vest ownership in her. Neither did it validate the alleged absolute purchase of the lot. Time and time again, this Court has stressed that registration does not vest, but merely serves as evidence of, title. Our land registration laws do not give the holders any better title than that which they actually have prior to registration. 25

Under Article 1544 of the Civil Code, mere registration is not enough to acquire a new title. Good faith must concur.26 Clearly, respondent has not yet fully paid the purchase price. Hence, as long as it remains unpaid, she cannot feign good faith. She is also precluded from asserting ownership against petitioners. The appellate court’s finding that she had a valid title to the property must, therefore, be set aside.Continuous PossessionThe issue of whether the Portics have been in actual, continuous possession of the premises is necessarily a question of fact. Well-entrenched is the rule that findings of fact of the Court of Appeals, when supported by substantial evidence, are final and conclusive and may not be reviewed on appeal.27 This Court finds no cogent reason to disturb the CA’s findings sustaining those of the trial court, which held that petitioners had been in continuous possession of the premises. For this reason, the action to quiet title has not prescribed.WHEREFORE, the Petition is GRANTED. The challenged Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The Decision of the RTC of Valenzuela City in Civil Case No. 4935-V-96, dated September 23, 1999, is hereby REINSTATED. No pronouncement as to costs.SO ORDERED. 

G.R. No. 158646               June 23, 2005HEIRS OF JESUS M. MASCUÑANA, represented by JOSE MA. R. MASCUÑANA, petitioners, vs.COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and CORAZON LAYUMAS, respondents.D E C I S I O NCALLEJO, SR., J.:This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision2 of the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the dismissal of the petitioners’ complaint for recovery of possession and damages.The AntecedentsGertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729 square meters and covered by Transfer Certificate of Title (TCT) No. 1453-R (T-29937)-38.3 Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuñana. The latter then sold a portion of his 140-square-meter undivided share of the property to Diosdado Sumilhig. Mascuñana later sold an additional 160-square-meter portion to Sumilhig on April 7, 1961. However, the parties agreed to revoke the

said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said deed, Mascuñana, as vendor, sold an undivided 469-square-meter portion of the property for P4,690.00, with P3,690.00 as down payment, and under the following terms of payment:That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared.4

On December 31, 1961, Mascuñana and Jose G. Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate,5 in which Estabillo deeded to Mascuñana a portion of his property abutting that of Sumilhig on the southeast.In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962. The subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962. The portion of the property deeded to Sumilhig was identified in the said plan as Lot No. 124-B.6

Meanwhile, Mascuñana died intestate on April 20, 1965 and was survived by his heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opeña, Marilou Dy and Jose Ma. R. Mascuñana.On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property7 on a portion of Lot No. 124-B with an area of 469 square meters and the improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuñana, and Lot No. 124-B-1, with an area of 469 square meters under their names.8 The spouses Layumas took possession of the property and caused the cutting of tall grasses thereon. Upon the plea of a religious organization, they allowed a chapel to be constructed on a portion of the property.9 In January 1985, the spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward off squatters.10 Barte and his kin, Rostom Barte, then had their houses constructed on the property.On October 1, 1985, the spouses Layumas received a Letter11 from the counsel of Renee Tedrew, offering to buy their share of the property for US$1,000.00. For her part, Corazon Layumas wrote Pepito Mascuñana, offering to pay the amount of P1,000.00, the balance of the purchase price of the property under the deed of absolute sale executed by Mascuñana and Sumilhig on August 12, 1961.12 However, the addressee refused to receive the mail matter.13

Unknown to the spouses Layumas, TCT No. 898614 was issued over Lot No. 124-B in the name of Jesus Mascuñana on March 17, 1986.On November 17, 1986, the heirs of Mascuñana filed a Complaint15 for recovery of possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father. They averred that Barte surreptitiously entered the premises, fenced the area and constructed a house thereon without their consent. Attached as annexes to the complaint were TCT No. 8986 and a certification16 from the Office of the City Treasurer, Land Tax Division, vouching that the property in question was owned by the petitioners and that they had paid the taxes thereon until 1992.In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the owner of the subject property. He added that he did not fence the property, and that the petitioners did not use the same as a passageway in going to Broce Street from their house. Barte raised the following special defenses: (a) the petitioners were estopped from asserting ownership over the lot in question because they did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest when a church was built on the property, or when residential houses were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of Mascuñana, through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter17 to Rodolfo Layumas on October 1, 1985, expressing her willingness to buy the subject property for US$1,000.00.On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene,18 alleging therein that they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who in turn purchased the same from Mascuñana. In their answer in intervention,19 the spouses Layumas alleged that they were the true owners of the subject property and that they had wanted to pay the taxes thereon, but the Land Tax clerk refused to receive their payments on account that the

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petitioners had already made such payment. The spouses Layumas further maintained that the petitioners had no cause of action against Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The spouses Layumas also averred that the petitioners were estopped from denying their right of ownership and possession of the subject lot, as one of them had even offered to repurchase a portion of Lot No. 124-B via letter. The said spouses interposed a counterclaim for damages, claiming ownership over the property, and prayed, thus:WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering:1. That the complaint against Aquilino Barte be dismissed with costs against the plaintiff;2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas be declared as the legal and true owners of Lot 124-B;3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986 which is in their possession;4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00) PESOS attorney’s fees plus THREE HUNDRED (P300.00) PESOS as appearance fee per hearing.Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court as just and equitable in the premises.At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject property in 1968, and that nobody objected to their possession of the land, including the petitioners. In 1970, a religious organization asked his permission to construct a chapel on the disputed lot; he allowed the construction since the same would be used for the fiesta. He further declared that part of the chapel still stood on the property. In 1985, a fire razed the town’s public market, thereby dislocating numerous people. Barte was one of the fire victims, who also happened to be a good friend and political supporter of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said lot, along with some other fire victims. Rodolfo clarified that the others were to stay there only on a temporary basis, but admitted that Barte’s children also stayed in the subject property.20

Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners-heirs, Pepito Mascuñana, requesting that the title of the lot be transferred in Sumilhig’s name so that they could likewise arrange for the conveyance of the title in their names. Pepito failed to claim the letter, and thereafter, filed a case of ejectment against Barte and Rodolfo Layumas’ brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as against the two parties. Offered in evidence were the following: a Sworn Statement on the Current and Fair Market Value of the Real Property issued in 1973 as required by Presidential Decree No. 76, and tax receipts.21

Rodolfo Layumas admitted on cross-examination that at the time they bought the property from Sumilhig, the title was still in the possession of the Wuthrich family. He added that he filed an adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after the case had already been filed in court. Lastly, the witness deposed that he did not fence the property after buying the same, but that his brother-in-law constructed a coco-lumber yard thereon upon his authority.22

On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses Layumas. The fallo of the decision reads:WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenors-counterclaimants and defendant and against plaintiffs-counterclaim defendants ordering as follows:1. The dismissal of the plaintiff’s complaint with costs against them;2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge Rodolfo S. Layumas and Corazon A. Layumas:(a) P10,000.00 for attorney’s fees; and(b) P30,000.00 as moral damages;3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of their late father, Mr. Jesus Mascuñana, under the Deed of Absolute Sale, Exh. "3", pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuñana, including the desegragation (sic) survey to desegregate the 469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado Sumilhig, if the same has not yet been done despite what has been said herein

earlier to said effect, and the execution of the Final Deed of Sale in their capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuñana, thru Mr. Jose Mascuñana, covering the 469-square-meter desegregated portion of said Lot No. 124-B, within sixty (60) days counted from the finality of this Decision, in favor of the Intervenors-spouses, after which the said Intervenors-spouses shall pay them, thru Mr. Jose Mascuñana, the P1,000.00 balance due to them as successors-in-interest of the late Mr. Jesus Mascuñana;4. In case plaintiffs fail to comply with what are herein ordered for them to do, the Clerk of Court V of this Court to do all that they were to do as herein ordered in the text and dispositive portion hereof, at the expense of Intervenors spouses to be later reimbursed by plaintiffs, including the desegragation (sic) survey of said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not yet been done and the execution of the Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-interest of the late Mr. Jesus Mascuñana covering the said desegregated portion of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to the end that separate title therefor may be issued in their names, after they shall have paid the P1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh. "3."SO ORDERED.23

Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact and law:a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale;b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor of intervenor Corazon Layumas in 1968.24

On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract between the petitioners’ father and Sumilhig was one of sale. Foremost, the CA explained, the contract was denominated as a "Deed of Absolute Sale." The stipulations in the contract likewise revealed the clear intention on the part of the vendor (Mascuñana) to alienate the property in favor of the vendee (Sumilhig). In three various documents, the late Mascuñana even made declarations that Sumilhig was already the owner of the disputed land. The CA added that the admission may be given in evidence against Mascuñana and his predecessors-in-interest under Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument that the contract between Mascuñana and Sumilhig was not effective because it was subject to a suspensive condition that did not occur, the CA ruled that the condition referred to by the petitioners refers only to the payment of the balance of the purchase price and not to the effectivity of the contract.1avvphi1.zw+As to the petitioners’ contention that even if the contract were one of sale, ownership cannot be transferred to Sumilhig because Mascuñana was not yet the owner of the lot at the time of the alleged sale, the appellate court ruled that the registration of the land to be sold is not a prerequisite to a contract of sale.The Present PetitionAggrieved, the petitioners filed the instant petition for review on certiorari with this Court, where the following lone legal issue was raised:WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?25

We note that the original action of the petitioners against Aquilino Barte was one for recovery of possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and Corazon Layumas who claimed ownership over the property, and the acquiescence of the parties, evidence was adduced to prove who, between the petitioners (as plaintiffs) and the respondents (as defendants-intervenors) were the lawful owners of the subject property and entitled to its possession.The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961 between their father and Sumilhig was a mere contract to sell because at the time of the said sale, the late Mascuñana was not yet the registered owner of Lot No. 124 or any of its portions. They assert that Sumilhig could not have acquired any rights over the lot due to the fact that a person can only sell what he owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally. Finally, the petitioners insist that the document in controversy was subject to a suspensive condition, not a resolutory condition, which is a typical

11

attribute of a contract of sale.The petition is denied for lack of merit.The issues raised by the petitioners in this case are factual, and under Rule 45 of the Rules of Court, only questions of law may be raised in this Court, the reason being that this Court is not a trier of facts. It is not to re-examine the evidence on record and to calibrate the same. Moreover, the findings and conclusions of the trial court as affirmed by the CA are conclusive on the Court, absent of any evidence that the trial court, as well as the CA ignored, misinterpreted and misconstrued facts and circumstances of substance which, if considered, would alter or reverse the outcome of the case.26

We have reviewed the records and find no justification for a reversal or even a modification of the assailed decision of the CA.Even on the merits of the petition, the Court finds that the decision of the trial court as well as the ruling of the CA are based on the evidence on record and the applicable law.The petitioners reiterated their pose that the deed of absolute sale over the property executed by their father, Jesus Mascuñana, as vendor, and Diosdado Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert that on its face, the contract appears to be a contract to sell, because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive condition: the survey of the property, the segregation of the portion thereof subject of the sale, and the completion of the documents necessary for the issuance of a Torrens title over the property to and in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-in-interest (herein petitioners) to execute a final deed of sale never arose. As such, they aver, title to the property remained reserved in the vendor and his heirs even after his death. There was no need for the vendor to rescind the deed or collect the said amount of P1,000.00 under Article 1191 of the New Civil Code because such a remedy applies only to contracts of sale. The petitioners insist that Sumilhig never acquired title over the property; he could not have transferred any title to the respondents. Sumilhig could not have transferred that which he did not own.The petitioners’ contention has no factual and legal bases.The deed of absolute sale executed by Jesus Mascuñana and Sumilhig, provides, thus:That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ.That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion of the above-described property containing an area of 469 square meters, the sketch of which can be found at the back of this document and having a frontage at Broce Street of around 14 meters, and from the Broce Street to the interior on its Southwest side with a length of 30.9 meters, with a length of 24.8 meters on its Northeast side where it turned to the right with a length of 2.8 meters and continuing to Northwest with a length of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by the VENDOR as received by him.lawphil.netThat the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared.The evidence on record shows that during the lifetime of vendor Jesus Mascuñana, and even after his death, his heirs, the petitioners herein, unequivocably declared that Diosdado Sumilhig was the owner of the property subject of this case, and that the respondents acquired title over the property, having purchased the same via a deed of absolute sale from Diosdado Sumilhig. Thus, on December 31, 1961, Jesus Mascuñana and Jose Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were co-owners of portions of Lot No. 124 abutted by the property owned by Diosdado Sumilhig.27

In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuñana, et al.,

it appears that Lot No. 124-B with an area of 540 square meters belonged to Diosdado Sumilhig,28 which is abutted by Lot No. 124-C, owned by Jesus Mascuñana.On October 1, 1985, long after the death of Jesus Mascuñana, one of his heirs, petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the property occupied by his overseer Aquilino Barte for US$1,000.00:ATTY. RODOLFO S. LAYUMASSan Carlos CityNegros OccidentalDear Atty. Layumas:This has reference to the lot located at Broce Street, portions of which are presently occupied by Mr. Barte.Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to offer the amount of $1,000.00 to buy your share of the said lot.If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs. Tedrew in California.Very truly yours,(Sgd.)SAMUEL SM LEZAMA29

It was only after the respondents rejected the proposal of petitioner Renee Tedrew that the petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuñana (already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name of Jesus Mascuñana, who appears to be a co-owner of Lot No. 124 with an undivided two-seventh (2/7) portion thereof.30

While it is true that Jesus Mascuñana executed the deed of absolute sale over the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the property. It is settled that a perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article 1458 of the New Civil Code, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument covering the real property.31 Long before the petitioners secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer.Article 1458 of the New Civil Code provides: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.A contract of sale may be absolute or conditional.Thus, there are three essential elements of sale, to wit:a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;b) Determinate subject matter; andc) Price certain in money or its equivalent.32

In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally

12

resolve the contract upon the buyer’s failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case:In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code)Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. In People’s Industrial and Commercial Corporation v. Court of Appeals, it was stated:A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.33

The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect:The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. …34

In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force.35

It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligation created under the transaction.36 A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission.37

Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latter’s successors-in-interest, the respondents herein. Worse, petitioner Jose Mascuñana was able to secure title over the property under the name of his deceased father.IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.SO ORDERED.Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

G.R. No. 142411 October 14, 2005WINIFREDA URSAL, Petitioner, vs.COURT OF APPEALS, THE RURAL BANK OF LARENA (SIQUIJOR), INC. and SPOUSES JESUS MONESET and CRISTITA MONESET, Respondents.D E C I S I O NAUSTRIA-MARTINEZ, J.:Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 of the Court of Appeals (CA) dated June 28, 1999 and the Resolution dated January 31, 2000 denying petitioner’s motion for reconsideration.2

These are the facts:The spouses Jesus and Cristita Moneset (Monesets) are the registered owners of a 333-square meter land together with a house thereon situated at Sitio Laguna, Basak, Cebu City covered by Transfer Certificate of Title No. 78374.3 On January 9, 1985, they executed a "Contract to Sell Lot & House" in favor of petitioner Winifreda Ursal (Ursal), with the following terms and conditions:…That the VENDOR (Cristita R. Moneset) offers to SELL and the VENDEE accepts to BUY at the agreed lump sum price of P130,000.00 payable on the installment basis as follows:1. That on the date of the signing of this agreement, the VENDEE will tender an earnest money or downpayment of P50,000.00 to the VENDOR, and by these presents, the latter hereby acknowledges receipt of said amount from the former;2. That the balance of the selling price of P80,000.00 shall be paid by the VENDEE to the VENDOR in equal monthly installments of P3,000.00 starting the month of February, 1985, until said balance of the selling price shall be fully paid;3. That if the VENDEE shall fail or in default to pay six (6) monthly installments to the VENDOR the herein agreement is deemed cancelled, terminated and/or rescinded and in such event, the VENDEE (sic) binds to refund to the VENDOR (sic) the deposit of P50,000.00 and with the latter’s (sic) obligation to pay the former (sic) as a corresponding refund for cost of improvements made in the premises by VENDEE;4. That on the date of receipt of the downpayment of P50,000.00 by the VENDOR, it is mutually agreed for VENDEE to occupy and take physical possession of the premises as well as for the latter (VENDEE) to keep and hold in possession the corresponding transfer certificate of title No. ______ of the land in question which is the subject of this agreement;5. That on the date of final payment by the VENDEE to the VENDOR, the latter shall execute at her expense the corresponding document of DEED OF ABSOLUTE SALE for the former as well as the payment of realty clearances, BIR Capital Gain Tax, sales tax or transfer fees and attorney’s fees; that, for the issuance of title in VENDEE’s name shall be the exclusive account of said VENDEE.4

Petitioner paid the down payment and took possession of the property. She immediately built a concrete perimeter fence and an artesian well, and planted fruit bearing trees and flowering plants thereon which all amounted to P50,000.00. After paying six monthly installments, petitioner stopped paying due to the Monesets’ failure to deliver to her the transfer certificate of title of the property as per their agreement; and because of the failure of the Monesets to turn over said title, petitioner failed to have the contract of sale annotated thereon.5

Unknown to petitioner, the Monesets executed on November 5, 1985 an absolute deed of sale in favor of Dr. Rafael Canora, Jr. over the said property for P14,000.00.6 On September 15, 1986, the Monesets executed another sale, this time with pacto de retro with Restituto Bundalo.7 On the same day, Bundalo, as attorney-in-fact of the Monesets, executed a real estate mortgage over said property with Rural Bank of Larena (hereafter Bank) located in Siquijor for the amount of P100,000.00.8 The special power of attorney made by the Monesets in favor of Bundalo as well as the real estate mortgage was then annotated on the title on September 16, 1986.9 For the failure of the Monesets to pay the loan, the Bank served a notice of extrajudicial foreclosure dated January 27, 1988 on Bundalo.10

On September 30, 1989, Ursal filed an action for declaration of non-effectivity of mortgage and damages against the Monesets, Bundalo and the Bank. She claimed that the defendants

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committed fraud and/or bad faith in mortgaging the property she earlier bought from the Monesets with a bank located in another island, Siquijor; and the Bank acted in bad faith since it granted the real estate mortgage in spite of its knowledge that the property was in the possession of petitioner.11

The Monesets answered that it was Ursal who stopped paying the agreed monthly installments in breach of their agreement.12 The Bank, on the other hand, averred that the title of the property was in the name of "Cristita Radaza Moneset married to Jesus Moneset" and did not show any legal infirmity.13

Bundalo, meanwhile, was not served summons because he could no longer be found at his given address.14

Trial on the merits proceeded. Thereafter, the Regional Trial Court of Cebu City, Branch 24, rendered its decision finding that Ursal is more credible than the Monesets and that the Monesets are liable for damages for fraud and breach of the contract to sell:The evidence of [Ursal] show that she was the first to acquire a substantial interest over the lot and house by virtue of the execution of the Contract to Sell (Exh. "A"). After the execution of Exh. "A" plaintiff took possession of the questioned lot and house…after she made a downpayment of P50,000.00. … [S]he paid the installments for six (6) months without fail. [However] plaintiff (stopped) paying the installment because defendant spouses failed to give her the Transfer Certificate of Title over the lot and house despite repeated demands. It is evident then that the first to violate the conditions of Exh. "A" were the defendants Spouses Moneset. This is the reason why plaintiff was not able to annotate Exh. "A" on the TCT. The evidence of plaintiff show that there was no intention on her part to discontinue paying the installments. In a reciprocal obligation, one cannot be compelled to do if the other party fails to do his part (Art. 1169, New Civil Code).…The acts of defendant Spouses Moneset in selling again the lot and house in question to Dr. Canora by executing a Deed of Absolute Sale; in selling the same on pacto de retro to defendant Bundalo; and in mortgaging the same to defendant Rural Bank of Larena are plainly and clearly fraudulent because they were done while Exh. "A" was still existing and the transaction was done without notice to the plaintiff. As provided in Art. 1170 of the New Civil Code, those who are guilty of fraud in the performance of their obligation --- and those who in any manner contravene the tenor thereof, are liable for damages.…Another ground for liability under this article is when there is fraud/deceit. In the instant case, there was fraud/deceit on the part of the defendant spouses Moneset when they executed the Deed of Sale to Dr. Canora; the Deed of Sale with Pacto de Retro to Bundalo and the Special Power of Attorney for Bundalo to execute for and in their behalf the Real Estate Mortgage with the Rural Bank of Larena knowing fully well that the Contract to Sell house and lot, Exh. "A" was still existing notwithstanding their violation to the provisions thereto. It is therefore crystal clear that defendant spouses Moneset are liable for damages.15

As to the real estate mortgage, the trial court held that the same was valid and the Bank was not under any obligation to look beyond the title, although the present controversy could have been avoided had the Bank been more astute in ascertaining the nature of petitioner’s possession of the property, thus:The Real Estate Mortgage and the Foreclosure Proceedings cannot be considered null and void in the sense that per se the formalities required by law were complied with except for the fact that behind their execution there was fraud, deceit and bad faith on the part of defendant spouses Moneset and Bundalo.The defendant Rural Bank of Larena for its part could have avoided this situation if the bank appraiser who made the ocular inspection of the subject house and lot went deeper and investigated further when he learned that the owner is not the actual occupant. He was however told by Moneset that the actual occupant was only a lessee. Banking on this information that the actual occupant was only a lessee with no other right over and above such, the bank approved a loan of P100,000.00 in favor of Moneset through Bundalo their attorney-in-fact.…Likewise the Rural Bank of Larena had the right to rely on what appeared on the certificate of title of the Monesets and it was under no obligation to look beyond the certificate and investigate

the title of the mortgagor appearing on the face of the certificate.The approval of the P100,000.00 loan from the Rural Bank of Larena was made possible through the deception and bad faith of defendant spouses Moneset and Bundalo but the pertinent documents were per se in order. The court is of the honest belief that the case against the defendant bank be dismissed for lack of merit. The court however believes that for reasons of equity the bank should give the plaintiff Ursal the preferential right to redeem the subject house and lot.16

The trial court then disposed of the case as follows:Wherefore premises considered, judgment is hereby rendered in favor of the defendant Rural Bank of Larena dismissing the complaint against it for lack of merit and against the defendant spouses Moneset ordering them to:1. reimburse to plaintiff Ursal the following:a.) downpayment of P50,000.00b.) monthly installments for six months at P3,000.00 per month --- P18,000.00c.) expenses improvements P61, 676.522. pay to plaintiff the following:a.) moral damages ----------------- P30,000.00b.) exemplary damages ----------- P20,000.00c.) litigation expenses------------- P 5,000.00d.) attorney’s fees ----------------- P10,000.00e.) costs3. order the defendant Rural Bank of Larena to give the plaintiff the preferential right to redeem the subject house and lot.SO ORDERED.17

Both Ursal and the Monesets appealed the decision to the CA. Ursal alleged that the Bank was guilty of bad faith for not investigating thepresence of Ursal on the property in question, while the Monesets claimed that the trial court erred in giving preferential right to Ursal to redeem the property and in ordering them to pay damages.18

The CA affirmed in toto the decision of the trial court. It held that the Bank did not have prior knowledge of the contract to sell the house and lot and the Monesets acted fraudulently thus they cannot be given preferential right to redeem the property and were therefore correctly ordered to pay damages.19

The Monesets filed a motion for reconsideration which was denied outright for having been filed out of time.20 Ursal’s motion for reconsideration was denied by the CA on January 31, 2000 for lack of merit.21

Hence, the present petition raising the sole error:"That with grave abuse of discretion amounting to excess of jurisdiction, the Honorable Court of Appeals erred in rendering a decision and Resolution NOT in accordance with law and the applicable rulings of the Supreme Court."22

Petitioner claims that: the Bank was duly informed through its appraiser that the house and lot to be mortgaged by Monesets were in the possession of a lessee; the Bank should have taken this as a cue to investigate further the Monesets’ right over the same; the case of Embrado vs. Court of Appeals (233 SCRA 335) held that where a purchaser neglects to make the necessary inquiry and closes his eyes to facts which should put a reasonable man on his guard to the possibility of the existence of a defect in his vendor’s title, he cannot claim that he is a purchaser in good faith; Sec. 50 of Act 496 provides that where a party has knowledge of a prior existing interest which is unregistered at the time he acquired the land, his knowledge of that prior unregistered interest has the effect of registration as to him and the Torrens system cannot be used as a shield against fraud; following Art. 2176 of the Civil Code, respondent Bank is obliged to pay for the damage done.23

Petitioner then prayed that the Deed of Real Estate Mortgage be declared as non-effective and non-enforceable as far as petitioner is concerned; that she be declared as the absolute owner of the house and lot in question; that the Monesets be ordered to execute a deed of absolute sale covering the subject property; and that the Bank be ordered to direct the collection or payment of the loan of P100,000.00 plus interest from the Monesets for they were the ones who received and enjoyed the said loan.24

14

On the other hand, respondent Bank in its Comment argues that: its interest in the property was only that of mortgagee and not a purchaser thus its interest is limited only to ascertaining that the mortgagor is the registered owner; the case cited is inapplicable at bar since it involves the purchase of real property; Ursal was purportedly only a lessee of the property, thus as mortgagor who is not entitled to possess the mortgaged property, they no longer considered the lease in the processing and approval of the loan; Sec. 50 of Act No. 496 is also inapplicable since the alleged prior existing interest was only that of a lessee; in any case, it was the Monesets who lied to the Bank anent the real nature of the encumbrance, thus, it is the Monesets who are guilty of fraud and not the Bank.25

In her "Rejoinder,"26 petitioner argued that: under the law on mortgage, the mortgagor must be the owner of the property he offers as security of his loan; the mortgagee like herein Bank which neglects to verify the ownership of the property offered as security of the loan runs the risk of his folly; the Bank’s negligence is not excusable because an adverse claim and notice of lis pendens were already annotated on the certificate of title when the mortgage was constituted or when the deed of real estate mortgage was annotated; it would be unfair to put the blame on petitioner who was innocent of the transaction; the trial court found that the Bank even provided its appraiser the amount of P15,000.00 to redeem the pacto de retro sale allegedly executed in favor of Dr. Canora; this should have aroused the Bank’s suspicion and prompted it to investigate further the property; the trial court recognized the bad faith committed by the Monesets and ordered them to pay the sum of P126,676.52 in damages but exonerated the Bank who is equally guilty of bad faith; the Monesets cannot pay the damages as they have no money and property thus if the decision of the trial court as affirmed by the CA is to be enforced, they will only be holding an empty bag while the Bank which is equally guilty will go free; what would be fair is to let thetwo respondents bear jointly and severally the consequences of their transaction and let the innocent petitioner ultimately own the house and lot in question.27

The petitioner, in her Memorandum dated July 31, 2005, raised the issues of: "(1) Whether or not the document captioned: ‘Contract to Sell Lot and House’ (Exh. ‘A’) is valid and binding so much so that the herein Petitioner who is the Vendee is the lawful and true owner of the lot and house in question; (2) Whether or not the herein respondents spouses Jesus Moneset and Cristita Moneset who were the vendors and/or mortgagors together with respondent Restituto Bundalo were conniving and acting in bad faith; and (3) Whether or not respondent Rural Bank of Larena measured up to the strict requirement of making a thorough investigation of the property offered as collateral before granting a loan and be considered as innocent mortgagee and entitled to the protection of the law."28 Petitioner reiterated her arguments in support of the first and third issues raised in the Memorandum while she merely adopted the CA findings in support of the second issue, i.e., when the Monesets encumbered the Transfer Certificate of Title (TCT) to Dr. Canora and thereafter to Bundalo, they committed bad faith or fraud since the contract to sell with Ursal was still valid and subsisting.29

Respondent Bank, in its Memorandum dated July 20, 2005, reiterated the arguments it made in its Comment that: the case cited by petitioner requiring extra ordinary diligence is inapplicable in this case since what is involved here is mortgage and not sale; as mortgagee, its interest is limited only to determining whether the mortgagor is the registered owner of the property whose certificate of title showed that there were no existing encumbrances thereon; and even with unregistered encumbrances, the Bank has priority by the registration of the loan documents.30

No memorandum is filed by respondent Monesets.The crux of petitioner’s contention is that the Bank failed to look beyond the transfer certificate of title of the property for which it must be held liable.We agree. Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged properties; as their business is impressed with public interest, they are expected to exercise more care and prudence in their dealings than private individuals.31 Indeed, the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.32

As enunciated in Cruz vs. Bancom:33

Respondent… is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before

entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.34

Our agreement with petitioner on this point of law, notwithstanding, we are constrained to refrain from granting the prayers of her petition, to wit: that the Deed of Real Estate Mortgage be declared as non-effective and non-enforceable as far as petitioner is concerned; that she be declared as the absolute owner of the house and lot in question; that the Monesets be ordered to execute a deed of absolute sale covering the subject property; and that the Bank be ordered to direct the collection or payment of the loan of P100,000.00 plus interest from the Monesets for they were the ones who received and enjoyed the said loan.35

The reason is that, the contract between petitioner and the Monesets being one of "Contract to Sell Lot and House," petitioner, under the circumstances, never acquired ownership over the property and her rights were limited to demand for specific performance from the Monesets, which at this juncture however is no longer feasible as the property had already been sold to other persons.A contract to sell is a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.36

In such contract, the prospective seller expressly reserves the transfer of title to the prospective buyer, until the happening of an event, which in this case is the full payment of the purchase price. What the seller agrees or obligates 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. Stated differently, 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.37

It is different from contracts of sale, since ownership in contracts to sell is reserved by the vendor and is not to pass to the vendee until full payment of the purchase price, while in contracts of sale, title to the property passess to the vendee upon the delivery of the thing sold. In contracts of sale the vendor loses ownership over the property and cannot recover it unless and until the contract is resolved or rescinded, while in contracts to sell, title is retained by the vendor until full payment of the price.38 In contracts to sell, full payment is a positive suspensive condition while in contracts of sale, non-payment is a negative resolutory condition.39

A contract to sell may further be distinguished from a conditional contract of sale, in that, the fulfillment of the suspensive condition, which is the full payment of the purchase price, will not automatically transfer ownership to the buyer although the property may have been previously delivered to him. The prospective vendor still has to convey title to theprospective buyer by entering into a contract of absolute sale. While in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute and affects the seller’s title thereto such that if there was previous delivery of the property, the seller’s ownership or title to the property is automatically transferred to the buyer. 40

Indeed, in contracts to sell the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition, that is, the full payment of the purchase price by the buyer. It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Prior to the existence of the contract of sale, the seller is not obligated to transfer the ownership to the buyer, even if there is a contract to sell between them. 41

In this case, the parties not only titled their contract as "Contract to Sell Lot and House" but specified in their agreement that the vendor shall only execute a deed of absolute sale on the date of the final payment by vendee.42 Such provision signifies that the parties truly intended their contract to be that of contract to sell.43

Since the contract in this case is a contract to sell, the ownership of the property remained with the Monesets even after petitioner has paid the down payment and took possession of the property. In Flancia vs. Court of Appeals,44 where the vendee in the contract to sell also took possession of the property, this Court held that the subsequent mortgage constituted by the owner over said property in favor of another person was valid since the vendee retained absolute ownership over the property.45 At most, the vendee in the contract to sell was entitled only to damages.46

15

Petitioner attributes her decision to stop paying installments to the failure of the Monesets to comply with their agreement to deliver the transfer certificate of title after the down payment of P50,000.00. On this point, the trial court was correct in holding that for such failure, the Monesets are liable to pay damages pursuant to Art. 1169 of the Civil Code on reciprocal obligations.47

The vendors’ breach of the contract, notwithstanding, ownership still remained with the Monesets and petitioner cannot justify her failure to complete the payment.In Pangilinan vs. Court of Appeals,48 the vendees contended that their failure to pay the balance of the total contract price was because the vendor reneged on its obligation to improve the subdivision and its facilities. In said case, the Court held that the vendees were barred by laches from asking for specific performance eight years from the date of last installment. The Court held that:…(the vendees) instead of being vigilant and diligent in asserting their rights over the subject property had failed to assert their rights when the law requires them to act. Laches or "stale demands" is based upon grounds of public policy which requires, for the peace of society, the discouragement of stale claims and unlike the statute of limitations, is not a mere question of time but is principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted.The legal adage finds application in the case at bar. Tempus enim modus tollendi obligations et actiones, quia tempus currit contra desides et sui juris contemptores—For time is a means of dissipating obligations and actions, because time runs against the slothful and careless of their own rights."49

In this case, petitioner instituted an action for "Declaration of Non-Effectivity of Mortgage with Damages" four years from the date of her last installment and only as a reaction to the foreclosure proceedings instituted by respondent Bank. After the Monesets failed to deliver the TCT, petitioner merely stopped paying installments and did not institute an action for specific performance, neither did she consign payment of the remaining balance as proof of her willingness and readiness to comply with her part of the obligation. As we held in San Lorenzo Development Corp. vs. Court of Appeals,50 the perfected contract to sell imposed on the vendee the obligation to pay the balance of the purchase price. There being an obligation to pay the price, the vendee should have made the proper tender of payment and consignation of the price in court as required by law. Consignation of the amounts due in court is essential in order to extinguish the vendee’s obligation to pay the balance of the purchase price.51 Since there is no indication in the records that petitioner even attempted to make the proper consignation of the amounts due, the obligation on the part of the Monesets to transfer ownership never acquired obligatory force.In other words, petitioner did not acquire ownership over the subject property as she did not pay in full the equal price of the contract to sell. Further, the Monesets’ breach did not entitle petitioner to any preferential treatment over the property especially when such property has been sold to other persons.As explained in Coronel vs. Court of Appeals:52

In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer.53 (Emphasis supplied)In this case, the lower courts found that the property was sold to Dr. Canora and then to Bundalo who in turn acted as attorney-in-fact for the Monesets in mortgaging the property to respondent Bank. The trial court and the CA erred in giving petitioner the preferential right to redeem the property as such would prejudice the rights of the subsequent buyers who were not parties in the proceedings below. While the matter of giving petitioner preferential right to redeem the property was not put in issue before us, in the exercise of our discretionary power to correct manifest and palpable error, we deem it proper to delete said portion of the decision for being erroneous.54

Petitioner’s rights were limited to asking for specific performance and damages from the Monesets. Specific performance, however, is no longer feasible at this point as explained above.

This being the case, it follows that petitioner never had any cause of action against respondent Bank. Having no cause of action against the bank and not being an owner of the subject property, petitioner is not entitled to redeem the subject property.Petitioner had lost her right to demand specific performance when the Monesets executed a Deed of Absolute Sale in favor of Dr. Canora. Contrary to what she claims, petitioner had no vested right over the property.Indeed, it is the Monesets who first breached their obligation towards petitioner and are guilty of fraud against her. It cannot be denied however that petitioner is also not without fault. She sat on her rights and never consigned the full amount of the property. She therefore cannot ask to be declared the owner of the property, this late, especially since the same has already passed hands several times, neither can she question the mortgage constituted on the property years after title has already passed to another person by virtue of a deed of absolute sale.At this point, let it be stated that the courts below and even this Court have no jurisdiction to resolve the issue whether there was bad faith among the Monesets, Canora and Bundalo. Canora was never impleaded. Bundalo has not been served with summons.WHEREFORE, the petition is DENIED. The decision of the Regional Trial Court of Cebu City, Branch 24, promulgated on February 5, 1993 and the decision of the Court of Appeals dated June 28, 1999 are hereby AFFIRMED. However, in the higher interest of substantial justice, the Court MODIFIES the same to the effect that the portion ordering the Rural Bank of Larena (Siquijor), Inc. to give petitioner the preferential right to redeem the house and lot covered by Transfer Certificate of Title No. 78374 is DELETED for lack of legal basis.No costs.SO ORDERED.

G.R. No. 123672 December 14, 2005FERNANDO CARRASCOSO, JR., Petitioner, vs.THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P. Leviste, Respondentsx---------------------------------------xG.R. No. 164489PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner, vs.LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC., represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO CARRASCOSO, JR., Respondents.D E C I S I O NCARPIO MORALES, J.:El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-931 situated in Sablayan, Occidental Mindoro.On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution2 was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts bearing thereon.On March 23, 1972, by a Deed of Sale of Real Property,3 El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).The pertinent provisions of the Deed of Sale read:NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above-described property subject to the following terms and consitions (sic):1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo (sic) the present mortgage over the above-described

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property.2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of which amount is hereby acknowledged by the VENDOR.3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the VENDEE to the VENDOR within a period of three (3) years, as follows:(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall have full authority to register the same and obtain the corresponding transfer certificate of title in his name.xxx6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant and is therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes liable under the said law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur thereon.4 (Underscoring supplied)From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on March 23, 1975.On even date, the Board of Directors of El Dorado passed a Resolution reading:"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to the property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed of Sale shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.;"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.;"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of any vendor’s lien on the property."5 (Emphasis and underscoring supplied)Feliciano Leviste also executed the following affidavit on the same day:1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by the Deed of Sale attached hereto as Annex "A" and made an integral part hereof, the El Dorado Plantation, Inc. has no objection to the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long as the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale, Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though subordinated to the preferred claim of the mortgagee bank.2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendor’s lien on the property, subject matter of the deed of sale.3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex "A" hereof, where the purchase price provided therein has not been fully paid.4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc.6 (Emphasis and underscoring supplied)On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage7 over the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the Deed of Sale.8

The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El

Dorado’s TCT No. T-93 as Entry No. 152409 on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT No. T-605510 was in its stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate mortgage in favor of HSB was annotated as Entry No. 15242.11

On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of P70,000.00 as requested by the spouses Carrascoso.12 The Amendment of Real Estate Mortgage was also annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.13

The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied therewith.In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and Sell14 whereby the former agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total of P3,000,000.00.The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascoso’s TCT No. T-6055.Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel, Atty. Benjamin Aquino, by letter15 dated December 27, 1976, called the attention of the Board to Carrascoso’s failure to pay the balance of the purchase price of the property amounting to P1,300,000.00. And Lauro’s lawyer manifested that:Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don Lauro Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission of the sale made by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that the Board of Directors take the corresponding action for rescission.16

Lauro’s desire to rescind the sale was reiterated in two other letters17 addressed to the Board dated January 20, 1977 and March 3, 1977.Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 197718 to Carrascoso informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real Property.The pertinent portions of the letter read:x x xI regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable, although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972, which was subsequently increased to P1,070,000.00 on May 18, 1972.You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the members of the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done on your part after our numerous requests for payment of the said amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be advised that we would like to rescind the contract of sale of the land.19 (Underscoring supplied)Jose Leviste, by letter20 dated March 10, 1977, informed Lauro’s counsel Atty. Aquino of his (Jose’s) February 21, 1977 letter to Carrascoso, he lamenting that "Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply" and advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying with the demands of your client [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract against . . . Carrascoso."21

Lauro and El Dorado finally filed on March 15, 1977 a complaint22 for rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI) of Occidental Mindoro, docketed as Civil Case No. R-226.Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two prayed for the issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him of P500,000.00, (2) secure a discharge of the real estate mortgage constituted on the property from HSB, (3) submit an accounting of the fruits of the property from March 23, 1972 up to the return of possession of the land to El

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Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the amount of P100,000.00 for attorney’s fees and other damages.23

Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis Pendens, inscribed as Entry No. 39737.24

In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale25 over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent portions of the Deed are as follows:WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975, which is made a part hereof by reference;WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to in the aforementioned agreement to Buy and Sell;WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR and the VENDEE have agreed as follows:1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the VENDOR, the VENDOR hereby sells, transfers and conveys unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey plan xxx2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner:a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings Bank in full payment of the VENDOR’s mortgaged obligation therewith;b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the VENDEE but which are for the account of the VENDOR under Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDOR upon issuance of title to the VENDEE.26 (Underscoring supplied)In turn, PLDT, by Deed of Absolute Sale27 dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC.In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting,28 adopted and approved a Resolution ratifying and conferring "the prosecution of Civil Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled ‘Lauro P. Leviste vs. Fernando Carascoso (sic), etc.’ initiated by stockholder Mr. Lauro P. Leviste."29

In his Answer with Compulsory Counterclaim,30 Carrascoso alleged that: (1) he had not paid his remaining P1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of time to comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no showing of compliance with the condition precedent of exhaustion of intra-corporate remedies and the requirement that a derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado committed a gross misrepresentation when it warranted that the property was not being cultivated by any tenant to take it out of the coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing of the complaint for which Lauro and El Dorado must be held liable.On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770,31 42774,32 4276933 and 24772,34 respectively. On even date, Carrascoso’s TCT No. T-6055 was cancelled and TCT No. T-1248035 covering the 1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis Pendens was carried over to TCT No. T-12480.On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention36 which was granted by the trial court by Order37 of September 7, 1978.PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim38 against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6, 1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any

litigation involving the 1,000 hectare portion of the property or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending litigation over the property and neither were they aware that a notice of lis pendens had been annotated on Carrascoso’s title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDT’s actual possession of the 1,000 hectare portion of the property since June 30, 1975 and of its exercise of exclusive rights of ownership thereon through agricultural development.39

By Decision40 of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which the CFI has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows, quoted verbatim:WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:1. Dismissing the plaintiffs’ complaint against the defendant on the ground of prematurity;2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must first be set off from the latter’s unpaid balance to the former;3. Dismissing the defendants-intervenors’ counterclaim and cross-claim; and4. Ordering the plaintiffs to pay to (sic) the costs of suit.SO ORDERED.41 (Underscoring supplied)Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.By Decision42 of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as follows, quoted verbatim:WHEREFORE, not being meritorious, PLDT’s/PLDTAC’s appeal is hereby DISMISSED and finding El Dorado’s appeal to be impressed with merit, We REVERSE the appealed Decision and render the following judgment:1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.2. Fernando Carrascoso, Jr. is commanded to:2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc. without prejudice to the landholdings of legitimate tenants thereon;2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of the 825-hectare-remaining portion minus the tenants’ landholdings, from July 11, 1975 up to its delivery to El Dorado Plantation, Inc. including whatever he may have received from the tenants if any by way of compensation under the Operation Land Transfer or under any other pertinent agrarian law;2.3 Pay El Dorado Plantation, Inc. an attorney’s fee of P20,000.00 and litigation expenses of P30,000.00;2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado Plantation, Inc.;4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance by Fernando Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above to El Dorado Plantation, Inc.5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting of the fruits of the land during the period mentioned above for the latter’s approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc.6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Art. 448 of the Civil Code.SO ORDERED.43 (Underscoring supplied)PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration44 of the January 31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25, 1996 a petition for review,45 docketed as G.R. No. 123672, assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial court except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare portion of

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the property was subject to the notice of lis pendens.Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party46 was filed praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by Resolution47 of July 10, 1996.PLDT and PLDTAC filed their Comment48 to Carrascoso’s petition and prayed that judgment be rendered finding them to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion of the property, together with all the improvements they built thereon. Reiterating that they were not purchasers pendente lite, they averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of the property prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment49 to Carrascoso’s petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of the January 31, 1996 CA Decision be modified to read as follows:6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Arts. 449 and 450 of the Civil Code, without right to indemnity on the part of the latter should the former decide to keep the improvements under Article 449.50 (Underscoring supplied)Carrascoso filed on November 13, 1996 his Reply51 to the Comment of El Dorado and the heirs of Lauro.In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA decision had remained unresolved, this Court, by Resolution52 of June 30, 2003, directed the appellate court to resolve the same.By Resolution53 of July 8, 2004, the CA denied PLDT and PLDTAC’s Motion for Reconsideration for lack of merit.PLDT54 thereupon filed on September 2, 2004 a petition for review55 before this Court, docketed as G.R. No. 164489, seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate court. It prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare portion of the property and that it and its successors-in-interest be declared owners and legal possessors thereof, together with all improvements built, sown and planted thereon.By Resolution56 of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.In his petition, Carrascoso faults the CA as follows:ITHE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR RESCISSION WAS PREMATURELY FILED.IITHE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF SALE.IIITHE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF THE TRIAL COURT.57 (Underscoring supplied)PLDT, on the other hand, faults the CA as follows:ITHE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS , THE SAME IN DISREGARD OF THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE.IITHE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS , THE SAME IN DISREGARD OF THE LEGAL

PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.’s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDT’S AGREEMENT TO BUY AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS PENDENS.58 (Underscoring supplied)Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated March 23, 1972, no objection was interposed to his mortgaging of the property to any bank provided that the balance of the purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the unpaid balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing of the complaint for rescission with damages on March 15, 1977 was premature as he fully paid his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of Mortgage59 signed by HSB President Gregorio B. Licaros.Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El Dorado’s directors and officers, particularly Jose and Angel Leviste.Article 1191 of the Civil Code provides:Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.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.60 They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.61

The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them.62

A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent.63 The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and discharges the obligations created thereunder.64 Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.65

In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon.The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long lapsed.The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascoso’s mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the purchase price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.As the CA correctly found:The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was extended. Neither can We see in it anything that can logically infer said accommodation.

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A partially unpaid seller can agree to the buyer’s mortgaging the subject of the sale without changing the time fixed for the payment of the balance of the price. The two agreements are not incompatible with each other such that when one is to be implemented, the other has to be suspended. In the case at bench, there was no impediment for Carrascoso to pay the balance of the price after mortgaging the land.Also, El Dorado’s subordinating its "preferred claim" or waiving its superior "vendor’s lien" over the land in favor of the mortgagee of said property only means that in a situation where the unpaid price of the Land and loan secured by the mortgage over the Land both become due and demandable, the mortgagee shall have precedence in going after the Land for the satisfaction of the loan. Such accommodations do not necessarily imply the modification of the period fixed in the contract of sale for the payment by Carrascoso of the balance.The palpable purpose of El Dorado in not raising any objection to Carrascoso’s mortgaging the land was to eliminate any legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorado’s yielding its "superior lien" over the land in favor of the mortgagee was plainly intended to overcome the natural reluctance of lending institutions to accept a land whose price has not yet been fully paid as collateral of a loan.66 (Underscoring supplied)Respecting Carrascoso’s insistence that he was granted verbal extensions within which to pay the balance of the purchase price of the property by El Dorado’s directors and officers Jose and Angel Leviste, this Court finds the same unsubstantiated by the evidence on record.It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his failure to comply, despite "numerous" requests, with his obligation to pay the amount of P1,300,000.00 and 10% annual interest thereon, and advising him that "we would like to rescind the contract of sale." This letter reiterated the term of payment agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascosos’s non-compliance therewith.Carrascoso, harping on Jose Leviste’s March 10, 1977 letter to Lauro’s counsel wherein he (Jose Leviste) stated that "some of the Directors of the corporation could not see their way clear in complying with the demands of [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract against Dr. Fernando Carrascoso," argues that the extensions priorly given to him "no doubt lead to the logical conclusion on some of the directors’ inability to file suit against him."67

The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit against him, the same should not be interpreted to mean that this was brought about by a prior extension of the period to pay the balance of the purchase price of the property as such reluctance could have been due to a myriad of reasons totally unrelated to the period of payment of the balance.The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing negates all the speculations of the court a quo and pretensions of Carrascoso.x x xThe unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal amounts. Since he did not perform his obligation under the contract of sale, he, therefore, breached it. Having breached the contract, El Dorado’s cause of action for rescission of that contract arose.68 (Underscoring supplied)Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two weeks prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a helicopter, that there were people and cattle in the area; when he confronted El Dorado about it, he was told that the occupants were caretakers of cattle who would soon leave;69 four months after the execution of the Deed of Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that there were people claiming to be tenants in certain portions of the property;70 and he thus brought the matter again to El Dorado which informed him that the occupants were not tenants but squatters.71

Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of

non-tenancy committed by El Dorado, he incurred expenses in the amount of P2,890,000.00 for which he should be reimbursed, his unpaid obligation to El Dorado amounting to P1,300,000.00 to be deducted therefrom.72

The breach of an express warranty makes the seller liable for damages.73 The following requisites must be established in order that there be an express warranty in a contract of sale: (1) the express warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation or promise thereon.74

Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If Carrascoso would become liable under the said law, he would be reimbursed for all expenses and damages incurred thereon.Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons were indeed tenants.75 The fact of tenancy76 not having been priorly established,77 El Dorado may not be held liable for actual damages.Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice of Lis Pendens.PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment of the condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.78

The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read:2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the former, 1,000 hectares of the above-described parcel of land as shown in the map hereto attached as Annex "A" and made an integral part hereof and as hereafter to be more particularly determined by the survey to be conducted by Certeza & Co., at the purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos (P3,000,000.00) payable in cash.3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a period of one (1) year from the date of execution of this Agreement. However, the VENDEE shall have the option to extend the life of this Agreement by another six months, during which period the VENDEE shall definitely inform the VENDOR of its decision on whether or not to finalize the deed of absolute sale for the aforementioned 1,000 hectares of land.The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land shall be spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and which shall not exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE from the aforementioned purchase price of P3,000,000.00.The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the signing of this Agreement.x x xIt is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned 1,000 hectares at any time within the period of this Agreement for purposes of commencing the development of the same.x x x5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid taxes, existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the VENDOR of the purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances, such that said payments shall be made directly to the corresponding creditors. Thus, the balance of the purchase price will be paid to the

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VENDOR after the title to the land is cleared of all such liens and encumbrances.x x x7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement.79

A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over said property.80

Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved as well as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In other words, a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation.81

x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or any part of it during the litigation.The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the court until the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien.The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the litigation within the power of the court until the judgment or decree shall have been entered; otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution. The doctrine of lis pendens is based on considerations of public policy and convenience, which forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions in pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the power of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the purpose of the pending suit may not be defeated by successive alienations and transfers of title.82 (Italics in the original)In ruling against PLDT and PLDTAC, the appellate court held:PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory contract be the same as a contract of sale which is a principal contract? If PLDT’s contention is correct that it bought the Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the Agreement to Buy and Sell but it did so not as owner but as prospective buyer of the property. As prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did it pursue and go through with the sale if it had not been willing to gamble with the result of this case?83 (Underscoring supplied)Further, in its July 8, 2004 Resolution, the CA held:PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to it the ownership of the property.x x xOwnership was retained by CARRASCOSO which EL DORADO may very well recover through its action for rescission.x x xPLDT’s possession at the time the notice of lis pendens was registered not being a legal possession based on ownership but a mere possession in fact and the Agreement to Buy and

Sell under which it supposedly took possession not being registered, it is not protected from an adverse judgment that may be rendered in the case subject of the notice of lis pendens.84 (Underscoring supplied)In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, ownership is not transferred upon delivery of the property but upon full payment of the purchase price.85 In the former, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in the latter, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.86

PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for the application of Articles 118187 and 118788 of the Civil Code as held in Coronel v. Court of Appeals.89

The Court is not persuaded.For in a conditional contract of sale, 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 act having to be performed by the seller.90 Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.91

A perusal of the contract92 adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell in the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to transfer title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to "definitely inform Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the parties declared that they "are now decided to execute" such deed, indicating that the Agreement to Buy and Sell was, as the appellate court held, merely a preparatory contract in the nature of a contract to sell. In fact, the parties even had to stipulate in the said Agreement to Buy and Sell that Carrascoso, "during the existence of the Agreement, shall not sell, cede, assign and/or transfer the parcel of land," which provision this Court has held to be a typical characteristic of a contract to sell.93

Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely the beneficial title to the 1,000 hectare portion of the property.The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate and expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested right is an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a property right to be vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have become fixed or established and is no longer open to doubt or controversy.94 (Underscoring supplied)In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the operative act to convey and affect the land.An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration shall be the operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation of the owner’s duplicate certificate of title for the registration of any deed or voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original and owner’s duplicate certificate of title. The reason for requiring the production of the owner’s duplicate certificate in the registration of a voluntary instrument is that,

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being a willful act of the registered owner, it is to be presumed that he is interested in registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the Register of Deeds in order to accomplish such registration. However, where the owner refuses to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth his adverse claim, as provided for in Section 110 of Act No. 496. xxx95 (Underscoring supplied)In Valley Golf Club, Inc. v. Salas,96 where a Deed of Absolute Sale covering a parcel of land was executed prior to the annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after such annotation, this Court held:The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional payment by the CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precede the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the operative act to convey and affect the land. That registration was not effected by the CLUB until December 4, 1963, or three (3) years after it had made full payment to ROMERO. xxxx x xAs matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens , the CLUB must be legally held to have been aware of the flaws in the title. By virtue of the lis pendens , its acquisition of the property was subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUB’s cause of action lies, not against the SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365, but against ROMERO who was found to have had no right to dispose of the land.97 (Underscoring supplied)PLDT further argues that El Dorado’s prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is equivalent to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a purchaser pendente lite nor a purchaser in bad faith.PLDT anchors its argument on the testimony of Lauro and El Dorado’s counsel Atty. Aquino from which it infers that Atty. Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on Carrascoso’s title only after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the property.The pertinent portions of Atty. Aquino’s testimony are reproduced hereunder:Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr. Carrascoso?A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a result of the filing of the instant complaint.Q: Do you know the notice of Lis Pendens?A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice of Lis Pendens".Q: As a consequence of the filing of the complaint which was annotated, you have known that?A: Yes.x x xQ: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the property?A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co.Q: And what did you do?A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered that the articles incorporated (sic) and other corporate matters had been organized and established of the PLDT, Co., and had been annotated.x x xQ: Do you know what happened to the property?A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis Pendens.x x xQ: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say when?

A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property to PLDT.x x xQ: Will you tell to the Honorable Court what newspaper was that?A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What was [confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register of Deeds and that was the reason why we obtained the case.Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time when counsel is being able (sic) to read the newspaper allegedly (interrupted)x x xQ: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards (sic) to the transfer of property to PLDT, would have been accorded prior to the pendency of the case.x x xA: I cannot remember.98

PLDT also relies on the following testimony of Carrascoso:Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your transaction with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell with the PLDT?A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my transaction with the PLDT, sir.Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose Leviste?A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.x x xQ: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?A: One of the stockholders and director of the plaintiff-corporation, sir.Q: Will you please tell us the other officers?A: Expedito Leviste, sir.A: Will you tell the position of Expedito Leviste?A: He was the corporate secretary, sir.Q: If you know, was Dr. Jose Leviste also a director at that time?A: Yes, sir.99

On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell prior to the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis pendens on his title. It further asserts that it always acted in good faith:xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is no evidence that El Dorado was notified of this contract. The property is located in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not an unusual activity on the land, thus it could have been the Petitioner who was using the land. Not having been notified of this sale, El Dorado could not have stopped PLDT from developing the land.The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land but also in putting up improvements on the property such as buildings, roads, irrigation systems and drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively participated as intervenors. They were not innocent bystanders. xxx100

This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As such, it cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the annotation of the notice of lis pendens on Carrascoso’s title.Respecting Carrascoso’s allegation that some of the directors and officers of El Dorado had knowledge of his dealings with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice to the corporation, whether he communicates such

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knowledge or not.101 In the case at bar, however, apart from Carrascoso’s claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare portion of the property to PLDT, no evidence was presented to substantiate his claim. Such self-serving, uncorroborated assertion is indubitably inadequate to prove that El Dorado had notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis pendens on his title.PLDT is, of course, not without recourse. As held by the CA:Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so because it was Carrascoso’s refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until paid.102 (Underscoring supplied)The appellate court’s decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation prior to the consummation of the contract.The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract.Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of abrogating the contract in all parts.103 (Underscoring supplied)The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the Court affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El Dorado.As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should be made between those which it built prior to the annotation of the notice of lis pendens and those which it introduced subsequent thereto.When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.104 Good faith is thus identified by the belief that the land is owned; or that by some title one has the right to build, plant, or sow thereon.105

The owner of the land on which anything has been built, sown or planted in good faith shall have the right to appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful expenses,106 and in the proper case, expenses for pure luxury or mere pleasure.107

The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land.If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land.If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.The right to choose between appropriating the improvement or selling the land on which the improvement of the builder, planter or sower stands, is given to the owner of the land.108

On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern:Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent.In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare portion of the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the full consent of Carrascoso.109 Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on Carrascoso’s TCT No. T-6055, PLDT is deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of the property.After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the property, it should only be made to pay for those improvements at the time good faith existed on the part of PLDT or until March 15, 1977,110 to be pegged at its current fair market value.111

The commencement of PLDT’s payment of reasonable rent should start on March 15, 1977 as well, to be paid until such time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the reimbursement of expenses as aforestated, that is, if El Dorado opts to appropriate the improvements.112

If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of ownership.113

WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8, 2004 of the Court of Appeals are AFFIRMED with MODIFICATION in that1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses actually spent by PLDT for the improvements thereon as of March 15, 1977;b. include for determination the increase in value ("plus value") which the 1,000 hectare portion may have acquired by reason of the existence of the improvements built by PLDT before March 15, 1977 and the current fair market value of said improvements;2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to oblige PLDT to pay the price of the land, and3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as reasonable compensation for its occupancy of the 1,000 hectare portion of the property from the time that its good faith ceased to exist until such time that possession of the same is delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.Costs against petitioners.SO ORDERED.

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G.R. No. 165889 September 20, 2005SACOBIA HILLS DEVELOPMENT CORPORATION and JAIME C. KOA, Petitioners, vs.ALLAN U. TY, Respondent.DECISIONYNARES-SANTIAGO, J.:This petition for review on certiorari1 assails the August 19, 2004 decision of the Court of Appeals in CA-G.R. CV No. 76987,2 which reversed and set aside the November 29, 2002 decision3 of the Regional Trial Court of Manila, Branch 46, and its October 28, 2004 resolution4

denying reconsideration thereof.The antecedent facts show that petitioner Sacobia Hills Development Corporation (Sacobia) is the developer of True North Golf and Country Club (True North) located inside the Clark Special Economic Zone in Pampanga which boasts of amenities that include a golf course, clubhouse, sports complex and several vacation villas.On February 12, 1997, respondent Allan U. Ty wrote to Sacobia a letter expressing his intention to acquire one (1) Class A share of True North and accordingly paid the reservation fee of P180,000.00 as evidenced by PCI Bank Check No. 0038053.5

Through letters dated May 28, 1997 and July 4, 1997, Sacobia assured its shareholders that the development of True North was proceeding on schedule; that the golf course would be playable by October 1999; that the Environmental Clearance Certificate (ECC) by the Department of Environment and Natural Resources (DENR) as well as the Permit to Sell from the Securities and Exchange Commission (SEC) should have been released by October 1997; and that their registration deposits remained intact in an escrow account.6

On September 1, 1997, Sacobia approved the purchase application and membership of respondent for P600,000.00, subject to certain terms and conditions. The notice of approval provided, inter alia:7

Terms and Conditions1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of application, and covered by postdated cheques.2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already paid.3. We will undertake to execute the corresponding sales documents/ Deed of Absolute Sale covering the reserved shares upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter....However, on January 12, 1998, respondent notified Sacobia that he is rescinding the contract and sought refund of the payments already made due to the latter’s failure to complete the project on time as represented.In an effort to assure the respondent that the project would soon be operational, Sacobia wrote him a letter dated March 10, 1998, stating that the DENR had issued the required ECC only on March 5, 1998, and that the golf course would be ready for use by end of 1998.8

On April 3, 1998, Sacobia again wrote the respondent advising him that the 18-hole golf course would be fully operational by summer of 1999. Sacobia also sought to collect from respondent the latter’s outstanding balance of P190,909.08 which was covered by five (5) post dated checks.Notwithstanding, respondent notified Sacobia on April 17, 1998 that he had stopped payment on the five (5) post dated checks and reiterated his demand for the refund of his payments which amounted to P409,090.92.

On June 16, 1999, respondent sent Sacobia a letter formally rescinding the contract and demanding for the refund of the P409,090.92 thus far paid by him.By way of reply, Sacobia informed respondent that it had a no-refund policy, and that it had endorsed respondent to Century Properties, Inc. for assistance on the resale of his share to third persons.Thus, on July 21, 1999, respondent filed a complaint for rescission and damages before the SEC but the case was eventually transferred to the Regional Trial Court of Manila, Branch 46, pursuant to Administrative Circular AM No. 00-11-03.9

On April 13, 2002, the trial court personnel conducted an on-site ocular inspection and in their report, they made the following observations:... We went up and down the hills on board the golf cart, and have seen the entire golf course. The 9 holes area are already operational and playable, we have seen the tee bank (mount soil) color coded flags, blue for regular golfers, white for senior golfers and red for ladies golfers. We have seen all their playing areas which all appeared in order except the main clubhouse which is undergoing finishing touches. Likewise the road leading to the clubhouse area is undergoing pavement works and concreting.We learned from our tour guide Mr. Gerry Zoleta, Site Supervisor, that the timetable in finishing all remaining things (eg. Clubhouse and the road leading to it) to be done, are influenced or rather, hampered by the prevailing weather condition. Such that when it rain, (which often happens in the area during afternoon or early morning) they cannot really push thru with the construction due to the soil condition (easily eroded) and sloping terrain of the place. Except, the clubhouse, all seem prim and proper for golf playing. In fact, according to Mr. Zoleta, the site has been operational since January 2002. The first tournament was conducted on October 2000 and there were three tournaments already took place in the area....In summary, we found nothing amiss for one not to be able to play and enjoy golf to the fullest, except as earlier said the clubhouse.10

On November 29, 2002, the trial court rendered judgment in favor of petitioners, the decretal portion of which reads:WHEREFORE, the complaint is hereby dismissed without pronouncement as to costs.If the plaintiff desires to continue with the acquisition of the share, he may do so by paying the balance of the acquisition price of One Hundred Ninety Thousand Ninety Pesos and Ten Centavos (P190,090.10) without interest within thirty (30) days from the finality of this decision, otherwise, he forfeits his payments.IT IS SO ORDERED.11

The trial court found that the contract between the parties did not warrant that the golf course and clubhouse would be completed within a certain period of time to entitle respondent to rescind. It also noted that the completion of the project was subject to the issuance of an ECC and the approval by the SEC of the registration of non-proprietary golf club shares, which is beyond Sacobia’s control.The appellate court, in its decision dated August 19, 2004, disposed of the appeal as follows:WHEREFORE, the appealed November 29, 2002 decision of the Regional Trial Court of Manila, Branch 46, is hereby REVERSED and SET ASIDE, and a new one is hereby entered with this Court hereby CONFIRMING the RESCISSION of the contract of purchase of one (1) Class A proprietary share of True North Golf and Country Club as elected choice by plaintiff-appellant Ty, the aggrieved party, and hereby DIRECTING defendant-appellee SACOBIA to:1) Refund to the plaintiff-appellant Allan U. Ty the amount of P409,090.20 and all payments made by him thus far on the TRUE NORTH share, with legal interest of 12% per annum from July 21, 1999, the date of the filing of the complaint with the SEC, until fully paid;2) Return the five post-dated checks of the plaintiff-appellant amounting to P190,908.08;3) Pay costs of the suit.SO ORDERED.12

The Court of Appeals agreed with the trial court that Sacobia was in delay in the performance of its obligation to respondent. As such, Ty could properly rescind the contract, or demand specific performance with damages, or demand for damages alone. It held though that the failure of the DENR to issue the ECC on time is a valid ground to reduce the damages claimed by Ty. It also ruled that Sacobia is estopped from asserting that there was no completion date for the project

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as no less than its chairman announced the projected completion dates.Petitioners’ motion for reconsideration was denied, hence the instant petition for review on certiorari which raises the issue of whether the contract entered into by the parties may be validly rescinded under Article 1191 of the Civil Code.Sacobia contends that it was not in breach of the contract as the Intent to Purchase, the Contract of Purchase, and the Notice of Approval to Purchase Shares of True North, do not contain any specific date as to when the golf course and country club would be completed. It argues that respondent should have known the risks involved in this kind of project; the construction being contingent on the issuance of the ECC by the DENR and the payment of the buyers of their share.On the other hand, respondent claims that Sacobia’s arguments raise new matters which would warrant the reversal of the decision rendered by the Court of Appeals. He insists that Sacobia failed to complete the project on time which entitles him to rescind the contract in accordance with Article 1191 of the Civil Code. He further argues that the delay in the completion of the project is clearly established by the fact that there have been no substantial work done on the site, particularly on the clubhouse, despite the lapse of nearly 4-years from the issuance of the ECC on March 5, 1998.The petition is meritorious.In resolving the present controversy, the lower courts merely assumed that the delay in the completion of the golf course was the decisive factor in determining the propriety or impropriety of rescinding the contract. Yet, confusion could have been avoided had there been a more thorough scrutiny of the nature of the contract entered into by the contending parties.In the notice of approval, which embodies the terms and conditions of the agreement, Sacobia signified its intent to retain the ownership of the property until such time that the respondent has fully paid the purchase price. This condition precedent is characteristic of a contract to sell. The intention of the contracting parties is inferable from the following provisions, to wit:TERMS AND CONDITIONS1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of application, and covered by postdated cheques.2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already paid.3. We shall undertake to execute the corresponding sales documents/Deed of Absolute Sale covering the reserved shares upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter.Clearly, the approval of the application hinged on the full payment of the total purchase price. In fact, Sacobia explicitly reserved the right to retain title over the share pending full satisfaction of the purchase price.The notice of approval likewise stipulated that the reservation shall be deemed withdrawn or cancelled in case respondent fails to settle his obligation within 15 days from the due date or cover the value of the checks upon their maturity. Thus, Sacobia reserved the right to unilaterally rescind the contract in the event the respondent fails to comply with his obligation of remitting the full purchase price within the deadline. In fact, Sacobia, after having cancelled the agreement, can offer the share to other interested parties.In addition, the execution of the deed of absolute sale and other pertinent documents shall be made only upon full payment of the purchase price. The terms of the agreement between Sacobia and Ty can be deduced, not on a formal document like a deed of sale, but from a series of correspondence and acts signifying the parties’ intention to enter into a contract. The absence of a formal deed of conveyance is a strong indication that Sacobia did not intend to transfer title until respondent shall have completely complied with his correlative obligation of paying the contact price.

Since the agreement between Sacobia and Ty is a contract to sell, 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 ownership is retained by the seller without further remedies by the buyer. In Cheng v. Genato,13 we explained the nature of a contract to sell and its legal implications in this wise:In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation.In a contract to sell, the prospective seller does not consent to transfer ownership of the property to the buyer until the happening of an event, which for present purposes, is 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. Upon the fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.14

According to True North Payment Schedule,15 respondent’s checks dated from October 12, 1997 until January 12, 1998 were marked as stale. His failure to cover the value of the checks and by issuing a stop payment order effectively abated the perfection of the contract. For it is understood that when a sale is made subject to a suspensive condition, perfection is had only from the moment the condition is fulfilled.16

As shown, Ty did not pay the full purchase price which is his obligation under the contract to sell, therefore, it cannot be said that Sacobia breached its obligation. No obligations arose on its part because respondent’s non-fulfillment of the suspensive condition rendered the contract to sell ineffective and unperfected. Indeed, there can be no rescission under Article 1191 17 of the Civil Code because until the happening of the condition, i.e. full payment of the contract price, Sacobia’s obligation to deliver the title and object of the sale is not yet extant. A non-existent obligation cannot be subject of rescission. Article 1191 speaks of obligations already existing, which may be rescinded in case one of the obligors fails to comply with what is incumbent upon him.As earlier discussed, the payment by Ty of the reservation fee as well as the issuance of the postdated checks is subject to the condition that Sacobia was reserving title until full payment, which is the essence of a contract to sell. The perfection of this kind of contract would give rise to two distinct obligations, namely, 1) the buyer’s obligation to fulfill the suspensive condition, i.e. the full payment of the contract price as in the instant case, and, 2) the correlative obligation of the seller to convey ownership upon compliance of the suspensive condition.In the present case, respondent’s failure to fulfill this suspensive condition prevented the perfection of the contract to sell. With an ineffective contract, Ty had not acquired the status of a shareholder but remained, at most, a prospective investor. In the absence of a juridical tie between the parties, Ty cannot claim the rights and privileges accorded to Sacobia’s full-fledged members and shareowners, including the full enjoyment of the amenities being offered. Unfortunately for Ty, he cannot avail of rescission as envisioned by Article 1191 of the Civil Code. However, he can withdraw his investment subject to the restrictions under the terms and conditions pertinent to a reneging investor.Even assuming arguendo that the delay in the completion of the golf course and clubhouse was attributable to Sacobia, respondent had not refuted to this Court’s satisfaction the trial court’s denial of such claim upon its finding that, among other things, the parties did not warrant the completion of the project within a certain period of time.As early as January 12, 1998, respondent had notified Sacobia of his intention to rescind the contract on the ground that there was unreasonable delay in the completion of the golf course and clubhouse. Yet, evidence shows that even prior thereto, or on May 28, 1997, Sacobia already informed its investors, including the respondent, that the full completion of the project

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was expected by mid-1999. Patently, respondent’s claim is premature by one year and a half, if reckoned from the expected time of completion as foreseen by Sacobia. Moreover, respondent was well aware of the risk of delay in the completion of the project considering that he was apprised beforehand of such delay due to the belated issuance of the proper documents.It appears, however, that Sacobia is not really intent on cancelling Ty’s reservation. Even after it was notified by Ty that he was intending to rescind the contract, and had in fact issued a stop-payment order, Sacobia merely deferred the deposit of Ty’s checks in an effort to resolve the issue, instead of cancelling the reservation in accordance with the terms of the notice of approval. Subsequently, it sought to collect from Ty his remaining obligations. It also referred Ty to its marketing arm if Ty is so minded to sell his rights to third parties. To this extent, the trial court correctly ordered Ty to pay the remaining balance if he so desires, otherwise, he forfeits half of his payments, pursuant to the terms of the notice of approval.WHEREFORE, the petition is GRANTED. The decision dated August 19, 2004 of the Court of Appeals in CA-G.R. CV No. 76987 and its resolution dated October 28, 2004, are REVERSED and SET ASIDE. Respondent’s complaint for rescission of contract and damages in Civil Case No. 01-99696 is DISMISSED. He is ORDERED to PAY to Sacobia Hills Development Corporation the amount of Pesos: One Hundred Ninety Thousand Nine Hundred Nine and Eight Centavos (P190,909.08) without interest within thirty (30) days from finality of this decision; otherwise, fifty percent (50%) of his total payments shall be forfeited.SO ORDERED.

G.R. No. 158227 October 19, 2005KEPPEL BANK PHILIPPINES, INC., Petitioner, vs.PHILIP ADAO, Respondent.D E C I S I O NQUISUMBING, J.:On appeal is the Decision1 dated April 30, 2003 of the Court of Appeals in CA G.R. SP No. 71477. The Court of Appeals affirmed the Decision of the Regional Trial Court which had earlier sustained the Decision of the Metropolitan Trial Court, dismissing the ejectment case against respondent Philip Adao.The case stemmed from the court-approved Compromise Agreement between petitioner Keppel Bank and Project Movers Realty and Development Corporation (PMRDC).2 By virtue of the agreement, PMRDC through its President Mario P. Villamor assigned, transferred and conveyed to petitioner, by way of dacion en pago,3 twenty-five properties consisting of townhouses, condominium units and vacant lots, as partial settlement of their two hundred million pesos (P200,000,000) outstanding obligation. Pursuant thereto, petitioner secured Condominium Certificates of Title over the units.Upon inspection, petitioner found respondent Philip Adao occupying Unit 4 of the Luxor Villas Townhouse, one of the 25 properties above-mentioned. On February 18, 2000, petitioner sent a written demand to respondent to vacate the unit within 30 days from receipt of the notice. Respondent refused and, instead, offered to purchase the unit. However, the parties failed to reach an agreement on the matter.On October 19, 2000, petitioner sent respondent a final demand to vacate. Since the demand was not heeded, petitioner filed a civil case for ejectment docketed as Civil Case No. 8911 against respondent.

In his defense, respondent alleged that he has long been occupying the contested unit by virtue of a Contract to Sell4 dated February 7, 1995 between him and PMRDC. He stated that to avoid litigation, he offered to purchase the unit for 2.5 million pesos, in addition to the 3 million pesos he already paid to PMRDC. He added that had his pre-agreed marketing services with PMRDC been duly audited to his credit, the unit would have already been fully paid. Respondent contended that petitioner’s remedy is to demand from PMRDC the immediate replacement of the property as provided in their Compromise Agreement and Dacion en Pago.5

On August 6, 2001, the MeTC dismissed the complaint and held Adao as the lawful possessor of the property. Petitioner appealed to the Regional Trial Court, which, on March 4, 2002, affirmed in toto the MeTC decision.6 The RTC held that, by virtue of the dacion en pago, petitioner merely stepped into the shoes of PMRDC. Hence, petitioner must respect the contract to sell between PMRDC and respondent. It also held that petitioner failed to show non-payment by respondent, and that in case of non-payment, the remedy of the vendor is either rescission with recovery of possession or specific performance based on breach of contract, but not ejectment.7 Petitioner moved for reconsideration but it was denied on June 5, 2002.Petitioner elevated the case to the Court of Appeals. The appellate court held that petitioner must respect the contract to sell though such is not annotated in the certificate of title because petitioner was not a purchaser in good faith, having failed to exercise due diligence required of banks. As an unpaid seller, petitioner can only rescind the contract under Article 15268 of the Civil Code which does not sanction the filing of an action for ejectment. The Court of Appeals affirmed the RTC decision and, subsequently, denied reconsideration. It decreed as follows:WHEREFORE, premises considered, the instant petition is DENIED. The assailed March 4, 2002 decision of the RTC is hereby AFFIRMED.SO ORDERED.9

Petitioner now comes before us and alleges that the Court of Appeals seriously erred when:i. … it ruled that the petitioner Bank must respect the terms and conditions of the Contract to Sell allegedly executed on 07 February 1995 despite the fact that petitioner had no knowledge thereof and that said Contract to Sell was not annotated on CCT No. 9522-R prior to the execution of the court-approved Compromise Agreement and Dacion en Pago between the petitioner and PMRDC.ii. … it affirmed the finding of the RTC that respondent had fully paid the purchase price under the Contract to Sell on the basis of respondent’s unsubstantiated and general allegation in his Answer with Compulsory Counterclaim and when it shifted the burden of proof upon petitioner to prove that respondent had not fully paid the alleged purchase price. Such ruling contravenes the well-settled legal rule that "he who alleges must prove the same."iii. … it affirmed the ruling of the RTC that the complaint for ejectment filed by petitioner is not the proper remedy.iii.a The RTC’s suggested remedy, as affirmed by the Court of Appeals, of filing an action for "rescission with recovery of possession based on breach of contract" wrongfully presumes that the alleged Contract to Sell is binding on the petitioner.iii.b The RTC’s suggested remedy, as affirmed by the Court of Appeals, is contrary to law and jurisprudence because in a contract to sell, ownership is retained by the seller until the buyer has fully paid the purchase price;iv. … it affirmed the ruling of the RTC that petitioner’s recourse must be against PMRDC and/or its President, Mario P. Villamor.v. … it affirmed the RTC’s position that it was not duty-bound to rule on the issue of ownership to settle the issue of possession and relied heavily on the alleged Contract to Sell as the basis of respondent’s right to possess the Subject Property.10

In sum, the issues for our resolution are: (1) Is petitioner bound by the contract to sell? (2) Is the remedy of ejectment legally available to the petitioner? and (3) Who is entitled to physical possession of the property?Petitioner contends he is not bound by the contract to sell as it was not annotated in the certificate of title. It maintains that the contract to sell specifically provides that title shall be transferred to the respondent only after full payment of the purchase price. Not having fully paid the price, respondent is not the owner. Petitioner adds that respondent has the burden of proving payment since under the rules on evidence, a party must prove his own affirmative allegation. Petitioner also maintains that PMRDC merely tolerated the possession by the

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respondent but such possession became illegal when, as the new owner, it demanded that respondent immediately vacate the property.Respondent counters that an ejectment suit is merely concerned with possession de facto and the issue of ownership need not be resolved. He claims to have a better right of possession having fully paid the purchase price. Further, respondent asserts that petitioner, being a successor-in-interest of PMRDC, is bound by the Contract to Sell. Finally, respondent avers that ejectment cases are governed by the Rules on Summary Procedure which relies merely on affidavits and position papers submitted. Hence, his Affidavit11 dated June 25, 2001 was sufficient to prove full payment.Prefatorily, this case started with a complaint for ejectment filed with the MeTC. In previous cases, this Court consistently held that the only issue for resolution in an ejectment case is physical or material possession of the property involved, independent of any claim of ownership by any of the party litigants.12 Ejectment cases are designed to summarily restore physical possession to one who has been illegally deprived of such possession, without prejudice to the settlement of the parties’ opposing claims of juridical possession in appropriate proceedings.13

We also said that the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto.14

Respondent bases his right of possession on the Contract to Sell. On the other hand, petitioner argues it is not bound by the said contract since the same is not annotated in the Certificate of Title.It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it.15 However, as correctly held by the Court of Appeals, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest.16 As master of its business, petitioner should have sent its representatives to check the assigned properties before signing the compromise agreement and it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between respondent and PMRDC. In our view, petitioner was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell.Nonetheless, in this case, the contract to sell does not by itself give respondent the right to possess the property. Unlike in a contract of sale, here in a contract to sell, there is yet no actual sale nor any transfer of title, until and unless, full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.17 Respondent must have fully paid the price to acquire title over the property and the right to retain possession thereof. In cases of non-payment, the unpaid seller can avail of the remedy of ejectment since he retains ownership of the property.Respondent avers that since ejectment cases are decided merely on the basis of affidavits and position papers, his affidavit before the MeTC sufficiently proves his full payment of the purchase price. Nothing could be more erroneous because even though ejectment cases are governed by the Rules on Summary Procedure, there is still need to present substantial evidence to support respondent’s claim of full payment. Section 918 of the Rules on Summary Procedure provides that parties shall submit, together with their position papers, the affidavits of their witnesses and other evidence on the factual issues defined. His lone affidavit is self-serving, and cannot be considered as substantial evidence. As a general rule, one who pleads payment has the burden of proving it. Even where the petitioner alleged non-payment, the general rule is that the burden rests on the respondent to prove payment, rather than on the petitioner to prove non-payment.19

Considering that respondent failed to discharge the burden of proving payment, he cannot claim ownership of the property and his possession thereof was by mere tolerance. His continued possession became unlawful upon the owner’s demand to vacate the property.20 We stress, however, that this adjudication, is only a provisional determination of ownership for the purpose of settling the issue of possession,21 and does not bar or prejudice an action between the same parties involving title to the property.22

WHEREFORE, the petition is GRANTED. The Decision dated April 30, 2003 of the Court of Appeals in CA G.R. SP No. 71477 is REVERSED and SET ASIDE. Respondent is hereby ordered to vacate the property.Costs against respondent.

SO ORDERED.

G.R. No. 154413 August 31, 2005SPS. ALFREDO R. EDRADA and ROSELLA L. EDRADA, Petitioners, vs.CARMENCITA RAMOS, SPS. EDUARDO RAMOS, Respondents.D E C I S I O NTinga, J.:In this Petition1 under Rule 45, petitioner Spouses Alfredo and Rosella Edrada (petitioners) seek the reversal of the Former Second Division of the Court of Appeals’ Decision2 and Resolution3 in CA-G.R. CV No. 66375, which affirmed the Decision of Regional Trial Court (RTC) of Antipolo City, Branch 71,4 in Civil Case No. 96-4057, and denied the Motion for Reconsideration5 therein.Respondent spouses Eduardo and Carmencita Ramos (respondents) are the owners of two (2) fishing vessels, the "Lady Lalaine" and the "Lady Theresa." On 1 April 1996, respondents and petitioners executed an untitled handwritten document which lies at the center of the present controversy. Its full text is reproduced below:1st April 1996This is to acknowledge that Fishing Vessels ‘Lady Lalaine’ and ‘Lady Theresa’ owned by Eduardo O. Ramos are now in my possession and received in good running and serviceable order. As such, the vessels are now my responsibility.Documents pertaining to the sale and agreement of payments between me and the owner of the vessel to follow. The agreed price for the vessel is Nine Hundred Thousand Only (P900,000.00).(SGD.) (SGD.)EDUARDO O. RAMOS ALFREDO R. EDRADA(Seller) (Purchaser)CONFORME: CONFORME:(SGD.) (SGD.)CARMENCITA RAMOS ROSIE ENDRADA6

Upon the signing of the document, petitioners delivered to respondents four (4) postdated Far East Bank and Trust Company (FEBTC) checks payable to cash drawn by petitioner Rosella Edrada, in various amounts totaling One Hundred Forty Thousand Pesos (P140,000.00). The first three (3) checks were honored upon presentment to the drawee bank while the fourth check for One Hundred Thousand Pesos (P100,000.00) was dishonored because of a "stop payment" order.On 3 June 1996, respondents filed an action against petitioners for specific performance with damages before the RTC, praying that petitioners be obliged to execute the necessary deed of sale of the two fishing vessels and to pay the balance of the purchase price. In their Complaint,7

respondents alleged that petitioners contracted to buy the two fishing vessels for the agreed purchase price of Nine Hundred Thousand Pesos (P900,000.00), as evidenced by the above-quoted document, which according to them evinced a contract tobuy. However, despite delivery of said vessels and repeated oral demands, petitioners failed to pay the balance, so respondents further averred.Belying the allegations of respondents, in their Answer with Counterclaim,8 petitioners averred that the document sued upon merely embodies an agreement brought about by the loans they extended to respondents. According to petitioners, respondents allowed them to manage or administer the fishing vessels as a business on the understanding that should they find the business profitable, the vessels would be sold to them for Nine Hundred Thousand Pesos (P900,000.00). But petitioners "decided to call it quits" after spending a hefty sum for the repair and maintenance of the vessels which were already in dilapidated condition.After trial, the RTC rendered a Decision9 dated 22 February 1999, the dispositive portion of which reads:WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants and the latter are ordered to pay to the former the amount of Eight Hundred Sixty Thousand Pesos (P860,000.00) with legal interests thereon from June 30, 1996 until fully paid; the amount of P20,000.00 as attorney’s fees and the cost of suit.The counterclaim of the defendants for moral and exemplary damages and for attorney’s fees is dismissed for lack of merit.

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SO ORDERED.10

The RTC treated the action as one for collection of a sum of money and for damages and considered the document as a perfected contract of sale. On 19 April 1999, petitioners filed a Motion for Reconsideration which the RTC denied in an Order11 dated 2 July 1999.Both parties appealed the RTC Decision. However, finding no reversible error in the appealed decision, the Court of Appeals, in its Decision,12 affirmed the same and dismissed both appeals. Only petitioners elevated the controversy to this Court.Petitioners raised the nature of the subject document as the primary legal issue. They contend that there was no perfected contract of sale as distinguished from a contract to sell. They likewise posed as sub-issues the purpose for which the checks were issued, whether replacement of the crew was an act of ownership or administration, whether petitioners failed to protest the dilapidated condition of the vessels, and whether the instances when the vessels went out to sea proved that the vessels were not seaworthy.13 It is also alleged in the petition that the true agreement as between the parties was that of a loan.Evidently, the petition hinges on the true nature of the document dated 1 April 1996. Normally, the Court is bound by the factual findings of the lower courts, and accordingly, should affirm the conclusion that the document in question was a perfected contract of sale. However, we find that both the RTC and the Court of Appeals gravely misapprehended the nature of the said document, and a reevaluation of the document is in order.14 Even if such reevaluation would lead the court to examine issues not raised by the parties, it should be remembered that the Court has authority to review matters even if not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving at a just decision of the case.15

In doing so, we acknowledge that the contending parties offer vastly differing accounts as to the true nature of the agreement. Still, we need not look beyond the document dated 1 April 1996 and the stipulations therein in order to ascertain what obligations, if any, have been contracted by the party. The parol evidence rule forbids any addition to or contradiction of the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the writtencontract. Whatever is not found in the writing is understood to have been waived and abandoned.16

We disagree with the RTC and the Court of Appeals that the document is a perfected contract of sale. A contract of sale is defined as an agreement whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.17 It must evince the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay.18

An examination of the document reveals that there is no perfected contract of sale. The agreement may confirm the receipt by respondents of the two vessels and their purchase price. However, there is no equivocal agreement to transfer ownership of the vessel, but a mere commitment that "documents pertaining to the sale and agreement of payments…[are] to follow." Evidently, the document or documents which would formalize the transfer of ownership and contain the terms of payment of the purchase price, or the period when such would become due and demandable, have yet to be executed. But no such document was executed and no such terms were stipulated upon.The fact that there is a stated total purchase price should not lead to the conclusion that a contract of sale had been perfected. In numerous cases,19 the most recent of which is Swedish Match, AB v. Court of Appeals,20 we held that before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established, as such stands as essential to the validity of the sale. After all, such agreement on the terms of payment is integral to the element of a price certain, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.Assuming arguendo that the document evinces a perfected contract of sale, the absence of definite terms of payment therein would preclude its enforcement by the respondents through the instant Complaint. A requisite for the judicial enforcement of an obligation is that the same is due and demandable. The absence of a stipulated period by which the purchase price should be paid indicates that at the time of the filing of the complaint, the obligation to pay was not yet due and demandable.Respondents, during trial, did claim the existence of a period. Respondent Carmencita Ramos,

during cross-examination, claimed that the supposed balance shall be paid on 30 June 1996.21

But how do respondents explain why the Complaint was filed on 3 June 1996? Assuming that the 30 June 1996 period was duly agreed upon by the parties, the filing of the Complaint was evidently premature, as no cause of action had accrued yet. There could not have been any breach of obligation because on the date the action was filed, the alleged maturity date for the payment of the balance had not yet arrived.In order that respondents could have a valid cause of action, it is essential that there must have been a stipulated period within which the payment would have become due and demandable. If the parties themselves could not come into agreement, the courts may be asked to fix the period of the obligation, under Article 1197 of the Civil Code.22 The respondents did not avail of such relief prior to the filing of the instant Complaint; thus, the action should fail owing to its obvious prematurity.Returning to the true nature of the document, we neither could conclude that a "contract to sell" had been established. A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.23

A contract is perfected when there is concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. In this case, the agreement merely acknowledges that a purchase price had been agreed on by the parties. There was no mutual promise to buy on the part of petitioners and to sell on the part of respondents. Again, the aforestated proviso in the agreement that documents pertaining to the sale and agreement of payments between the parties will follow clearly manifests lack of agreement between the parties as to the terms of the contract to sell, particularly the object and cause of the contract.The agreement in question does not create any obligatory force either for the transfer of title of the vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only their intention to enter into either a contract to sell or a contract of sale.Consequently, the courts below erred in ordering the enforcement of a contract of sale that had yet to come into existence. Instead, the instant Complaint should be dismissed. It prays for three reliefs arising from the enforcement of the document: execution by the petitioners of the necessary deed of sale over the vessels, the payment of the balance of the purchase price, and damages. The lower courts have already ruled that damages are unavailing. Our finding that there is no perfected contract of sale precludes the finding of any cause of action that would warrant the granting of the first two reliefs. No cause of action arises until there is a breach or violation thereof by either party.24 Considering that the documents create no obligation to execute or even pursue a contract of sale, but only manifest an intention to eventually contract one, we find no rights breached or violated that would warrant any of the reliefs sought in the Complaint.WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The case before the Regional Trial Court is ordered dismissed. no pronouncement as to costs.SO ORDERED.

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