Sales Case Digest

SALES CASE DIGEST A. BASIC CONCEPT

I. DEFINITION OF CONTRACT Acap v. CA [G.R. No. 118114.December 7, 1995.] First Division, Padilla (J): 4 concur Facts: The title to Lot 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT R-12179. The

lot has an area of13,720 sq. m. The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled “Declaration of Heirship and Deed of Absolute Sale” in favor of Cosme Pido. Since 1960,  Teodoro Acap hadbeen the tenant of a portion of the said land, covering an area of 9,500sq. 9,500sq. m. When ownership was transferred in 1975 by Felixberto to CosmePido, Acap continued to be the registered tenant thereof and religiouslypaid his leasehold rentals to Pido and thereafter, upon Pido’s death, to his widow Laurenciana. The controversy began when Pido died interstate and on 27 November 1981, his surviving surviving heirs executed a notarized document denominated as “Declaration of Heirship Heirship andWaiver andWaiver of Rights Rights of Lot 1130 1130 Hinigara Hinigaran n Cadastr Cadastre,” e,” wherein wherein they declared declared to have have adjudica adjudicated ted upon themselves the parcel of land in equal share, and that they waive, quitclaim all right, interests and participation over the parcel of land in favor of Edy de los Reyes. The document was signed by all of Pido’s heirs. Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pido’s death, title to the property continued to be registered in the name of the Vasquezspouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, de los Reyes filed the same with the Registry ofDeeds as part of a notice of an adverse claim against the original certificate of  title.  Thereafter, delos Reyes sought for Acap to personally inform him that he had become the new owner of the land and that the lease rentals rentals thereon thereon should should be paid paid to him. him. Delos Delos Reyes Reyes alleg alleged ed that that he and Acap enter entered ed into into an oral oral lea lease se agreement wherein Acap agreed to pay 10cavans of palay per annum as lease rental. In 1982, Acap allegedlycomplied with said obligation. In 1983, however, Acap refused refused to pay any further lease rentals on the land, prompting delos Reyes to seek theassistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran,Negros Occidental. The MAR invited Acap, who sent his wife, to a conference scheduled on 13 October 1983. The wife stated that the sheand her husband did not recognize delos Reyes’s claim of ownership over the land. On 28 April 1988, after the lapse of four (4) years, delosReys field a complaint for recovery of possession and damages against Acap, alleging that as his leasehold tenant, Acap refused and failed to pay the agreed annual rental of 10 cavans of palay despite repeated demands. On 20 August 1991, the lower court rendered a decision in favor of delos Reyes, ordering the forfeiture of Acap’s preferred right of a Certificate of Land  Transfer under PD 27 and his farm holdings, there turn of the farmland in Acap’s possession to delos Reyes, and Acap topay P5,000.00 as attorney’s fees, the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages. Aggrieved, petitioner appealed to the Court of Appeals. Subsequently, the CA affirmed the lower court’s decision, holding that de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled “Declaration of Heirship and Waiver of Rights”, and ordering the dispossession of Acap as leasehold tenant of the land for failure to pay rentals. Hence, the petition for review on certiorari. certiorari.  The Supreme Court granted the petition, set aside the decision of the RTC Negros Occidental, dismissed the complaint for recovery of possession and damages against Acap for failure to properly state a cause of action, without prejudice to private respondent taking theproper legal steps to establish the legal mode by which he claims to have acquired ownership of the land in question. 1. Asserted right or claim to ownership not sufficient per se to give rise to ownership over the res An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the  juridical justification, justification, mode is the actual actual process of acquisition acquisition transfer of ownership ownership over a thing in question. question. 2. Classes of modes of acquiring ownership Under Article 712 of the Civil Code, the modes of acquiring ownershipare generally classified into two (2) classes, namely, the original mode(i.e, through occupation, acquisitive prescription, law or intellectualcreation) and the derivative mode (i.e., through succession mortis causaor tradition as a result of certain contracts, such as sale, barter,donation, assignment or mutuum). 3.Contract of Sale; “Declaration of Heirship and Waiver of Rights” anextrajudicial settlement between heirs under Rule 74 of the Rules of Court In a Contr Contrac actt of Sale, Sale, one of the contr contract acting ing partie parties s obliga obligates tes hims himself elf totra totransf nsfer er the owner ownershi ship p of and to delive deliverr a determinate thing, and theother party to pay a price certain in money or its equivalent. On theother hand, a declaration of  heirship and waiver of rights operates as apublic instrument when filed with the Registry of Deeds whereby theintestate heirs heirs adjudi adjudica cate te and divide divide the estate estate left left by the decedent decedentam among ong themse themselv lves es as they they see see fit. fit. It is in effect effect an extrajudicialsettlement between the heirs under Rule 74 of the Rules of Court. In thepresent case, the trial court erred in equating the nature and effect of the Declaration of Heirship and Waiver of Rights the same with a contract (deed) of sale. 4. Sale of hereditary rights and waiver of hereditary rights distinguished

 There is a marked difference between a sale of hereditary rights and awaiver of hereditary rights. The first presumes the existence of acontract or deed of sale between the parties. The second is, technicallyspeaking, a mode of extinction of  ownership where there is anabdication or intentional relinquishment of a known right withknowledge of its existence and intention to relinquish it, in favor of otherpersons who are co-heirs in the succession. In the present case, de losReyes, being then a stranger to the succession of Cosme Pido, cannotconclusively cannotconclusively claim ownership over the subject lot on the sole basis of thewaiver document which neither recites the elements of either a sale, ora donation,or any other derivative mode of acquiring ownership. 5.Summon of Ministry of Agrarian Reform does not conclude actuality of sale nor notice of such sale  The conclusion, made by the trial and appellate courts, that a “sale”transpired “sale”transpired between Cosme Pido’s heirs and de los Reyes and that Acapacquired actual knowledge of said sale when he was summoned by theMinistry of Agrarian Reform to discuss de los Reyes’ claim over the lot inquestion, has no basis both in fact and in law. 6. A notice of adverse claim does not prove ownership over the lot;Adverse claim not sufficient to cancel the certificate of  tile and foranother to be issued in his name A notice of adverse claim, by its nature, does not however prove privaterespondent’s ownership over the tenanted lot. “A notice of adverseclaim is nothing but a notice of a claim adverse to the registered owner,the validity of which is yet to be established in court at some futuredate, and is no better than a notice of lis pendens which is a notice of acase already pending in court.” In the present case, while the existenceof said adverse claim was duly proven (thus being filed with the Registryof Deeds which contained the Declaration of Heirship with Waiver ofrights an was annotated at the back of the Original Certificate of Title tothe land in question), there is no evidence whatsoever that a deed ofsale was executed between Cosme Pido’s heirs and de los Reyestransferring the rights of the heirs to the land in favor of de los Reyes.De los Reyes’ right or interest therefore in the tenanted lot remains anadverse claim which cannot by itself be sufficient to cancel the OCT tothe land and title to be issued in de los Reyes’ name. 7. Transaction between heirs and de los Reyes binding betweenparties, but cannot affect right of Acap to tenanted land withoutcorresponding withoutcorresponding proof thereof While the transaction between Pido’s heirs and de los Reyes may bebinding on both parties, the right of Acap as a registered tenant to theland cannot be perfunctorily forfeited on a mere allegation of de losReyes’ ownership without the corresponding proof thereof. Acap hadbeen a registered tenant in the subject land since 1960 and religiouslypaid religiouslypaid lease rentals thereon. In his mind, he continued to be theregistered tenant of Cosme Pido and his family (after Pido’s death), evenif in 1982, de los Reyes allegedly informed Acap that he had become thenew owner of the land. 8. No unjustified or deliberate refusal to pay the lease rentals to the landowner / agricultural lessor De los Reyes never registered the Declaration of Heirship with Waiver ofRights with the Registry of Deeds or with the MAR, but instead, he filed anotice of adverse claim on the said lot to establish ownership thereof(which cannot be done). It stands to reason, therefore, to hold that therewas no unjustified or deliberate refusal by Acap to pay the lease rentalsor amortizations amortizations to the landowner/agricultural landowner/agricultural lessor which, in this case,de los Reyes failed to established in his favor by clear and convincingevidence. This notwithstanding the fact that initially, Acap may have, ingood faith, assumed such statement of de los Reyes to be true and mayhave in fact delivered 10 cavans of palay as annual rental for 1982 tolatter. For in 1983, it is clear that Acap had misgivings over de losReyes’ claim of ownership over the said land because in the October1983 MAR conference, conference, his wife Laurenciana categorically categorically denied all ofde los Reyes’ allegations. In fact, Acap even secured a certificate certificate fromthe MAR dated 9 May 1988 to the effect that he continued to be theregistered tenant of Cosme Pido and not of delos Reyes. 9. Sanction of forfeiture of tenant’s preferred right and possession of  farmholdings should not be applied The sanction of forfeiture of his preferred right to be issued a Certificateof Certificateof Land  Transfer under PD 27 27 and to the possession of his his farmholdingsshould farmholdingsshould not be applied against Acap, since de los los Reyes has notestablished a cause of action for recovery of possession against Acap. II. NO CONTRACT OF SALE Toyota Shaw v. CA [G.R. No. 116650.May 23, 1995.] First Division, Division, Davide Jr (J): 3 concur, 1 on leave

Facts: Sometime in June 1989, Luna L. Sosa wanted to purchase aToyota Lite Ace. It was then a seller’s market and Sosa had difficultyfinding a dealer with an available unit for sale. But upon contractingToyota Shaw, Inc., he was told that there was an available unit. So on 14June 1989, Sosa and his son, Gilbert, went to the Toyota ShawBoulevard, Pasig, Metro Manila. They met Popong Bernardo, a salesrepresentative of Toyota. Sosa emphasized to Bernardo that he neededthe Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go Marinduque, hishome province, where he would celebrate his birthday on 19 June. Headded that if he does not arrive in his hometown with the new car, hewould become a “laughing stock.” Bernardo assured Sosa that a unitwould be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed a document entitled “Agreements Between Mr. Sosa &Popong Bernardo Bernardo of Toyota Toyota Shaw, Shaw, Inc,” Inc,” stipulat stipulating ing that all necessar necessarydoc ydocument uments s will will be submitted submitted to Toyota Toyota Shaw (Popong Bernardo) a weekafter, upon arrival of Mr. Sosa from the Province (Marinduque) where theunit will be used on the 19 June; that the downpayment of P100,000.00will be paid by Mr. Sosa on 15 June 1989; and that the Toyota Shaw, Inc.will be released a yellow Lite Ace unit.It was also agreed upon by theparties that the balance of the purchase price would be paid by creditfinancing through B.A. Finance, and for this Gilbert, on behalf of hisfather, signed the documents of Toyota and B.A. Finance Finance pertainin pertaining g tothe application application for financing financing.. The next day, day, Sosa and Gilbert Gilbert went went toToyota toToyota to deliver deliver the downpaym downpayment ent of P100,00 P100,000.00 0.00.. They met Bernardo Bernardowho who then accompl accomplished ished a printed printed Vehicle Vehicle Sales Proposal Proposal (VSP)928 (VSP)928,, onwhich Gilbert signed under the subheading “conforme”. This documentshows that the customer’s name is “Mr. Luna Sosa” with home addressat 2316 Guijo Street, United Parañaque II; that the model series of thevehicle is a “Lite Ace 1500 described as “4 Dr minibus”; that paymentis by “installment,” to be financed by “B.A.,” with the initial cash outlayof  ″

P100,000.00 P100,000.00 (downpayment: P53,148.00; P53,148.00; insurance: P13,970.00; P13,970.00; BLTregistration fee: P1,067.00; P1,067.00; CHMO fee: P2,715.00; P2,715.00;

Service fee: P500.00;and accessories: P29,000.00) and the balance to be financed isP274,137.00. The spaces provided for “delivery terms” were not filled-up. It also contains conditions of sales providing that the sale is subjectto the availability of  the unit, and that the stated price is subject tochange without prior notice, and that the price prevailing and in effectat time of selling will apply. Rodrigo Quirante, the Sales Supervisor ofBernardo, checked and approved the VSP. On 17 June (9:30 a.m.), Bernardo called Gilbert to inform him that thevehicle would not be ready for pick up at 10:00 a.m. as previouslyagreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa andGilbert met Bernardo at the latter’s office. According to Sosa, Bernardoinformed them that the Lite Ace was being readied for delivery. Afterwaiting for about an hour, Bernardo told them that the car could not bedelivered because it was acquired by a more influential person.  Toyotacontends, however, that the Lite Ace was not delivered to Sosa becauseof the disapproval of B.A. Finance of the credit financing application ofSosa. It further alleged that a particular unit had already been reversedand earmarked for Sosa but could not be released due to theuncertainty of payment of the balance of the purchase price. Toyotathen gave Sosa the option to purchase the unit by paying the fullpurchase price in cash but Sosa refused.After it became clear that theLite Ace would not be delivered to him, Sosa asked that hisdownpayment be refunded. Toyota did so on the very same day byissuing a Far East Bank check for the full amount of P100,000.00, thereceipt of which was shown by a check voucher of Toyota, which Sosasigned with the reservation, “without prejudice to our future claims fordamages.” Thereafter, Sosa sent two letters to Toyota: one on 27 June1989 demanding the refund, within 5 days from receipt, of thedownpayment of  P100,000.00 plus interest from the time he paid it andthe payment of damages with a warning that in case of Toyota’s failureto do so he would be constrained to take legal action; and the other on 4November 1989 (signed by M.O. Caballes, Sosa’s counsel) demandingP1M representing interest and damages, again, with a warning that legalaction would be taken if payment was not made within 3 days. Toyota’scounsel answered through as letter dated 27 November 1989 8 refusingto accede to the demands of Sosa. But even before the answer was made and received by Sosa, the latterfiled on 20 November 1989 with the RTC Marinduque (Branch 38) acomplaint against Toyota for damages under Articles 19 and 21 of theCivil Code in the total amount of P1,230,000.00.After trial on the issueagreed upon during the pre-trial session, the trial court rendered on 18February 1992 a decision in favor of Sosa. It ruled that the “Agreementbetween Mr. Sosa and Popong Bernardo,” was a valid perfected andcontract of sale between Sosa and Toyota which bound Toyota to deliverthe vehicle to Sosa, and further agreed with Sosa that Toyota acted inbad faith in selling to another the unit already reserved for him; thatBernardo, as an authorized sales executive of Toyota Shaw, was thelatter’s agent and thus bound Toyota Shaw; that Luna Sosa proved hissocial standing in the community and suffered besmirched reputation,wounded feelings and sleepless nights for which he ought to becompensated; and thus rendered judgment ordering Toyota Shaw to paySosa the sum of P75,000 as moral damages, P10,000 as exemplarydamages, P30,000 as attorney’s fees plus P2,000 lawyer’stransportation fare per trip in attending to the hearing of the case,P2,000 for Sosa’s transportation fare per trip in attending the hearing ofthe case, and to pay the cost of the suit. Dissatisfied with the trial court’s judgment, Toyota appealed to theCourt of Appeals (CA-GR CV 40043). In its decision promulgated on 29July 1994, the Court of Appeals affirmed in toto the appealed decision.Hence the petition for review by certiorari by Toyota Shaw.  The Supreme Court granted the petition, and dismissed the challengeddecision of the Court of Appeals and that of Branch 38 of the RegionalTrial Court of Marinduque, and the counterclaim therein; withoutpronouncement as to costs. 1.Contract of sale defined; Kinds Article 1458 of the Civil Code defines a contract of sale as “By thecontract of the sale one of the contracting parties obligates himself totransfer the ownershipof and to deliver a determinate thing, and theother to pay therefor a price certain in money or its equivalent. Acontract of sale may be absolute or conditional. 2.Contract of sale, when perfected; Effect Article 1475 of the Civil Code specifically provides when the contract ofsale is deemed perfected, i.e. “The contract of sale is perfected at themoment there is a meeting of minds upon the thing which is the objectof the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. 3.“Agreement between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” not a contract of sale  The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,Inc.” executed on 4 June 1989, is not a contract of  sale. No obligation onthe part of Toyota to transfer ownership of a determinate thing to Sosaand no correlative obligation on the part of the latter to pay therefor aprice certain appears therein. The provision on the downpayment ofP100,000.00 made no specific reference to a sale, it could only refer to asale on installment basis, as the VSP executed the following dayconfirmed. But nothing was mentioned about the full purchase price andthe manner the installments were to be paid. Neither logic nor recourseto one’s imagination can lead to the conclusion that such agreement is aperfected contract of  sale. 4.Definitive price is an essential element in the formation of a binding and enforceable contract of sale A definite agreement on the manner of payment of the price is anessential element in the formation of a binding and enforceable contractof sale. This is so because the agreement as to the manner of paymentgoes into the price such that a disagreement on the manner of paymentis tantamount to a failure to agree on the price. Definiteness as to theprice is an essential element of a binding agreement to sell personalproperty. 5.No meeting of the minds

 The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,Inc.” shows the absence of a meeting of minds between Toyota andSosa. Sosa did not even sign it. Further, Sosa was well aware from itstitle, written in bold letters, and thus knew that he was not dealing withToyota but with Popong Bernardo and that the latter did notmisrepresent that he had the authority to sell any Toyota vehicle. 6.Prudence and reasonable diligence in inquiring authority of agent Sosa knew that Bernardo was only a sales representative of Toyota andhence a mere agent of the latter. It was incumbent upon Sosa to actwith ordinary prudence and reasonable diligence to know the extent ofBernardo’s authority as an agent in respect of contracts to sell Toyota’svehicles. A person dealing with an agent is put upon inquiry and mustdiscover upon his peril the authority of the agent. 7.Three stages in the contract of sale  There are three stages in the contract of sale, namely (a) preparation,conception, or generation, which is the period of  negotiation andbargaining, ending at the moment of agreement of the parties; (b)perfection of birth of the contract, which is the moment when the partiescome to agree on the terms of the contract; and (c) consummation ordeath, which is the fulfillment or performance of the terms agreed uponin the contract. In the present case, the “Agreements between Mr. Sosa& Popong Bernardo of Toyota Shaw, Inc.” may be considered as part ofthe initial phase of the generation of  negotiation stage of a contractsale. The second phase of the generation or negotiation stage was theexecution of the VSP (the downpayment of the purchase price wasP53,148.00 while the balance to be paid on installment should befinanced by B.A. Finance. It is assumed that B.A Finance was acceptableto Toyota). 8.Financing companies defined Financing companies are defined in Section 3(a) of RA 5980, asamended by PDs 1454 and 1793, as “corporations or partnerships,except those regulated by the Central Bank of the Philippines, theInsurance Commission and the and the Cooperatives AdministrationOffice, which are primarily organized for the purpose of extending creditfacilities to consumers and to industrial, commercial, or agriculturalenterprises, either by discounting or factoring commercial papers oraccounts receivable, or by buying and selling contracts, leases, chattelmortgages, or other evidence of indebtedness, or by leasing of motorvehicles, heavy equipment and industrial machinery, business and officemachines and equipment, appliances and other movable property.” 9. Parties in a sale on installment basis financed by a financingcompany; No meeting of minds as financing application was disapproved In a sale on installment basis which is financed by a financing company,3 parties are thus involved: (1) the buyer who executes a note or notesfor the unpaid balance of the price of the thing purchased oninstallment, (2) the seller who assigns the notes or discounts them witha financing company, and (3) the financing company which issubrogated in the place of  the seller, as the creditor of the installmentbuyer. Since B.A. Finance did not approve Sosa’s application, there wasthen no meeting of minds on the sale on installment basis. 10. Toyota’s version of circumstances leading to non-release of vehicle more credible  Toyota’s version that B.A. Finance disapproved Sosa’s application forwhich reason it suggested to Sosa that he pay the full purchase price ismore credible. When the latter refused, Toyota cancelled the VSP andreturned to him his P100,000.00. Sosa’s version, that the VSP wascancelled because the vehicle was delivered to another because of amore influential client, is contradicted by paragraph 7 of his complaintwhich states that Bernardo “for reasons known only to itsrepresentatives, refused and/or failed to release the vehicle to theplaintiff . Plaintiff demanded for an explanation, but nothing was given.” 11.VSP mere proposal and did not create demandable right in favor of Sosa when it was aborted  The VSP was a mere proposal which was aborted in lieu of subsequent events. Thus, the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. 12.Award of moral damages without legal basis  The award of moral damages is without legal basis. The only groundupon which Sosa claimed moral damages is that since it was known tohis friends, townmates, and relatives that he was buying a Toyota LiteAce which they expected to see on his birthday, he suffered humiliation,shame, and sleepless nights when the van was not delivered. The vanbecame the subject matter of talks during his celebration that he maynot have paid for it, and this created an impression against his businessstanding and reputation created an impression against his businessstanding and reputation. At the bottom of this claim is nothing butmisplaced pride and ego. He should not have announced his plan to buyToyota Lite Ace knowing that he might not be able to pay the fullpurchase price. It was he who brought embarrassment upon himself bybragging about a thing which he did not own yet. 13.Award of exemplary damages without basis; Purpose of exemplary damages Since Sosa is not entitled to moral damages and there being no awardfor temperate, liquidated, or compensatory damages, he is likewise notentitled to exemplary damages. Under Article 2229 of the Civil Code,exemplary or corrective damages are imposed by way of example orcorrection for the public good, in addition to moral, temperate,liquidated, or compensatory damages. 14.Award of attorney’s fees without basis For attorney’s fees to be granted the court must explicitly state in thebody of the decision, and not only in the dispositive portion thereof, thelegal reason for the award of attorney’s fees. No such explicitdetermination thereon was made in the body of the decision of the trialcourt. Thus, no reason exists for such award. B. ESSENTIAL CHARACTERISTICS OF CONTRACT OF SALE

1. NOMINATE AND PRINCIPAL

Romero v. CA 250 SCRA 15 Facts: Virgilio Romero and his foreign partners decided to put up acentral warehouse in Metro Manila. Alfonso Flores, in

behalf of EnriquetaChua vda. De Ongsiong, proposed the latter’s lot to Romero as the sitefor the said warehouse. A contract denominated as “Deed of ConditionalSale” was executed between Romero and Ongsiong where the amountof  P50,000 was received from Romero for the purpose of taking up amejectment case against the squatters found therein. Ongsiong sought toreturn the amount she received from Romero as she claimed she isunable to rid the land of squatters, notwithstanding the favorablejudgment already promulgated by the court in the ejectment case.Romero’s counsel refused the tender and expressed willingness tounderwrite the expense of executing the judgment chargeable to thepurchase price of the land. Ongsiong filed a case with the trial court forthe rescission of the deed of “conditional” sale, and for the consignationof the amount of P50,000. The trial court rendered a decision in favor ofRomero, which was reversed by the Court of Appeals. Issue: Whether the “Deed of Conditional Sale” is a perfected contract of sale Held: The deed of sale, even if denominated as a deed of conditionalsale, may be treated as absolute in nature, especially

if title to theproperty sold is not reserved in the vendor or if the vendor is notgranted the right to unilaterally rescind the contract predicated on thefulfillment or non-fulfillment of the prescribed condition. In determiningthe real character of  contract, the substance and not the title given bythe party is more significant. Upon perfection, i.e. where the sellerobligates himself, for a price certain, to deliver and to transferownership of a specific thing or right to the buyer over which the latteragrees, the parties are bound not only to the fulfillment of what wasexpressly stipulated but also the consequences which may be in keepingwith good faith, usage and law. Being a perfected contract of sale, norescission can be had. The proper action is an action for damages.Arguendo that rescission is available as a remedy, as provide by Article1191 in reciprocal obligations, it may only be availed of by the injured party. 2.CONSENSUAL Quijada v. CA [G.R. No. 126444.December 4, 1998.] Second Division, Martinez (J): 3 concur Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria,Eulalio, and Warlito) are the children of the late

 Trinidad Corvera Vda. deQuijada. Trinidad was one of the heirs of the late Pedro Corvera andinherited from the latter the 2hectare parcel of land subject of the case,situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5April1956,  Trinidad Quijada together with her sisters Leonila CorveraVda. de Sequeña and Paz Corvera Cabiltes and brother EpapiaditoCorvera executed a conditional deed of donation of the 2-hectare parcelof land in favor of the Municipality of   Talacogon, the condition being thatthe parcel of land shall be used solely and exclusively as part of thecampus of the proposed provincial high school in Talacogon. Apparently,Trinidad remained in possession of the parcel of land despite thedonation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcelof land to Regalado Mondejar. Subsequently,  Trinidad verbally sold theremaining 1 hectare to Mondejar without the benefit of a written deed ofsale and evidenced solely by receipts of payment. In 1980, the heirs ofTrinidad, who at that time was already dead, filed a complaint forforcible entry against Mondejar, which complaint was, however,dismissed for failure to prosecute. In 1987, the proposed provincial high school having failed to materialize, the Sangguniang Bayan of themunicipality of Talacogon enacted a resolution reverting the 2 hectaresof land donated back to the donors. In the meantime, Mondejar soldportions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden,and Ernesto Goloran. On 5 July 1988, the petitioners filed a complaint against privaterespondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso,Bautista, Macasero and Maguisay) for quieting of title, recovery ofpossession and ownership of parcels of land with claim for attorney’sfees and damages. The trial court rendered judgment in favor of thepetitioners, holding that  Trinidad Quijada did not have legal title or rightto sell the land to Mondejar as it belongs to the Municipality ofTalacogon at that time, and that the deed of sale in favor of Mondejardid not carry the conformity and acquiescence of her childrenconsidering that Trinidad was already 63 years old and a widow. Thetrial court ordered the defendants (private respondents), and any personacting in defendants’ behalf to return and vacate the 2 hectares of landto the plaintiff, and to remove their improvements constructed on thelot; ordered the cancellation of the deed of sale executed by Trinidad toMondejar, as well as the deeds of sale/relinquishments executed byMondejar to the other defendants; and ordered the defendants to paythe plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000as attorney’s fees, expenses of  litigation and moral damages, respectively. On appeal, the Court of Appeals reversed and set aside the judgment aquo ruling that the sale made by Trinidad Quijada to respondentMondejar was valid as the former retained an inchoate interest on thelots by virtue of the automatic reversion clause in the deed of donation.Thereafter, petitioners filed a motion for reconsideration. When the CAdenied their motion, petitioners instituted a petition for review to theSupreme Court.  The Supreme Court affirmed the assailed decision of the Court of Appeals. 1. Condition valid in donation if not contrary to law, morals, good customs, public order or public policy  The donation made on April 5, 1956 by Trinidad Quijada and her brotherand sisters was subject to the condition that the donated property shallbe “used solely and exclusively as a part of the campus of the proposedProvincial High School in  Talacogon.” The donation further provides thatshould “the proposed Provincial High School be discontinued or if thesame shall be opened but for some reason or another, the same may inthe future be closed” the donated property shall automatically revert tothe donor. Such condition, not being contrary to law, morals, goodcustoms, public order or public policy was validly imposed in the donation. 2. Donation as mode of acquiring ownership

When the Municipality’s acceptance of the donation was made known tothe donor, the former became the new owner of  the donated property,donation being a mode of acquiring and transmitting ownership,notwithstanding the condition imposed by the donee. The donation isperfected once the acceptance by the donee is made known to thedonor. Accordingly, ownership is immediately transferred to the latterand that ownership will only revert to the donor if the resolutorycondition is not fulfilled. 3. Condition to construct school is a resolutory condition  The resolutory condition, in the present case, is the construction of theschool. It has been ruled that when a person donates land to another onthe condition that the latter would build upon the land a school, thecondition imposed is not a condition precedent or a suspensivecondition but a resolutory one. So long as the resolutory conditionsubsists and is capable of  fulfillment, the donation remains effective andthe donee continues to be the owner subject only to the rights of thedonor or his successors-in-interest under the deed of donation. Since noperiod was imposed by the donor on when must the donee comply withthe condition, the latter remains the owner so long as he has tried tocomply with the condition within a reasonable period. Such period,however, became irrelevant herein when the donee manifested that itcannot comply with the condition and the same was made known to thedonor. Only then, when the non-fulfillment of the resolutory conditionwas brought to the donor’s knowledge, that ownership of the donatedproperty reverted to the donor as provided in the automatic reversionclause of the deed of donation. 4. Inchoate interest may be subject of contract including a contract ofsale; Interest over property under conditional deed of  donation, not theland itself   The donor may have an inchoate interest in the donated property duringthe time that ownership of the land has not reverted to her. Suchinchoate interest may be the subject of contracts including a contract ofsale. In the present case, however, what the donor sold was the landitself which she no longer owns. It would have been different if thedonor-seller sold her interests over the property under the deed ofdonation which is subject to the possibility of reversion of  ownershiparising from the non-fulfillment of the resolutory condition. 5. Laches, elements Laches presupposes failure or neglect for an unreasonable andunexplained length of time, to do that which, by exercising duediligence, could or should have been done earlier; “it is negligence oromission to assert a right within a reasonable time, thus, giving rise to apresumption that the party entitled to assert it either has abandoned ordeclined to assert it.” Its essential elements of (a) Conduct on the partof the defendant, or of one under whom he claims, giving rise to thesituation complained of; (b) Delay in asserting complainant’s right afterhe had knowledge of the defendant’s conduct and after he has an opportunity to sue; (c) Lack of knowledge or notice on the part of thedefendant that the complainant would assert the right on which hebases his suit; and, (d) Injury or prejudice to the defendant in the eventrelief is accorded to the complainant” are absent in this case. In thepresent case, petitioners’ cause of action to quiet title commenced onlywhen the property reverted to the donor and/or his successors-in-interest in 1987, not in the 1960’s when they had no interest over theproperty at that time except under the deed of donation to whichprivate respondents were not privy. Moreover, petitioners hadpreviously filed an ejectment suit against private respondents only thatit did not prosper on a technicality. 6. Sale, being a consensual contract, is perfected by mere consent; Seller need not own property when sold but when delivered Sale, being a consensual contract, is perfected by mere consent, whichis manifested the moment there is a meeting of the minds as to theoffer and acceptance thereof on three (3) elements: subject matter,price and terms of payment of the price. Ownership by the seller on thething sold at the time of the perfection of the contract of sale is not anelement for its perfection. What the law requires is that the seller hasthe right to transfer ownership at the time the thing sold is delivered.Perfection per se does not transfer ownership which occurs upon theactual or constructive delivery of the thing sold. A perfected contract ofsale cannot be challenged on the ground of non-ownership on the partof the seller at the time of its perfection; hence, the sale is still valid. 7.Seller’s title passes by operation of law to the buyer  The consummation of the perfected contract is another matter. It occursupon the constructive or actual delivery of the subject matter to thebuyer when the seller or her successors-in-interest subsequentlyacquires ownership thereof.In the present case, such circumstancehappened in this case when petitioners (Trinidad’s heirs) became theowners of the subject property upon the reversion of the ownership ofthe land to them. Consequently, ownership is transferred to Mondejarand those who claim their right from him. Article 1434 of the New CivilCode supports the ruling that the seller’s “title passes by operation oflaw to the buyer.” This rule applies not only when the subject matter ofthe contract of sale is goods, but also to other kinds of property,including real property. 8. Article 1409 (4) does not provide that the properties of amunicipality are outside the commerce of man; Objects outside of thecommerce of man are those which cannot be appropriated Nowhere in Article 1409 (4) is it provided that the properties of amunicipality, whether it be those for public use or its patrimonialproperty, are outside the commerce of men; so as to render the contractinvolving the same inexistent and void from the beginning when sold. Inthe present case, the lots were conditionally owned by the municipality.To rule that the donated properties are outside the commerce of menwould render nugatory the unchallenged reasonableness and justness ofthe condition which the donor has the right to impose as owner thereof.Moreover, the objects referred to as outside the commerce of man arethose which cannot be appropriated, such as the open seas and theheavenly bodies. 9. No factual or legal basis for the award of fees and damages  There is neither factual nor legal basis for the trial court’s award ofattorney’s fees, litigation expenses and moral damages. Attorney’s feesand expenses of litigation cannot, following the general rule in Article2208 of the New Civil Code, be recovered in the present case, therebeing no stipulation to that effect and the case does not fall under anyof the exceptions. It cannot be said that private respondents hadcompelled petitioners to litigate with third persons. Neither can it beruled that the former acted in “gross and evident bad faith” in refusingto satisfy the latter’s claims considering that

private respondents wereunder an honest belief that they have a legal right over the property byvirtue of the deed of sale. Moral damages cannot likewise be justified asnone of the circumstances enumerated under Articles 2219 27 and 222028 of  the New Civil Code concur in this case.

Fule v. CA [G.R. No. 112212.March 2, 1998.]  Third division, Romero (J): 3 concur Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property inTanay, Rizal (covered by TCT 320725) to the Rural

Bank of Alaminos,Laguna to secure a loan in the amount of P10,000. Said mortgage waslater foreclosed and the property offered for public auction upon hisdefault. In June 1984, Gregorio Fule, as corporate secretary of the bank,asked Remelia Dichoso and Olivia Mendoza to look for a buyer whomight be interested in the Tanay property. The two found one in theperson of Ninevetch Cruz. It so happened that in January of said year,Gregorio Fule, also a jeweler, has shown interest in buying a pair ofemerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declinedFule’s offer to buy said jewelry for P100,000; and a subsequent bid byFule to buy them for US$6,000 at $1 to P25 while making a sketch ofsaid jewelry during an inspection at the lobby of Prudential Bank (thelatter instance was declined, since the exchange rate appreciated to P19per dollar). Subsequently, however, negotiations for the barter of thejewelry and the Tanay property ensued. Atty. Belarmino was requestedby Dr. Cruz to check the property and found out that no sale or barterwas feasible as the 1-year period of redemption has not expired.In aneffort to cut through any legal impediment, Fule executed on 19 October1984, a deed of redemption on behalf of Fr. Jacobe purportedly in theamount of P15,987.78, and on even date, Fr. Jacobe sold the property toFule for P75,000.00. The haste with which the two deeds were executedis shown by the fact that the deed of  sale was notarized ahead of thedeed of redemption. As Dr. Cruz had already agreed to the proposedbarter, Fule went to Prudential Bank to take a look at the jewelry. On 23 October 1984, Fule met Atty. Belarmino at the latter’s residence to prepare the documents of sale. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while Fule and Dr. Cruzattended to the safekeeping of the jewelry. The following day, Fule,together with Dichoso and Mendoza, arrived at the residence of Atty.Belarmino to finally execute a deed of absolute sale. Fule signed thedeed and gave Atty. Belarmino the amount of P13,700.00 for necessaryexpenses in the transfer of title over the Tanay property; and issued acertification to the effect that the actual consideration of the sale wasP200,000.00 and not P80,000.00 as indicated in the deed of absolutesale (the disparity purportedly aimed at minimizing the amount of thecapital gains tax that Fule would have to shoulder). Since the jewelrywas appraised only at P160,000.00, the parties agreed that the balanceof P40,000.00 would just be paid later in cash. Thereafter, at the bank,as pre-arranged, Dr. Cruz and the cashier opened the safety depositbox, and delivered the contents thereof to Fule. Fule inspected thejewelry, near the electric light at the bank’s lobby, for 10-15 minutes.Fule expressed his satisfaction by nodding his head when asked by Dr.Cruz if the jewelry was okay. For services rendered, Fule paid theagents, Dichoso and Mendoza, the amount of US$300.00 and somepieces of   jewelry. He did not, however, give them half of the pair ofearrings in question, which he had earlier promised. Later in theevening, Fule arrived at the residence of Atty. Belarmino complainingthat the jewelry given him was fake. Dichoso, who borrowed the car ofDr. Cruz, called up Atty. Belarmino. Informed that Fule was at thelawyer’s house, went there posthaste thinking that Fule had finallyagreed to give them half of the pair of earrings, only to find Fuledemonstrating with a tester that the earrings were fake. Fule thenaccused Dichoso and Mendoza of deceiving him which they, however,denied. They countered that Fule could not have been fooled becausehe had vast experience regarding jewelry. Fule nonetheless took backthe US$300.00 and jewelry he had given them. Thereafter, the groupdecided to go to the house of a certain Macario Dimayuga, a jeweler, tohave the earrings tested. Dimayuga, after taking one look at theearrings, immediately declared them counterfeit. At around 9:30 p.m.,Fule went to one Atty. Reynaldo Alcantara residing at LakesideSubdivision in San Pablo City, complaining about the fake jewelry. Uponbeing advised by the latter, Fule reported the matter to the policestation where Dichoso and Mendoza likewise executed sworn statements. On 26 October 1984, Fule filed a complaint before the RTC San PabloCity against private respondents praying, among other things, that thecontract of sale over the Tanay property be declared null and void onthe ground of fraud and deceit. On 30 October 1984, the lower courtissued a temporary restraining order directing the Register of Deeds ofRizal to refrain from acting on the pertinent documents involved in thetransaction. On 20 November 1984, however, the same court lifted itsprevious order and denied the prayer for a writ of preliminary injunction.After trial, the lower court rendered its decision on 7 March 1989;holding that the genuine pair of earrings used as consideration for thesale was delivered by Dr. Cruz to Fule, that the contract was valid evenif the agreement between the parties was principally a barter contract,that the agreement has been consummated at the time the principalparties parted ways at the bank, and that damages are due to thedefendants. From the trial court’s adverse decision, petitioner elevatedthe matter to the Court of Appeals. On 20 October 1992, the Court ofAppeals, however, rendered a decision affirming in toto the lower court’sdecision. His motion for reconsideration having been denied on 19October 1993. Hence, the petition for review on certiorari.  The Supreme Court affirmed in toto the decision of the Court of Appeals,but ordered Dr. Cruz to pay Fule the balance of the purchase price ofP40,000 within 10 days from the finality of the decision; with costsagainst petitioner. 1.New factual issues cannot be examined as it unduly transcends the limits of the Supreme Court’s review power  The Supreme Court cannot entertain a factual issue, and thus examineand weigh anew the facts regarding the genuineness of the earringsbartered in exchange for the Tanay property, as this would undulytranscend the limits of the Court’s review power in petitions of thisnature which are confined merely to pure questions of law. As a generalrule, the Supreme Court accords conclusiveness to a lower court’sfindings of fact unless it is shown, inter alia, that: (1) the conclusion is afinding grounded on speculations, surmises or conjectures; (2) theinference is manifestly mistaken, absurd and impossible; (3)

when thereis a grave abuse of discretion; (4) when the judgment is based on amisapprehension of facts; (5) when the findings of fact are conflicting;and (6) when the Court of Appeals, in making its findings, went beyondthe issues of the case and the same is contrary to the admission of bothparties.To reiterate, the Supreme Court’s jurisdiction is only limited toreviewing errors of law in the absence of any showing that the findingscomplained of are totally devoid of support in the record or that they areglaringly erroneous as to constitute serious abuse of discretion. 2.Immediate rendition of decision not anomalous No proof has been adduced that Judge Jaramillo was motivated by amalicious or sinister intent in disposing of the case with dispatch.Neither is there proof that someone else wrote the decision for him. Theimmediate rendition of the decision was no more than Judge Jaramillo’scompliance with his duty as a judge to “dispose of the court’s businesspromptly and decide cases within the required periods.” The two-yearperiod within which Judge Jaramillo handled the case provided him withall the time to study it and even write down its facts as soon as thesewere presented to court. In fact, the Supreme Court does not seeanything wrong in the practice of writing a decision days before thescheduled promulgation of judgment and leaving the dispositive portionfor typing at a time close to the date of promulgation, provided that nomalice or any wrongful conduct attends its adoption. The practice servesthe dual purposes of safeguarding the confidentiality of draft decisionsand rendering decisions with promptness. Neither can Judge Jaramillo bemade administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain to his judicial functions arenot subject to disciplinary power unless they are committed with fraud,dishonesty, corruption or bad faith.Hence, in the absence of sufficientproof to the contrary, Judge Jaramillo is presumed to have performed hisjob in accordance with law and should instead be commended for hisclose attention to duty. 3.Contract perfected by mere consent, binds parties to stipulation andall the consequences; Contract of sale perfected upon meeting of mindsupon the thing object of the contract and upon price; Embodiment ofcontract in public instrument only for convenience, and registration onlyto affect third parties; Lack of formal requirements does not invalidatethe contract  The Civil Code provides that contracts are perfected by mere consent.From this moment, the parties are bound not only to the fulfillment ofwhat has been expressly stipulated but also to all the consequenceswhich, according to their nature, may be in keeping with good faith,usage and law.A contract of sale is perfected at the moment there is ameeting of the minds upon the thing which is the object of the contractand upon the price. Being consensual, a contract of sale has the force oflaw between the contracting parties and they are expected to abide ingood faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certaincontracts in a public instrument, is only for convenience, andregistration of the instrument only adversely affects third parties.Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of thecontract nor the contractual rights and obligations of the partiesthereunder. 4. Voidable or annullable contracts Contracts that are voidable or annullable, even though there may havebeen no damage to the contracting parties are: (1) those where one ofthe parties is incapable of giving consent to a contract; and (2) thosewhere the consent is vitiated by mistake, violence, intimidation, undueinfluence or fraud. The contract can be voided in accordance with law soas to compel the parties to restore to each other the things that havebeen the subject of the contract with their fruits, and the price with interest. 5. Fraud; No inducement made by the private respondents  There is fraud when, through the insidious words or machinations of oneof the contracting parties, the other is induced to enter into a contractwhich, without them, he would not have agreed to. In the present case,the records, are bare of any evidence manifesting that privaterespondents employed such insidious words or machinations to enticepetitioner into entering the contract of barter. Neither is there anyevidence showing that Dr. Cruz induced petitioner to sell his  Tanayproperty or that she cajoled him to take the earrings in exchange forsaid property. On the contrary, Dr. Cruz did not initially accede topetitioner’s proposal to buy the said jewelry. Rather, it appears that itwas petitioner, through his agents, who led Dr. Cruz to believe that theTanay property was worth exchanging for her jewelry as he representedthat its value was P400,000.00 or more than double that of the jewelrywhich was valued only at P160,000.00. If indeed petitioner’s propertywas truly worth that much, it was certainly contrary to the nature of abusinessman-banker like him to have parted with his real estate for halfits price. In short, it was in fact petitioner who resorted to machinationsto convince Dr. Cruz to exchange her jewelry for the Tanay property. 7. Mistake; Mistake caused by manifest negligence cannot invalidate a judicial act  To invalidate a contract, mistake must “refer to the substance of thething that is the object of the contract, or to those conditions which haveprincipally moved one or both parties to enter into the contract.”Anexample of mistake as to the object of the contract is the substitution ofa specific thing contemplated by the parties with another. In the presentcase, the petitioner failed to prove the fact that prior to the delivery ofthe jewelry to him, private respondents endeavored to make suchsubstitution of an inferior one or one with Russian diamonds for thejewelry he wanted to exchange with his 10hectare land. Further, onaccount of his work as a banker-jeweler, it can be rightfully assumedthat he was an expert on matters regarding gems. He had theintellectual capacity and the business acumen as a banker to takeprecautionary measures to avert such a mistake, considering the valueof both the jewelry and his land. A mistake caused by manifestnegligence cannot invalidate a juridical act. 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.” 8. Contract of sale absolute if no stipulation that title to property isreserved to seller until full payment; Ownership transferred upon actualor constructive delivery

A contract of sale being absolute in nature, title passed to the vendeeupon delivery of the thing sold since there was no stipulation in thecontract that title to the property sold has been reserved in the selleruntil full payment of the price or that the vendor has the right tounilaterally resolve the contract the moment the buyer fails to paywithin a fixed period. Such stipulations are not manifest in the contractof sale. In the present case, both the trial and appellate courts,therefore, correctly ruled that there were no legal bases for thenullification of the contract of sale. Ownership over the parcel of  landand the pair of emerald-cut diamond earrings had been transferred toDr. Cruz and Fule, respectively, upon the actual and constructivedelivery thereof. 9. Contract silent when balance is due and demandable; non-payment does not invalidate the contract While it is true that the amount of P40,000.00 forming part of theconsideration was still payable to Fule, its nonpayment by Dr. Cruz is nota 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. 10. No interest due if it is not stipulated Failure to pay the balance of the purchase price does not result in thepayment of interest thereon. Article 1589 of the Civil Code prescribesthe payment of interest by the vendee “for the period between thedelivery of the thing and the payment of  the price” in cases “(1) Shouldit have been so stipulated; (2) Should the thing sold and deliveredproduce fruits or income; (3) Should he be in default, from the time ofjudicial or extrajudicial demand for the payment of the price.” 11. Case distinguished from de la Cruz v Legaspi  The present case should be distinguished from De la Cruz v. Legaspi,where the court held that failure to pay the consideration after thenotarization of the contract as previously promised resulted in thevendee’s liability for payment of  interest. In the present, there is nostipulation for the payment of interest in the contract of sale nor proofthat the Tanay property produced fruits or income. Neither did petitionerdemand payment of the price as in fact he filed an action to nullify thecontract of sale. 12. Award of moral and exemplary damages Moral and exemplary damages may be awarded without proof ofpecuniary loss. In awarding such damages, the court shall take intoaccount the circumstances obtaining in the case and assess damagesaccording to its discretion.To warrant the award of damages, it must beshown that the person to whom these are awarded has sustained injury.He must likewise establish sufficient data upon which the court canproperly base its estimate of the amount of damages. Statements offacts should establish such data rather than mere conclusions oropinions of witnesses. Thus, for moral damages to be awarded, it isessential that the claimant must have satisfactorily proved during thetrial the existence of the factual basis of the damages and its causalconnection with the adverse party’s acts. If the court has no proof orevidence upon which the claim for moral damages could be based, suchindemnity could not be outrightly awarded. The same holds true withrespect to the award of exemplary damages where it must be shownthat the party acted in a wanton, oppressive or malevolent manner. 13. Rule that moral damages cannot be recovered from person who filed a complaint does not apply in present case While, as a rule, moral damages cannot be recovered from a person whohas filed a complaint against another in good faith because it is notsound policy to place a penalty on the right to litigate, the same,however, cannot apply in the present case. This is not a situation wherepetitioner’s complaint was simply found later to be based on anerroneous ground which, under settled jurisprudence, would not havebeen a reason for awarding moral and exemplary damages. Instead, thecause of action of the instant case appears to have been contrived bypetitioner himself. The factual findings of the courts a quo to the effectthat petitioner filed this case because he was the victim of fraud; that hecould not have been such a victim because he should have examinedthe jewelry in question before accepting delivery thereof, consideringhis exposure to the banking and jewelry businesses; and that he filedthe action for the nullification of the contract of sale with unclean hands,all deserve full faith and credit to support the conclusion that petitionerwas motivated more by ill will than a sincere attempt to protect hisrights in commencing suit against respondents. It must be noted thatbefore petitioner was able to convince Dr. Cruz to exchange her jewelryfor the Tanay property, petitioner took pains to thoroughly examine saidjewelry, even going to the extent of sketching their appearance. Why atthe precise moment when he was about to take physical possessionthereof he failed to exert extra efforts to check their genuinenessdespite the large consideration involved has never been explained at allby petitioner. His acts thus failed to accord with what an ordinaryprudent man would have done in the same situation. 4. ONEROUS Gaite v. Fonacier [G.R. No. L-11827.July 31, 1961.] En Banc, Reyes JBL (J): 9 concur Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lodemineral claims (Dawahan Group), situated in Jose

Panganiban,Camarines Norte.By a “Deed of Assignment” dated 29 September1952, Fonacier constituted and appointed Fernando A. Gaite as his trueand lawful attorney-in-fact to enter into a contract with any individual orjuridical person for the exploration and development of the miningclaims on a royalty basis of not less than P0.50 per ton of ore that mightbe extracted therefrom. On 19 March 1954, Gaite in turn executed ageneral assignment conveying the development and exploitation of saidmining claims unto the Larap Iron Mines, owned solely by him.Thereafter Gaite embarked upon the development and exploitation ofthe mining claims, opening and paving roads within and outside theirboundaries, making other improvements and installing facilities thereinfor use in the development of the mines, and in time extractedtherefrom what he claimed and estimated to be approximately 24,000metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke theauthority granted by him to Gaite, and Gaite assented thereto subject tocertain conditions. As a result, a document entitled “Revocation ofPower of Attorney and Contract” was

executed on 8 December 1954,wherein Gaite transferred to Fonacier, for the consideration of P20,000,plus 10% of the royalties that Fonacier would receive from the miningclaims, all his rights and interests on all the roads, improvements, andfacilities in or outside said claims, the right to use the business name“Larap Iron Mines” and its goodwill, and all the records and documentsrelative to the mines. In the same document, Gaite transferred toFonacier all his rights and interests over the “24,000 tons of iron ore, more or less” that the former had already extracted from the mineralclaims, in consideration of the sum of P75,000, P10,000, of which waspaid upon the signing of the agreement, and the balance to be paid outof the first letter of credit covering the first shipment of iron ores or thefirst amount derived from the local sale of  iron ore made by the LarapMines & Smelting Co. To secure the payment of the balance, Fonacierpromised to execute in favor of Gaite a surety bond; delivered on 8December 1954 with Fonacier as principal and the Larap Mines andSmelting Co. and its stockholders as sureties. A second bond wasexecuted by the parties to the first bond, on the same day, with the FarEastern Surety and Insurance Co. as additional surety, but it providedthat the liability of the surety company would attach only when therehad been an actual sale of iron ore by the Larap Mines & Smelting Co.for an amount of not less than P65,000. Both bond were attached andmade integral parts of the “Revocation of Power of Attorney andContract.” On the same day that Fonacier revoked the power ofattorney, Fonacier entered into a “Contract of Mining Operation” withLarap Mines and Smelting Co., Inc. to grant it the right to develop,exploit, and explore the mining claims, together with the improvementstherein and the use of the name “Larap Iron Mines” and its goodwill, inconsideration of certain royalties. Fonacier likewise transferred, in thesame document, the complete title to the approximately 24,000 tons ofiron ore which he acquired from Gaite, to the Larap Mines & SmeltingCo., in consideration for the signing by the company and itsstockholders of the surety bonds delivered by Fonacier to Gaite. On 8December 1955,the bond with respect to the Far Eastern Surety andInsurance Company expired with no sale of the approximately 24,000tons of iron ore, nor had the 65,000 balance of the price of said ore beenpaid to Gaite by Fonacier and his sureties. Whereupon, Gaite demandedfrom Fonacier and his sureties payment of said amount. When Fonacier and his sureties failed to pay as demanded by Gaite, thelatter filed a complaint against them in the CFI Manila (Civil Case 29310)for the payment of the P65,000 balance of the price of the ore,consequential damages, and attorney’s fees. Judgment was,accordingly, rendered in favor of plaintiff Gaite ordering defendants topay him, jointly and severally, P65,000 with interest at 6% per annumfrom 9 December 1955 until full payment, plus costs. From thisjudgment, defendants jointly appealed to the Supreme Court as theclaims involved aggregate to more than P200,000.  The Supreme Court affirmed the decision appealed from, with costs against appellants. 1. Shipment or local sale of ore not a condition precedent but a suspensive period or term  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, but was onlya suspensive period or term. What characterizes a conditional obligationis the fact that its efficacy or obligatory force (as distinguished from itsdemandability) is subordinated to the happening of a future anduncertain event; so that if the suspensive condition does not take place,the parties would stand as if the conditional obligation had never existed. 2. The words of the contract express no contingency in the buyer’s obligation to pay.  The contract stipulates that “the balance of Sixty-Five Thousand Pesos(P65,000) will be paid out of the first letter of credit covering the firstshipment of iron ore . . .” etc. There is no uncertainty that the paymentwill have to be made sooner or later; what is undetermined is merely theexact 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 itsmaturity or demandability is deferred. 3. Contract of sale commutative and onerous; Each party assume correlative obligation and anticipate performance from the other A contract of sale is normally commutative and onerous: not only doeseach one of the parties assume a correlative obligation (the seller todeliver and transfer ownership of the thing sold and the buyer to pay theprice), but each party anticipates performance by the other from thevery start. While in a sale the obligation of one party can be lawfullysubordinated to an uncertain event, so that the other understands thathe assumes the risk of receiving nothing for what he gives (as in thecase of a sale of hopes or expectations, emptio spei), it is not in theusual course of business to do so; hence, the contingent character of theobligation must clearly appear. In the present case, nothing is found inthe record to evidence that Gaite desired or assumed to run the risk oflosing his rights over the ore without getting paid for it, or that Fonacierunderstood that Gaite assumed any such risk. The fact that appellantsdid put up such bonds indicates that they admitted the definiteexistence of their obligation to pay the balance of P65,000. 4. To consider sale as a condition precedent leaves the payment at the discretion o fthe debtor  To subordinate the obligation to pay the remaining P65,000 to the saleor shipment of the ore as a condition precedent, would be tantamountto leaving the payment at the discretion of the debtor, for the sale orshipment could not be made unless the appellants took steps to sell theore. Appellants would thus be able to postpone payment indefinitely.Such construction of the contract should be avoided. 5. Interpretation incline in favor of the “greatest reciprocity of interests” Assuming that there could be doubt whether by the wording of thecontract the parties intended a suspensive condition or a suspensiveperiod (dies ad quem) for the payment of the P65,000, the rules ofinterpretation would incline the scales in favor of “the greatestreciprocity of interests”, since sale is essentially onerous. The Civil Codeof the Philippines, Article 1378, paragraph 1, in fine, provides “if thecontract is onerous, the doubt shall be settled in favor of the greatest reciprocity of  interests” and there can be no question that greaterreciprocity obtains if the buyer’s obligation is deemed to be actuallyexisting, with only its maturity (due date) postponed or deferred, than ifsuch obligation were viewed as nonexistent or not binding until the orewas sold.

6. Sale of ore to Fonacier was a sale on credit, not an aleatory contractThe sale of the ore to Fonacier was a sale on credit, and not an aleatorycontract where the transferor, Gaite, would assume the risk of not beingpaid at all; and that the previous sale or shipment of the ore was not asuspensive condition for the payment of the balance of the agreed price,but was intended merely to fix the future date of the payment. 7. Non-renewal of bond impaired the securities given to the creditor Appellants have forfeited the right to compel Gaite to wait for the sale ofthe ore before receiving payment of the balance of  P65,000, because oftheir failure to renew the bond of the Far Eastern Surety Company orelse replace it with an equivalent guarantee. The expiration of thebonding company’s undertaking on 8 December 1955 substantiallyreduced the security of  the vendor’s rights as creditor for the unpaidP65,000, a security that Gaite considered essential and upon which hehad insisted when he executed the deed of sale of the ore to Fonacier.The case squarely comes under paragraphs 2 and 3 of  Article 1198 ofthe Civil Code of the Philippines which provides “(2) When he does notfurnish to the creditor the guaranties or securities which he haspromised. (3) When by his own acts he has impaired said guaranties orsecurities after their establishment,

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new

ones

equallysatisfactory.” Appellants’ failure to renew or extend the suretycompany’s bond upon its expiration plainly impaired the securities givento the creditor (appellee Gaite), unless immediately renewed or replaced. 8. No waiver intended by creditor Gaite’s acceptance of the surety company’s bond with full knowledgethat on its face it would automatically expire within one year was not awaiver of its renewal after the expiration date. No such waiver couldhave been intended, for Gaite stood to lose and had nothing to gainthereby; and if there was any, it could be rationally explained only if theappellants had agreed to sell the ore and pay Gaite before the suretycompany’s bond expired on 8 December 1955. But in the latter case thedefendants- appellants’ obligation to pay became absolute after 1 yearfrom the transfer of the ore to Fonacier by virtue of the deed. 9. No short-delivery made by Gaite  This is a case of a sale of a specific mass of fungible goods for a singleprice or a lump sum, the quantity of “24,000 tons of  iron ore, more orless”, stated in the contract, being a mere estimate by the parties of thetotal tonnage weight of the mass; and second, that the evidence showsthat neither of the parties had actually measured or weighed the mass,so that they both tried to arrive at the total quantity by making anestimate of the volume thereof in cubic meters and then multiplying itby the estimated weight per ton of each cubic meter. The sale betweenthe parties is a sale of a specific mass of iron ore because no provisionwas made in their contract for the measuring or weighing of the ore soldin order to complete or perfect the sale, nor was the price of P75,000agreed 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 ofunits or tons contained therein, so that all that was required of the sellerGaite was to deliver in good faith to his buyer all of the ore found in themass, notwithstanding that the quantity delivered is less than theamount estimated by them (Mobile Machinery & Supply Co., Inc. vs.York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of  theLuisiana Civil Code). The contract expressly stated the amount to be24,000 tons, more or less. Applying the tonnage factor provided by thechief of Mines and Metallurgical Division of the Bureau of Mines whichwas between 3 metric tons minimum to 5 metric tons maximum, whichwas near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero(at the request of Krakower, a stockholder of Larap), and if appellant’switness is correct in his estimate of 6,609 cubic meters of  ore, theproduct is 21,809.7 tons which is not far from the 24,000 tons estimate.(cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L.Ed. 1164). Thus, there was no short-delivery as would entitle appellantsto the payment of  damages, nor could Gaite have been guilty of anyfraud in making any misrepresentation to appellants as to the totalquantity of ore in the stockpiles of the mining claims in question sinceGaite’s estimate appears to be substantially correct. 6. SALES IS TITLE, NOT MODE Equatorial Realty vs. Mayfair Theater [G.R. No. 106063. November 21, 1996.]

En Banc, Hermosisima Jr. (J): 13 concur, 1 took no part Facts: Carmelo & Bauermann Inc. (Carmelo) owned a parcel of land,together with two 2-storey buildings constructed

thereon located atClaro M Recto Avenue, Manila (TCT 18529, Register of Deeds of Manila).On 1 June 1967, Carmelo entered into a contract of lease with MayfairTheater for the latter’s lease of a portion of Carmelo’s property, i.e. aportion of the 2/F of the two-storey building with floor area of 1610sq.ms. and the second floor and mezzanine of the two-storey buildingsituated at CM Recto Avenue, Manila with a floor area of 150 sq.ms. foruse by Mayfair as a motion picture theater and for a term of 20 years.Mayfair thereafter constructed on the leased property a movie houseknown as Maxim Theatre. On 31 March 1969, Mayfair entered into asecond contract of lease with Carmelo for the lease of another portion ofCarmelo’s property, i.e. a portion of the 2/F of the two-storey buildingwith floor area of 1064 sq.ms. and two store spaces at the ground floorand mezzanine of the two-storey building situated at CM Recto Avenue,Manila with a floor area of 300 sq.ms. and bearing street numbers 1871and 1875 for similar use as a movie theater and for a similar term of 20years. Mayfair put up another movie house known as ‘Miramar Theatre’on this leased property. Both contracts of lease provide identicallyworded paragraph 8, which reads “That if the LESSOR should desire tosell the leased premises, the lessee shall be given 30-days exclusiveoption to purchase the same. In the event, however, that the leasedpremises is sold to someone other than the Lessee, the lessor is boundand obligated, as it hereby binds and obligates itself, to stipulate in theDeed of  Sale thereof that the purchaser shall recognize this lease andbe bound by all the terms and conditions thereof.” Sometime

in August1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, Presidentof Mayfair, through a telephone conversation that Carmelo was desirousof selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yangthat a certain  Jose Araneta was offering to buy the whole property forUS$1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing tobuy the property for P6 million to P7 million. Mr. Yang replied that hewould let Mr. Pascal know of his decision. On 23 August 1974, Mayfairreplied through a letter confirming the correspondence between Pascualand Yang and reiterating paragraph 8 of the two contracts of lease.Carmelo did no reply to this letter. On 18 September 1974, Mayfair sentanother letter to Carmelo purporting to express interest in acquiring notonly the leased premises but the entire building and otherimprovements if the price is reasonable. However, both Carmelo andEquatorial questioned the authenticity of the second letter. Four yearslater, on 30 July 1978, Carmelo sold its entire CM. Recto Avenue landand building, which included the leased premises housing the ‘Maxim’and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of AbsoluteSale, for the total sum of P1,300,000. In September 1978, Mayfair instituted the action for specificperformance and annulment of the sale of the leased premises toEquatorial. In its Answer, Carmelo alleged as special and affirmativedefense that it had informed Mayfair of its desire to sell the entire CM.Recto Avenue property and offered the same to Mayfair, but the latteranswered that it was interested only in buying the areas under lease,which was impossible since the property was not a condominium; andthat the option to purchase invoked by Mayfair is null and void for lackof consideration. Equatorial, in its Answer, pleaded as special andaffirmative defense that the option is void for lack of consideration andis unenforceable by reason of its impossibility of  performance becausethe leased premises could not be sold separately from the other portionsof the land and building. It counterclaimed for cancellation of thecontracts of lease, and for increase of rentals in view of allegedsupervening extraordinary

devaluation

of

the

currency.

Equatoriallikewise

cross-claimed

against

codefendant

Carmelo

for

indemnificationin respect of Mayfair’s claims. After assessing the evidence, the courtrendered decision dismissing the complaint with costs against Mayfair;ordering Mayfair to pay Carmelo & Bauermann P40,000.00 by way ofattorneys’s fees on its counterclaim; and ordering Mayfair to payEquatorial Realty P35,000.00 per month as reasonable compensation forthe use of areas not covered by the contracts of lease from 31 July 1979until Mayfair vacates said areas plus legal interest from 31 July 1978;P70,000.00 per month as reasonable compensation for the use of thepremises covered by the contracts of lease dated (1 June 1967 from 1June 1987 until Mayfair vacates the premises plus legal interest from 1June 1987; P55,000.00 per month as reasonable compensation for theuse of the premises covered by the contract of lease dated 31 March1969 from 30 March 1989 until Mayfair vacates the premises plus legalinterest from 30 March 1989; and P40,000.00 as attorney’s fees; anddismissing Equatorial’s crossclaim against Carmelo & Bauermann. Thetrial court adjudged the identically worded paragraph 8 found in bothlease contracts to be an option clause which however cannot bedeemed to be binding on Carmelo because of lack of distinctconsideration therefor. Mayfair taking exception to the decision of the trial court, appealed tothe Court of Appeals. The appellate court reversed the trial court andrendered judgment reversing and setting aside the appealed Decision;directing Mayfair to pay and return to Equatorial the amount ofP11,300,000.00 within 15 days from notice of this Decision, andordering Equatorial to accept such payment; directing Equatorial, uponpayment of the sum of P11,300,000, to execute the deeds anddocuments necessary for the issuance and transfer of ownership toMayfair of the lot registered under TCT 17350, 118612, 60936, and52571; and should Mayfair be unable to pay the amount as adjudged,declaring the Deed of Absolute Sale between Carmelo and Equatorial asvalid and binding upon an the parties. Hence, the petition for review.  The Supreme Court denied the petition for review of the decision of theCourt of Appeals (23 June 1992, in CA-GR CV 32918), declaring the Deedof Absolute Sale between Equatorial and Carmelo as deemed rescinded;ordering Carmelo to return to Equatorial the purchase price; directingEquatorial to execute the deeds and documents necessary to returnownership to Carmelo of the disputed lots; and ordering Carmelo toallow Mayfair to buy the lots for P11,300,000. 1. Issue on irregularities in Court of Appeals passed upon so as not to preempt the administrative proceedings related thereto It was raised that the Court of Appeals violated its own internal rules inthe assignment of appealed cases when it allowed the same Division XII,particularly Justice Manuel Herrera, to resolve all the motions in the“Completion Process” and to still resolve the merits of the case in the“Decision Stage.” This was related to letter complaint written by thecounsel for Equatorial on 20 September 1992 to the Supreme Courtalleging certain irregularities and infractions committed by certainlawyers, and Justices of the Court of Appeals and of the Supreme Courtin connection with case CA-GR CV 32918 (GR 106063). This partakes ofthe nature of an administrative complaint for misconduct, againstmembers of the judiciary. While the letter-complaint arose as anincident in said case, the disposition thereof should be separate andindependent from case GR 106063. It would be correct, prudent and consistent course of action not to pre-empt the administrativeproceedings to be undertaken respecting the said irregularities. Adiscussion of such in the present case would entail a finding on themerits as to the real nature of the questioned procedures and the trueintentions and motives of the players therein. 2. Paragraph 8 of lease contracts provides for a right of first refusal, and is not an option clause nor an option contract  The contractual stipulation (Paragraph 8) provides for a right of firstrefusal in favor of Mayfair. It is not an option clause or an option contact.It is a contract of a right of first refusal. The true nature of the paragraph8 is ascertained to be that of a contractual grant of the right of firstrefusal to Mayfair. 3. Option contract; Validity based on a separate and distinct consideration As early as 1916, in the case of Beaumont vs. Prieto, unequivocal wasour characterization of an option contract as one necessarily invokingthe choice granted to another for a distinct and separate considerationas to whether or not to purchase a determinate thing at apredetermined fixed price. T he deed of option or option clause in acontract, in order to be valid

and enforceable, must, among otherthings, indicate the definite price at which the person granting theoption, is willing to sell. 4. Option contract, according to Bouvier Law Dictionary Bouvier, in his Law Dictionary (edition of 1897) defines an option as acontract, “a contract by virtue of which A, in consideration of thepayment of a certain sum to B, acquires the privilege of buying from, orselling to B, certain securities or properties within a limited time at aspecified price. (Story vs Salamon, 71 N.Y. 420.)” 5. Option contract, according to “Words and Phrases” An agreement in writing to give a person the option to purchase landswithin a given time at a named price is neither a sale nor an agreementto sell. It is simply a contract by which the owner of property agrees withanother person that he shall have the right to buy his property at a fixedprice within a certain time. He does not sell his land, he does not thenagree to sell it; but he does sell something; that is, the right or privilegeto buy at the election or option of the other party. The second party getsin praesenti, not lands, nor an agreement that he shall have lands, buthe does get something of value, that is, the right to call for and receivelands if he elects The owner parts with his right to sell his lands, exceptto the second party, for a limited period The second party receives thisright, or, rather, from his point of view, he receives the right to elect tobuy. (Vol. 6, page 5001, of the work ‘Words and Phrases, ‘ citing thecase of Ide vs. Leiser [24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17]). 6. Cases involving option contracts In Tuason vs. de Asis (107 PHIL 131 [1960]), it was held that the lesseeloses his right to buy the leased property for a named price per squaremeter upon failure to make the purchase within the time specified. InMendoza vs. Comple (15 SCRA 162), the Court freed the landowner fromher promise to sell her land if the prospective buyer could raiseP4,500.00 in 3 weeks because such option was not supported by adistinct consideration. In the same vein, in Sanchez vs. Rigos (45 SCRA368 [1972]), the Court also invalidated an instrument entitled, “Optionto Purchase” a parcel of land for the sum of  P1,510.00 because of lackof consideration. And as an exception to the doctrine enumerated in thetwo preceding cases, in Vda de Quirino vs. Palarca (29 SCRA 1 [1969]), itwas ruled that the option to buy the leased premises for P12,000.00 asstipulated in the lease contract, is not without consideration for inreciprocal contracts, like lease, the obligation or promise of each party isthe consideration for that of the other. In all these cases, the sellingprice of the object thereof is always predetermined and specified in theoption clause in the contract or in the separate deed of option. Ang Yu Asuncion case: 7. Perfection of a contract of sale In sales, the contract is perfected when a person, called the seller,obligates himself, for a price certain, to deliver and to transferownership of a thing or right to another, called the buyer, over which thelatter agrees. Article 1458 of the Civil Code provides that “By thecontract of sale one of the contracting parties obligates himself totransfer the ownership of and to deliver a determinate thing, and theother to pay therefor a price certain in money or its equivalent. Acontract of sale may be absolute or conditional.” 8. Contract to sell is conditional; Effect of breach of condition When the sale is not absolute but conditional, such as in a “Contract toSell” where invariably the ownership of the thing sold is retained untilthe fulfillment of a positive suspensive condition (normally, the fullpayment of the purchase price), the breach of the condition will preventthe obligation to convey title from acquiring an obligatory force. 9. Unconditional mutual promise to buy and sell obligatory on the parties An unconditional mutual promise to buy and sell, as long as the object ismade determinate and the price is fixed, can be obligatory on theparties, and compliance therewith may accordingly be exacted. 10. Perfected contract of option An accepted unilateral promise which specifies the thing to be sold andthe price to be paid, when coupled with a valuable consideration distinctand separate from the price, is what may properly be termed aperfected contract of option. This contract is legally binding, and insales, it conforms with the second paragraph of Article 1479 of the CivilCode, which provides that “An accepted unilateral promise to buy or tosell a determinate thing for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price. (1451a)” 11. Option not the contract of sale itself   The option is not the contract of sale itself. The optionee has the right,but not the obligation, to buy. Once the option is exercised timely, i.e.,the offer is accepted before a breach of the option, a bilateral promiseto sell and to buy ensues and both parties are then reciprocally bound tocomply with their respective undertakings. 12. Offer A negotiation is formally initiated by an offer. An imperfect promise(policitacion) is merely an offer. Public advertisements or solicitationsand the like are ordinarily construed as mere invitations to make offersor only as proposals. These relations, until a contract is perfected, arenot considered binding commitments. Thus, at any time prior to theperfection of the contract, either negotiating party may stop thenegotiation. The offer, at this stage, may be withdrawn; the withdrawalis effective immediately after its manifestation, such as by its mailingand not necessarily when the offeree learns of the withdrawal (Laudicovs. Arias, 43 Phil. 270). 13. Offer with a period; Effects of withdrawal (1) If the period is not itself founded upon or supported by aconsideration, the offeror is still free and has the right to withdrawal theoffer before its acceptance, or, if an acceptance has been made, beforethe offeror’s coming to know of such fact, by communicating thatwithdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to aunilateral promise to sell under Art. 1479, modifying the previousdecision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see alsoArt. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs.

Remolado, 135SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,however, must not be exercised whimsically or arbitrarily; otherwise, itcould give rise to a damage claim under Article 19 of the Civil Codewhich ordains that “every person must, in the exercise of his rights andin the performance of his duties, act with justice, give everyone his due,and observe honesty and good faith.” (2) If the period has a separateconsideration, a contract of “option” is deemed perfected, and it wouldbe a breach of that contract to withdraw the offer during the agreedperiod. The option, however, is an independent contract by itself, and itis to be distinguished from the projected main agreement (subjectmatter of the option) which is obviously yet to be concluded. If, in fact,the optioner-offeror withdraws the offer before its acceptance (exerciseof the option) by the optionee-offeree, the latter may not sue for specificperformance on the proposed contract (”object” of the option) since ithas failed to reach its own stage of perfection. The optionerofferor,however, renders himself liable for damages for breach of the option. Inthese cases, care should be taken of the real nature of the considerationgiven, for if, in fact, it has been intended to be part of the considerationfor the main contract with a right of withdrawal on the part of theoptionee, the main contract could be deemed perfected; a similarinstance would be an “earnest money” in a contract of sale that canevidence its perfection (Art. 1482, Civil Code). 14. Requirement for separate consideration has no applicability as paragraph 8 is not an option contract but a right of first refusal No option to purchase in contemplation of the second paragraph ofArticle 1479 of the Civil Code, has been granted to Mayfair under thesaid lease contracts. Paragraph 8 grants the right of first refusal toMayfair and is not an option contract.  The requirement of a separateconsideration for the option, thus, has no applicability in the case. Thereis nothing in paragraph “8 of the contracts which would bring them intothe ambit of the usual offer or option requiring an ″

independentconsideration. 15. Option and Right of First Refusal distinguished An option is a contract granting a privilege to buy or sell within anagreed time and at a determined price. It is a separate and distinctcontract from that which the parties may enter into upon theconsummation of the option. It must be supported by consideration. Inthe instant case, the right of first refusal is an integral part of thecontracts of lease. The consideration is built into the reciprocalobligations of the parties. 16. Right of First Refusal inutile if governed by Article 1324 on withdrawal of the offer on Article 1479 on promise to buy and sell  To rule that a contractual stipulation such as that found in paragraph 8of the contracts is governed by Article 1324 on withdrawal of the offeron Article 1479 on promise to buy and sell would render ineffectual or“inutile” the provisions on right of first refusal so commonly inserted inleases of real estate nowadays. Paragraph 8 was incorporated into thecontracts of  lease for the benefit of Mayfair which wanted to be assuredthat it shall be given the first crack or the first option to buy theproperty at the price which Carmelo is willing to accept. 17. Consideration in an agreement of right of first refusal: Consideration for lease It is not correct to say that there is no consideration in an agreement ofright of first refusal. The stipulation is part and parcel of the entirecontract of lease. The consideration for the lease includes theconsideration for the right of first refusal. 18. Consideration in an agreement of right of first refusal: Consideration is obligation or promise (reciprocal contract) Mayfair is in effect stating that it consents to lease the premises and topay the price agreed upon provided the lessor also consents that,should it sell the leased property, then, Mayfair shall be given the rightto match the offered purchase price and to buy the property at thatprice. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or promise of each party is the consideration for that of the other. 19. Difference to Ang Yu Asuncion case: Equatorial Realty and Carmelo acted in bad faith Carmelo and Equatorial Realty acted in bad faith to render Paragraph 8“inutile.” What Carmelo and Mayfair agreed to, by executing the twolease contracts, was that Mayfair will have the right of first refusal in theevent Carmelo sells the leased premises. It is undisputed that Carmelodid recognize this right of Mayfair, for it informed the latter of itsintention to sell the said property in 1974. There was an exchange ofletters evidencing the offer and counter-offers made by both parties.Carmelo, however, did not pursue the exercise to its logical end. While itinitially recognized Mayfair’s right of first refusal, Carmelo violated suchright when without affording its negotiations with Mayfair the fullprocess to ripen to at least an interface of a definite offer and a possiblecorresponding acceptance within the “30-day exclusive option” timegranted Mayfair, Carmelo abandoned negotiations, kept a low profile forsome time, and then sold, without prior notice to Mayfair, the entireClaro M. Recto property to Equatorial. 20. Rescission lies when the purchase is in bad faith Equatorial (being aware of the lease contracts because its lawyers had,prior to the sale, studied the said contracts) is a buyer in bad faith, andthus renders the sale to it of the property in question rescissible. Guzman, Bocaling & Co. vs. Bonnevie case 21. Rescission as remedy Rescission is a remedy granted by law to the contracting parties andeven to third persons, to secure reparation for damages caused to themby a contract, even if this should be valid, by means of the restoration ofthings to their condition at the moment prior to the celebration of saidcontract. It is a relief allowed for the protection of one of the contractingparties and even third persons from all injury and damage the contractmay cause, or to protect some incompatible and preferential rightcreated by the contract. Rescission implies a contract which, even ifinitially valid, produces a lesion or pecuniary damage to someone thatjustifies its invalidation for reasons of equity. 22. Purchaser not considered a third party It is true that the acquisition by a third person of the property subject ofthe contract is an obstacle to the action for its rescission where it isshown that such third person is in lawful possession of the subject of thecontract and that he did not act in bad faith. However, this rule is notapplicable in the case before us because the petitoner is not considereda third

party in relation to the Contract of Sale nor may its possession ofthe subject property be regarded as acquired lawfully and in good faith. 23. Purchaser in good faith defined A purchaser in good faith and for value who buys the property ofanother without notice that some other person has a right to or interestin such property and pays a full and fair price for the same at the timeof such purchase or before he has notice of the claim or interest of someother person in the property. Good faith connotes an honest intention toabstain from taking unconscientious advantage of another. Tested bythese principles, the petitioner cannot tenably claim to be a buyer ingood faith as it had notice of the lease of the property and suchknowledge should have cautioned it to look deeper into the agreementto determine if it involved stipulations that would prejudice its owninterests. 24. Purchaser required to know term of lease contract when buying property under lease Having known that the property it was buying was under lease, itbehooved it as a prudent person to have required the owner of theproperty or the broker to show to it the Contract of Lease in which theright of first refusal is contained. 25. Indivisibility of the property Common sense and fairness dictate that instead of nullifying theagreement on the basis that the entire property is indivisible property,the stipulation should be given effect by including the indivisibleappurtenances in the sale of the dominant portion under the right offirst refusal. A valid and legal contract where the ascendant or the moreimportant of the two parties is the landowner should be given effect, ifpossible, instead of being nullified on a selfish pretext posited by theowner. Following the arguments of petitioners and the participation ofthe owner in the attempt to strip Mayfair of its rights; the right of firstrefusal should include not only the property specified in the contractsbut also the appurtenant portions sold to Equatorial which are claimedby petitioners to be indivisible. 26. Boundaries of the property sold Mayfair is authorized to exercise its right of first refusal under thecontract to include the entirety of the indivisible property.  Theboundaries of the property sold should be the boundaries of the offerunder the right of first refusal. 27. Doctrine in Ang Yu Asuncion deemed modified As to the remedy to enforce Mayfair’s right, the Court disagrees to acertain extent with the concluding part of the dissenting opinion ofJustice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court ofAppeals should be modified, it not amplified under the peculiar facts ofthe present case. 28. Multiplicity of suits frowned upon by Court; Relief: (1) Contract between Equatorial and Carmelo rescinded, (2) Price fixed The Supreme Court has always been against multiplicity of suits whereall remedies according to the facts and the law can be included. SinceMayfair has a right of first refusal, it can exercise the right only if thefraudulent sale is first set aside or rescinded. All of these matters arenow before us and so there should be no piecemeal determination ofthis case and leave festering sores to deteriorate into endless litigation.Since Carmelo sold the property for P11,300,000 to Equatorial, the priceat which Mayfair could have purchased the property is, therefore, fixed.The damages which Mayfair suffered are in terms of actual injury andlost opportunities. The fairest solution would be to allow Mayfair toexercise its right of first refusal at the price which it was entitled toaccept or reject which is P11,300,000. To follow an alternative solutionthat Carmelo and Mayfair may resume negotiations for the sale to thelatter of the disputed property would be unjust and unkind to Mayfairbecause it is once more compelled to litigate to enforce its right. 29. Present case covered by law on contracts, not merely by codal provisions on human relations Under the Ang Yu Asuncion vs. Court of Appeals decision, the Courtstated that there was nothing to execute because a contract over theright of first refusal belongs to a class of preparatory juridical relationsgoverned not by the law on contracts but by the codal provisions onhuman relations. This may apply if the contract is limited to the buyingand selling of the real property. However, the obligation of Carmelo tofirst offer the property to Mayfair is embodied in a contract. It isParagraph 8 on the right of first refusal which created the obligation. Itshould be enforced according to the law on contracts instead of thepanoramic and indefinite rule on human relations. The latter remedyencourages multiplicity of  suits. There is something to execute and thatis for Carmelo to comply with its obligation to the property under theright of  the first refusal according to the terms at which they shouldhave been offered then to Mayfair, at the price when that offer shouldhave been made. Also, Mayfair has to accept the offer. This juridicalrelation is not amorphous nor is it merely preparatory. Paragraphs 8 ofthe two leases can be executed according to their terms. 30. No interest due Carmelo and Equatorial cannot avail of considerations based on equitywhich might warrant the grant of interests. The vendor received aspayment from the vendee what, at the time, was a full and fair price forthe property. It has used the P11,300,000.00 all these years earningincome or interest from the amount. Equatorial, on the other hand, hasreceived rents and otherwise profited from the use of the propertyturned over to it by Carmelo. In fact, during all the years that thiscontroversy was being litigated, Mayfair paid rentals regularly to thebuyer who had an inferior right to purchase the property. Mayfair isunder no obligation to pay any interests arising from this judgment toeither Carmelo or Equatorial. Aznar vs. Yapdiangco [G.R. No. L-18536.March 31, 1965.] En Banc, Regala (J): 10 concurring Facts: In May 1959, Teodoro Santos advertised in two metropolitanpapers the sale of his Ford Fairlane 500. In the

afternoon of 28 May1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella,went to the Santos residence to answer the ad. However, Teodoro wasout during this call and only the latter’s son, Irineo received and talkedwith De Dios.  The latter told the young Santos that he had come inbehalf of his uncle, Marella, who was interested to buy the advertisedcar. On being informed of the above, Teodoro instructed his son to seeMarella the following day at his given address: 1642 Crisostomo Street,Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went tosaid address. At

this meeting, Marella agreed to buy the car forP14,700.00 on the understanding that the price would be paid only afterthe car had been registered in his name. Irineo then fetched his fatherwho, together with De Dios, went to the office of a certain Atty. JosePadolina where the deed of sale for the car was executed in Marella’sfavor. The parties to the contract thereafter proceeded to the MotorVehicles’ Office in Quezon City where the registration of the car inMarella’s name was effected. Up to that stage of the transaction, thepurchase price had not been paid. From the Motor Vehicles Office,Teodoro returned to his house. He gave the registration papers and acopy of the deed of sale to his son and instructed him not to part withthem until Marella shall have given the full payment for the car. Irineoand De Dios then proceeded to 1642 Crisostomo Street, Sampaloc inManila where the former demanded for the payment from Marella.Marella said that the amount he had on hand then was short by someP2,000.00 and begged off to be allowed to secure the shortage from asister supposedly living somewhere in Azcarraga Street, also in Manila.Thereafter, he ordered De Dios to go to the said sister and suggestedthat Irineo to go with him. At the same time, he requested for theregistration papers and the deed of  sale from Ireneo on the pretext thathe would like to show them to his lawyers. Trusting the good faith ofMarella, Ireneo handed over the same to the latter and thereupon, in thecompany of De Dios and another unidentified person, proceeded to thealleged house of Marella’s sister. At a place in Azcarraga, Irineo and DeDios alighted from the car and entered a house, while their unidentifiedcompanion remained in the car. Once inside, De Dios asked Irineo towait at the sala while he went inside a room. That was the last thatIreneo saw of him. For, after a considerable length of time waiting invain for De Dios to return, Ireneo went down to discover that neither thecar nor their unidentified companion was there anymore. Going back tothe house, he inquired from a woman he saw for De Dios and he wastold that no such name lived or was even known therein. Whereupon,Ireneo rushed to 1642 Crisostomo to see Marella. He found the houseclosed and Marella gone. Finally, he reported the matter to his fatherwho promptly advised the police authorities. That very same day,Marella was able to sell the car in question to Jose B. Aznar, forP15,000.00. Aznar acquired the said car from Marella in good faith, for avaluable consideration and without notice of the defect appertaining tothe vendor’s title. While the car was thus in the possession of Aznar and while he was attending to its registration in his name, agents of thePhilippine Constabulary seized and confiscated the same inconsequence of the report to them by Teodoro that the said car wasunlawfully taken from him. Aznar filed a complaint for replevin before the CFI Quezon City (BranchIV) against Captain Rafael Yapdiangco, the head of  the PhilippineConstabulary unit which seized the car. Claiming ownership of thevehicle, he prayed for its delivery to him. In the course of the litigation,however, Teodoro Santos moved and was allowed to intervene by thelower court. At the end of  the trial, the lower court rendered a decisionawarding the disputed motor vehicle to Santos. From the decision, Aznarappealed.  The Supreme Court dismissed the appeal and affirmed the decision of  the lower court in full; with costs against Aznar. 1.Article 559 of the Civil Code; Santos entitled to recovery of personal property Santos had been unlawfully deprived of his personal property byMarella, from whom Aznar traces his right. Consequently, althoughAznar acquired the car in good faith and for a valuable considerationfrom Marella, the said decision concluded, still Santos was entitled to itsrecovery on the mandate of Article 559 of the New Civil Code whichprovides: ” The possession of  movable property acquired in good faith isequivalent to title. Nevertheless, one who has lost any movable or hasbeen unlawfully deprived thereof, may recover it from the person inpossession of the same. If the possessor of a movable lost or of whichthe owner has been unlawfully deprived, has acquired it in good faith ata public sale, the owner cannot obtain its return without reimbursing theprice paid therefor.” Under Article 559, the rule is to the effect that if theowner has lost the thing, or if he has been unlawfully deprived of it, hehas a right to recover it, not only from the finder, thief or robber, butalso from the third person who may have acquired it in good faith fromsuch finder, thief or robber. 2.Seller’s title, voidable at least, essential in Article 1506; Article 559 applies Article 1506 provides:” Where the seller of goods has a voidable titlethereto, but his title has not been voided at the time of  the sale, thebuyer acquires a good title to the goods, provided he buys them in goodfaith, for value, and without notice of  the seller’s defect of title.” Underthe provision, it is essential that the seller should have a voidable title atleast. It is very clearly inapplicable where the seller had no title at all. 3.Ownership or title acquired only by tradition or delivery; Article 712 of the Civil Code Under Article 712 of the Civil Code, “ownership and other real rightsover property are acquired and transmitted by law, by donation, bytestate and intestate succession, and in consequence of certaincontracts, by tradition.” As interpreted by this Court in a host of cases,by this provision, ownership is not transferred by contract merely but bytradition or delivery. Contracts only constitute titles or rights to thetransfer or acquisition of ownership, while delivery or tradition is themode of  accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51;Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631; Fidelity andDeposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke &Chandler, 14 Phil. 610; Easton vs. Diaz & Co., 32 Phil. 180). For the legalacquisition and transfer of ownership and other property rights, thething transferred must be delivered, inasmuch as, according to settledjurisprudence the tradition of the thing is a necessary and indispensablerequisite in the acquisition of said ownership by virtue of a contract. (Walter Easton vs. E. Diaz & Co. & the Provincial Sheriff of Albay, supra.)So long as property is not delivered, the ownership over it is nottransferred by contract merely but by delivery. Contracts only constitutetitles or rights to the transfer or acquisition of ownership, while deliveryor tradition is the method of accomplishing the same, the title and themethod of acquiring it being different in our law.” (Gonzales vs. Rojas,16 Phil. 51) In the present case, the car was never delivered to thevendee by the vendor as to complete or consummate the transfer ofownership by virtue of the contract. It should be recalled that whilethere was indeed a contract of sale between

Vicente Marella andTeodoro Santos, the former, as vendee, took possession of the subjectmatter thereof by stealing the same while it was in the custody of thelatter’s son. 4. Delivery of key not delivery contemplated by Article 712; Intent must be present  There is no adequate evidence on record as to whether Irineo Santosvoluntarily delivered the key to the car to the unidentified person whowent with him and L. De Dios to the place in Azcarraga where a sister ofMarella allegedly lived. But even if Irineo Santos did, it was not thedelivery contemplated by Article 712 of the Civil Code. For then, it wouldbe indisputable that he turned it over to the unidentified companiononly so that he may drive Irineo Santos and De Dios to the said place inAzcarraga and not vest the title to the said vehicle to him as agent ofVicente Marella. Article 712 above contemplates that the act be coupledwith the intent of delivering the thing. (10 Manresa 132) 5. Article 559 establishes exception to the general rule or irrevindicability Article 559 establishes two exceptions to the general rule ofirrevindicability to wit: when the owner (1) has lost the thing, or (2) hasbeen unlawfully deprived thereof. In these cases, the possessor cannotretain the thing as against the owner, who may recover it withoutpaying any indemnity, except when the possessor acquired it in a publicsale. (Del Rosario vs. Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482;Varela vs. Matute, 9 Phil. 479; Arenas vs. Raymundo, 19 Phil. 46.Tolentino, id., Vol II, p. 261.) 6.Cruz vs. Pahati on Article 559 In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that“Under Article 559 of the new Civil Code, a Person illegally deprived ofany movable may recover it from the person in possession of the sameand the only defense the latter may have is if he has acquired it in goodfaith at a public sale, in which case, the owner cannot obtain its returnwithout reimbursing the price paid therefor. In the present case, plaintiffhas been illegally deprived of his car through the ingenious scheme ofdefendant B to enable the latter to dispose of it as if he were the ownerthereof. Plaintiff, therefore, can still recover possession of the car even ifit is in the possession of a third party who had acquired it in good faithfrom defendant B. The maxim that “no man can transfer to another abetter title than he has himself’ obtains in the civil as well as in thecommon law.” (U.S. vs. Sootelo, 28 Phil. 147) 7.Common law principle yields to statutory provision  The right of the owner to recover personal property acquired in goodfaith by another, is based on his being dispossessed without his consent.The common law principle that where one of two innocent persons mustsuffer by a fraud perpetrated by another, the law imposes the loss uponthe party who, by his misplaced confidence, has enabled the fraud to becommitted, cannot be applied in a case which is covered by an e xpressprovision of the new Civil Code, specifically Article 559. Between acommon law principle and a statutory provision, the latter must prevailin this jurisdiction. (Cruz vs. Pahati, supra). C. DISTINGUISHED FROM OTHER TRANSACTIONAL CONTRACT 3. CONTRACT FOR PIECE OF WORK  Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506.August 31, 1956.]

First Division, Bengzon (J): 7 concur Facts: Celestino Co & Company is a duly registered generalcopartnership doing business under the trade name of 

“Oriental SashFactory”. From 1946 to 1951 it paid percentage taxes of 7% on thegross receipts of its sash, door and window factory, in accordance withsection 186 of the National Revenue Code imposing taxes on sales ofmanufactured articles. However in 1952 it began to claim liability only tothe contractor’s 3% tax (instead of 7%) under section 191 of the sameCode; and having failed to convince the Bureau of Internal Revenue, itbrought the matter to the Court of Tax Appeals, where it also failed.Hence, the appeal.  The Supreme Court affirmed the appealed decision. 1. Business name and income militates against claim as ordinary contractor  The company has taken all the trouble and expense of registering aspecial trade name for its sash business and has ordered companystationery carrying the bold print “Oriental Sash Factory (Celestino Co &Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076,Manufacturers of all kinds of doors, windows, sashes, furnitures, etc.used season-dried and kiln-dried lumber, of the best qualityworkmanship.” It is unlikely that these act were made solely for thepurpose of  supplying the needs for doors, windows and sash of itsspecial and limited customers. Further, the Company has chosen for itstradename and has offered itself to the public as a “Factory”, whichmeans it is out to do business, in its chosen lines on a big scale.Moreover, as shown from the investigation of the Company’s books ofaccounts (for transactions covering the period of 1 January 1952 to 30September 1952), it sold sash, doors and windows worth P188,754.69. Itwill be difficult to believe that such amount that ran to six figures wasderived entirely from its few customers who made special orders.  Thus,Celestino Co & Company habitually makes sash, windows and doors, asit has represented in its stationery and advertisements to the public,and it has admitted by the appellant itself that the company“manufactures.” 2.Construction work contractors defined Construction work contractors are those who alter or repair buildings,structures, streets, highways, sewers, street railways, railroads, loggingroads, electric, steam or water plants telegraph and telephone plantsand lines, electric lines or power lines, and includes any other work forthe construction, altering or repairing for which machinery driven bymechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878,880, 179 Okl. 68). 3. Nature of business does not fall in any of the occupation that maybe classified as contractor within the purview of  Section 191 of theNational Internal Revenue Code

Even if it were to believe that the company does not manufacture ready-made sash, doors and windows for the public and that it makes thesearticles only upon special order of its customers, that does not make it acontractor within the purview of  section 191 of the National InternalRevenue Code. There are no less than fifty occupations enumerated inthe said section of the National Internal Revenue Code subject topercentage tax, not one under which the business enterprise ofpetitioner could appropriately fall. It would require a stretch of the law tomake the business of manufacturing sash, doors and windows uponspecial order of customers fall under the category of ‘road, building,navigation, artesian well, water works and other construction workcontractors. 4.Percentage tax imposed under Section 191 of the Tax Code a tax onsales of service, while tax imposed by Section 186 a tax on original salesof articles  The percentage tax imposed in section 191 of the Tax Code is generallya tax on the sales of services, in contradiction with the tax imposed insection 186 of the same Code which is a tax on the original sales ofarticles by the manufacturer, producer or importer. (Formilleza’s Commentaries and Jurisprudence on the National Internal RevenueCode, Vol II, p. 744). The fact that the articles sold are manufactured bythe seller does not exchange the contract from the purview of section186 of the National Internal Revenue Code as a sale of articles. 5. Custom specifications required by customer does not altercharacter of business, the company does not become an employee orservant of the customer Nobody will say that when a sawmill cuts lumber in accordance with thepeculiar specifications of a customer, sizes not previously held in stockfor sale to the public, it thereby becomes an employee or servant of thecustomer, not the seller of  lumber. The same consideration applies tothis sash manufacturer. The Sash Factory does nothing more than sellthe goods that it mass-produces or habitually makes; sash, panels,mouldings, frames, cutting them to such sizes and combining them insuch forms as its customers may desire. 6. Installation of window panels not construction work in common parlance Petitioner’s idea of being a contractor doing construction jobs isuntenable. Nobody would regard the doing of two window panels asconstruction work in common parlance. 7.Contract of sale distinguished from a contract for a piece of work Article 1467 of the New Civil Code provides that “a contract for thedelivery at a certain price of an article which the vendor in the ordinarycourse of his business manufactures or procures for the general market,whether the same is on hand at the time or not, is a contract of sale, butif the goods are to be manufactured specially for the customer and uponhis special order, and not for the general market, it is contract for apiece of work.” In the present case, it is apparent that the Factory didnot merely sell its services to Teodoro & Co. because it also sold thematerials. When it sold materials ordinarily manufactured by it (sash,panels, mouldings), although in such form or combination as suited thefancy of the purchaser, such new form does not divest the Factory of itscharacter as manufacturer. Neither does it take the transaction out ofthe category of sales under Article 1467 because although the Factorydoes not, in the ordinary course of its business, manufacture and keepon stock doors of the kind sold to Teodoro, it could stock and/orprobably had in stock the sash, mouldings and panels it used therefor. 8. Contract for a piece of work in Factory happens if the use ofextraordinary or additional equipment is required or if it involvesservices not generally performed by it When the Factory accepts a job that requires the use of extraordinary oradditional equipment, or involves services not generally performed by it,it thereby contracts for a piece of work, i.e. filling special orders withinthe meaning of Article 1467. In the present case, however, the ordersexhibited were not shown to be special. They were merely orders forwork, regular work. 9.Transfers under Section 186 of the Tax Code If all the work of appellant is only to fill orders previously made, suchorders should not be called special work, but regular work; andsupposing for the moment that the transactions were not sales, theywere neither lease of services nor contract  jobs by a contractor. Still, asthe doors and windows had been admittedly “manufactured” by theSash Factory, such transactions could be, and should be taxed as“transfers” thereof under section 186 of the National Revenue Code. Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24, 1996.]

 Third Division, Panganiban (J): 3 concur Facts: Pursuant to the contract dated 10 September 1962 between theEngineering and Machinery Corporation (the

Corporation) and Almeda,the former undertook to fabricate, furnish and install the air-conditioningsystem in the latter’s building along Buendia Avenue, Makati inconsideration of P12,000.00. The Corporation was to furnish thematerials, labor, tools and all services required in order to so fabricateand install said system. The system was completed in 1963 andaccepted by Almeda, who paid in full the contract price. On 2 September1965, Almeda sold the building to the National Investment andDevelopment Corporation (NIDC). The latter took possession of thebuilding but on account of NIDC’s noncompliance with the terms andconditions of the deed of sale, Almeda was able to secure judicialrescission thereof. The ownership of the building having been decreedback to Almeda, he re-acquired possession sometime in 1971. It wasthen that he learned from some NIDC employees of the defects of theair-conditioning system of the building. Acting on this information,Almeda commissioned Engineer David R. Sapico to render a technicalevaluation of the system in relation to the contract with the Corporation.In his report, Sapico enumerated the defects of the system andconcluded that it was “not capable of maintaining the desired roomtemperature of 76ºF — 2ºF.” On the basis of this report, Almeda filed on 8 May 1971 an action fordamages against the Corporation with the then CFI Rizal (Civil Case14712). The complaint alleged that the air-conditioning system installedby the Corporation did not comply

with the agreed plans andspecifications, hence, Almeda prayed for the amount of P210,000.00representing the rectification cost, P100,000.00 as damages andP15,000.00 as attorney’s fees. The Corporation moved to dismissed thecase, alleging prescription, but which was denied by the Court.Thereafter, Almeda filed an ex-parte motion for preliminary attachmenton the strength of the Corporation’s own statement to the effect that ithad sold its business and was no longer doing business in Manila. Thetrial court granted the motion and, upon Almeda’s posting of a bond ofP50,000.00, ordered the issuance of a writ of attachment. In due course, and on 15 April 1974, the trial court rendered a decision,which ordered the Corporation to pay Almeda the amount needed torectify the faults and deficiencies of the air-conditioning system installedby the Corporation in Almeda’s building, plus damages, attorney’s feesand costs). Petitioner appealed to the Court of Appeals, which affirmedon 28 November 1978 the decision of the trial court. Hence, it instituteda petition for review on certiorari under Rule 45 of the Rules of Court.  The Supreme Court denied the petition and affirmed the decision assailed; without costs. 1.The Court’s power to review  The Supreme Court reviews only errors of law in petitions for review oncertiorari under Rule 45. It is not the function of this Court to re-examinethe findings of fact of the appellate court unless said findings are notsupported by the evidence on record or the judgment is based on amisapprehension of facts. The Court has consistently held that thefactual findings of  the trial court, as well as the Court of Appeals, arefinal and conclusive and may not be reviewed on appeal. Among theexceptional circumstances where a reassessment of facts found by thelower courts is allowed are when the conclusion is a finding groundedentirely on speculation, surmises or conjectures; when the inferencemade is manifestly absurd, mistaken or impossible; when there is graveabuse of discretion in the appreciation of facts; when the judgment ispremised on a misapprehension of facts; when the findings went beyondthe issues of the case and the same are contrary to the admissions ofboth appellant and appellee. After a careful study of the case at bench,we find none of the above grounds present to justify the re-evaluation ofthe findings of fact made by the courts below. 2.Contract of a piece of work defined Article 1713 of the Civil Code defines a contract for a piece of work as“by the contract for a piece of work the contractor binds himself toexecute a piece of work for the employer, in consideration of a certainprice or compensation. The contractor may either employ only his laboror skill, or also furnish the material.” 3.Contract for a piece of work distinguished from a contract of sale A contract for a piece of work, labor and materials may be distinguishedfrom a contract of sale by the inquiry as to whether the thing transferredis one not in existence and which would never have existed but for theorder of the person desiring it . In such case, the contract is one for apiece of work, not a sale. On the other hand, if the thing subject of thecontract would have existed and been the subject of a sale to someother person even if the order had not been given, then the contract isone of sale. “A contract for the delivery at a certain price of an article which thevendor in the ordinary course of his business manufactures or procuresfor the general market whether the same is on hand at the time or not isa contract of sale, but if  the goods are to be manufactured specially forthe customer and upon his special order, and not for the generalmarket, it is a contract for a piece of work (Art. 1467, Civil Code). Themere fact alone that certain articles are made upon previous orders ofcustomers will not argue against the imposition of the sales tax if sucharticles are ordinarily manufactured by the taxpayer for sale to thepublic.” (Celestino Co. vs. Collector, 99 Phil. 8411).  To Tolentino, the distinction between the two contracts depends on theintention of the parties. Thus, if the parties intended that at some futuredate an object has to be delivered, without considering the work or laborof the party bound to deliver, the contract is one of sale. But if one ofthe parties accepts the undertaking on the basis of some plan, takinginto account the work he will employ personally or through another,there is a contract for a piece of work. 4.Contract in question is one for a piece of work  The contract in question is one for a piece of work. It is not theCorporation’s line of business to manufacture airconditioning systemsto be sold “off-the-shelf.” Its business and particular field of expertise isthe fabrication and installation of such systems as ordered by customersand in accordance with the particular plans and specifications providedby the customers. Naturally, the price or compensation for the systemmanufactured and installed will depend greatly on the particular plansand specifications agreed upon with the customers. 5.Obligations of a contractor for a piece of work  The obligations of a contractor for a piece of work are set forth inArticles 1714 and 1715 of the Civil Code. Article 1714 provides that “ifthe contractor agrees to produce the work from material furnished byhim, he shall deliver the thing produced to the employer and transferdominion over the thing. — This contract shall be governed by thefollowing articles as well as by the pertinent provisions on warranty oftitle and against hidden defects and the payment of price in a contractof sale.”Article 1715 provides that “the contractor shall execute thework in such a manner that it has the qualities agreed upon and has nodefects which destroy or lessen its value or fitness for its ordinary orstipulated use. Should the work be not of such quality, the employermay require that the contractor remove the defect or execute anotherwork. If the contractor fails or refuses to comply with this obligation, theemployer may have the defect removed or another work executed, atthe contractor’s cost.” 6.Provisions on warranty against hidden defects  The provisions on warranty against hidden defects, referred to in Article1714, are found in Articles 1561 and 1566. Article 1561 provides that“the vendor shall be responsible for warranty against the hidden defectswhich the thing sold may have, should they render it unfit for the use forwhich it is intended, or should they diminish its fitness for such use tosuch an extent that, had the vendee been aware thereof, he would nothave acquired it or would have given a lower price for it; but said vendorshall not be answerable for patent defects or those which may bevisible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.”Article1566 provides that “the

vendor is responsible to the vendee for anyhidden faults or defects in the thing sold, even though he was not awarethereof,” and provides further that the provision “shall not apply if thecontrary has been stipulated, and the vendor was not aware of thehidden faults or defects in the thing sold.” 7.Remedy against violation of the warranty against hidden defects  The remedy against violations of the warranty against hidden defects iseither to withdraw from the contract (rehibitory action) or to demand aproportionate reduction of the price (accion quanti minoris), withdamages in either case. 8. Prescriptive period as specified in express warranty, or in theabsence of which, 4 years; Prescriptive period of 6 months for rehibitoryaction is applicable only in implied warranties While it is true that Article 1571 of the Civil Code provides for aprescriptive period of six months for a rehibitory action, a cursoryreading of the ten preceding articles to which it refers will reveal thatsaid rule may be applied only in case of  implied warranties; and wherethere is an express warranty in the contract, the prescriptive period isthe one specified in the express warranty, and in the absence of suchperiod, the general rule on rescission of contract, which is four years(Article 1389, Civil Code) shall apply. (Villostas v. CA) 9. Original complaint is one for arising from breach of a writtencontact and not a suit to enforce warranty against hidden defects;Article 1715 in relation to Article 1144 apply, prescription in 10 years;Action not prescribed  The lower courts opined and so held that the failure of the defendant tofollow the contract specifications and said omissions and deviationshaving resulted in the operational ineffectiveness of the system installedmakes the defendant liable to the plaintiff in the amount necessary torectify to put the air conditioning system in its proper operationalcondition to make it serve the purpose for which the plaintiff enteredinto the contract with the defendant. Thus, having concluded that theoriginal complaint is one for damages arising from breach of a writtencontract, and not a suit to enforce warranties against hidden defects,the governing law therefore is Article 1715. However, inasmuch as thisprovision does not contain a specific prescriptive period, the general lawon prescription, which is Article 1144 of the Civil Code, will apply. Saidprovision states, inter alia, that actions “upon a written contract”prescribe in 10 years. Since the governing contract was executed on 10September 1962 and the complaint was filed on 8 May 1971, it is clearthat the action has not prescribed. 10. Acceptance of the work by the employer does not relieve the contractor of liability for any defect in the work  The mere fact that Almeda accepted the work does not, ipso facto,relieve the Corporation from liability for deviations from and violations ofthe written contract, as the law gives him 10 years within which to filean action based on breach thereof. As held by the Court of Appeals, “asthe breach of contract consisted in appellant’s omission to install theequipment [sic], parts and accessories not in accordance with the planand specifications provided for in the contract and the deviations madein putting into the air-conditioning system parts and accessories not inaccordance with the contract specifications, it is evident that the defectin the installation was not apparent at the time of the delivery andacceptance of the work, considering further that Almeda is not an expertto recognize the same. From the very nature of things, it is impossible todetermine by the simple inspection of air conditioning system installedin an 8-floor building whether it has been furnished and installed as peragreed specifications.”

4. AGENCY TO SELL Quiroga v. CA 38 Phil 501 Facts: A contract was entered between Quiroga and Parsons for theexclusive sale of Quiroga beds in the Visayas Islands,

specifically Iloilo.Quiroga furnishes the beds to Parson, who in turn pay the price in themanner stipulated. Quiroga provided a discount of 20 to 25% for thebeds, depending on their class. Later, Quiroga filed a case againstParsons for violation of its obligation not to sell the beds at higher pricethan those of the invoices, etc. (which are not expressly stipulated in thecontract, except for the manner the beds are ordered by the dozen).Quiroga maintains that Parson is his agent for the sale of his beds inIloilo, and that the contract is that of commercial agency. Issue: Whether the contact is that of sale or of commercial agency. Held: The contract between the parties is a contract of purchase andsale as Parson, by receiving the bed, was necessarily obliged to paytheir price within the term fixed, without any other consideration andregardless as to whether he had or had not sold the bed. The words“commission on sales” in the contract is nothing elsethan a merediscount on the invoice price. Further, the word “agency” used thereononly expresses that Parson was the sole seller of Quiroga beds in theVisayas. None of the other clauses of the contract are not incompatiblewith the contract of purchase and sale. Puyat & Sons v. Arco Amusement 72 Phil 402 Facts: Gonzalo Puyat & Sons is the exclusive agent of Starr PianoCompany of Richmond, Indiana USA, in the Philippines.

 Teatro Arco, orArco Amusement Company, desiring to equip its cinematograph withsound reproducing devices, approached Puyat. It was agreed by theparties that Puyat would in behalf of Arco order equipment from StarrPiano and that Arco would pay Puyat in addition to price of the equipment, 10% commission plus all expenses such as freight,insurance, banking charges, cables, e tc. Puyat informed Arco that theprice of the equipment was $1,700, to which Arco agreed. Later, asimilar arrangement was made by Arco for the purchase of similarequipment for $1,600 with 10% commission, with Puyat charging anadditional flat charge of $160 for all expenses and charges. 3 yearslater, Arco learned that the price quoted by Puyat on the 2 orders werenot the net price but the list price for the equipment. Arco filed acomplaint with the trial court (CFI) demanding reimbursement from said“overpriced” sales. The trial court ruled in favor of Puyat, but the Courtof Appeals reversed such decision and declared Puyat an agent of ArcoAmusement in the purchase of said equipment.

Issue: Whether the agreement made between Puyat and Arco Amusement is that of purchase and sale or that of agency. Held: Gonzalo Puyat & Sons cannot be the agent of Arco Amusement inthe purchase of equipment from Starr Piano

Company as Puyat & Sonsis already the exclusive agent of Starr Piano in the Philippines. Puyatcannot be the agent of both vendor and purchaser. The fact that acommission was offered to the other does not necessarily mean that thelatter has become the agent of the former, as this was only anadditional price which Arco bound itself to pay and which is notincompatible with the contract of purchase and sale. Puyat is not boundto reimburse the profit acquired in the transaction, as this is the veryessence of commerce involving middlemen and merchants. The contractis the law between the parties. What does not appear on the face of thecontract should be regarded as “dealer’s or trader’s talk” which cannotbind either party. Not every concealment is fraud, short of fraud, andsuch as that in this case, is considered as business acumen.

6. LEASE Filinvest Credit vs. CA [G.R. No. 82508.September 29, 1989.] Second Division, Sarmiento (J): 3 concur, 1 on leave

Facts: The spouses Jose Sy Bang and Iluminada Tan were engaged in thesale of gravel produced from crushed rocks and used for constructionpurposes. In order to increase their production, they engaged theservices of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales inLucena City, to look for a rock crusher which they could buy. Mr.Mercurio referred the spouses to the Rizal Consolidated Corporationwhich then had for sale one such machinery (Lippman portable crushingplant, reconditioned; Jaw crusher, 10 x 16, Double roll crusher, 16 x 16;3 units product conveyor, 75 HP electric motor, 8 pcs. Brand new tires;Chassis 19696, Good running condition). Oscar Sy Bang, a brother ofJose Sy Bang, went to inspect the machine at the Rizal Consolidated’splant site. Apparently satisfied with the machine, Sy Bang signified theirintent to purchase the same. They were confronted with a problem, therock crusher carried a cash price tag of P550,000.00. Bent on acquiringthe machinery, the spouses applied for financial assistance fromFilinvest Credit Corporation. Filinvest agreed to extend to the spousesfinancial aid on the following conditions: that the machinery bepurchased in Filinvest’s name; that it be leased (with option to purchaseupon the termination of the lease period) to the spouses; and that thespouses execute a real estate mortgage in favor of Filinvest as securityfor the amount advanced by the latter. Accordingly, on 18 May 1981, acontract of lease of machinery (with option to purchase) was enteredinto by the parties whereby the spouses agreed to lease from thepetitioner the rock crusher for two years starting from 5 July 1981payable at P10,000.00 for first 3 months, P23,000.00 for the next 6months, and P24,800.00 for the next 15 months. The contract likewisestipulated that at the end of the two-year period, the machine would beowned by the spouses. Thus, the spouses issued in favor of Filinvest acheck for P150,550.00, as initial rental (or guaranty deposit), and 24postdated checks corresponding to the 24 monthly rentals. In addition,to guarantee their compliance with the lease contract, the spousesexecuted a real estate mortgage over two parcels of land in favor ofFilinvest. The rock crusher was delivered to the spouses on 9 June 1981.Three months from the date of delivery, or on 7 September 1981,however, the spouses, claiming that they had only tested the machinethat month, sent a letter-complaint to Filinvest, alleging that contrary tothe 20 to 40 tons per hour capacity of the machine as stated in thelease contract, the machine could only process 5 tons of rocks andstones per hour. They then demanded that Filinvest make good thestipulation in the lease contract. They followed that up with similarwritten complaints to Filinvest, but the latter did not, however, act onthem. Subsequently, the spouses stopped payment on the remainingchecks they had issued to Filinvest. As a consequence of the non-payment by the spouses of the rentals on the rock crusher as they felldue despite the repeated written demands, Filinvest extrajudiciallyforeclosed the real estate mortgage. On 18 April 1983, the spousesreceived a Sheriff a Notice of Auction Sale informing them that theirmortgaged properties were going to be sold at a public auction on 25May 1983, 10:00 a.m., at the Office of the Provincial Sheriff in LucenaCity to satisfy their indebtedness to Filinvest.  To thwart the impending auction of their properties, the spouses filedbefore the RTC Quezon (Branch LIX, Lucena City), on 4 May 1983, acomplaint against Filinvest for the rescission of the contract of lease,annullment of the real estate mortgage, and for injunction anddamages, with prayer for the issuance of a writ of preliminary injunction.On 23 May 1983, 3 days before the scheduled auction sale, the trialcourt issued a temporary restraining order commanding the ProvincialSheriff of  Quezon, and Filinvest, to refrain and desist from proceedingwith the public auction. Two years later, on 4 September 1985, the trialcourt rendered a decision in favor of the spouses, making the injunctionpermanent, rescinding the contract of lease of the machinery andequipment and ordering the spouses to return to the Filinvest themachinery subject of the lease contract, and Filinvest to return to thespouses the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fullyrestituted; annulling the real estate mortgage constituted over theproperties of the spouses covered by TCTs T-32480 and T-5779 of theRegistry of Deeds of Lucena City; and ordering the Filinvest to pay thespouses P30,000.00 as attorney’s fees and the costs of the suit. Dissatisfied with the trial court’s decision, Filinvest elevated the case tothe Court of Appeals. On 17 March 1988, the appellate court, finding noerror in the appealed judgment, affirmed the same in toto.Hence, thepetition for review on certiorari by Filinvest.  The Supreme Court granted the petition, reversed and set aside the 17March 1988 Decision of the Court of Appeals, and rendered another onedismissing the complaint; with costs against the spouses.

1. Financial institution not immune from recourse of the spouses; Filinvest owns crusher While it is accepted that Filinvest Credit Corporation is a financinginstitution, it is not, however, immune from any recourse by the privaterespondents. Notwithstanding the testimony of Jose Sy Bang that he didnot purchase the rock crusher from Filinvest, the fact that the rockcrusher was purchased from Rizal Consolidated Corporation in the nameand with the funds of Filinvest proves beyond doubt that the ownershipthereof was effectively transferred to it. It is precisely this ownershipwhich enabled Filinvest to enter into the “Contract of Lease ofMachinery and Equipment” with the spouses 2. Nomenclature of agreement cannot change its true essence; sale on installment  The real intention of the parties should prevail. The nomenclature of theagreement cannot change its true essence, i.e., a sale on installments. Itis basic that a contract is what the law defines it and the parties intendit to be, not what it is called by the parties. It is apparent that the intentof the parties to the subject contract is for the so-called rentals to be theinstallment payments. Upon the completion of the payments, then therock crusher, subject matter of the contract, would become the propertyof the spouses. This form of agreement has been criticized as a leaseonly in name. 3. Payment in contract of lease with option to buy are installment payments In Vda. de Jose v. Barrueco,it was stated that “Sellers desirous ofmaking conditional sales of their goods, but who do not wish openly tomake a bargain in that form, for one reason or another, have frequentlyresorted to the device of making contracts in the form of leases eitherwith options to the buyer to purchase for a small consideration at theend of term, provided the so-called rent has been duly paid, or withstipulations that if the rent throughout the term is paid, title shallthereupon vest in the lessee. It is obvious that such transactions areleases only in name. The so-called rent must necessarily be regarded aspayment of the price in installments since the due payment of theagreed amount results, by the terms of bargain, in the transfer of title tothe lessee.” 4. Article 1484 Article 1484 of the new Civil Code, which provides for the remedies of anunpaid seller of movables in installment basis, states “In a contract ofsale of personal property the price of which is payable in installments,the vendor may exercise any of the following remedies: (1) Exactfulfillment of the obligation, should the vendee fail to pay; (2) Cancel thesale, should the vendee’s failure to pay cover two or more installments;(3) Foreclose the chattel mortgage or the thing sold, if one has beenconstituted, should the vendee’s failure to pay cover two or moreinstallments. In this case, he shall have no further action against thepurchaser to recover any unpaid balance of the price. Any agreement tothe contrary shall be void.” 5.Remedies under Article 1484 alternative and not cumulative Under Article 1484, the seller of movables in installments, in case thebuyer fails to pay two or more installments, may elect to pursue eitherof the following remedies: (1) exact fulfillment by the purchaser of theobligation; (2) cancel the sale; or (3) foreclose the mortgage on thepurchased property if one was constituted thereon. It is now settled thatthe said remedies are alternative and not cumulative and therefore, theexercise of one bars the exercise of the others. 6. Contract of lease with option to buy a device to circumvent Article 1484  The device — contract of lease with option to buy — is at times resortedto as a means to circumvent Article 1484, particularly paragraph (3)thereof. Through the set-up, the vendor, by retaining ownership over theproperty in the guise of  being the lessor, retains, likewise, the right torepossess the same, without going through the process of foreclosure, inthe event the vendee-lessee defaults in the payment of the installments.There arises therefore no need to constitute a chattel mortgage over themovable sold. More important, the vendor, after repossessing theproperty and, in effect, canceling the contract of sale, gets to keep allthe installments-cum-rentals already paid. 7. Article 1485 places contract of lease with option to buy within the applicability of Article 1484 Article 1485 of the new Civil Code provides that “The preceding articleshall be applied to contracts purporting to be leases of personalproperty with option to buy, when the lessor has deprived the lessee ofpossession or enjoyment of the thing.” 8. No reason to hold Filinvest liable for failure of rock crusher to produce in accordance with its capacity  The Court failed to find any reason to hold the petitioner liable for therock crusher’s failure to produce in accordance with its describedcapacity. It was the spouses who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested themachine, and found it to their satisfaction, that the spouses soughtfinancial aid from Filinvest. These allegations of the petitioner had neverbeen rebutted by the spouses, but in fact, evenbeen admitted in thecontract they signed (“LESSEE’S SELECTION, INSPECTION ANDVERIFICATION. — The LESSEE hereby confirms and acknowledges thathe has independently inspected and verified the leased property andhas selected and received the same from the Dealer of his own choosingin good order and excellent running and operating condition and on thebasis of such verification, etc. the LESSEE has agreed to enter into thisContract.”) 9. Spouses presumed knowledgeable on machinery subject of the contract; Spouses negligent Considering that between the parties, it is the spouses, by reason oftheir business, who are presumed to be more knowledgeable, if notexperts, on the machinery subject of the contract, they should nottherefore be heard now to complain of any alleged deficiency of the saidmachinery. It is their failure or neglect to exercise the caution andprudence of an expert, or, at least, of a prudent man, in the selection,testing, and inspection of the rock crusher that gave rise to theirdifficulty and to this conflict. A well-established principle in law is thatbetween two parties, he, who by his negligence caused the loss, shallbear the same. 10. Spouses precluded from imputing liability on Filinvest; Express waiver of warranties Even if the spouses could not be adjudged as negligent, they still areprecluded from imputing any liability on Filinvest. One of the stipulationsin the contract they entered into with Filinvest is an express waiver ofwarranties in favor of the latter. By

so signing the agreement, thespouses absolved Filinvest from any liability arising from any defect ordeficiency of the machinery they bought. The stipulation on themachine’s production capacity being “typewritten” and that of thewaiver being “printed” does not militate against the latter’s effectivity.As such, whether “a capacity of 20 to 40 tons per hour” is a condition ora description is of no moment. What stands is that the spouses hadexpressly exemptd Filinvest from any warranty whatsoever. TheirContract of Lease Of Machinery And Equipment states “WARRANTY —LESSEE absolutely releases the lessor from any liability whatsoever as toany and all matters in relation to warranty in accordance with theprovisions hereinafter stipulated.” 11.Common sense dictates buyer inspects product before purchasing it; Caveat emptor Common sense dictates that a buyer inspects a product beforepurchasing it (under the principle of caveat emptor or “buyer beware”)and does not return it for defects discovered later on, particularly if thereturn of the product is not covered by or stipulated in a contract orwarranty. 12.Declaration of waiver as non-effective would impair obligations of contracts  Taking into account that due to the nature of its business and its modeof providing financial assistance to clients, Filinvest deals in goods overwhich it has no sufficient know-how or expertise, and the selection of aparticular item is left to the client concerned, the latter, therefore,shoulders the responsibility of protecting himself against productdefects. This is where the waiver of warranties is of paramountimportance. In the present case, to declare the waiver as non-effectivewould impair the obligation of contracts. Certainly, the waiver inquestion could not be considered a mere surplusage in the contractbetween the parties. Moreover, nowhere is it shown in the records of thecase that the spouses has argued for its nullity or illegality. 13.No ambiguity in the language of the waiver In any event, there is no ambiguity in the language of the waiver or therelease of warranty. There is therefore no room for any interpretation asto its effect or applicability vis-a-vis the deficient output of the rockcrusher. Suffice it to say that the spouses have validly excused Filinvestfrom any warranty on the rock crusher. Hence, they should bear the lossfor any defect found therein.