SALES 2ND SET

G.R. No. 112212 March 2, 1998

GREGORIO FULE vs.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO

ROMERO, J.:

This petition for review on certiorari questions the affirmance by the Court of Appeals of the
decision 1 of the Regional Trial Court of San Pablo City, Branch 30, dismissing the complaint that
prayed for the nullification of a contract of sale of a 10-hectare property in Tanay, Rizal in
consideration of the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No. SP-
2455). The lower court's decision disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing the
complaint for lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral
damages and the sum of P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages
and the sum of P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for
attorney's fees and litigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of this case are as
follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-
hectare property in Tanay, Rizal (hereinafter "Tanay property"), covered by Transfer Certificate of
Title No. 320725 which used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged it
earlier to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of
P10,000.00, but the mortgage was later foreclosed and the property offered for public auction upon
his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva
Mendoza to look for a buyer who might be interested in the Tanay property. The two found one in the
person of herein private respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner
had shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had
seen in January of the same year when his mother examined and appraised them as genuine. Dr.
Cruz, however, declined petitioner's offer to buy the jewelry for P100,000.00. Petitioner then made
another bid to buy them for US$6,000.00 at the exchange rate of $1.00 to P25.00. At this point,
petitioner inspected said jewelry at the lobby of the Prudential Bank branch in San Pablo City and
then made a sketch thereof. Having sketched the jewelry for twenty to thirty minutes, petitioner gave
them back to Dr. Cruz who again refused to sell them since the exchange rate of the peso at the time
appreciated to P19.00 to a dollar.

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr.
Cruz requested herein private respondent Atty. Juan Belarmino to check the property who, in turn,
found out that no sale or barter was feasible because the one-year period for redemption of the said
property had not yet expired at the time.

In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of
redemption on behalf of Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr.
Jacobe sold the property to petitioner for P75,000.00. The haste with which the two deeds were
executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption.
SALES 2ND SET
As Dr. Cruz had already agreed to the proposed barter, petitioner went to Prudential Bank once again
to take a look at the jewelry.

In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latter's residence to
prepare the documents of sale.2 Dr. Cruz herself was not around but Atty. Belarmino was aware that
she and petitioner had previously agreed to exchange a pair of emerald-cut diamond earrings for the
Tanay property. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while
petitioner and Dr. Cruz attended to the safekeeping of the jewelry.

The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty.
Belarmino to finally execute a deed of absolute sale. Petitioner signed the deed and gave Atty.
Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay
property. Petitioner also issued a certification to the effect that the actual consideration of the sale
was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale. The disparity
between the actual contract price and the one indicated on the deed of absolute sale was purportedly
aimed at minimizing the amount of the capital gains tax that petitioner would have to shoulder. Since
the jewelry was appraised only at P160,000.00, the parties agreed that the balance of P40,000.00
would just be paid later in cash.

As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso and Mendoza and headed
for the bank, arriving there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but the cashier
who kept the other key to the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore,
looked for said cashier and found him having a haircut. As soon as his haircut was finished, the
cashier returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who
arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit box, the former
retrieving a transparent plastic or cellophane bag with the jewelry inside and handing over the same
to petitioner. The latter took the jewelry from the bag, went near the electric light at the bank's lobby,
held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz
asked, "Okay na ba iyan?" Petitioner expressed his satisfaction by nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00
and some pieces of jewelry. He did not, however, give them half of the pair of earrings in question
which he had earlier promised.

Later, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the residence of Atty.
Belarmino complaining that the jewelry given to him was fake. He then used a tester to prove the
alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz to
borrow her car so that, with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz
had agreed to lend her car, Dichoso called up Atty. Belarmino. The latter, however, instructed
Dichoso to proceed immediately to his residence because petitioner was there. Believing that
petitioner had finally agreed to give them half of the pair of earrings, Dichoso went posthaste to the
residence of Atty. Belarmino only to find petitioner already demonstrating with a tester that the
earrings were fake. Petitioner then accused Dichoso and Mendoza of deceiving him which they,
however, denied. They countered that petitioner could not have been fooled because he had vast
experience regarding jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had
given them.

Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have
the earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them
counterfeit. At around 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside
Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter,
petitioner reported the matter to the police station where Dichoso and Mendoza likewise executed
sworn statements.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City
against private respondents praying, among other things, that the contract of sale over the Tanay
property be declared null and void on the ground of fraud and deceit.

On October 30, 1984, the lower court issued a temporary restraining order directing the Register of
Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On
SALES 2ND SET
November 20, 1984, however, the same court lifted its previous order and denied the prayer for a writ
of preliminary injunction.

After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or
not the genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to
petitioner, the lower court said:

The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz
delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised the
same nearer to the lights of the lobby of the bank near the door. When asked by Dra.
Cruz if everything was in order, plaintiff even nodded his satisfaction (Hearing of Feb.
24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time to
examine further the jewelries (sic). Being a professional banker and engaged in the
jewelry business plaintiff is conversant and competent to detect a fake diamond from
the real thing. Plaintiff was accorded the reasonable time and opportunity to ascertain
and inspect the jewelries (sic) in accordance with Article 1584 of the Civil Code. Plaintiff
took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When
he went at 8:00 p.m. that same day to the residence of Atty. Belarmino already with a
tester complaining about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got hold of subject
jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained is
considered by the Court as unreasonable delay.3

The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil
Code were present, namely: (a) consent or meeting of the minds; (b) determinate subject matter, and
(c) price certain in money or its equivalent. The same elements, according to the lower court, were
present despite the fact that the agreement between petitioner and Dr. Cruz was principally a barter
contract. The lower court explained thus:

. . . . Plaintiff's ownership over the Tanay property passed unto Dra. Cruz upon the
constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh. D). On the
other hand, the ownership of Dra. Cruz over the subject jewelries (sic) transferred to the
plaintiff upon her actual personal delivery to him at the lobby of the Prudential Bank. It is
expressly provided by law that the thing sold shall be understood as delivered, when it
is placed in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle &
Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic)
was transmitted immediately before 6:00 p.m. of October 24, 1984. Plaintiff signified his
approval by nodding his head. Delivery or tradition, is one of the modes of acquiring
ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay
property in favor of Dra. Cruz. The execution of the public instrument (Exh. D) operates
as a formal or symbolic delivery of the Tanay property and authorizes the buyer, Dra.
Cruz to use the document as proof of ownership (Florendo v. Foz, 20 Phil. 399). More
so, since Exhibit D does not contain any proviso or stipulation to the effect that title to
the property is reserved with the vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period (Taguba v. Vda. De Leon, 132
SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 SCRA 305;
Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276). 4

Aside from concluding that the contract of barter or sale had in fact been consummated when
petitioner and Dr. Cruz parted ways at the bank, the trial court likewise dwelt on the unexplained
delay with which petitioner complained about the alleged fakery. Thus:

. . . . Verily, plaintiff is already estopped to come back after the lapse of considerable
length of time to claim that what he got was fake. He is a Business Management
graduate of La Salle University, Class 1978-79, a professional banker as well as a
jeweler in his own right. Two hours is more than enough time to make a switch of a
Russian diamond with the real diamond. It must be remembered that in July 1984
plaintiff made a sketch of the subject jewelries (sic) at the Prudential Bank. Plaintiff had
SALES 2ND SET
a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then did he not bring it out
when he was examining the subject jewelries (sic) at about 6:00 p.m. in the bank's
lobby? Obviously, he had no need for it after being satisfied of the genuineness of the
subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully
performed their respective prestations. Once a contract is shown to have been
consummated or fully performed by the parties thereto, its existence and binding effect
can no longer be disputed. It is irrelevant and immaterial to dispute the due execution of
a contract if both of them have in fact performed their obligations thereunder and their
respective signatures and those of their witnesses appear upon the face of the
document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987).5

Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to
show that the Tanay property is worth P25,000.00. However, also on that same day it
was executed, the property's worth was magnified at P75,000.00 (Exh. 3-Belarmino).
How could in less than a day (Oct. 19, 1984) the value would (sic) triple under normal
circumstances? Plaintiff, with the assistance of his agents, was able to exchange the
Tanay property which his bank valued only at P25,000.00 in exchange for a genuine
pair of emerald cut diamond worth P200,000.00 belonging to Dra. Cruz. He also
retrieved the US$300.00 and jewelries (sic) from his agents. But he was not satisfied in
being able to get subject jewelries for a song. He had to file a malicious and unfounded
case against Dra. Cruz and Atty. Belarmino who are well known, respected and held in
high esteem in San Pablo City where everybody practically knows everybody. Plaintiff
came to Court with unclean hands dragging the defendants and soiling their clean and
good name in the process. Both of them are near the twilight of their lives after
maintaining and nurturing their good reputation in the community only to be stunned
with a court case. Since the filing of this case on October 26, 1984 up to the present
they were living under a pall of doubt. Surely, this affected not only their earning
capacity in their practice of their respective professions, but also they suffered
besmirched reputations. Dra. Cruz runs her own hospital and defendant Belarmino is a
well respected legal practitioner. The length of time this case dragged on during which
period their reputation were (sic) tarnished and their names maligned by the pendency
of the case, the Court is of the belief that some of the damages they prayed for in their
answers to the complaint are reasonably proportionate to the sufferings they underwent
(Art. 2219, New Civil Code). Moreover, because of the falsity, malice and baseless
nature of the complaint defendants were compelled to litigate. Hence, the award of
attorney's fees is warranted under the circumstances (Art. 2208, New Civil Code). 6

From the trial court's adverse decision, petitioner elevated the matter to the Court of Appeals. On
October 20, 1992, the Court of Appeals, however, rendered a decision 7 affirming in toto the lower
court's decision. His motion for reconsideration having been denied on October 19, 1993, petitioner
now files the instant petition alleging that:

I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFF'S COMPLAINT AND IN

HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF
EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ . . . ;

II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES
AND ATTORNEY'S FEES IN FAVOR OF DEFENDANTS AND AGAINST THE
PLAINTIFF IN THIS CASE; and

III. THE TRIAL, COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE
TANAY PROPERTY (EXH. "D") AS NULL AND VOID OR IN NOT ANNULLING THE
SAME, AND IN FAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF THE
PLAINTIFF.8

As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it
invites us to examine and weigh anew the facts regarding the genuineness of the earrings bartered in
exchange for the Tanay property. This, of course, we cannot do without unduly transcending the limits
of our review power in petitions of this nature which are confined merely to pure questions of law. We
SALES 2ND SET
accord, as a general rule, conclusiveness to a lower court's findings of fact unless it is shown, inter
alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admission of both parties. 9 We find nothing, however, that
warrants the application of any of these exceptions.

Consequently, this Court upholds the appellate court's findings of fact especially because these
concur with those of the trial court which, upon a thorough scrutiny of the records, are firmly grounded
on evidence presented at the trial. 10 To reiterate, this Court's jurisdiction is only limited to reviewing
errors of law in the absence of any showing that the findings complained of are totally devoid of
support in the record or that they are glaringly erroneous as to constitute serious abuse of
discretion. 11

Nonetheless, this Court has to closely delve into petitioner's allegation that the lower court's decision
of March 7, 1989 is a "ready-made" one because it was handed down a day after the last date of the
trial of the case. 12 Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo was
able to write a 12-page single-spaced decision, type it and release it on March 7, 1989, less than a
day after the last hearing on March 6, 1989. He stressed that Judge Jaramillo replaced Judge
Salvador de Guzman and heard only his rebuttal testimony.

This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the
lower court's findings of fact in order to convince this Court to review the same. It is noteworthy that
Atty. Belarmino clarified that Judge Jaramillo had issued the first order in the case as early as March
9, 1987 or two years before the rendition of the decision. In fact, Atty. Belarmino terminated
presentation of evidence on October 13, 1987, while Dr. Cruz finished hers on February 4, 1989, or
more than a month prior to the rendition of the judgment. The March 6, 1989 hearing was conducted
solely for the presentation of petitioner's rebuttal testimony. 13 In other words, Judge Jaramillo had
ample time to study the case and write the decision because the rebuttal evidence would only serve
to confirm or verify the facts already presented by the parties.

The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge
Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch.
Neither is there proof that someone else wrote the decision for him. The immediate rendition of the
decision was no more than Judge Jaramillo's compliance with his duty as a judge to "dispose of the
court's business promptly and decide cases within the required periods." 14 The two-year period within
which Judge Jaramillo handled the case provided him with all the time to study it and even write down
its facts as soon as these were presented to court. In fact, this Court does not see anything wrong in
the practice of writing a decision days before the scheduled promulgation of judgment and leaving the
dispositive portion for typing at a time close to the date of promulgation, provided that no malice or
any wrongful conduct attends its adoption. 15The practice serves the dual purposes of safeguarding
the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge
Jaramillo be made administratively answerable for the immediate rendition of the decision. The acts
of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are
committed with fraud, dishonesty, corruption or bad faith. 16Hence, in the absence of sufficient proof
to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and
should instead be commended for his close attention to duty.

Having disposed of petitioner's first contention, we now come to the core issue of this petition which is
whether the Court of Appeals erred in upholding the validity of the contract of barter or sale under the
circumstances of this case.

The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law. 17 A contract of sale is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price. 18 Being consensual, a contract of sale has the
force of law between the contracting parties and they are expected to abide in good faith by their
respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of
certain contracts in a public instrument, is only for convenience, 19 and registration of the instrument
SALES 2ND SET
only adversely affects third parties. 20 Formal requirements are, therefore, for the benefit of third
parties. Non-compliance therewith does not adversely affect the validity of the contract nor the
contractual rights and obligations of the parties thereunder.

It is evident from the facts of the case that there was a meeting of the minds between petitioner and
Dr. Cruz. As such, they are bound by the contract unless there are reasons or circumstances that
warrant its nullification. Hence, the problem that should be addressed in this case is whether or not
under the facts duly established herein, the contract can be voided in accordance with law so as to
compel the parties to restore to each other the things that have been the subject of the contract with
their fruits, and the price with interest.21

Contracts that are voidable or annullable, even though there may have been no damage to the
contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract;
and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud. 22 Accordingly, petitioner now stresses before this Court that he entered into the contract in the
belief that the pair of emerald-cut diamond earrings was genuine. On the pretext that those pieces of
jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said
contract on the ground that it was, in fact, "tainted with fraud" 23 such that his consent was vitiated.

There is fraud when, through the insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he would not have agreed to. 24 The
records, however, are bare of any evidence manifesting that private respondents employed such
insidious words or machinations to entice petitioner into entering the contract of barter. Neither is
there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she
cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not
initially accede to petitioner's proposal to buy the said jewelry. Rather, it appears that it was petitioner,
through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her
jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry
which was valued only at P160,000.00. If indeed petitioner's property was truly worth that much, it
was certainly contrary to the nature of a businessman-banker like him to have parted with his real
estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr.
Cruz to exchange her jewelry for the Tanay property.

Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale.
Even assuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract,
mistake must "refer to the substance of the thing that is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the contract." 25 An example
of mistake as to the object of the contract is the substitution of a specific thing contemplated by the
parties with another. 26 In his allegations in the complaint, petitioner insinuated that an inferior one or
one that had only Russian diamonds was substituted for the jewelry he wanted to exchange with his
10-hectare land. He, however, failed to prove the fact that prior to the delivery of the jewelry to him,
private respondents endeavored to make such substitution.

Likewise, the facts as proven do not support the allegation that petitioner himself could be excused
for the "mistake." On account of his work as a banker-jeweler, it can be rightfully assumed that he
was an expert on matters regarding gems. He had the intellectual capacity and the business acumen
as a banker to take precautionary measures to avert such a mistake, considering the value of both
the jewelry and his land. The fact that he had seen the jewelry before October 24, 1984 should not
have precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he done so,
he could have avoided the present situation that he himself brought about. Indeed, the finger of
suspicion of switching the genuine jewelry for a fake inevitably points to him. Such a mistake caused
by manifest negligence cannot invalidate a juridical act. 27 As the Civil Code provides, "(t)here is no
mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the
contract."28

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil
Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he
was satisfied with the same. 29 By taking the jewelry outside the bank, petitioner executed an act
which was more consistent with his exercise of ownership over it. This gains credence when it is
borne in mind that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his
signature to the contract of sale. That after two hours he later claimed that the jewelry was not the
SALES 2ND SET
one he intended in exchange for his Tanay property, could not sever the juridical tie that now bound
him and Dr. Cruz. The nature and value of the thing he had taken preclude its return after that
supervening period within which anything could have happened, not excluding the alteration of the
jewelry or its being switched with an inferior kind.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the
nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut
diamond earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and
constructive delivery thereof. 30 Said contract of sale being absolute in nature, title passed to the
vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the
property sold has been reserved in the seller until full payment of the price or that the vendor has the
right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period. 31 Such stipulations are not manifest in the contract of sale.

While it is true that the amount of P40,000.00 forming part of the consideration was still payable to
petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the
transfer of ownership and possession of the things exchanged considering the fact that their contract
is silent as to when it becomes due and demandable. 32

Neither may such failure to pay the balance of the purchase price result in the payment of interest
thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee "for the
period between the delivery of the thing and the payment of the price" in the following cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;

(3) Should he be in default, from the time of judicial or extrajudicial demand for the
payment of the price.

Not one of these cases obtains here. This case should, of course, be distinguished from De la
Cruz v. Legaspi, 33 where the court held that failure to pay the consideration after the
notarization of the contract as previously promised resulted in the vendee's liability for payment
of interest. In the case at bar, there is no stipulation for the payment of interest in the contract
of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner
demand payment of the price as in fact he filed an action to nullify the contract of sale.

All told, petitioner appears to have elevated this case to this Court for the principal reason of
mitigating the amount of damages awarded to both private respondents which petitioner considers as
"exorbitant." He contends that private respondents do not deserve at all the award of damages. In
fact, he pleads for the total deletion of the award as regards private respondent Belarmino whom he
considers a mere "nominal party" because "no specific claim for damages against him" was alleged in
the complaint. When he filed the case, all that petitioner wanted was that Atty. Belarmino should
return to him the owner's duplicate copy of TCT No. 320725, the deed of sale executed by Fr. Antonio
Jacobe, the deed of redemption and the check alloted for expenses. Petitioner alleges further that
Atty. Belarmino should not have delivered all those documents to Dr. Cruz because as the "lawyer for
both the seller and the buyer in the sale contract, he should have protected the rights of both parties."
Moreover, petitioner asserts that there was no firm basis for damages except for Atty. Belarmino's
uncorroborated testimony.34

Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such
damages, the court shall take into account the circumstances obtaining in the case said assess
damages according to its discretion.35 To warrant the award of damages, it must be shown that the
person to whom these are awarded has sustained injury. He must likewise establish sufficient data
upon which the court can properly base its estimate of the amount of damages. 36 Statements of facts
should establish such data rather than mere conclusions or opinions of witnesses. 37 Thus:

. . . . For moral damages to be awarded, it is essential that the claimant must have
satisfactorily proved during the trial the existence of the factual basis of the damages
and its causal connection with the adverse party's acts. If the court has no proof or
evidence upon which the claim for moral damages could be based, such indemnity
SALES 2ND SET
could not be outrightly awarded. The same holds true with respect to the award of
exemplary damages where it must be shown that the party acted in a wanton,
oppressive or malevolent manner. 38

In this regard, the lower court appeared to have awarded damages on a ground analogous to
malicious prosecution under Article 2219 (8) of the Civil Code 39 as shown by (1) petitioner's "wanton
bad faith" in bloating the value of the Tanay property which he exchanged for "a genuine pair of
emerald-cut diamond worth P200,00.00;" and (2) his filing of a "malicious and unfounded case"
against private respondents who were "well known, respected and held in high esteem in San Pablo
City where everybody practically knows everybody" and whose good names in the "twilight of their
lives" were soiled by petitioner's coming to court with "unclean hands," thereby affecting their earning
capacity in the exercise of their respective professions and besmirching their reputation.

For its part, the Court of Appeals affirmed the award of damages to private respondents for these
reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the
genuine jewelry of Dra. Cruz, Fule now wishes to return a fake jewelry to Dra. Cruz and,
more than that, get back the real property, which his bank owns. Fule has obtained a
genuine jewelry which he could sell anytime, anywhere and to anybody, without the
same being traced to the original owner for practically nothing. This is plain and simple,
unjust enrichment.40

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint
against another in good faith because it is not sound policy to place a penalty on the right to
litigate, 41 the same, however, cannot apply in the case at bar. The factual findings of the courts a
quo to the effect that petitioner filed this case because he was the victim of fraud; that he could not
have been such a victim because he should have examined the jewelry in question before accepting
delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the
action for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to
support the conclusion that petitioner was motivated more by ill will than a sincere attempt to protect
his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24,
1984 itself would amply demonstrate that petitioner was not simply negligent in failing to exercise due
diligence to assure himself that what he was taking in exchange for his property were genuine
diamonds. He had rather placed himself in a situation from which it preponderantly appears that his
seeming ignorance was actually just a ruse. Indeed, he had unnecessarily dragged respondents to
face the travails of litigation in speculating at the possible favorable outcome of his complaint when he
should have realized that his supposed predicament was his own making. We, therefore, see here no
semblance of an honest and sincere belief on his part that he was swindled by respondents which
would entitle him to redress in court. It must be noted that before petitioner was able to convince Dr.
Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said
jewelry, even going to the extent of sketching their appearance. Why at the precise moment when he
was about to take physical possession thereof he failed to exert extra efforts to check their
genuineness despite the large consideration involved has never been explained at all by petitioner.
His acts thus failed to accord with what an ordinary prudent man would have done in the same
situation. Being an experienced banker and a businessman himself who deliberately skirted a legal
impediment in the sale of the Tanay property and to minimize the capital gains tax for its exchange, it
was actually gross recklessness for him to have merely conducted a cursory examination of the
jewelry when every opportunity for doing so was not denied him. Apparently, he carried on his person
a tester which he later used to prove the alleged fakery but which he did not use at the time when it
was most needed. Furthermore, it took him two more hours of unexplained delay before he
complained that the jewelry he received were counterfeit. Hence, we stated earlier that anything could
have happened during all the time that petitioner was in complete possession and control of the
jewelry, including the possibility of substituting them with fake ones, against which respondents would
have a great deal of difficulty defending themselves. The truth is that petitioner even failed to
successfully prove during trial that the jewelry he received from Dr. Cruz were not genuine. Add to
that the fact that he had been shrewd enough to bloat the Tanay property's price only a few days after
he purchased it at a much lower value. Thus, it is our considered view that if this slew of
SALES 2ND SET
circumstances were connected, like pieces of fabric sewn into a quilt, they would sufficiently
demonstrate that his acts were not merely negligent but rather studied and deliberate.

We do not have here, therefore, a situation where petitioner's complaint was simply found later to be
based on an erroneous ground which, under settled jurisprudence, would not have been a reason for
awarding moral and exemplary damages. 42 Instead, the cause of action of the instant case appears
to have been contrived by petitioner himself. In other words, he was placed in a situation where he
could not honestly evaluate whether his cause of action has a semblance of merit, such that it would
require the expertise of the courts to put it to a test. His insistent pursuit of such case then coupled
with circumstances showing that he himself was guilty in bringing about the supposed wrongdoing on
which he anchored his cause of action would render him answerable for all damages the defendant
may suffer because of it. This is precisely what took place in the petition at bar and we find no cogent
reason to disturb the findings of the courts below that respondents in this case suffered considerable
damages due to petitioner's unwarranted action.

WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED
in toto. Dr. Cruz, however, is ordered to pay petitioner the balance of the purchase price of
P40,000.00 within ten (10) days from the finality of this decision. Costs against petitioner.

SO ORDERED.
SALES 2ND SET
SAN LORENZO DEVELOPMENT CORPORATION VS.
CA, PABLO S. BABASANTA, SPS. MIGUEL LU AND PACITA ZAVALLA LU
G.R. NO. 124242
JANUARY 21, 2005
TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita
Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna
covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total
of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo
Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (₱15.00) per square meter.
Babasanta made a downpayment of fifty thousand pesos (₱50,000.00) as evidenced by a
memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two
hundred thousand pesos (₱200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed
of sale in his favor so that he could effect full payment of the purchase price. In the same letter,
Babasanta notified the spouses about having received information that the spouses sold the same
property to another without his knowledge and consent. He demanded that the second sale be
cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell
the property to him at fifteen pesos (₱15.00) per square meter. She, however, reminded Babasanta
that when the balance of the purchase price became due, he requested for a reduction of the price
and when she refused, Babasanta backed out of the sale. Pacita added that she returned the sum of
fifty thousand pesos (₱50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC),
Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against his
co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T-
39022 and T-39023 had been sold to him by the spouses at fifteen pesos (₱15.00) per square meter.
Despite his repeated demands for the execution of a final deed of sale in his favor, respondents
allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the
total advances of Pacita reached fifty thousand pesos (₱50,000.00), the latter and Babasanta, without
the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a
contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (₱50,000.00) to be
considered as the downpayment for the property and the balance to be paid on or before 31
December 1987. Respondents Lu added that as of November 1987, total payments made by
Babasanta amounted to only two hundred thousand pesos (₱200,000.00) and the latter allegedly
failed to pay the balance of two hundred sixty thousand pesos (₱260,000.00) despite repeated
demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos
(₱15.00) to twelve pesos (₱12.00) per square meter and when the Spouses Lu refused to grant
Babasanta’s request, the latter rescinded the contract to sell and declared that the original loan
transaction just be carried out in that the spouses would be indebted to him in the amount of two
hundred thousand pesos (₱200,000.00). Accordingly, on 6 July 1989, they purchased Interbank
Manager’s Check No. 05020269 in the amount of two hundred thousand pesos (₱200,000.00) in the
name of Babasanta to show that she was able and willing to pay the balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the
issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the
Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a
preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the
subject property to other persons.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new
matters which seriously affect their substantive rights under the original complaint. However, the trial
court in its Order dated 17 January 19905 admitted the amended complaint.
SALES 2ND SET
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion
for Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter
under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and
1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage. 7 It alleged that it was a buyer
in good faith and for value and therefore it had a better right over the property in litigation.

In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred and argued
that the latter had no legal interest in the case because the two parcels of land involved herein had
already been conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity
to transfer or dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed
its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the issuance of a
preliminary injunction was likewise granted by the trial court in its Order dated 11 January
199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos (₱50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in
its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an option money in the
amount of three hundred sixteen thousand one hundred sixty pesos (₱316,160.00) out of the total
consideration for the purchase of the two lots of one million two hundred sixty-four thousand six
hundred forty pesos (₱1,264,640.00). After the Spouses Lu received a total amount of six hundred
thirty-two thousand three hundred twenty pesos (₱632,320.00) they executed on 3 May 1989
a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of title over the
property were delivered to it by the spouses clean and free from any adverse claims and/or notice
of lis pendens. SLDC further alleged that it only learned of the filing of the complaint sometime in the
early part of January 1990 which prompted it to file the motion to intervene without delay. Claiming
that it was a buyer in good faith, SLDC argued that it had no obligation to look beyond the titles
submitted to it by the Spouses Lu particularly because Babasanta’s claims were not annotated on the
certificates of title at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the
property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand
pesos (₱200,000.00) with legal interest plus the further sum of fifty thousand pesos (₱50,000.00) as
and for attorney’s fees. On the complaint-in-intervention, the trial court ordered the Register of Deeds
of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT
No. T-39022 (T-7218) and No. T-39023 (T-7219).

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did
not register the respective sales in their favor, ownership of the property should pertain to the buyer
who first acquired possession of the property. The trial court equated the execution of a public
instrument in favor of SLDC as sufficient delivery of the property to the latter. It concluded that
symbolic possession could be considered to have been first transferred to SLDC and consequently
ownership of the property pertained to SLDC who purchased the property in good faith.

Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the main
that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the
validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial
court erred in failing to consider that the contract to sell between them and Babasanta had been
novated when the latter abandoned the verbal contract of sale and declared that the original loan
transaction just be carried out. The Spouses Lu argued that since the properties involved were
conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo
Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. They further
averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding
damages in his favor and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the
trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting
and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta, and
the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos
SALES 2ND SET
(₱260,000.00). The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of
SLDC was null and void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu
were further ordered to return all payments made by SLDC with legal interest and to pay attorney’s
fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.12 However, in a Manifestation dated 20 December 1995,13 the Spouses Lu informed the
appellate court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for
reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The
appellate court denied SLDC’s motion for reconsideration on the ground that no new or substantial
arguments were raised therein which would warrant modification or reversal of the court’s decision
dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN
GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE
CASH ADVANCE OF ₱200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR
TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT

THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION
OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF
THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS
ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO
WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL

CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET
ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A
BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15

SLDC contended that the appellate court erred in concluding that it had prior notice of Babasanta’s
claim over the property merely on the basis of its having advanced the amount of two hundred
thousand pesos (₱200,000.00) to Pacita Lu upon the latter’s representation that she needed the
money to pay her obligation to Babasanta. It argued that it had no reason to suspect that Pacita was
not telling the truth that the money would be used to pay her indebtedness to Babasanta. At any rate,
SLDC averred that the amount of two hundred thousand pesos (₱200,000.00) which it advanced to
Pacita Lu would be deducted from the balance of the purchase price still due from it and should not
be construed as notice of the prior sale of the land to Babasanta. It added that at no instance did
Pacita Lu inform it that the lands had been previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took
possession of the property and asserted its rights as new owner as opposed to Babasanta who has
never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at the
time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the certificate
of title and it was not obliged to go beyond the certificate to determine the condition of the property.
Invoking the presumption of good faith, it added that the burden rests on Babasanta to prove that it
was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the notice of lis
pendens was annotated only on 2 June 1989 long after the sale of the property to it was
consummated on 3 May 1989.1awphi1.nét
SALES 2ND SET
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the
Court that due to financial constraints they have no more interest to pursue their rights in the instant
case and submit themselves to the decision of the Court of Appeals. 16

On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of
the property because it failed to comply with the requirement of registration of the sale in good faith.
He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was
already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989.
Hence, petitioner’s registration of the sale did not confer upon it any right. Babasanta further asserted
that petitioner’s bad faith in the acquisition of the property is evident from the fact that it failed to make
necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos
(₱200,000.00) manager’s check in his favor.

The core issue presented for resolution in the instant petition is who between SLDC and Babasanta
has a better right over the two parcels of land subject of the instant case in view of the successive
transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed
by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (₱50,000.00) as partial
payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.17 While the receipt signed by Pacita did not mention the price for which the property was
being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918 wherein she
admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (₱15.00) per
square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a
contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the
offer and the acceptance upon the thing which are to constitute the contract. The offer must be
certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form they
may have been entered into, provided all the essential requisites for their validity are present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos
(₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa,
Laguna. While there is no stipulation that the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the
parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except
upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated
requests for the execution of the final deed of sale in his favor so that he could effect full payment of
the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that
ownership of the property would not be transferred to him until such time as he shall have effected full
payment of the price. Moreover, had the sellers intended to transfer title, they could have easily
executed the document of sale in its required form simultaneously with their acceptance of the partial
payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered
as a perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane. In a contract of
sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by
agreement the ownership is reserved in the vendor and is not to pass until the full payment of the
price.22 In a contract of sale, the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to sell, 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.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the
purchase price. There being an obligation to pay the price, Babasanta should have made the proper
SALES 2ND SET
tender of payment and consignation of the price in court as required by law. Mere sending of a letter
by the vendee expressing the intention to pay without the accompanying payment is not considered a
valid tender of payment.24 Consignation of the amounts due in court is essential in order to extinguish
Babasanta’s obligation to pay the balance of the purchase price. Glaringly absent from the records is
any indication that Babasanta even attempted to make the proper consignation of the amounts due,
thus, the obligation on the part of the sellers to convey title never acquired obligatory force.

On the assumption that the transaction between the parties is a contract of sale and not a contract to
sell, Babasanta’s claim of ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere consent 25 and from that moment, the parties
may reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1)
consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object
certain which is the subject matter of the contract; (3) cause of the obligation which is established. 27

The perfection of a contract of sale should not, however, be confused with its consummation. In
relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but
merely a title. A mode is the legal means by which dominion or ownership is created, transferred or
destroyed, but title is only the legal basis by which to affect dominion or ownership. 28 Under Article
712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by
law, by donation, by testate and intestate succession, and in consequence of certain contracts, by
tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the same. 29 Therefore, sale by itself does not
transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership.
It is tradition or delivery, as a consequence of sale, that actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Article 1497 to 1501. 30 The word
"delivered" should not be taken restrictively to mean transfer of actual physical possession of the
property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal
or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee.31 Legal
or constructive delivery, on the other hand, may be had through any of the following ways: the
execution of a public instrument evidencing the sale;32 symbolical tradition such as the delivery of the
keys of the place where the movable sold is being kept; 33 traditio longa manu or by mere consent or
agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of
the sale;34 traditio brevi manu if the buyer already had possession of the object even before the
sale;35 and traditio constitutum possessorium, where the seller remains in possession of the property
in a different capacity.36

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere
execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For
one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a
public instrument. Hence, no constructive delivery of the lands could have been effected. For another,
Babasanta had not taken possession of the property at any time after the perfection of the sale in his
favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the
lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is
essential to transfer ownership of the property. Thus, even on the assumption that the perfected
contract between the parties was a sale, ownership could not have passed to Babasanta in the
absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the
delivery of the thing sold.37

However, it must be stressed that the juridical relationship between the parties in a double sale is
primarily governed by Article 1544 which lays down the rules of preference between the two
purchasers of the same property. It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
SALES 2ND SET
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance
in case of double sale of immovable property. When the thing sold twice is an immovable, the one
who acquires it and first records it in the Registry of Property, both made in good faith, shall be
deemed the owner.38 Verily, the act of registration must be coupled with good faith— that is, the
registrant must have no knowledge of the defect or lack of title of his vendor or must not have been
aware of facts which should have put him upon such inquiry and investigation as might be necessary
to acquaint him with the defects in the title of his vendor.39

Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of
Babasanta’s claim. Babasanta, however, strongly argues that the registration of the sale by SLDC
was not sufficient to confer upon the latter any title to the property since the registration was attended
by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30 June 1990,
there was already a notice of lis pendens on the file with the Register of Deeds, the same having
been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of
delivery and possession in good faith which admittedly had occurred prior to SLDC’s knowledge of
the transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in
favor of SLDC upon receiving ₱316,160.00 as option money from SLDC. After SLDC had paid more
than one half of the agreed purchase price of ₱1,264,640.00, the Spouses Lu subsequently executed
on 3 May 1989 a Deed of Absolute Salein favor or SLDC. At the time both deeds were executed,
SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated,
from the time of execution of the first deed up to the moment of transfer and delivery of possession of
the lands to SLDC, it had acted in good faith and the subsequent annotation of lis pendens has no
effect at all on the consummated sale between SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other person
has a right to, or interest in, such property and pays a full and fair price for the same at the time of
such purchase, or before he has notice of the claim or interest of some other person in the
property.40 Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith
since there is no evidence extant in the records that it had knowledge of the prior transaction in favor
of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the registered
owners of the property and were in fact in possession of the lands.l^vvphi1.net Time and again, this
Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the
certificate of title as he is charged with notice of burdens on the property which are noted on the face
of the register or on the certificate of title.41 In assailing knowledge of the transaction between him
and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice incorporated
in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed, or
entered in the office of the Register of Deeds for the province or city where the land to which it relates
lies, be constructive notice to all persons from the time of such registering, filing, or entering.

However, the constructive notice operates as such¾by the express wording of Section 52¾from the
time of the registration of the notice of lis pendens which in this case was effected only on 2 June
1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation
of the Spouses Lu to transfer ownership over the property to SLDC is concerned.
SALES 2ND SET
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the
annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant to the
good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held
in Nataño v. Esteban,42 serves as a warning to a prospective purchaser or incumbrancer that the
particular property is in litigation; and that he should keep his hands off the same, unless he intends
to gamble on the results of the litigation." Precisely, in this case SLDC has intervened in the pending
litigation to protect its rights. Obviously, SLDC’s faith in the merit of its cause has been vindicated with
the Court’s present decision which is the ultimate denouement on the controversy.

The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in-Intervention44 that at
the instance of Pacita Lu it issued a check for ₱200,000.00 payable to Babasanta and the
confirmatory testimony of Pacita Lu herself on cross-examination.45 However, there is nothing in the
said pleading and the testimony which explicitly relates the amount to the transaction between the
Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the
advances made by Babasanta to Pacita Lu. In any event, the incident took place after the Spouses
Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as
previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior notice
of lis pendensand assuming further for the same nonce that this is a case of double sale, still
Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46 this Court
had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired
knowledge of a previous sale, the registration constitutes a registration in bad faith and does not
confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all,
and the buyer who has taken possession first of the property in good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second
vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first
in possession. This Court awarded the property to the Israels because registration of the property by
Abarquez lacked the element of good faith. While the facts in the instant case substantially differ from
that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis of its prior possession of
the property in good faith. Be it noted that delivery of the property to SLDC was immediately effected
after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior
transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of
property; there being no priority of such entry, the second is priority of possession; and, in the
absence of the two priorities, the third priority is of the date of title, with good faith as the common
critical element. Since SLDC acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at any time, SLDC’s right is definitely
superior to that of Babasanta’s.

At any rate, the above discussion on the rules on double sale would be purely academic for as earlier
stated in this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale
but merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544
does not apply to a case where there was a sale to one party of the land itself while the other contract
was a mere promise to sell the land or at most an actual assignment of the right to repurchase the
same land. Accordingly, there was no double sale of the same land in that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals
appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch
31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.
SALES 2ND SET
AGRO CONGLOMERATES VS CA
401 PHIL. 644

QUISUMBING, J.:

This is a petition for review challenging the decision [1] dated October 17, 1994 of the Court of Appeals
in CA-G.R. No. 32933, which affirmed in toto the judgment of the Manila Regional Trial Court, Branch
27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543.

This petition springs from three complaints for sums of money filed by respondent bank against
herein petitioners. In the decision of the Court of Appeals, petitioners were ordered to pay respondent
bank, as follows:

Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows:

In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and severally, to
pay to plaintiff the amount of P78,212.29, together with interest and service charge thereon, at
the rates of 14% and 3% per annum, respectively, computed from November 10, 1982, until fully
1)
paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum, computed from
November 10, 1982, plus 15% as liquidated damage plus 10% of the total amount due, as
attorney's fees, plus costs;

In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of P632,911.39,
together with interest and service charge thereon at the rate of 14% and 3% per annum,
respectively, computed from January 15, 1983, until fully paid, plus stipulated penalty on unpaid
2)
principal at the rate of 6% per annum, computed from January 15, 1983, plus liquidated
damages equivalent to 15% of the total amount due, plus attorney's fees equivalent to 10% of
the total amount due, plus costs; and

In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of action, the
amount of P510,000.00, together with interest and service charge thereon, at the rates of 14%
and 2% per annum, respectively, computed from March 13, 1983, until fully paid, plus a penalty
of 6% per annum, based on the outstanding principal of the loan, computed from March 13,
1983, until fully paid; and on the second cause of action, the amount of P494,936.71, together
3)
with interest and service charge thereon at the rates of 14% and 2%, per annum, respectively,
computed from March 30, 1983, until fully paid, plus a penalty charge of 6% per annum, based
on the unpaid principal, computed from March 30, 1983, until fully paid, plus (on both causes of
action) an amount equal to 15% of the total amounts due, as liquidated damages, plus attorney's
fees equal to 10% of the total amounts due, plus costs.

Based on the records, the following are the factual antecedents.

On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to
Wonderland Food Industries, Inc. In their Memorandum of Agreement, [3] the parties covenanted that
the purchase price of Five Million (P5,000,000.00) Pesos would be settled by the vendee, under the
following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in cash upon the
signing of the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common shares of stock of
the Wonderland Food Industries, Inc.; and (3) The balance of P2,000,000.00 shall be paid in four
equal installments, the first installment falling due, 180 days after the signing of the agreement and
every six months thereafter, with an interest rate of 18% per annum, to be advanced by the vendee
upon the signing of the agreement.

On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan Bank
(formerly Summa Savings & Loan Association), executed an Addendum [4]to the previous
Memorandum of Agreement. The new arrangement pertained to the revision of settlement of the
initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of P2,000,000.00) as
follows:

Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE
SALES 2ND SET
MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS.

WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do further
covenant and agree as follows:

1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to obtain a
loan from Summa Savings and Loan Association with office address at Valenzuela, Metro
Manila, being represented herein by its President, Mr. Jaime Cariño and referred to hereafter
as Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND
(P1,360,000.00)PESOS, plus interest thereon at such rate as the VENDEE and the Financier
may agree, which amount shall cover the ONE MILLION (P1,000,000.00) PESOS cash which
was agreed to be paid upon signing of the Memorandum of Agreement, plus 18% interest on
the balance of two million pesos stipulated upon in Item No. 1(c) of the said agreement;
provided however, that said loan shall be made for and in the name of the VENDOR.

2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00) PESOS be paid directly to the VENDOR; however, the VENDEE
hereby undertakes to pay the full amount of the said loan to the Financier on such terms and
conditions agreed upon by the Financier and the VENDOR, it being understood that while the
loan will be secured from and in the name of the VENDOR, the VENDEE will be the one liable
to pay the entire proceeds thereof including interest and other charges.[5]

This addendum was not notarized.

Consequently, petitioner Mario Soriano signed as maker several promissory notes, [6] payable to the
respondent bank. Thereafter, the bank released the proceeds of the loan to petitioners. However,
petitioners failed to meet their obligations as they fell due. During that time, the bank was
experiencing financial turmoil and was under the supervision of the Central Bank. Central Bank
examiner and liquidator Cordula de Jesus, endorsed the subject promissory notes to the bank's
counsel for collection. The bank gave petitioners opportunity to settle their account by extending
payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show
up nor submit his formal written request.

Respondent bank filed three separate complaints before the Regional Trial Court of Manila for
Collection of Sums of money. The corresponding case histories are illustrated in the table below:

PAYMENT DUE PAYMENT EXTENSION

DATE OF LOAN AMOUNT
DATE DATES

Civil Case 86-37374 August 12,

Feb. 8, 1983 May 9, 1983 Aug.
1982
P 78,212.29 Nov. 10, 1982 7, 1983

Civil Case 86-37388 July 19, 1982

P May 16, 1983 Aug. 14, 1983
Jan. 15, 1983
632,911.39

Civil Case 86-37543 September

P
14, 1982
510,000.00 March 13, 1983 June 11, 1983 Sept. 9, 1983
October 1, 1982
P March 30, 1983 June 28, 1983 Sept. 26, 1983
494,936.71

In their answer, petitioners interposed the defense of novation and insisted there was a valid
substitution of debtor. They alleged that the addendum specifically states that although the
promissory notes were in their names, Wonderland shall be responsible for the payment thereof.
SALES 2ND SET

The trial court held that petitioners are liable, to wit:

The evidences, however, disclose that Wonderland did not comply with its obligation under said
`Addendum' (Exh. `S') as the agreement to turn over the farmland to it, did not materialize (57 tsn,
May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence, Wonderland is not
answerable. And since the loans obtained under the four promissory notes (Exhs. `A', `C', `G', and
`E') have not been paid, despite opportunities given by plaintiff to defendants to make payments, it
stands to reason that defendants are liable to pay their obligations thereunder to plaintiff. In fact,
defendants failed to file a third-party complaint against Wonderland, which shows the weakness of its
stand that Wonderland is answerable to make said payments.[7]
Petitioners appealed to the Court of Appeals. The trial court's decision was affirmed by the appellate
court.

Hence, this recourse, wherein petitioners raise the sole issue of:

WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM,
SIGNED BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES
A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE
PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among the parties started from a contract of sale of a
farmland between petitioners and Wonderland Food Industries, Inc. As found by the trial court, no
such sale materialized.

A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or
consideration for the obligation or promise by the other. The vendee is obliged to pay the price, while
the vendor must deliver actual possession of the land. In the instant case the original plan was that
the initial payments would be paid in cash. Subsequently, the parties (with the participation of
respondent bank) executed an addendum providing instead, that the petitioners would secure a loan
in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the
settlement of said loan would be assumed by Wonderland. Thereafter, petitioner Soriano signed
several promissory notes and received the proceeds in behalf of petitioner-company.

By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the
promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners
became liable as accommodation party. An accommodation party is a person who has signed the
instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person and is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an
accommodation party.[8] He has the right, after paying the holder, to obtain reimbursement from the
party accommodated, since the relation between them has in effect become one of principal and
surety, the accommodation party being the surety.[9] Suretyship is defined as the relation which exists
where one person has undertaken an obligation and another person is also under the obligation or
other duty to the obligee, who is entitled to but one performance, and as between the two who are
bound, one rather than the other should perform.[10] The surety's liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other words, he is directly and equally
bound with the principal.[11] And the creditor may proceed against any one of the solidary debtors.[12]

We do not give credence to petitioners' assertion that, as provided by the addendum, their obligation
to pay the promissory notes was novated by "substitution" of a new debtor, Wonderland. Contrary to
petitioners' contention, the attendant facts herein do not make a case of novation.

Novation is the extinguishment of an obligation by the substitution or change of the obligation by a

subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a third person in the
rights of the creditor.[13] In order that a novation can take place, the concurrence of the following
requisites[14] are indispensable:

1) There must be a previous valid obligation;

2) There must be an agreement of the parties concerned to a new contract;

SALES 2ND SET

3) There must be the extinguishment of the old contract; and

4) There must be the validity of the new contract.

In the instant case, the first requisite for a valid novation is lacking. There was no novation by
"substitution" of debtor because there was no prior obligation which was substituted by a new
contract. It will be noted that the promissory notes, which bound the petitioners to pay, were executed
after the addendum. The addendum modified the contract of sale, not the stipulations in the
promissory notes which pertain to the surety contract. At this instance, Wonderland apparently
assured the payment of future debts to be incurred by the petitioners. Consequently, only a contract
of surety arose. It was wrong for petitioners to presume a novation had taken place. The well-settled
rule is that novation is never presumed,[15] it must be clearly and unequivocally shown.[16]

As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by
the rescission of the contract of sale of the farmland. With the rescission, there was confusion or
merger in the persons of the principal obligor and the surety, namely the petitioners herein. The
addendum which was dependent thereon likewise lost its efficacy.

It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms
thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning
shall control. However, in order to judge the intention of the parties, their contemporaneous and
subsequent acts should be considered.[17]

The contract of sale between Wonderland and petitioners did not materialize. But it was admitted that
petitioners received the proceeds of the promissory notes obtained from respondent bank.

Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall return the
same to him.

Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private
respondent. Neither could petitioners excuse themselves and hold Wonderland still liable to pay the
loan upon the rescission of their sales contract. If petitioners sustained damages as a result of the
rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a
necessary party does not prevent the court from proceeding in the action, and the judgment rendered
therein shall be without prejudice to the rights of such necessary party. [18] But respondent appellate
court did not err in holding that petitioners are duty-bound under the law to pay the claims of
respondent bank from whom they had obtained the loan proceeds.

WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of Appeals
dated October 17, 1994 is AFFIRMED. Costs against petitioners.
SALES 2ND SET

FERNANDO A. GAITE VS. ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES &
SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR AND
FERNANDO TY
G.R. NO. L-11827
JULY 31, 1961

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the
municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a
contract with any individual or juridical person for the exploration and development of the mining
claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted
therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp.
17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a
single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in
Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims
in question, opening and paving roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the development of the mines, and in time
extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite
to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain
conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was
executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his
rights and interests over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of
the first letter of credit covering the first shipment of iron ores and of the first amount derived
from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando
Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by
Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December
8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company
was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron
ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954
(Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern
Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company
would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co.
for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company
would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of
Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.
SALES 2ND SET
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed
and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a
"Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and
Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together
with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in
consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete
title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap &
Smelting Co., in consideration for the signing by the company and its stockholders of the surety
bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to
make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to
"C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the
present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the
payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's
fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon
by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount derived from the local
sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due
and demandable when the defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term:
i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected
within one year or before December 8, 1955; that the giving of security was a condition precedent to
Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000
tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit
"A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly
and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus
costs. From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt,
filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a
motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The
motion for contempt is unmeritorious because the main allegation therein that the appellants Larap
Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is
SALES 2ND SET
"property in litigation", has not been substantiated; and even if true, does not make these appellants
guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the
payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions
presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we
have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite
the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not
one with a suspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron
ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his
rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together
with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-
FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is
not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only
a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is subordinated to the happening of a future
and uncertain event; so that if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not
intend any such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of
Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at which it will be made. By the very terms of
the contract, therefore, the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a
sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence,
the contingent character of the obligation must clearly appear. Nothing is found in the record to
evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting
paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact
that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by
Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a
surety company; and the fact that appellants did put up such bonds indicates that they admitted the
definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore
as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor,
for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants
SALES 2ND SET
would thus be able to postpone payment indefinitely. The desireability of avoiding such a construction
of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the
rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since
sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine,
provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be
actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were
viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit,
and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at
all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have
the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment;
or, in other words, whether or not they are entitled to take full advantage of the period granted them
for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights
as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he
had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case
squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired
the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with
full knowledge that on its face it would automatically expire within one year was a waiver of its
renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose
and had nothing to gain barely; and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on
December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract (Exhibit "A") was executed,
either because the appellant debtors had impaired the securities originally given and thereby forfeited
SALES 2ND SET
any further time within which to pay; or because the term of payment was originally of no more than
one year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron
ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a
short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the
outset, stress two things: first, that this is a case of a sale of a specific mass of fungible goods for a
single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the
contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had actually measured of weighed the
mass, so that they both tried to arrive at the total quantity by making an estimate of the volume
thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made
in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale,
nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see
Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate
object, the mass, and not the actual number of units or tons contained therein, so that all that was
required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile
Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the
Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the
ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied with his
promise to deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite
mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-
delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole
mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims
only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per
cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that
he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano
Manlañgit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in disagreement, with appellants
claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that
the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of
iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical
Division of the Bureau of Mines, a government pensionado to the States and a mining engineering
graduate of the Universities of Nevada and California, with almost 22 years of experience in the
Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3
metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to
the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at
the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in
Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3
tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000
tons made by appellee Gaite, considering that actual weighing of each unit of the mass was
practically impossible, so that a reasonable percentage of error should be allowed anyone making an
estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract
Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
SALES 2ND SET
There was, consequently, no short-delivery in this case as would entitle appellants to the payment of
damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to
appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged
by appellants, since Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs
against appellants.
SALES 2ND SET
BUENAVENTURA VS. CA
461 PHIL. 761
CARPIO, J.:

The Case

This is a petition for review on certiorari[1] to annul the Decision[2] dated 26 June 1996 of the Court of
Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the Decision [3] dated 18 February
1993 rendered by Branch 65 of the Regional Trial Court of Makati ("trial court") in Civil Case No. 89-
5174. The trial court dismissed the case after it found that the parties executed the Deeds of Sale for
valid consideration and that the plaintiffs did not have a cause of action against the defendants.

The Facts

The Court of Appeals summarized the facts of the case as follows:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita,
Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children are joined in this
action by their respective spouses.

Sought to be declared null and void ab initio are certain deeds of sale of real property executed by
defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children
and the corresponding certificates of title issued in their names, to wit:

1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395 executed
on 11 July 1978, in favor of defendant Felicitas Joaquin, for a consideration of P6,000.00 (Exh.
"C"), pursuant to which TCT No. [36113/T-172] was issued in her name (Exh. "C-1");

2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394 executed on
7 June 1979, in favor of defendant Clarita Joaquin, for a consideration of P1 [2],000.00 (Exh.
"D"), pursuant to which TCT No. S-109772 was issued in her name (Exh. "D-1");

3. Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394 executed on
12 May 1988, in favor of defendant spouses Fidel Joaquin and Conchita Bernardo, for a
consideration of P54,[3]00.00 (Exh. "E"), pursuant to which TCT No. 155329 was issued to
them (Exh. "E-1");

4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394 executed on
12 May 1988, in favor of defendant spouses Artemio Joaquin and Socorro Angeles, for a
consideration of P[54,3]00.00 (Exh. "F"), pursuant to which TCT No. 155330 was issued to
them (Exh. "F-1"); and

5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395
executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration of P20,000.00
(Exh. "G"), pursuant to which TCT No. 157203 was issued in her name (Exh. "G-1").

[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395 executed on 7
October 1988, in favor of Gavino Joaquin, for a consideration of P25,000.00 (Exh. "K"), pursuant to
which TCT No. 157779 was issued in his name (Exh. "K-1").]
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in
their complaint, aver:

- XX-

The deeds of sale, Annexes "C," "D," "E," "F," and "G," [and "K"] are simulated as they are, are NULL
AND VOID AB INITIO because -

Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties
a)
in litis;
SALES 2ND SET
Secondly, assuming that there was consideration in the sums reflected in the questioned
b) deeds, the properties are more than three-fold times more valuable than the measly sums
appearing therein;
Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors
c)
and vendees); and
Fourthly, the purported sale of the properties in litis was the result of a deliberate
d) conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of
their legitime.

- XXI -
Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-
109772, 155329, 155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties
in litis xxx are NULL AND VOID AB INITIO.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as
well as the requisite standing and interest to assail their titles over the properties in litis; (2) that the
sales were with sufficient considerations and made by defendants parents voluntarily, in good faith,
and with full knowledge of the consequences of their deeds of sale; and (3) that the certificates of title
were issued with sufficient factual and legal basis.[4] (Emphasis in the original)
The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against defendant spouses Gavino
Joaquin and Lea Asis.[5] Instead of filing an Answer with their co- defendants, Gavino Joaquin and
Lea Asis filed a Motion to Dismiss.[6] In granting the dismissal to Gavino Joaquin and Lea Asis, the
trial court noted that "compulsory heirs have the right to a legitime but such right is contingent since
said right commences only from the moment of death of the decedent pursuant to Article 777 of the
Civil Code of the Philippines."[7]

After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial court
stated:

In the first place, the testimony of the defendants, particularly that of the xxx father will show that the
Deeds of Sale were all executed for valuable consideration. This assertion must prevail over the
negative allegation of plaintiffs.

And then there is the argument that plaintiffs do not have a valid cause of action against defendants
since there can be no legitime to speak of prior to the death of their parents. The court finds this
contention tenable. In determining the legitime, the value of the property left at the death of the
testator shall be considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory heir
is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an
impairment of their legitime while their parents live.

All the foregoing considered, this case is DISMISSED.

In order to preserve whatever is left of the ties that should bind families together, the counterclaim is
likewise DISMISSED.

No costs.

SO ORDERED.[8]
The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:

To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is,
whether xxx they have a cause of action against appellees.

Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and
sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who
are their parents. However, their right to the properties of their defendant parents, as compulsory
heirs, is merely inchoate and vests only upon the latter's death. While still alive, defendant parents
SALES 2ND SET
are free to dispose of their properties, provided that such dispositions are not made in fraud of
creditors.

Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim to
be creditors of their defendant parents. Consequently, they cannot be considered as real parties in
interest to assail the validity of said deeds either for gross inadequacy or lack of consideration or for
failure to express the true intent of the parties. In point is the ruling of the Supreme Court in Velarde,
et al. vs. Paez, et al., 101 SCRA 376, thus:

The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound
thereby; hence, they have no legal capacity to challenge their validity.

Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the
dispositions made by their defendant parents in favor of their defendant brothers and sisters. But, as
correctly held by the court a quo, "the legitime of a compulsory heir is computed as of the time of the
death of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while their
parents live."

With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is
inconsequential.

WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-
appellants.

SO ORDERED.[9]
Hence, the instant petition.

Issues

Petitioners assign the following as errors of the Court of Appeals:

1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN

QUESTION HAD NO VALID CONSIDERATION.

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT
THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO
NOT EXPRESS THE TRUE INTENT OF THE PARTIES.

4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS
PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF
THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF
THEIR INTEREST OVER THE SUBJECT PROPERTIES.

5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD,
SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS. [10]

The Ruling of the Court

We find the petition without merit.

We will discuss petitioners' legal interest over the properties subject of the Deeds of Sale before
discussing the issues on the purported lack of consideration and gross inadequacy of the prices of
the Deeds of Sale.

Whether Petitioners have a legal interest

over the properties subject of the Deeds of Sale
SALES 2ND SET

Petitioners' Complaint betrays their motive for filing this case. In their Complaint, petitioners asserted
that the "purported sale of the properties in litis was the result of a deliberate conspiracy designed to
unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime." Petitioners'
strategy was to have the Deeds of Sale declared void so that ownership of the lots would eventually
revert to their respondent parents. If their parents die still owning the lots, petitioners and their
respondent siblings will then co-own their parents' estate by hereditary succession.[11]

It is evident from the records that petitioners are interested in the properties subject of the Deeds of
Sale, but they have failed to show any legal right to the properties. The trial and appellate courts
should have dismissed the action for this reason alone. An action must be prosecuted in the name of
the real party-in-interest.[12]

[T]he question as to "real party-in-interest" is whether he is "the party who would be benefitted or
injured by the judgment, or the `party entitled to the avails of the suit.'"

x x x

In actions for the annulment of contracts, such as this action, the real parties are those who are
parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their rights
with respect to one of the contracting parties and can show the detriment which would positively
result to them from the contract even though they did not intervene in it (Ibañez v. Hongkong &
Shanghai Bank, 22 Phil. 572 [1912]) xxx.

These are parties with "a present substantial interest, as distinguished from a mere expectancy or
future, contingent, subordinate, or consequential interest.... The phrase `present substantial interest'
more concretely is meant such interest of a party in the subject matter of the action as will entitle him,
under the substantive law, to recover if the evidence is sufficient, or that he has the legal title to
demand and the defendant will be protected in a payment to or recovery by him." [13]
Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the
appellate court stated, petitioners' right to their parents' properties is merely inchoate and vests only
upon their parents' death. While still living, the parents of petitioners are free to dispose of their
properties. In their overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their parents' estate.
While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken from
the estate.

Whether the Deeds of Sale are void

for lack of consideration

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of
Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.

A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a
contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If
there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the
manner of payment, or even the breach of that manner of payment. If the real price is not stated in
the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated in the contract is simulated, then the
contract is void.[14] Article 1471 of the Civil Code states that if the price in a contract of sale is
simulated, the sale is void. It is not the act of payment of price that determines the validity of a
contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment
of the price goes into the performance of the contract. Failure to pay the consideration is different
from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the
obligation under an existing valid contract while the latter prevents the existence of a valid contract. [15]

Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove
simulation, petitioners presented Emma Joaquin Valdoz's testimony stating that their father,
respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale
without need for her payment of the purchase price. [16] The trial court did not find the allegation of
SALES 2ND SET
absolute simulation of price credible. Petitioners' failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent siblings' financial capacity to buy the
questioned lots.[17] On the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondents' minds meet as to the purchase
price, but the real price was also stated in the Deeds of Sale. As of the filing of the complaint,
respondent siblings have also fully paid the price to their respondent father. [18]

Whether the Deeds of Sale are void

for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to
invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (Emphasis supplied)
Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a
defect in the consent, or that the parties really intended a donation or some other act or contract.
(Emphasis supplied)
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code
which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the
price be equal to the exact value of the subject matter of sale. All the respondents believed that they
received the commutative value of what they gave. As we stated in Vales v. Villa: [19]

Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from
unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts
cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate
not because one person has been defeated or overcome by another, but because he has been
defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by them - indeed, all they have in the world; but not for that alone can the
law intervene and restore. There must be, in addition, a violation of the law, the commission of what
the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation
and remedy it. (Emphasis in the original)
Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater
weight when they coincide with the factual findings of the trial court. This Court will not weigh the
evidence all over again unless there has been a showing that the findings of the lower court are
totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion. [20] In
the instant case, the trial court found that the lots were sold for a valid consideration, and that the
defendant children actually paid the purchase price stipulated in their respective Deeds of Sale.
Actual payment of the purchase price by the buyer to the seller is a factual finding that is now
conclusive upon us.

WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto. SO ORDERED.

G.R. No. 131679 February 1, 2000
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.
MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No.
42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration.

The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are
banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a
certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he
SALES 2ND SET
mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered by
TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB
foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property
was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB
consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was cancelled
and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.1âwphi1.nêt

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by Lim
and Gatpandan, states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon
City for P300,000.00 under the following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of illegal occupants or tenants.

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option
Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However,
after some time following up the sale, Lim discovered that the subject property was originally
registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No.
91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the
same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It
appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial
Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial
court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No.
300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has since
become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company,
FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29,
1989 an action for specific performance and damages against petitioners in the Regional Trial Court,
Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as an additional
defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1)
there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that
the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale
and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No.
Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were
not exempt from liability despite the impossibility of performance, because they could not credibly
disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure to
discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are
liable for damages for the prejudice caused against the Lims. 3 Based on the foregoing findings, the
trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of
P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also
ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as
moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of
the suit.4

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in
toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion
was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend that
—
SALES 2ND SET
1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were
aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil
Case No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit
of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages,
exemplary damages, attorney's fees and costs of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent
Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was
given as option money, not as earnest money.5 They thus conclude that the contract between CDB
and Lim was merely an option contract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parries thereto but by principles of
law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it
by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the
offer to purchase as "option money," is actually in the nature of earnest money or down payment
when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the
nature of an option contract, viz. —

An option contract is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to enter into a
principal contract, it binds the party who has given the option not to enter into the principal
contract with any other person during the period; designated, and within that period, to enter
into such contract with the one to whom the option was granted, if the latter should decide to
use the option. It is a separate agreement distinct from the contract to which the parties may
enter upon the consummation of the option.

An option contract is therefore a contract separate from and preparatory to a contract of sale which, if
perfected, does not result in the perfection or consummation of the sale. Only when the option is
exercised may a sale be perfected.

In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for
the payment only of the balance of the purchase price, implying that the "option money" forms part of
the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil
Code. It is clear then that the parties in this case actually entered into a contract of sale, partially
consummated as to the payment of the price. Moreover, the following findings of the trial court based
on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase:

It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and
no longer subject to a final approval. In his testimony for the defendants on February 13, 1992,
FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department of
FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla,
CDB's senior vice-president, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in accord with one of the
conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p.
12); that, in compliance with the request, a petition for writ of possession was thereafter filed
on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that
no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal
procedure, and neither did the banks return the amount of P30,000.00 to the plaintiffs. 9

Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected
and, indeed, partially executed because of the partial payment of the purchase price. There is,
however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its
obligation as seller to deliver and transfer ownership of the property.
SALES 2ND SET
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not
have. In applying this precept to a contract of sale, a distinction must be kept in mind between the
"perfection" and "consummation" stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. 10 It is, therefore, not required that, at the perfection stage,
the seller be the owner of the thing sold or even that such subject matter of the sale exists at that
point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing
which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to
the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of
the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it
is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with
his obligation to transfer ownership to the buyer. It is at the consummation stage where the principle
of nemo dat quod non habet applies.

In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the subject
land were no longer the owners of the same because of a prior sale. 13 Again, in Nool v. Court of
Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the
property sold, is invalid:

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid
and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the
principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in
Exhibit D are both void. This conclusion of the two lower courts appears to find support
in Dignos v. Court of Appeals, where the Court held:

Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.

In the present case, it is clear that the sellers no longer had any title to the parcels of land at
the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the
validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily,
Article 1422 of the Civil Code provides that (a) contract which is the direct result of a previous
illegal contract, is also void and inexistent.

We should however add that Dignos did not cite its basis for ruling that a "sale is null and void"
where the sellers "were no longer the owners" of the property. Such a situation (where the
sellers were no longer owners) does not appear to be one of the void contracts enumerated in
Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the
goods are to be acquired . . . by the seller after the perfection of the contract of sale, clearly
implying that a sale is possible even if the seller was not the owner at the time of sale,
provided he acquires title to the property later on.

In the present case, however, it is likewise clear that the sellers can no longer deliver the
object of the sale to the buyers, as the buyers themselves have already acquired title and
delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code:
Those which contemplate an impossible service. Article 1459 of the Civil Code provides that
"the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time
it is delivered." Here, delivery of ownership is no longer possible. It has become impossible. 15

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must,
therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB
never acquired a valid title to the property because the foreclosure sale, by virtue of which, the
property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not
the owner of the property foreclosed.

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the
Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the
ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in
money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also
SALES 2ND SET
applies in a foreclosure sale. This is the reason Art. 2085 16 of the Civil Code, in providing for the
essential requisites of the contract of mortgage and pledge, requires, among other things, that the
mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a
possible foreclosure sale should the mortgagor default in the payment of the loan.

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising
therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good
faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of Title,
as buyers or mortgagees, are not required to go beyond what appears on the face of the title. 17 The
public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful
ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good
faith, relied upon what appears on the face of the certificate of title.

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a
detailed investigation of the history of the title of the property given as security before accepting a
mortgage.

We are not convinced, however, that under the circumstances of this case, CDB can be considered a
mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on
the history of the mortgagor's title, they cannot be excused from the duty of exercising the due
diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice
for banks, before approving a loan, to send representatives to the premises of the land offered as
collateral and to investigate who are real owners thereof, noting that banks are expected to exercise
more care and prudence than private individuals in their dealings, even those involving registered
lands, for their business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the
innocent original registered owner who obtained his certificate of title through perfectly legal
and regular proceedings, than one who obtains his certificate from a totally void one, as to
prevail over judicial pronouncements to the effect that one dealing with a registered land, such
as a purchaser, is under no obligation to look beyond the certificate of title of the vendor, for in
the latter case, good faith has yet to be established by the vendee or transferee, being the
most essential condition, coupled with valuable consideration, to entitle him to respect for his
newly acquired title even as against the holder of an earlier and perfectly valid title. There
might be circumstances apparent on the face of the certificate of title which could excite
suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of
the original registered owner, as in the instant case, where it was by means of a self-executed
deed of extra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas
certificate of title. Failing to make such inquiry would hardly be consistent with any pretense of
good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee,
and for the reversal of the judgment rendered against it by the lower court.19

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of
Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by executing
an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto
Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his
rights thereto. This self-executed deed should have placed CDB on guard against any possible defect
in or question as to the mortgagor's title. Moreover, the alleged ocular inspection report 20 by CDB's
representative was never formally offered in evidence. Indeed, petitioners admit that they are aware
that the subject land was being occupied by persons other than Rodolfo Guansing and that said
persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo. 21

II.

The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was
at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners guilty
of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money,
CDB already knew that it was no longer the owner of the said property, its title having been
cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on
speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the
SALES 2ND SET
mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4)
the final decision cancelling the mortgagor's title was not annotated in the latter's title.

As a rule, only questions of law may be raised in a petition for review, except in circumstances where
questions of fact may be properly raised.23 Here, while petitioners raise these factual issues, they
have not sufficiently shown that the instant case falls under any of the exceptions to the above rule.
We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of
petitioners' negligence in approving the mortgage application of Rodolfo Guansing.

III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of
the Civil Code provides:

If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

xxx xxx xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of what has been promised him. The other, who
is not at fault, may demand the return of what he has given without any obligation to comply
with his promise.

Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a demand by
respondents for the return of their money, interest thereon at the legal rate should be computed from
August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners
accepted the payment. This is in accord with our ruling in Castillo v. Abalayan24 that in case of avoid
sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund it,
with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Indeed,
Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has given"
clearly implies that without such prior demand, the obligation to return what was given does not
become legally demandable.

Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and
2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be
recovered even if a bank's negligence is not attended with malice and bad faith. We find, however,
that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only
intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the
expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to
P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the
Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's
fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to
P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the
award of damages as above stated.1âwphi1.nêt

SO ORDERED.