[G.R. No. 111890.

May 7, 1997]

CKH INDUSTRIAL AND DEVELOPMENT CORPORATION and RUBI

SAW, petitioners, vs. THE COURT OF APPEALS, (FORMER 13TH
DIVISION), THE REGISTER OF DEEDS OF METRO MANILA -
DISTRICT III (VALENZUELA), CENTURY-WELL PHIL.
CORPORATION, LOURDES CHONG, CHONG TAK KEI and UY
CHI KIM, respondents.

DECISION
TORRES, JR., J.:

The present petition springs from a civil action instituted by herein

petitioners, to rescind and/or annul the sale of two parcels of land, from
petitioner CKH Industrial and Development Corporation (CKH, for brevity) to
private respondent Century-Well Phil. Corporation (Century-Well, for brevity),
for failure to pay the stipulated price of P800,000.00.
Petitioners specifically assail the Decision of the respondent Court of
[1]

Appeals, which denied the annulment of the sale. The appellate court found
that there was payment of the consideration by way of compensation, and
ordered petitioners to pay moral damages and attorney's fees to private
respondents. The dispositive portion of the questioned decision reads:
"WHEREFORE, in view of all the foregoing, the appealed Decision is
REVERSED. The complaint is DISMISSED with costs against the
plaintiffs. The plaintiffs jointly and severally are required to pay each of the
defendants Lourdes Chong, Chong Tak Kei, and Uy Chi Kim moral damages
of P20,000.00; and further requiring the plaintiffs, jointly and severally, to pay
to each of the defendants Century-Well Phil.Corporation, Lourdes Chong,
Chong Tak Kei and Uy Chi Kim attorney's fees of P20,000.00
With costs in this instance against the plaintiffs-appellees.
SO ORDERED." [2]

The said decision reversed the disposition of the Regional Trial Court of
Valenzuela, Branch 172 in Civil Case No. 2845-V-88 entitled "CKH Industrial
& Development Corporation vs. Century-Well Philippine Corporation, Lourdes
Chong, Chong Tak Kei, Uy Chi Kim, and the Register of Deeds of Metro
Manila, District III (Valenzuela)." The trial court's decision stated pertinently:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of

plaintiff:

1. Ordering the rescission/annulment of the Deed of Absolute Sale of Realty.

2. Ordering defendants Lourdes Chong, Chong Tak Kei and Century-Well to pay
plaintiffs moral damages in the sum of P200,000.00;

3. Ordering defendants Lourdes Chong, Chong Tak Kei and Century Well to pay
plaintiffs Attorney's fees in the amount of 15% of the agreed price of P800,000.00
plus appearance fees of P500.00 per appearance;

4. Ordering defendants Lourdes Chong, Chong Tak Kei and Century Well to pay the
costs of suit;

5. As the writ of preliminary injunction was denied, the defendant Register of Deeds
of Valenzuela is hereby ordered to cancel the certificates of title issued to Century-
Well by virtue of the Deed of Absolute Sale of Realty and to reissue a new title in the
name of CKH.

The case is dismissed as far as defendant Uy Chi Kim is concerned.

His counterclaim is likewise dismissed considering that by his
mediation he took it upon himself to assume the damages he allegedly
suffered.
SO ORDERED." [3]

The records disclose that petitioner CKH is the owner of two parcels of
land, consisting of 4,590 sq. m. and 300 sq. m. respectively, located in
Karuhatan, Valenzuela, and covered by Transfer Certificates of Title Nos.
8710 and 8711, Register of Deeds of Caloocan City (now Register of Deeds
District III [Valenzuela]). CKH is a corporation established under Philippine
[4]

law by the late Cheng Kim Heng (Cheng), an immigrant of Chinese

descent. Upon Cheng's demise, control over the petitioner corporation was
transferred to Rubi Saw, also of Chinese descent, and Cheng's second wife.
It also appears that before coming to the Philippines, Cheng Kim Heng
was married to Hung Yuk Wah (Wah), who lived in Hongkong together with
their children, Chong Tak Kei, (Kei), Chong Tak Choi (Choi), and Chong Tak
Yam (Yam). After Cheng immigrated to the Philippines in 1976, and married
Rubi Saw in 1977, he brought his first wife, Heng, and their children to this
country, and established himself and his Chinese family as naturalized Filipino
citizens. Heng died in 1984.
On May 8, 1988, Rubi Saw and Lourdes Chong, the wife of Cheng's son,
Kei, met at the 1266 Soler St., Sta. Cruz, Manila, the residence of Cheng's
friend, Uy Chi Kim, and executed a Deed of Absolute Sale, whereby Rubi [5]

Saw, representing CKH, agreed to sell the subject properties to Century-Well,

a corporation owned in part by Lourdes Chong, Kei and Choi. [6]

The pertinent portions of the Deed of Sale are hereby reproduced:

"KNOW ALL MEN BY THESE PRESENTS:

This Deed of Absolute Sale of Realty executed by and between:

CKH INDUSTRIAL & DEVELOPMENT CORPORATION, a corporation

duly organized and existing under and by virtue of the laws of the Republic of
the Philippines, with business address at 553 Bermuda St., Sta. Cruz, Manila,
represented in this act by its authorized representative, Ms. RUBI SAW,
hereinafter referred to as VENDOR,

- in favor of -

CENTURY-WELL PHIL. CORPORATION, a corporation duly organized

and existing under and by virtue of the laws of the Republic of the Philippines
at least sixty (60%) percent of the subscribed capital stock of which is owned
by Filipino citizens, duly qualified to own and acquire lands in the Philippines,
with office and business address at 66 F Bautista St., Valenzuela, Metro
Manila and represented in this act by its Treasurer and authorized
representative, Ms. Lourdes Chong, hereinafter referred to as VENDEE,
WITNESSETH:
That vendor is the registered owner of two adjacent parcels of residential land
situated in the Bo. of Karuhatan, Municipality of Valenzuela, Metro Manila,
covered by Transfer Certificates of Titles Nos. B-8710 and B-8711 of the
Registry of Deeds for Metro Manila District III, and more particularly
described as follows:
xxx
That for and in consideration of the sum of EIGHT HUNDRED THOUSAND
(P800,000.00) PESOS, Philippine Currency, paid by VENDEE to VENDOR,
receipt of which is hereby acknowledged by the latter to its entire satisfaction,
said VENDOR, by these presents, has SOLD, CEDED, TRANSFERRED, and
 CONVEYED by way of absolute sale unto said VENDEE, its successors and
assigns, the two parcels of land above described and any and all improvements
therein;
That the above-described parcels of land are free from liens and encumbrances
of whatever kind and nature.
IN WITNESS WHEREOF, the parties hereto and their instrumental witnesses
have hereunto set their hand on ________ at ________."
Rubi Saw signed on behalf of CKH, while Lourdes Chong signed for
Century Well. The document was notarized the day after the parties signed
[7]

the same, i. e., March 9, 1988. [8]

Claiming that the consideration for the sale of the subject properties was
not paid by the private respondent-vendee despite several demands to do so,
Petitioners CKH and Rubi Saw filed the instant complaint on May 23, 1988,
[9]

with the Regional Trial Court of Valenzuela, Branch 172, against Century-
Well, Lourdes Chong, Chong Tak Kei and Uy Chi Kim. Petitioners prayed for
the annulment/rescission of the Deed of Absolute Sale, and in the meantime,
for the issuance of a writ of preliminary injunction restraining the Register of
Deeds of Valenzuela from registering the Certificates of Title over the subject
properties in the name of the private respondent Century-Well.
The trial court synthesized the petitioners' submissions as follows:

"The complaint alleges the following:

Lourdes Chong and Rubi Saw agreed that the full payment
of P800,000.00 as purchase price shall be in the form of a Manager's
Check, to be delivered to Rubi Saw upon the execution of the Deed of
Sale, the preparation of which, Lourdes Chong undertook. On May 8,
1988, the date agreed upon for the execution of the Deed of Sale,
plaintiff Rubi Saw, accompanied by her friend Aurora Chua Ng, went
to 1266 Soler St., Sta. Cruz, Manila which is the residence and place of
business of defendant Uy Chi Kim, an elderly man of Chinese ancestry
and the place suggested by Lourdes Chong as their meeting
place. During the meeting, Uy Chi Kim who was there presented to
Rubi Saw a Deed of Absolute Sale in favor of defendant Century Well
for her signature. Before Rubi Saw signed the Deed of Absolute Sale
she inquired about the payment of the P800,000.00. Defendant Uy Chi
Kim presented to her a personal check but she refused the same
because it was contrary to her arrangement with Lourdes Chong that
the payment would be in the form of Manager's Check. Uy Chi Kim
then explained to Rubi Saw that since it was a Sunday that day, they
were unable to obtain the Manager's Check. He assured her that he had
sufficient cash money at the first floor of his residence which is a store
owned by Uy Chi Kim. Before Uy Chi Kim left on the pretext of
getting the money, he persuaded plaintiff Rubi Saw to sign the Deed of
Absolute Sale and give the same to Lourdes Chong together with the
two Certificates of Title. Since Uy Chi Kim is an elderly Chinese
whom Rubi Saw had no reason to mistrust, following Chinese custom,
plaintiff Rubi Saw acceded to the request of Uy Chi Kim, trusting that
he had sufficient cash amounting to P800,000.00 kept in the first floor
of his residence. When Uy Chi Kim returned, he told Rubi Saw that he
had only P20,000 on hand. He assured plaintiff, however, that there
was no cause for her to worry (as) he was certain he would have the
entire amount ready by the next day when the banks would be open.
Again, trusting the elderly defendant Uy Chi Kim, Rubi Saw did not
object and did not insist on the return of the Deed of Absolute Sale that
she signed, together with the Certificate of Title which she delivered to
Lourdes Chong. The next day, May 9, 1988 Rubi Saw called Lourdes
Chong and Uy Chi Kim over the telephone but was told they were not
around. She could not go to the residence of Uy Chi Kim because she
could not leave her office due to business concerns. On May 10, 1988
Rubi Saw repeatedly called the two but was informed they were not
around. On May 11, 1988 already anxious, she personally went to the
residences and offices of the two defendants but they were not
around. On May 12, 1988 Rubi Saw wrote defendant Century Well
advising Lourdes Chong of the rescission and cancellation of the Deed
of Absolute Sale because of lack of consideration. Lourdes Chong
refused to receive the letter.Thereafter, several demand letters were
sent to the defendants but they refused to pay plaintiffs. Worried that
defendants might surreptitiously transfer the certificates of title to their
names, Rubi Saw wrote the public defendant Register of Deeds on
May 16, 1988, giving information about the circumstances of the sale
and requesting not to allow registration of the Deed of Absolute Sale,
together with an Affidavit of Adverse Claim. On May 20, 1988,
plaintiffs' representative was informed by the Register of Deeds that
defendants have made representations with defendant to Register the
Deed of Absolute Sale on May 23, 1988.
Plaintiff Rubi Saw filed this Complaint alleging that Lourdes Chong
and Uy Chi Kim maliciously misled her to believe that they would pay
the P800,000 as consideration when in fact they had no intention to
pay plaintiffs, and prayed that they should be awarded moral damages;
 that defendants be restrained from registering the Deed of Absolute
Sale, and be ordered to return to them the 2 titles of the properties
together with the Deed of Absolute Sale." [10]

On the other hand, private respondents Century-Well, Lourdes Chong,

and Chong Tak Kei alleged that:
"...the consideration for the two parcels of land was paid by means of off-
setting or legal compensation in the amount of P700,000 thru alleged
promissory notes executed by Cheng Kim Heng in favor of his sons Chong
Tak Choi and Chong Tak Kei (Exh. 6, 7, & 8) and payment of P100,000.00 in
cash.
The defendant Century Well filed its Answer stating that during the operation
of plaintiff CKH, the latter borrowed from Chong Tak Choi and Chong Tak
Kei the total sum of P700,000.00 paying interest onP300,000.00 while the
remaining P400,000.00 was interest free, and upon the death of Cheng Kim
Heng, it stopped making said payments. Defendant tried to prove that the
source of this P700,000 was Hung Yuk Wah while she was still residing in
Hongkong, sent via bank draft from Hongkong to Chong Tak Choi and Chong
Tak Kei on a bank to bank transfer. Defendant likewise tried to prove that
after the death of Cheng Kim Heng, Rubi Saw unilaterally arrogated to herself
the executive positions in plaintiff corporation such as President, Secretary,
Treasurer and General Manager; thus effectively shunting aside Hung Yuk
Wah and her children in the management of plaintiff corporation. Family
differences (arose) between Rubi Saw on one hand, and Hung Yuk Wah and
her children on the other hand which turned to worst after the death of Cheng
Kim Heng. This brought about the entry of Chinese mediators between them,
one of whom is defendant Uy Chi Kim, a reason why the execution of the
Deed of Absolute Sale was to be done at the residence and business address of
Uy Chi Kim." [11]

Uy Chi Kim, on the other hand, answered on his behalf, that:

"...his only participation in the transaction was as a mediator, he being one of
the closest friends of Cheng Kim Heng; that because the heirs of Cheng Kim
Heng could not settle their problems he, together with Machao Chan and
Tomas Ching tried to mediate in accordance with Chinese traditions; that after
long and tedious meetings the parties finally agreed to meet at his residence at
1266 Soler St., Sta. Cruz, Manila for the purpose of pushing thru the sale of
the properties in question as part of the settlement of the estate. Defendant Uy
Chi Kim corroborated the defense of his co-defendants that the purchase price
of the properties was P800,000.00 the payment of which consists in the form
of P100,000.00 in cash Philippine Currency; and the balance of P700,000.00
 will be applied as a set-off to the amount borrowed by plaintiff CKH from
Chong Tak Choi and Chong Tak Kei. He advanced the amount
of P100,000.00 by way of his personal check to Rubi Saw but because Rubi
Saw refused, he gave Rubi Saw P100,000 in the form of P100 bills which
Rubi Saw and Jacinto Say even counted. After the P100,000.00 cash was
given and the promissory notes, Rubi Saw signed the document of sale. It was
during the registration of the sale that a problem arose as to the payment of the
capital gains (tax) which Rubi Saw refused to pay. The buyer likewise refused
to pay the same. The complaint against him is baseless and which besmirched
his reputation. Hence his counterclaim for damages." [12]

The trial court denied the petitioners' prayer for issuance of the writ of
preliminary injunction in its Order dated August 4, 1988. [13]

After trial, the lower court rendered its Decision on February 4, 1991,
finding that the annulment of the Deed of Absolute Sale was merited, as there
was no payment of the stipulated consideration for the sale of the real
properties involved to Rubi Saw.
In the first place, said the court, the Deed of Sale itself, which is the best
evidence of the agreement between the parties, did not provide for payment
by off-setting a portion of the purchase price with the outstanding obligation of
Cheng Kim Heng to his sons Chong Tak Choi and Chong Tak Kei. On the
contrary, it provided for payment in cash, in the amount of P800,000.00. The
evidence presented, however, did not disclose that payment of the said
amount had ever been made by the private respondent. Moreover, there
cannot be any valid off-setting or compensation in this case, as Article 1278 of
the Civil Code requires, as a prerequisite for compensation, that the parties
[14]

be mutually bound principally as creditors and debtors, which is not the case
in this instance. The rescission of the contract is, therefore, called for, ruled
the court.
Upon appeal, the respondent Court of Appeals reversed the findings and
pronouncements of the trial court. In its Decision dated April 21, 1993, the
[15]

appellate court expressed its own findings, that the execution of the Deed of
Absolute Sale was in settlement of a dispute between Rubi Saw and the first
family of Cheng Kim Heng, which arose upon Cheng's death. The appellate
court described the history of their dispute as follows:
"In 1977, Heng formed plaintiff-appellee CKH Industrial & Development
Corporation (CKH), with his first wife Wah, children Choi and Kei, and
second wife Rubi as his co-incorporators/stockholders, along with other
individuals (Exhs. C and D; ibid., p. 9 and pp. 10-13, respectively). On April
15 and July 17 the following year, Heng, on behalf of CHK [sic], obtained
loans of P400,000.00 and P100,000.00 from Choi, for which Heng executed
two promissory notes in Choi's favor (Exhs. 6 and 7; ibid., p. 40 and p. 41,
respectively). On November 24, 1981, Heng obtained from his other son, Kei,
another loan this time in the sum of P200,000.00 on behalf of CKH for which
he issued another promissory note (Exh. 8, ibid., p. 42).
After its incorporation, CKH acquired two parcels of land situated in
Karuhatan, Valenzuela, Bulacan (now Metro Manila) covered by Transfer
Certificates of Title Nos. B-8710 (Annex A-Complaint; Record, p. 13) and B-
8711 (Annex B-Complaint; ibid., p. 14), which are now the subject of
litigation in instant case.
On October 11, 1982, Kei was married to defendant-appellant Lourdes Chong
nee Lourdes Gochico Hai Huat (Lourdes). During their marriage, Kei and
Lourdes resided in the house on Tetuan St., Sta. Cruz, Manila, which CKH
was then utilizing as its office. At about this time, Heng and Rubi had moved
residence from Valenzuela, Metro Manila, to Bermuda St., Sta. Cruz, Manila.
Two years later, or in late 1984, Heng died. Thenceforth, there appeared to be
a falling out between Heng's first wife Wah and their three children on the one
hand, and his second wife Rubi, on the other, which came to a head when,
Rubi as president of CKH wrote a letter dated August 21, 1985 to the mayor
of Valenzuela, Metro Manila, to prevent issuance of a business permit to
American Metals managed by Chong Tak Choi, stating that CKH has not
allowed it to make use of the property, and on November 7, 1985, when CKH,
through counsel, demanded that Wah, Choi and Yam vacate the residential
and factory buildings and premises owned by CKH and located on one of the
subject lots on 76 F. Bautista St., Valenzuela, which the three and the
corporation (of which two of them were stockholders), had been allegedly
illegally occupying (Exhs. 10 and 10-A; Folio, pp. 44-45).
Respected mediators from the Chinese community in the persons of
defendant-appellant Uy Chi Kim, Ma Chao, Tomas Cheng and Johnny Saw,
were called in to mediate. The mediation efforts which resulted in the
withdrawal by Rubi Saw of her letter about the withholding of a license to
American Metals, Inc. and much later, had culminated in the transaction now
under litigation.
The formula for settlement in the dispute was for the Valenzuela properties of
CKH to be sold to Century Well for the amount of P800,000.00, P100,000.00
of which will be paid in cash and the balance ofP700,000.00 to be set-off by
the three (3) promissory notes executed in behalf of CKH in favor of Chong
Tak Choi and Chong Tak Kei (Exhs. 6, 7 and 8) the accumulated interests
thereon to be waived as unstated consideration of the sale.
 Having reached such agreement, on May 8, 1988, the parties met at the
residence of Kim at Soler St., where the corresponding deed of absolute sale
of realty was executed (Exhs. 11, 11-A to 11-C; ibid., pp. 46-49), with
mediator Cheng and CKH stockholder and Rubi's secretary, Jacinto Say,
signing as instrumental witnesses. After having received the cash
consideration of P100,000.00 and the promissory notes amounting
to P700,000.00 Rubi had signed the deed, and thereafter delivered to Lourdes
the document of sale and the owner's copies of the certificates of title for the
two lots. The deed having been executed on a Sunday, the parties agreed to
have the same notarized the following day, May 9, 1988. The parties again
met the next day, May 9, 1988, when they acknowledged the deed before a
notary public."[16]

In sum, the appellate court found that there was indeed payment of the
purchase price, partially in cash for P100,000.00 and partially by
compensation by off-setting the debt of Cheng Kim Heng to his sons Choi and
Kei for P500,000.00 and P200,000.00 respectively, against the remainder of
the stipulated price. Such mode of payment is recognized under Article
1249 of the Civil Code.
[17]

As observed by the appellate court:

We are of the considered view that the appellees have not established what
they claim to be the invalidity of the subject deed of sale. The appellees are
therefore neither entitled to the rescission or annulment of the document nor to
the award made in their favor in the decision under question and those other
reliefs they are seeking.
[18]

The question the Court is now tasked to answer is whether or not there
was payment of the consideration for the sale of real property subject of this
case. More specifically, was there a valid compensation of the obligations of
Cheng Kim Heng to his sons with the purchase price of the sale?
To resolve this issue, it is first required that we establish the true
agreement of the parties.
Both parties take exception to the provisions of the Deed of Absolute Sale
to bolster their respective claims. Petitioners, while submitting that as worded,
the Deed of Absolute Sale does not provide for payment by compensation,
thereby ruling out the intention of the parties to provide for such mode of
payment, submit on the other hand, that they had not received payment of the
stipulated cash payment of P800,000.00. The testimony of Rubi Saw during
the hearings for preliminary injunction and during trial was submitted to
advance the submission that she was never paid the price of the subject lots,
in cash or in promissory notes.
On the other side of the fence, private respondents, who, ironically, were
the parties who drafted the subject document, claim that the Deed of Sale
does not express the true agreement of the parties, specifically with regard to
the mode of payment. Private respondents allege that the execution of the
deed of absolute sale was the culmination of mediation of the dispute of the
first and second families of Cheng Kim Heng, over the properties of the
decedent; that the price of the real property subject of the contract of sale was
partly in cash, and the reminder to be compensated against Cheng's
indebtedness to his sons Choi and Kei, reflected in the promissory notes
submitted as Exhibits 6, 7 and 8 during the trial; that by virtue of such
compensation, the sale has been consummated and the private respondent
Century-Well is entitled to the registration of the certificates of title over the
subject properties in its name.
These contrasting submissions of the circumstances surrounding the
execution of the subject document have led to this stalemate of sorts. Still, the
best test to establish the true intent of the parties remains to be the Deed of
Absolute Sale, whose genuineness and due execution, are unchallenged. [19]

Section 9 of Rule 130 of the Rules of Court states that when the terms of
an agreement have been reduced to writing, it is considered as containing all
the terms agreed upon and there can be, between the parties and their
successors-in-interest, no evidence of such terms other than the contents of
the written agreement.
The so-called parol evidence rule forbids any addition to or contradiction of
the terms of a written instrument by testimony or other evidence purporting to
show that, at or before the execution of the parties written agreement, other or
different terms were agreed upon by the parties, varying the purport of the
written contract. When an agreement has been reduced to writing, the parties
cannot be permitted to adduce evidence to prove alleged practices which to
all purposes would alter the terms of the written agreement. Whatever is not
found in the writing is understood to have been waived and abandoned. [20]

The rule is not without exceptions, however, as it is likewise provided that

a party to an action may present evidence to modify, explain, or add to the
terms of the written agreement if he puts in issue in his pleadings: (a) An
intrinsic ambiguity, mistake or imperfection in the written agreement; (b) The
failure of the written agreement to express the true intent and agreement of
the parties thereto; (c) The validity of the written agreement; or (d) The
existence of other terms agreed to by the parties or their successors in
interest after the execution of the written agreement. [21]

We reiterate the pertinent provisions of the deed:

That for and in consideration of the sum of EIGHT HUNDRED THOUSAND
(P800,000.00) PESOS, Philippine Currency, paid by VENDEE to VENDOR,
receipt of which is hereby acknowledged by the latter to its entire satisfaction,
said VENDOR, by these presents, has SOLD, CEDED, TRANSFERRED, and
CONVEYED by way of absolute sale unto said VENDEE, its successors and
assigns, the two parcels of land above described and any and all
improvements therein; [22]

The foregoing stipulation is clear enough in manifesting the vendors

admission of receipt of the purchase price, thereby lending sufficient, though
reluctant, credence to the private respondents submission that payment had
been made by off-setting P700,000.00 of the purchase price with the
obligation of Cheng Kim Heng to his sons Choi and Kei. By signing the Deed
of Absolute Sale, petitioner Rubi Saw has given her imprimatur to the
provisions of the deed, and she cannot now challenge its veracity.
However, the suitability of the said stipulations as benchmarks for the
intention of the contracting parties, does not come clothed with the cloak of
validity. It must be remembered that agreements affecting the civil relationship
of the contracting parties must come under the scrutiny of the provisions of
law existing and effective at the time of the execution of the contract.
We refer particularly to the provisions of the law on compensation as a
mode of extinguishment of obligations. Under Article 1231 of the Civil Code,
an obligation may be extinguished: (1) by payment or performance; (2) by the
loss of the thing due, (3) by the condonation or remission of the debt; (4) by
the confusion or merger of the rights of creditor and debtor, (5) by
compensation; or (6) by novation. Other causes of extinguishment of
obligations include annulment, rescission, fulfillment of a resolutory condition
and prescription.
Compensation may take place by operation of law (legal compensation),
when two persons, in their own right, are creditors and debtors of each
other. Article 1279 of the Civil Code provides for the requisites of legal
[23]

compensation:

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
 (2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
Compensation may also be voluntary or conventional, that is, when the
parties, who are mutually creditors and debtors agree to compensate their
respective obligations, even though not all the requisites for legal
compensation are present. Without the confluence of the characters of mutual
debtors and creditors, contracting parties cannot stipulate to the
compensation of their obligations, for then the legal tie that binds contracting
parties to their obligations would be absent. At least one party would be
binding himself under an authority he does not possess. As observed by a
noted author, the requirements of conventional compensation are (1) that
each of the parties can dispose of the credit he seeks to compensate, and (2)
that they agree to the mutual extinguishment of their credits. [24]

In the instant case, there can be no valid compensation of the purchase

price with the obligations of Cheng Kim Heng reflected in the promissory
notes, for the reason that CKH and Century-Well the principal contracting
parties, are not mutually bound as creditors and debtors in their own name. A
close scrutiny of the promissory notes does not indicate the late Cheng, as
then president of CKH, acknowledging any indebtedness to Century-Well. As
worded, the promissory notes reveal CKHs indebtedness to Chong Tak Choi
and Chong Tak Kei.

Exhibit 6

Metro Manila, Philippines

April 15, 1978
For Value Received, We, CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, a duly registered corporation with postal address at Rm.
330, MTM Bldg. 1002 C. M. Recto Avenue, Manila, promises [sic] to pay on
demand to Mr. CHONG TAK CHOI, the sum of FOUR HUNDRED
THOUSAND PESOS, Philippine currency (P400,000.00)
To certify the correctness of the indebtedness to the party, I, CHENG KIM
HENG, President of CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, do hereby signed [sic] in behalf of the Corporation.
CKH INDUSTRIAL & DEVELOPMENT
CORPORATION
signed:
CHENG KIM HENG"

Exhibit 7

Manila,
July 17, 1978
For Value received, we, CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, a duly registered domestic corporation in the City of
Manila, represented by its president, CHENG KIM HENG with residence
certificate no. 118824650 issued at Manila, on 2-28-78 do promise to pay on
demand the sum of ONE HUNDRED THOUSAND PESOS ONLY
(P100,000.00), Philippine currency with interest from the date hereof at the
rate of ten per cent (10%) per annum to Mr. CHONG TAK CHOI.
In witness hereof on the consents [sic] of the parties to this promissory note, I,
CHENG KIM HENG, president of CKH INDUSTRIAL & DEVELOPMENT
CORPORATION do hereby affixed [sic] my signature below.
signed:
CHENG KIM HENG

Exhibit 8

Manila, Philippines,
November 24, 1981
I, CHENG KIM HENG, President of CKH INDUSTRIAL &
DEVELOPMENT CORPORATION, 831 Tetuan St. (2nd floor) Sta. Cruz,
Manila, promises to pay to CHONG TAK KEI, with postal address at 76 F.
Bautista St., Valenzuela, Metro Manila, the sum of PESOS: TWO HUNDRED
THOUSAND ONLY (P200,000.00) Philippine Currency, with interest at the
rate of Ten per cent (10%) per annum from date stated above to a period of
one year and I hereby consent to any renewal, or extension of same amount to
a same period which may be requested by any one of us for the payment of
this note.
 I also acknowledge the receipt of the above sum of money today from MR.
CHONG TAK KEI.

CKH IND. & DEV. CORP.

signed:
CHENG KIM HENG
President
In fact, there is no indication at all, that such indebtedness was contracted
by Cheng from Choi and Kei as stockholders of Century-Well. Choi and Kei, in
turn, are not parties to the Deed of Absolute Sale. They are merely
stockholders of Century-Well, and as such, are not bound principally, not
[25]

even in a representative capacity, in the contract of sale. Thus, their interest in

the promissory notes cannot be off-set against the obligations between CKH
and Century-Well arising out of the deed of absolute sale, absent any
allegation, much less, even a scintilla of substantiation, that Choi and Keis
interest in Century-Well are so considerable as to merit a declaration of unity
of their civil personalities. Under present law, corporations, such as Century-
Well, have personalities separate and distinct from their stockholders, except
[26]

only when the law sees it fit to pierce the veil of corporate identity, particularly
when the corporate fiction is shown to be used to defeat public convenience,
justify wrong, protect fraud or defend crime, or where a corporation the mere
alter ego or business conduit of a person. The Court cannot, in this instance
[27]

make such a ruling absent a demonstration of the merit of such a disposition.

Considering the foregoing premises, the Court finds it proper to grant the
prayer for rescission of the subject deed of sale, for failure of consideration. [28]

IN VIEW WHEREOF, the Court hereby RESOLVED to GRANT the

present petition. The decision of the Court of Appeals dated April 21, 1993, is
hereby REVERSED and SET ASIDE. The decision of the Regional Trial Court
of Valenzuela, Branch 173 dated February 4, 1991, is hereby REINSTATED,
with the MODIFICATION that the award of moral damages and attorney's fees
to Rubi Saw, and the order for payment of costs are DELETED.
The parties shall bear their respective costs.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.