MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,

vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.

FACTS: Petitioner was the owner of parcel of land located in Mandaluyong. To secure
a P900,000.00 loan it had obtained from respondent PNB, petitioner executed a real estate mortgage
over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00;
and, on November 16, 1973, petitioner executed an Amendment of Real Estate Mortgage over its
property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB,
payable in quarterly installments of P32,650.00, plus interests and other charges.

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate
mortgage and sought to have the property sold at public auction for P911,532.21, petitioners outstanding
obligation to respondent PNB as of June 30, 1982, plus interests and attorneys fees.

After due notice and publication, the property was sold at public auction on September 28,
1982 where respondent PNB was declared the winning bidder for P1,000,000.00.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an
extension of time to redeem/repurchase the property. In its reply dated August 30, 1983, respondent PNB
informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and
recommendation. Since petitioner failed to redeem the property, the Register of Deeds issued a new title
in favor of respondent PNB.

In the meantime, the Special Assets Management Department (SAMD) recommended to the
management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00.

In a letter dated November 14, 1984, the PNB management informed petitioner that it was
rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the
property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December
15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property
would be sold to other interested buyers

Petitioner, however, did not agree to respondent PNBs proposal. Instead, petitioner declared that
it had already agreed to the SAMD’s offer to purchase the property for P 1,574,560.47, and that’s why it
had paid P 725,000.00.

On June 4, 1985, respondent informed petitioner that PNB Board of Directors had accepted
Manila Metal’s offer to purchase the property, but for P 1,931,389.53 in cash less the P 725,000.00
already deposited with it. Petitioner rejected respondents proposal maintained that respondent PNB had
agreed to sell the property for P1,574,560.47. On August 28, 1989, petitioner filed a complaint against
respondent PNB for “Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific
Performance with Damage”.

The trial court ruled that there was no perfected contract of sale between parties. The CA
affirmed the decision of the RTC.
ISSUE: Whether or not petitioner and respondent entered into a perfected contract for the former to
repurchase the property from the latter?

HELD: As the Court ruled in Boston Bank of the Philippines v. Manalo, a definite agreement as to the
price is an essential element of a binding agreement to sell personal or real property because it seriously
affects the rights and obligations of the parties. Price is an essential element in the formation of a binding
and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the
contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise
to a perfected sale.

In Adelfa Properties, Inc. v. Court of Appeals, the Court ruled that a qualified acceptance or one
that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-
offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between
the parties on a different basis.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However,
since it lacked the resources, it requested for more time to redeem/repurchase the property under such
terms and conditions agreed upon by the parties. When the petitioner was told that respondent did not
allow “partial redemption”, it sent a letter to respondents President reiterating its offer to purchase the
property but there was no response.

The statement of account prepared by the SAMD cannot be considered an unqualified

acceptance since the statement is but a computation of the amount which petitioner was obliged to pay in
case respondent would later agree to sell the property, including interests, advances on insurance
premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.
Moreover, there is no evidence that the SAMD was authorized by respondents Board of Directors to
accept petitioners offer and sell the property for P1,574,560.47. As this Court ruled in AF Realty
Development, Inc. vs. Diesehuan Freight Services, Inc., a corporation can only execute its powers and
transact its business through its Board of Directors and through its officers and agents when authorized
by a board resolution or its by-laws.

Also, we do not agree with petitioners contention that the P725,000.00 it had remitted to
respondent was earnest money which could be considered as proof of the perfection of a contract of sale
under Article 1482 of the New Civil Code. the P725,000.00 was merely a deposit to be applied as part of
the purchase price of the property, in the event that respondent would approve the recommendation of
SAMD for respondent to accept petitioners offer to purchase the property for P1,574,560.47.

It appears that the respondent had decided to accept the offer to purchase the property
for P1,931,389.53. However, this amounted to an amendment of respondents qualified acceptance, or an
amended counter-offer, because while the respondent lowered the purchase price, it still declared that its
acceptance was subject to certain terms and conditions.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the
subject property.
G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner,

vs.
COURT OF APPEALS and LUNA L. SOSA

Facts:

Sometime in June 1989, Respondent Luna L. Sosa wanted to purchase a Toyota Lite Ace.On 14 June
1989Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig. There they met
Popong Bernardo, a sales representative of Toyota.Sosa emphasized to Bernardo that he needed the
Lite Ace not later than 17 June 1989 because he, his family, and a balikbayan guest would use it on 18
June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of
June.He added that if he does not arrive in his hometown with the new car, he would become a "laughing
stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. and
signed the "Agreements Between Mr. Sosa &Popong Bernardo of Toyota Shaw, Inc.,” a document which
did not mention anything about the full purchase price and the manner the installments were to be paid.
Sosa and Gilbert delivered the down payment of P100,000.00 on June 15, 1989 and Bernardo
accomplished a printed Vehicle Sales Proposal (VSP) No. 928 which showed Sosa’s full name and home
address, that payment is by "installment," to be financed by "B.A.," and that the "BALANCE TO BE
FINANCED" is "P274,137.00", but the spaces provided for "Delivery Terms" were not filled-up.

When June 17 came, however, petitioner Toyota did not deliver the Lite Ace. Hence, Sosa asked that his
down payment be refunded and petitioner Toyota issued also on June 17 a Far East Bank check for the
full amount of P100,000.00, the receipt of which was shown by a check voucher of Toyota, which Sosa
signed with the reservation, "without prejudice to our future claims for damages." Petitioner Toyota
contended that the B.A. Finance disapproved Sosa’s the credit financing application and further alleged
that a particular unit had already been reserved and earmarked for Sosa but could not be released due to
the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to
purchase the unit by paying the full purchase price in cash but Sosa refused.

The trial court found that there was a valid perfected contract of sale between Sosa and Toyota which
bound the latter to deliver the vehicle and that Toyota acted in bad faith in selling to another the unit
already reserved for Sosa, and the Court of Appeals affirmed in toto the appealed decision.

ISSUE: Was there a perfected contract of sale between respondent Sosa and petitioner Toyota?

Ruling: No perfected contract of sale

Art. 1458 of the Civil Code provides that

“By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional.” And with that, “The contract of sale is perfected at the
moment there is a meeting of mindsupon the thing which is the object of the contract and upon the price.
From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts” of Art. 1475.

The document entitled “Agreements Between Mr. Sosa &Popong Bernardo of Toyota Shaw, Inc.,” was
not a perfected contract of sale, but merely an agreement between Mr. Sosa and Bernardo as private
individuals and not between Mr. Sosa and Toyota as parties to a contract.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected
contract of sale.It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a
determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price
certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference
to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment
basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full
purchase price and the manner the installments were to be paid.

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing,
Sosa did not even sign it.
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.

FACTS:

On January 24, 1911,Don Andres Quiroga and J. Parsons, entered into a contract for the exclusive sale
of “Quiroga” beds in Visayas Islands.

The said contract states that Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan
Islands to J. Parsons under the following conditions:

(A) Quiroga shall furnish beds to Parsons for the latter's establishment in Iloilo, and shall invoice them at
the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a
discount of 25% of the invoiced prices, as commission on the sale; and Parsons shall order the beds by
the dozen.

(B) Parsons binds to pay Quiroga for the beds within a period of 60 days from the date of their shipment.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight,
insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid
by Parsons.

(D) If, before an invoice falls due, Quiroga should request its payment, said payment when made shall be
considered as a prompt payment, and as such a deduction of 2% shall be made from the amount of the
invoice.

(E) Quiroga binds himself to give notice at least 15 days before hand of any alteration in price which he
may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect
he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of
the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price
thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at
the price at which the order was given.

(F) Parsons binds himself not to sell any other kind except the "Quiroga" beds.

(G) Parsons shall pay for the expenses of advertisement while Quiroga assumes the obligation to offer
and give the preference to Parsons in case anyone should apply for the exclusive agency for any island
not comprised with the Visayan group.

(H) Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds where there are
no exclusive agents, and shall immediately report such action to Quiroga for his approval.

(I) That said contract is made for an unlimited period, and may be terminated by either of the contracting
parties.

Later on, the plaintiff filed a complaint alleging that the defendant violated the following obligations:

(1) not to sell the beds at higher prices than those of the invoices;

(2) to have an open establishment in Iloilo;

(3) itself to conduct the agency;

(4) to keep the beds on public exhibition, and

(5) to pay for the advertisement expenses for the same; and

(6) to order the beds by the dozen and in no other manner.

As may be seen, with the exception of the obligation on the part of the defendant to order the beds by
dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of
action are expressly set forth in the contract.

PLAINTIFF (ANDRES QUIROGA):

Alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are
implied in a contract of commercial agency.

ISSUE: Whether the defendant, by reason of the contract, was a purchaser or an agent of the plaintiff for
the sale of his beds.

HELD:

The Court held that the contract entered into by the parties is a contract of purchase and sale, and not
one of commercial agency.

According to the Court, in order to classify a contract, due regard must be given to its essential clauses.

In the contract in question, what was essential, as constituting its cause and subject matter, is that the
plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated,
and that the defendant was to pay the price in the manner stipulated.

The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a
discount of from 20-25% according to their class.

Payment was to be made at the end of 60 days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their
price. These features exclude the legal conception of an agency or order to sell whereby the mandatory
or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he
obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it.
By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other consideration and regardless
as to whether he had or had not sold the beds.

After examining the clauses of said contract, none of them is found that substantially supports the
plaintiff's contention.

Not a single one of these clauses necessarily conveys the idea of an agency.
The words commission on sales used in clause (A) of article 1 means a mere discount on the invoice
price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one
that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least
that can be said is that they are not incompatible with the contract of purchase and sale.

According to the Court, it must be understood that a contract is what the law defines it to be, and not what
it is called by the contracting parties.

Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the
contract, must be considered for the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly
show that the contract belongs to a certain kind and not to another.

And with respect to the so-called commissions, the Court said that they merely constituted a discount on
the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to
persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of
advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant
might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.

For the foregoing reasons, the Court held that the contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of
action are not imposed upon the defendant, either by agreement or by law.
Commissioner of Internal Revenue vs Engineering

Facts:
Petition for review on certiorari on the decision of the Court of Tax Appeals. Engineering is a domestic
corporation which operates an integrated engineering shop engaged in the design and installation of
central type of air conditioning, pumping plants and steel fabrications.
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal
Revenue denouncing Engineering for tax evasion by misdeclaring its imported articles and failing
to pay the correct percentage taxes due thereon in connivance with its foreign suppliers
On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of
the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of
Engineering's penal liability for violation of the Tax Code. On July 30, 1959, Engineering appealed the
case to the Court of Tax Appeals and during the pendency of the case the investigating revenue
examiners reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86. The
Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on
January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the
Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was denied on
April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452.
Issue:
Whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in
relation to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code.
Held:
The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and
parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by
Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as
follows:
Section 194. — Words and Phrases Defined. — In applying the provisions of this Title, words and
phrases shall be taken in the sense and extension indicated below:
(x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture
or form or inner substance of any raw material or manufactured or partially manufactured products in such
manner as to prepare it for a special use or uses to which it could not have been put in its original
condition, or who by any such process alters the quality of any such material or manufactured or partially
manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry,
or who by any such process combines any such raw material or manufactured or partially manufactured
products with other materials or products of the same or of different kinds and in such manner that the
finished product of such process of manufacture can be put to special use or uses to which such raw
material or manufactured or partially manufactured products in their original condition could not have
been put, and who in addition alters such raw material or manufactured or partially manufactured
products, or combines the same to produce such finished products for the purpose of their sale or
distribution to others and not for his own use or consumption.
The arguments of both the Engineering and the Commissioner call for a clarification of the term contractor
as well as the distinction between a contract of sale and contract for furnishing services, labor and
materials. The distinction between a contract of sale and one for work, labor and materials is tested by
the inquiry whether the thing transferred is one not in existence and which never would have existed but
for the order of the party desiring to acquire it, or a thing which would have existed and has been the
subject of sale to some other persons even if the order had not been given. 2 If the article ordered by the
purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or
modification of it is made at defendant's request, it is a contract of sale, even though it may be entirely
made after, and in consequence of, the defendants order for it.3
Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus:
Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary
course 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, but if the goods are to be manufactured specially for the customer
and upon his special order and not for the general market, it is a contract for a piece of work.
The word "contractor" has come to be used with special reference to a person who, in the pursuit of the
independent business, undertakes to do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the petty details. (Arañas, Annotations and
Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a
contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808,
and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would seem to be that he renders service in
the course of an independent occupation, representing the will of his employer only as to the result of his
work, and not as to the means by which it is accomplished.
After going over the three volumes of stenographic notes and the voluminous record of the BIR and the
CTA as well as the exhibits submitted by both parties, We find that Engineering did not manufacture air
conditioning units for sale to the general public, but imported some items (as refrigeration compressors in
complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into
by it. Engineering, therefore, undertook negotiations and execution of individual contracts for the design,
supply and installation of air conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I",
"J", "K", "L", and "M"), taking into consideration in the process such factors as the area of the space to be
air conditioned; the number of persons occupying or would be occupying the premises; the purpose for
which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on
the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. (t.s.n.
p. 34, Vol. I) Engineering also testified during the hearing in the Court of Tax Appeals that relative to the
installation of air conditioning system, Engineering designed and engineered complete each particular
plant and that no two plants were identical but each had to be engineered separately.
As found by the lower court, which finding4 We adopt —
Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various
customers the central type air conditioning system; prepares the plans and specifications therefor which
are distinct and different from each other; the air conditioning units and spare parts or accessories thereof
used by petitioner are not the window type of air conditioner which are manufactured, assembled and
produced locally for sale to the general market; and the imported air conditioning units and spare parts or
accessories thereof are supplied and installed by petitioner upon previous orders of its customers
conformably with their needs and requirements.
The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a
manufacturer. The point, therefore, is this — Engineering definitely did not and was not engaged in the
manufacture of air conditioning units but had its services contracted for the installation of a central
system. Applying the facts of the aforementioned case to the present case, We see that the supply of air
conditioning units to Engineer's various customers, whether the said machineries were in hand or not,
was especially made for each customer and installed in his building upon his special order. The air
conditioning units installed in a central type of air conditioning system would not have existed but for the
order of the party desiring to acquire it and if it existed without the special order of Engineering's
customer, the said air conditioning units were not intended for sale to the general public. Therefore, We
have but to affirm the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than
a manufacturer, subject to the contractors tax prescribed by Section 191 of the Code and not to the
advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has
been proved to Our satisfaction that Engineering imported air conditioning units, parts or accessories
thereof for use in its construction business and these items were never sold, resold, bartered or
exchanged, Engineering should be held liable to pay taxes prescribed under Section 190 5 of the Code.
This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not
subject to sales tax. Engineering, therefore, should be held liable to the payment of 30% compensating
tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without
the 50% mark up provided in Section 183(b). WHEREFORE, the decision appealed from is affirmed with
the modification that Engineering is hereby also made liable to pay the 50% fraud surcharge.
SO ORDERED.
Enrico S. Eulogio Petitioner vs. Spouses Clemente Apeles and Luz Apeles Respondents
G. R. No. 167884 January 20, 2009

FACTS:

The Spouses Apeles leased a property to Arturo Eulogio (Arturo). When Arturo died, his son Enrico
succeeded as lessor of the subject property. He entered into a contract of lease with an option to purchase with
the spouses. It is stipulated in the contract that the LESSOR (Enrico) has an option to buy the subject house and lot
within three years and that the monthly rentals paid by him during the 3-year lease period will just be deducted
from the purchase price agreed upon by them. There is also a stipulation that if Enrico gives an oral or written
notice to the spouses before the expiration of the 3-year lessee period, then the latter shall proceed with the
execution of the contract by selling, transferring and conveying the said property to Enrico. Before the 3-year lease
period expires.

Enrico decided to exercise his option to purchase the subject property by giving oral and written notice to
the respondents. Unfortunately, spouses Apeles ignored his manifestations. Enrico Eulogio then instituted a
Complaint for Specific Performance with Damages against the spouses Apeles. His cause of action is based on par.
5 of their Contract of Lease with Option to Purchase vesting him the right to acquire ownership of the subject
property after paying the agreed amount of consideration. Enrico contended that Luz Apeles voluntarily signed
their contract of lease and therefore the property should be transferred to him. On the other hand, Luz Apeles
denied that she signed the contract. According to Luz Apeles, it was impossible for her to sign the contract because
she was in the United States of America that time and that her signature thereon was just forged.

The RTC ruled in favor of Enrico and ordered them to comply with the provisions of the Contract.

The Court of Appeals noted that the Notary Public did not observe utmost care in certifying the due
execution of the Contract of Lease with Option to Purchase. The Court of Appeals chose not to accord the disputed
Contract full faith and credence.

ISSUE:
Whether or not Enrico can compel the spouses Apeles to execute the Deed of Sale over the subject property in his
favor.

HELD:

No. The Supreme Court held that Enrico Eulogio can not compel the spouses Apeles to execute the Deed
of Sale in his favor.

While it is true that a notarized document carries the evidentiary weight conferred upon it with respect to
its due execution, and has in its favor the presumption of regularity, this presumption, however, is not absolute. It
may be rebutted by clear and convincing evidence to the contrary.

In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and
is usually considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the
credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the
truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in
opposition thereto.

In the case at bar, the spouses Apeles were able to prove beyond preponderant evidence the invalidity of
the Contract of Lease with Option to Purchase. While Enrico just relied on his own self-serving testimonies, without
asserting any proof of collaborating testimony or circumstantial evidence to support his claim. This is considered as
an option contract. It is a contract by which the owner of the property agrees with another person that the latter
shall have the right to buy the former’s property at a fixed price within a certain time. It is not a sale of property
but a sale of right to purchase. In order for an option contract to be valid, there must be a separate and distinct
consideration that supports it. In the present case, it is definite that Enrico gave no consideration to the spouses
for the option contract. The absence of monetary or any material consideration keeps this court from enforcing
the rights of the parties under said option contract.

An option is a contract by which the owner of the property agrees with another person that the latter
shall have the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or
contract by which the owner stipulates with another that the latter shall have the right to buy the property at a
fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to
the owner of the property the right to sell or demand a sale

An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property
but a sale of the right to purchase. It is simply a contract by which the owner of the property agrees with another
person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his
land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election
or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer.
Ang Yu Asuncion Vs. CA

Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the
Unjiengs. They have been leasing the property and possessing it since 1935 and have been paying
rentals.

In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and that
Petitioners were being given priority to acquire them (Right of First Refusal). They agreed on a price
of P5M but they had not yet agreed on the terms and conditions. Petitioners wrote to the Unjiengs twice,
asking them to specify the terms and conditions for the sale but received no reply. Later, the petitioners
found out that the property was already about to be sold, thus they instituted this case for Specific
Performance [of the right of first refusal].

The Trial Court dismissed the case. The trial court also held that the Unjieng’s offer to sell was never
accepted by the Petitioners for the reason that they did not agree upon the terms and conditions of the
proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should
the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will
have the right of first refusal.

The Court of Appeals affirmed the decision of the Trial Court.

In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case. The
title to the property was transferred into the name of De Buen and demanded that the Petitioners vacate
the premises.

Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed the
Sheriff to execute an order directing the Unjiengs to issue a Deed of Sale in the Petitioner’s favour and
nullified the sale to De Buen Realty. But then, the CA reversed itself when the Private Respondents
Appealed.

Issues:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific
Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an
option under Par. 2 Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the
object of the contract is determinate. This means that novinculum juris is created between the
seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First
Refusal may not be enforced through an action for specific performance. Its conduct is governed
by the law on human relations under Art. 19-21 of the Civil Code and not by contract law.

Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of any
deed of sale between the Unjiengs and Petitioners.

contract under par. 2 Art 1479. The object might be made determinate, the exercise of the right, however,
is dependent on the offeror’s eventual intention to enter into a binding juridical relation with another but
also on terms and conditions such as price. There is no juridical tie or vinculum juris.
Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court
judgement that recognizes its existence, such as in Ang Yu Asuncion. An action for Specific
Performance is not allowed under a Right of First Refusal because doing so would negate the
indispensable element of consensuality in the perfection of contracts. This right is not
inconsequential because it gives right to an action for damages under Art. 19.
PHILIPPINE NATIONAL OIL COMPANY & PNOC DOCKYARD & ENGINEERING CORPORATION v.
KEPPEL PHILIPPINES HOLDINGS

BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of Court, appealing
the decision dated 19 December 2011[1] and resolution dated 14 May 2012[2] of the Court of Appeals (CA)
in CA-G.R. CV No. 86830. These assailed CA rulings affirmed in toto the decision dated 12 January
2006[3] of the Regional Trial Court (RTQ of Batangas City, Branch 84, in Civil Case No. 7364.

THE FACTS

The 1976 Lease Agreement and Option to Purchase

Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines Holdings, Inc. [4] (Keppel)
entered into a lease agreement[5] (the agreement) with Luzon Stevedoring Corporation (Lusteveco)
covering 11 hectares of land located in Bauan, Batangas. The lease was for a period of 25 years for a
consideration of P2.1 million.[6] At the option of Lusteveco, the rental fee could be totally or partially
converted into equity shares in Keppel.[7]

At the end of the 25-year Jease period, Keppel was given the "firm and absolute option to
purchase[8] the land for P4.09 million, provided that it had acquired the necessary qualification to
own land under Philippine laws at the time the option is exercised. [9] Apparently, when the lease
agreement was executed, less than 60% of Keppel's shareholding was Filipino-owned, hence, it was not
constitutionally qualified to acquire private lands in the country. [10]

If, at the end of the 25-year lease period (or in 2001), Keppel remained unqualified to own private lands,
the agreement provided that the lease would be automatically renewed for another 25 years. [11] Keppel
was further allowed to exercise the option to purchase the land up to the 30th year of the lease (or in
2006), also on the condition that, by then, it would have acquired the requisite qualification to own land in
the Philippines.[12]

Together with Keppel's lease rights and option to purchase, Lusteveco warranted not to sell the land or
assign its rights to the land for the duration of the lease unless with the prior written consent of
Keppel.[13] Accordingly, when the petitioner Philippine National Oil Corporation [14] (PNOC) acquired the
land from Lusteveco and took over the rights and obligations under the agreement, Keppel did not object
to the assignment so long as the agreement was annotated on PNOC's title. [15] With PNOC's consent and
cooperation, the agreement was recorded as Entry No. 65340 on PNOC's Transfer of Certificate of Title
No. T-50724.[16]

The Case and the Lower Court Rulings

On 8 December 2000, Keppel wrote PNOC informing the latter that at least 60% of its shares were now
owned by Filipinos[17] Consequently, Keppel expressed its readiness to exercise its option to purchase the
land. Keppel reiterated its demand to purchase the land several times, but on every occasion, PNOC did
not favourably respond.[18]

To compel PNOC to comply with the Agreement, Keppel instituted a complaint for specific
performancewith the RTC on 26 September 2003 against PNOC.[19] PNOC countered Keppel's claims by
contending that the agreement was illegal for circumventing the constitutional prohibition against aliens
holding lands in the Philippines.[20] It further asserted that the option contract was void, as it was
unsupported by a separate valuable consideration.[21] It also claimed that it was not privy to the
agreement.[22]

After due proceedings, the RTC rendered a decision[23] in favour of Keppel and ordered PNOC to
execute a deed of absolute sale upon payment by Keppel of the purchase price of P4.09 million.[24]

PNOC elevated the case to the CA to appeal the RTC decision. [25] Affirming the RTC decision in toto, the
CA upheld Keppel's right to acquire the land.[26] It found that since the option contract was embodied
in the agreement - a reciprocal contract - the consideration was the obligation that each of the contracting
party assumed.[27] Since Keppel was already a Filipino-owned corporation, it satisfied the condition that
entitled it to purchase the land.[28]

Failing to secure a reconsideration of the CA decision, [29] PNOC filed the present Rule 45 petition before
this Court to assail the CA rulings.

THE PARTIES' ARGUMENTS and THE ISSUES

PNOC argues that the CA failed to resolve the constitutionality of the agreement. It contends that the
terms of the agreement amounted to a virtual sale of the land to Keppel who, at the time of the
agreement's enactment, was a foreign corporation and, thus, violated the 1973 Constitution.

Specifically, PNOC refers to (a) the 25-year duration of the lease that was automatically renewable for
another 25 years[30]; (b) the option to purchase the land for a nominal consideration of P100.00 if the
option is exercised anytime between the 25th and the 30th year of the lease[31]; and (c) the prohibition
imposed on Lusteveco to sell the land or assign its rights therein during the lifetime of the lease. [32] Taken
together, PNOC submits that these provisions amounted to a virtual transfer of ownership of the land to
an alien which act the 1973 Constitution prohibited.

PNOC claims that the agreement is no different from the lease contract in Philippine Banking Corporation
v. Lui She,[33] which the Court struck down as unconstitutional. In Lui She, the lease contract allowed the
gradual divestment of ownership rights by the Filipino owner-lessor in favour of the foreigner-
lessee.[34] The arrangement in Lui She was declared as a scheme designed to enable the parties to
circumvent the constitutional prohibition.[35] PNOC posits that a similar intent is apparent from the terms of
the agreement with Keppel and accordingly should also be nullified. [36]

PNOC additionally contends the illegality of the option contract for lack of a separate consideration, as
required by Article 1479 of the Civil Code.[37] It claims that the option contract is distinct from the main
contract of lease and must be supported by a consideration other than the rental fees provided in the
agreement.[38]

On the other hand, Keppel maintains the validity of both the agreement and the option contract it
contains. It opposes the claim that there was "virtual sale" of the land, noting that the option is subject to
the condition that Keppel becomes qualified to own private lands in the Philippines.[39] This condition
ripened in 2000, when at least 60% of Keppel's equity became Filipino-owned.

Keppel contends that the agreement is not a scheme designed to circumvent the constitutional
prohibition. Lusteveco was not proscribed from alienating its ownership rights over the land but was
simply required to secure Keppel's prior written consent. [40] Indeed, Lusteveco was able to transfer its
interest to PNOC without any objection from Keppel. [41]

Keppel also posits that the requirement of a separate consideration for an option to purchase applies only
when the option is granted in a separate contract.[42] In the present case, the option is embodied in a
reciprocal contract and, following the Court's ruling in Vda. De Quirino v. Palarca,[43] the option is
supported by the same consideration supporting the main contract.

From the parties' arguments, the following ISSUES emerge:

First, the constitutionality of the Agreement, i.e., whether the terms of the Agreement amounted to a
virtual sale of the land to Keppel that was designed to circumvent the constitutional prohibition on aliens
owning lands in the Philippines.

Second, the validity of the option contract, i.e., whether the option to purchase the land given to Keppel is
supported by a separate valuable consideration.

If these issues are resolved in favour of Keppel, a third issue emerges - one that was not considered by
the lower courts, but is critical in terms of determining Keppel's right to own and acquire full title to the
land, i.e., whether Keppel's equity ownership meets the 60% Filipino-owned capital requirement of trie
Constitution, in accordance with the Court's ruling in Gamboa v. Teves.[44]

THE COURT'S RULING

II. The validity of the option contract

An option contract must be supported by a separate consideration that is either clearly

II.A
specified as such in the contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the Civil Code:

Article 14791 x x x An accepted promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
An option contract is a contract where one person (the offeror/promissor) grants to another person (the
offeree/promisee) the right or privilege to buy (or to sell) a determinate thing at a fixed price, if he or she
chooses to do so within an agreed period. [59]

As a contract, it must necessarily have the essential elements of subject matter, consent, and
consideration.[60]Although an option contract is deemed a preparatory contract to the principal contract of
sale,[61] it is separate and distinct therefrom,[62] thus, its essential elements should be distinguished from
those of a sale.[63]

In an option contract, the subject matter is the right or privilege to buy (or to sell) a determinate thing for
a price certain,[64] while in a sales contract, the subject matter is the determinate thing
itself.[65] The consent in an option contract is the acceptance by the offeree of the offerer's promise to sell
(or to buy) the determinate thing, i.e., the offeree agrees to hold the right or privilege to buy (or to
sell) within a specified period. This acceptance is different from the acceptance of the offer itself whereby
the offeree asserts his or her right or privilege to buy (or to sell), which constitutes as his or her consent to
the sales contract. The consideration in an option contract may be anything of value, unlike in a sale
where the purchase price must be in money or its equivalent.[66] There is sufficient consideration for a
promise if there is any benefit to the offeree or any detriment to the offeror. [67]

In the present case, PNOC claims the option contract is void for want of consideration distinct from the
purchase price for the land.[68] The option is incorporated as paragraph 5 of the Agreement and reads as

5. If within the period of the first [25] years [Keppel] becomes qualified to own land under the laws of the
Philippines, it has the firm and absolute option to purchase the above property for a total price of [P-
4,090,000.00] at the end of the 25th year, discounted at 16% annual for every year before the end of the
25th year, which amount may be converted into equity of [Keppel] at book value prevailing at the time of
sale, or paid in cash at Lusteveco's option.

However, if after the first [25] years, [Keppel] is still not qualified to own land under the laws of the
Republic of the Philippines, [Keppel's] lease of the above stated property shall be automatically renewed
for another [25] years, under the same terms and conditions save for the rental price which shall be for
the sum of P4,090,000.00... and which sum may be totally converted into equity of [Keppel] at book value
prevailing at the time of conversion, or paid in cash at Lusteveco's option.

If anytime within the second [25] years up to the [30th] year from the date of this agreement, [Keppel]
becomes qualified to own land under the laws of the Republic of the Philippines, [Keppel] has the firm and
absolute option to buy and Lusteveco hereby undertakes to sell the above stated property for the nominal
consideration of [P100.00.00]...[69]
Keppel counters that a separate consideration is not necessary to support its option to buy because the
option is one of the stipulations of the lease contract. It claims that a separate consideration is required
only when an option to buy is embodied in an independent contract. [70] It relies on Vda. de Quirino v.
Palarca,[71] where the Court declared that the option to buy the leased property is supported by the same
consideration as that of the lease itself: "in reciprocal contracts [such as lease], the obligation or promise
of each party is the consideration for that of the other.[72]

In considering Keppel's submission, we note that the Court's ruling in 1969 in Vda. de Quirino v.
Palarca has been taken out of context and erroneously applied in subsequent cases. In 2004,
through Bible Baptist Church v. CA[73] we revisited Vda. de Quirino v. Palarca and observed that the
option to buy given to the lessee Palarca by the lessor Quirino was in fact supported by a separate
consideration: Palarca paid a higher amount of rent and, in the event that he does not exercise the option
to buy the leased property, gave Quirino the option to buy the improvements he introduced thereon.
These additional concessions were separate from the purchase price and deemed by the Court as
sufficient consideration to support the option contract.

Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the mere inclusion of an
option contract in a reciprocal lease contract provides it with the requisite separate consideration for its
validity. The reciprocal contract should be closely scrutinized and assessed whether it contains
additional concessions that the parties intended to constitute as a consideration for the option
contract, separate from that of the purchase price.

In the present case, paragraph 5 of the agreement provided that should Keppel exercise its option to buy,
Lusteveco could opt to convert the purchase price into equity in Keppel. May Lusteveco's option to
convert the price for shares be deemed as a sufficient separate consideration for Keppel's option to buy?

As earlier mentioned, the consideration for an option contract does not need to be monetary and may be
anything of value.[74] However, when the consideration is not monetary, the consideration must be
clearly specified as such in the option contract or clause.[75]

In Villamor v. CA,[76] the parties executed a deed expressly acknowledging that the purchase price of
P70.00 per square meter "was greatly higher than the actual reasonable prevailing value of lands in that
place at that time."[77] The difference between the purchase price and the prevailing value constituted as
the consideration for the option contract. Although the actual amount of the consideration was not stated,
it was ascertainable from the contract whose terms evinced the parties' intent to constitute this amount as
consideration for the option contract.[78] Thus, the Court upheld the validity of the option contract. [79] In the
light of the offeree's acceptance of the option, the Court further declared that a bilateral contract to sell
and buy was created and that the parties' respective obligations became reciprocally demandable. [80]

When the written agreement itself does not state the consideration for the option contract, the
offeree or promisee bears the burden of proving the existence of a separate consideration for the
option.[81] The offeree cannot rely on Article 1354 of the Civil Code, [82] which presumes the existence of
consideration, since Article 1479 of the Civil Code is a specific provision on option contracts that explicitly
requires the existence of a consideration distinct from the purchase price. [83]

In the present case, none of the above rules were observed. We find nothing in paragraph 5 of the
Agreement indicating that the grant to Lusteveco of the option to convert the purchase price for Keppel
shares was intended by the parties as the consideration for Keppel's option to buy the land; Keppel itself
as the offeree presented no evidence to support this finding. On the contrary, the option to convert the
purchase price for shares should be deemed part of the consideration for the contract of sale itself, since
the shares are merely an alternative to the actual cash price.

There are, however cases where, despite the absence of an express intent in the parties' agreements, the
Court considered the additional concessions stipulated in an agreement to constitute a sufficient separate
consideration for the option contract.

In Teodoro v. CA,[84] the sub-lessee (Teodoro) who was given the option to buy the land assumed .the
obligation to pay not only her rent as sub-lessee, but also the rent of the sub-lessor (Ariola) to the primary
lessor (Manila Railroad Company).[85] In other words, Teodoro paid an amount over and above the
amount due for her own occupation of the property, and this amount was found by the Court as sufficient
consideration for the option contract.[86]

In Dijamco v. CA,[87] the spouses Dijamco failed to pay their loan with the bank, allowing the latter to
foreclose the mortgage.[88] Since the spouses Dijamco did not exercise their right to redeem, the bank
consolidated its ownership over the mortgaged property. [89] The spouses Dijamco later proposed to
purchase the same property by paying a purchase price of P622,095.00 (equivalent to their principal loan)
and a monthly amount of P13,478.00 payable for 12 months (equivalent to the interest on their principal
loan). They further stated that should they fail to make a monthly payment, the proposal should be
automatically revoked and all payments be treated as rentals for their continued use of the
property.[90] The Court treated the spouses Dijamco's proposal to purchase the property as an option
contract, and the consideration for which was the monthly interest payments. [91] Interestingly, this ruling
was made despite the categorical stipulation that the monthly interest payments should be treated as rent
for the spouses Dijamco's continued possession and use of the foreclosed property.

At the other end of the jurisprudential spectrum are cases where the Court refused to consider the
additional concessions stipulated in agreements as separate consideration for the option contract.

In Bible Baptist Church v. CA,[92] the lessee (Bible Baptist Church) paid in advance P84,000.00 to the
lessor in order to free the property from an encumbrance. The lessee claimed that the advance payment
constituted as the separate consideration for its option to buy the property. [93] The Court, however,
disagreed noting that the P84,000.00 paid in advance was eventually offset against the rent due for the
first year of the lease, "such that for the entire year from 1985 to 1986 the [Bible Baptist Church] did not
pay monthly rent."[94] Hence, the Court refused to recognize the existence of a valid option contract.[95]

What Teodoro, Dijamco, and Bible Baptist Church show is that the determination of whether the
additional concessions in agreements are sufficient to support an option contract, is fraught with danger;
in ascertaining the parties' intent on this matter, a court may read too much or too little from the facts
before it.

For uniformity and consistency in contract interpretation, the better rule to follow is that the consideration
for the option contract should be clearly specified as such in the option contract or clause.
Otherwise, the offeree must bear the burden of proving that a separate consideration for the
option contract exists.

Given our finding that the Agreement did not categorically refer to any consideration to support Keppel's
option to buy and for Keppel's failure to present evidence in this regard, we cannot uphold the existence
of an option contract in this case.

An option, though unsupported by a separate consideration, remains an offer that, if duly

II. B. accepted, generates into a contract to sell where the parties' respective obligations become
reciprocally demandable
The absence of a consideration supporting the option contract, however, does not invalidate an offer to
buy (or to sell). An option unsupported by a separate consideration stands as an unaccepted offer
to buy (or to sell) which, when properly accepted, ripens into a contract to sell. This is the rule
established by the Court en banc as early as 1958 in Atkins v. Cua Hian Tek,[96] and upheld in 1972
in Sanchez v. Rigos.[97]

Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the Civil Code,
which are quoted below:

Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.

Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the
price, [emphases supplied]

The Court en banc declared that there is no distinction between these two provisions because the
scenario contemplated in the second paragraph of

Article 1479 is the same as that in the last clause of Article 1324. [98] Instead of finding a conflict, Sanchez
v. Rigosharmonised the two provisions, consistent with the established rules of statutory construction. [99]

Thus, when an offer is supported by a separate consideration, a valid option contract exists, i.e., there is
a contracted offer[100] which the offerer cannot withdraw from without incurring liability in damages.

On the other hand, when the offer is not supported by a separate consideration, the offer stands but, in
the absence of a binding contract, the offeror may withdraw it any time. [101] In either case, once the
acceptance of the offer is duly communicated before the withdrawal of the offer, a bilateral contract to buy
and sell is generated which, in accordance with the first paragraph of Article 1479 of the Civil Code,
becomes reciprocally demandable.[102]

Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v. AGPC,[103] which
declared that

a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration... In
other words, an accepted unilateral promise can only have a binding effect if supported by a
consideration, which means that the option can still be withdrawn, even if accepted, if the same is
not supported by any consideration.[104] [emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of the Civil Code is
distinct from Article 1324 of the Civil Code and is a provision that specifically governs options to buy (or to
sell).[105] As mentioned, Sanchez v. Rigos found no conflict between these two provisions and accordingly
abandoned the Southwestern Sugar doctrine.

Unfortunately, without expressly overturning or abandoning the Sanchez ruling, subsequent cases
reverted back to the Southwestern Sugar doctrine.[106] In 2009, Eulogio v Apeles[107] referred
to Southwestern Sugar v. AGPC as the controlling doctrine[108] and, due to the lack of a separate
consideration, refused to recognize the option to buy as an offer that would have resulted in a sale given
its timely acceptance by the offeree. In 2010, Tuazon v. Del Rosario-Suarez[109] referred to Sanchez v.
Rigos but erroneously cited as part of its ratio decidendi that portion of the Southwestern Sugar doctrine
that Sanchez had expressly abandoned.[110]

Given that! the issue raised in the present case involves the application of Article 1324 and 1479 of the
Civil Code, it becomes imperative for the Court [en banc] to clarify and declare here which
between Sanchez and Southwestern Sugar is the controlling doctrine.

The Constitution itself declares that "no doctrine or principle of law laid down by the court in a decision
rendered en banc or in division may be modified or reversed except by the court sitting en
banc.[111] Sanchez v. Rigos was an en banc decision which was affirmed in 1994 in Asuncion v.
CA,[112] also an en banc decision, while the decisions citing the Southwestern Sugar doctrine are all
division cases.[113] Based on the constitutional rule (as well as the inherent logic in reconciling Civil Code
provisions), there should be no doubt that Sanchez v. Rigosremains as the controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by a consideration separate from the
purchase price, the option constitutes as an offer to buy or to sell, which may be withdrawn by the offeror
at any time prior to the communication of the offeree's acceptance. When the offer is duly accepted, a
mutual promise to buy and to sell under the first paragraph of Article 1479 of the Civil Code ensues and
the parties' respective obligations become reciprocally demandable.

Applied to the present case, we find that the offer to buy the land was timely accepted by Keppel.

As early as 1994, Keppel expressed its desire to exercise its option to buy the land. Instead of rejecting
outright Keppel's acceptance, PNOC referred the matter to the Office of the Government Corporate
Counsel (OGCC). In its Opinion No. 160, series of 1994, the OGCC opined that Keppel "did not yet have
the right to purchase the Bauan lands."[114] On account of the OGCC opinion, the PNOC did not agree
with Keppel's attempt to buy the land;[115]nonetheless, the PNOC made no categorical withdrawal of the
offer to sell provided under the Agreement.

By 2000, Keppel had met the required Filipino equity proportion and duly communicated its acceptance of
the offer to buy to PNOC.[116] Keppel met with the board of directors and officials of PNOC who interposed
no objection to the sale.[117] It was only when the amount of purchase price was raised that the conflict
between the parties arose,[118] with PNOC backtracking in its position and questioning the validity of the
option.[119]

Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land stood, not having
been withdrawn by PNOC. The offer having been duly accepted, a contract to sell the land ensued
which Keppel can rightfully demand PNOC to comply with.
DIGNOS v CA

FACTS: Dignos is the owner of a parcel of land in Lapu-Lapu City, which they sold to Jabil for P28,000,
payable in 2 installments and with an assumption of indebtedness with First Insular Bank of Cebu for
P12,000. However, Dignos also sold the same land in favor of Cabigas, who were US citizens, for
P35,000. A Deed of Absolute Sale was executed in favor of the Cabigas spouses.

Jabil filed a suit against Dignos with CFI of Cebu. RTC ruled in favor of Jabil and declared the sale to
Cabigas null and void. On appeal, CA affirmed RTC decision with modification.

ISSUE: W/N the contract between Dignos and Jabil is a contract of sale (as opposed to a contract to sale)

HELD: YES. A deed of sale is absolute in nature although denominated as a “Deed of Conditional Sale”
where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property
sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed
period. In the present case, there is no stipulation reserving the title of the property on the vendors nor
does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof
within a fixed period.

While there was no constructive delivery of the land sold in the present case, as subject Deed of Sale is a
private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court,
the Dignos spouses delivered the possession of the land in question to Jabil as early as 27 March 1965
so that the latter constructed thereon Sally’s Beach Resort also known as Jabil’s Beach Resort in March,
1965; Mactan White Beach Resort on 15 January 1966 and Bevirlyn’s Beach Resort on 1 September
1965. Such facts were admitted by the Dignos spouses.
ROMERO vs. COURT OF APPEALS G.R. No. 107207 November 23, 1995

Facts:

Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of
perlite filter aids, permalite insulation and processed perlite ore. In 1988, he decided to put up a central
warehouse in Metro Manila. Flores and his wife offered a parcel of land measuring 1,952 square meters.
The lot was covered in a TCT in the name of private respondent Enriqueta Chua vda. de Ongsiong.
Petitioner visited the property and, except for the presence of squatters in the area, he found the place
suitable for a central warehouse. Flores called on petitioner with a proposal that should he advance the
amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800/square meter. Romero agreed. Later, a “Deed
of Conditional Sale” was executed between Flores and Ongsiong. Purchase price = P1,561,600.00;
Downpayment = P50K; Balance = to be paid 45 days after the removal of all the squatters; upon full
payment, Ongsiong shall execute deed of absolute sale in favour of Romero. Ongsiong sought to return
the P50,000.00 she received from petitioner since, she said, she could not “get rid of the squatters” on the
lot. She opted to rescind the sale in view of her failure to get rid of the squatters. Regional Trial Court of
Makati rendered decision holding that private respondent had no right to rescind the contract since it was
she who “violated her obligation to eject the squatters from the subject property” and that petitioner, being
the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement.

Issue:

WON there was a perfected contract of sale? YES

Held:

A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and
to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees.
(BILATERAL and RECIPROCAL CHARACTERISTIC OF SALE) In determining the real character of the
contract, the title given to it by the parties is not as much significant as its substance. For example, a
deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if
title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally
rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed
condition. From the moment the contract is perfected, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated to
evict the squatters on the property. The ejectment of the squatters is a condition the operative act of
which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance
of the purchase price. Private respondent’s failure “to remove the squatters from the property” within the
stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner and
not to private respondent.

There was no potestative condition on the part of Ongsiong but a “mixed” condition “dependent not on the
will of the vendor alone but also of third persons like the squatters and government agencies and
personnel concerned.”
G.R. No. 145330 October 14, 2005

SPOUSES GOMER and LEONOR RAMOS, Petitioners,

vs.
SPOUSES SANTIAGO and MINDA HERUELA, SPOUSES CHERRY and RAYMOND
PALLORI, Respondents.

DOCTRINE: In a conditional sale, as in a contract to sell, ownership remains with the vendor and does
not pass to the vendee until full payment of the purchase price. The full payment of the purchase price
partakes of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from
arising.

FACTS: The spouses Gomer and Leonor Ramos ("spouses Ramos") own a parcel of land, consisting of
1,883 square meters.

On 18 February 1980, the spouses Ramos made an agreement with the spouses Santiago and
Minda Heruela ("spouses Heruela") covering 306 square meters of the land.

According to the spouses Ramos, the agreement is a contract of conditional sale.

The spouses Heruela allege that the contract is a sale on installment basis.

On 27 January 1998, the spouses Ramos filed a complaint for Recovery of Ownership against the
spouses Heruela.

The spouses Ramos’ premise is that since the trial court ruled that the contract is a sale on
installment, the trial court also in effect declared that the sale is an absolute sale.

The spouses Ramos allege that RA 6552 is not applicable to an absolute sale.

RTC: Contract is a sale by installment. Plaintiffs are ordered to execute the corresponding Deed of Sale
in favor of defendants. Spouses Ramos failed to comply with Section 4 of RA No. 6552 MACEDA LAW.

ISSUE: Whether or not the Agreement is a Contract to Sell.

RULING: The Agreement is a Contract to Sell

 Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional.
 A contract of sale is absolute when title to the property passes to the vendee upon delivery of the
thing sold.10
 A deed of sale is absolute when there is no stipulation in the contract that title to the property
remains with the seller until full payment of the purchase price. 11
 The sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally
the contract the moment the vendee fails to pay within a fixed period.12
 In a conditional sale, as in a contract to sell, ownership remains with the vendor and does not
pass to the vendee until full payment of the purchase price.13
 The full payment of the purchase price partakes of a suspensive condition, and non-fulfillment of
the condition prevents the obligation to sell from arising.14
The records show that the spouses Heruela did not immediately take actual, physical possession of the
land. According to the spouses Ramos, in March 1981, they allowed the niece of the spouses Heruela to
occupy a portion of the land. Indeed, the spouses Ramos alleged that they only discovered in June 1982
that the spouses Heruela were already occupying the land. In their answer to the complaint, the spouses
Heruela and the spouses Pallori alleged that their occupation of the land is lawful because having made
partial payments of the purchase price, "they already considered themselves owners" of the
land.18 Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos retained
their ownership of the land. This only shows that the parties did not intend the transfer of
ownership until full payment of the purchase price.

RA 6552 is the Applicable Law

Articles 119119 and 159220 of the Civil Code are applicable to contracts of sale. In contracts to sell,
RA 6552 applies. In Rillo v. Court of Appeals,21 the Court declared: Known as the Maceda Law, R.A.
No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the
right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply
an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also
provides the right of the buyer on installments in case he defaults in the payment of succeeding
installments.

In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of RA
6552 applies. However, there was neither a notice of cancellation nor demand for rescission by notarial
act to the spouses Heruela. In Olympia Housing, Inc. v. Panasiatic Travel Corp.,22 the Court ruled that
the vendor could go to court to demand judicial rescission in lieu of a notarial act of rescission. However,
an action for reconveyance is not an action for rescission. The Court explained in Olympia:

The judicial resolution of a contract gives rise to mutual restitution (rescission) which is not necessarily the
situation that can arise in an action for reconveyance. In an action for rescission (also often termed as
resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by
notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a
period.23

In the present case, there being no valid rescission of the contract to sell, the action for
reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace period within
which to pay. The trial court should have fixed the grace period to sixty days conformably with Section 4
of RA 6552.
HEIRS OF JESUS M. MASCUÑANA, represented by JOSE MA. R. MASCUÑANA, petitioners,
vs.
COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and CORAZON
LAYUMAS, respondents.
FACTS: Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land. Over time,
Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741
square meters, to Jesus Mascuñana.

Jesus Mascunana sold a portion of his 140-square-meter undivided share of the property to Diosdado
Sumilhig. Mascuñana later sold an additional 160-square-meter portion to Sumilhig. However, the
parties agreed to revoke the said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale. In
the said deed, Mascuñana, as vendor, sold an undivided 469-square-meter portion of the property
for P4,690.00, with P3,690.00 as down payment.( balance of ONE THOUSAND PESOS (P1,000.00) shall
be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been
surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a
separate Certificate of Title in the name of the VENDEE shall have been prepared. ) A survey was
conducted and the portion of the property deeded to Sumilhig was identified in the said plan as Lot No.
124-B.[6]

Meanwhile, Mascuñana died intestate and was survived by his heirs.

Sumilhig executed a Deed of Sale of Real Property[7] on a portion of Lot No. 124-B with an area of
469 square meters and the improvements thereon, in favor of Corazon Layumas, the wife of Judge
Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the property subdivided
into two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuñana, and
Lot No. 124-B-1, with an area of 469 square meters under their names.
The spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward off
squatters.[10] Barte and his kin, Rostom Barte, then had their houses constructed on the property.
Corazon Layumas wrote Pepito Mascuñana, offering to pay the amount of P1,000.00, the balance of
the purchase price of the property under the deed of absolute sale executed by Mascuñana and Sumilhig
on August 12, 1961.[12] However, the addressee refused to receive the mail matter.[13]
Unknown to spouses layumas, Lot no.124-B was issued in the name of Jesusa Mascunana.
The heirs of Mascuñana filed a Complaint[15] for recovery of possession of Lot No. 124-B and
damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of
successional rights from their deceased father. They averred that Barte surreptitiously entered the
premises, fenced the area and constructed a house thereon without their consent.
Barte admitted having occupied a portion of Lot No. 124-B, but claimed that he secured the
permission of Rodolfo Layumas

ISSUE: whether or not THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR
OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE. (petitioners are
contending contract to sell)

HELD: contract of sale.

While it is true that Jesus Mascuñana executed the deed of absolute sale over the property on
August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that
TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the
respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus
Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the
property. It is settled that a perfected contract of sale cannot be challenged on the ground of the non-
transfer of ownership of the property sold at that time of the perfection of the contract, since it is
consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer
acquires ownership of the property sold. As provided in Article 1458 of the New Civil Code, when the
sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing
which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale
with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the
property merely bind third parties to the sale. As between the seller and the buyer, the transfer of
ownership takes effect upon the execution of a public instrument covering the real property. [31] Long
before the petitioners secured a Torrens title over the property, the respondents had been in actual
possession of the property and had designated Barte as their overseer.
In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor
undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the
vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down
payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title
therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance
of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor,
or that the right to unilaterally resolve the contract upon the buyer’s failure to pay within a fixed period was
given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract
to sell.

Applying these principles of DIGNOS vs CA to this case, it cannot be gainsaid that the contract of sale
between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation
providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery
of the lot to respondent. Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred
to the vendee upon the actual or constructive delivery thereof. [33]

The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as
soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent
and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been
prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the
manner by which the total purchase price of the property is to be paid.
In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until
full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a
breach of contract but simply an event that prevented the obligation from acquiring binding force. [35]
It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition
which extinguishes the transaction that, for a time, existed and discharges the obligation created under
the transaction.[36] A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is
an express stipulation authorizing it. In such case, the vendor may file an action for specific performance
or judicial rescission.[37]
Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this
case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating Lot No. 124-B
and the issuance of a Torrens title over the property in favor of the vendee, or the latter’s successors-in-
interest, the respondents herein. Worse, petitioner Jose Mascuñana was able to secure title over the
property under the name of his deceased father.
JAIME G. ONG, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K.
ROBLES and ALEJANDRO ROBLES, respondents.

*FACTS:

On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and
Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting two
parcels of land. The terms and conditions of the said contract read:

1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00),
Philippine currency, the mode and manner of payment is as follows:

A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally agreed by the
parties, shall be broken down as follows:

1. P103,499.91 shall be paid, and as already paid by the BUYER to the SELLERS on March 22, 1983, as
stipulated under the Certification of undertaking by a check:2. That the sum of P496,500.09 shall be paid
directly by the BUYER to the Bank of Philippine Islands to answer for the loan of the SELLERS.

B. That the balance P1,400,000.00 PESOS shall be paid by the BUYER to the SELLERS in four (4) equal
quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be
due and payable on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid, by
these presents promise to sell to said BUYER the two (2) parcels of agricultural land including the rice mill
and the piggery which are the most notable improvements thereon, situated at Barangay Puri, San
Antonio Quezon, . . .

2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to
deliver to the former a good and sufficient deed of sale and conveyance for the described two (2) parcels
of land, free and clear from all liens and encumbrances.

3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and
transfer possession of the said parcels of land including all the improvements that may be found thereon,
to the BUYER, and the latter shall take over from the SELLER the possession, operation, control and
management of the RICEMILL and PIGGERY found on the aforesaid parcels of land….

xxx xxx xxx

Petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill,
residential house and other improvements thereon. Pursuant to the contract they executed, petitioner
paid respondent spouses the sum of P103,499.91 by depositing it with the United Coconut Planters Bank.
Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands (BPI), in
accordance with their stipulation that petitioner pay the loan of respondents with BPI.

To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks
payable to respondent When presented for payment, however, the checks were dishonored due to
insufficient funds. Petitioner promised to replace the checks but failed to do so. To make matters worse,
out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which
petitioner, as per agreement, should have paid, petitioner only managed to dole out no more than
P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they sold three
transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with
the knowledge and conformity of petitioner. Petitioner, in return, voluntarily gave the spouses authority to
operate the rice mill. He, however, continued to be in possession of the two parcels of land while private
respondents were forced to use the rice mill for residential purposes.
On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the
return of the properties. Their demand was left unheeded, so, they filed with the Regional Trial Court a
complaint for rescission of contract and recovery of properties with damages..

*ISSUE: Whether the contract entered into by the parties may be validly rescinded under Article 1191 of
the New Civil Code.

*HELD: No. Because the contract entered into is only a contract to sell.

Rescission, as contemplated in Articles 1380 of the New Civil Code, is a remedy granted by law to the
contracting parties and even to third persons, to secure the reparation of damages caused to them by a
contract, even if this should be valid, by restoration of things to their condition at the moment prior to the
celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a
pecuniary damage to someone.

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal
obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is
a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously such that the performance of one is conditioned
upon the simultaneous fulfillment of the other.

While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from
which the article was based, was "resolution. 17" Resolution is a principal action which is based on breach
of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for
lesion under Article 1381 of the New Civil Code.

Obviously, the contract entered into by the parties in the case at bar does not fall under any of those
mentioned by Article 1381. Consequently, Article 1383 is inapplicable.May the contract entered into
between the parties, however, be rescinded based on Article 1191?

A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a
contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase
price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force.

Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title
covering the two parcels of land upon full payment by the buyer of the purchase price. This promise to
sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the
petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of
the condition of full payment rendered the contract to sell ineffective and without force and effect. It must
be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to
comply with an obligation. Failure to pay, in this instance, is not even a breach but merely an event
which prevents the vendor's obligation to convey title from acquiring binding force. Hence, the
agreement of the parties in the case at bench may be set aside, but not because of a breach on the part
of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought
about a situation which prevented the obligation of respondent spouses to convey title from acquiring an
obligatory force.
G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.

GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

Facts: On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as
Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 — Total amount

50,000 — Down payment

———————————
P1,190,000.00 — Balance

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property registered
in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00)
Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute the
deed of absolute sale in favor of Ramona and the latter will pay the former the whole
balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz

(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").

On February 6, 1985, the property originally registered in the name of the Coronels' father
was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")

Issue: Whether said "Receipt of Down Payment" is to sell or conditional sale?

Held: conditional sale

Contract to sell vs. Contract of conditional sale

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale
where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and
housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive
condition is fulfilled, the contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation of law without any further act
having to be performed by the seller

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with,
but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the suspensive condition such as
the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in
such case. Title to the property will transfer to the buyer after registration because there is no defect in
the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer
to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may
have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with
the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot
defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.

Conclusion

The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full payment of the purchase price.
Under the established facts and circumstances of the case, the Court may safely presume that, had the
certificate of title been in the names of petitioners-sellers at that time, there would have been no reason
why an absolute contract of sale could not have been executed and consummated right there and then.
 What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to
their names.
Nabus vs. Pcason

Facts:

The spouses Bate and Julie Nabus were the owners of parcels of land registered in their names. The
property was mortgaged by the Spouses Nabus to the PNB to secure a loan of P30,000.00.

The Spouses Nabus executed a Deed of Conditional Sale covering 1,000 square meters of the 1,665
square meters of land in favor of respondents Spouses Pacson for a consideration of P170,000.00, which
was duly notarized.

Manner of Payment:

a. P13,000.00 will be paid directly to the PNB, La Trinidad Branch, and which will form part of the
purchase price;

b. Pay the mortgage balance for 3, 000 a month until fully paid;

c. After the full payment to PNB, Pacson will pay 2, 000 a month until the full consideration of
170, 000 is fully paid.

THAT, as soon as the full consideration of this sale has been paid by the VENDEE, the corresponding
transfer documents shall be executed by the VENDOR to the VENDEE for the portion sold;

THAT, a civil case is pending before the court and in case of unfavorable judgment Sps. Nabus wil return
all the payments received.

Before the payment of the balance of the mortgage amount with PNB, Bate Nabus died. His surviving
spouse, Julie Nabus, and their minor daughter, Michelle Nabus, executed a Deed of Extra Judicial
Settlement over the registered land. A new TCT was issued in the names of Julie Nabus and Michelle
Nabus.

Julie Nabus executed a Deed of Absolute Sale in favor of Betty Tolero o including the portion previously
sold to Joaquin and Julia Pacson in the Deed of Conditional Sale.

Issue:

Whether or not the Sale between Sps. Nabus aa]nd Sps. Pacson is a contract of Sale.

Ruling:

No!The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract
to sell, not a contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code, thus:

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

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges
himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase
price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive
condition, the non-fulfilment of which prevents the obligation to sell from arising and, thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer.

xxxx

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of
sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.

In the case at bar, since the Deed of Conditional Sale executed in their favor was merely a contract to
sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive
condition.4 The full payment of the purchase price is the positive suspensive condition, the failure of which
is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title
from acquiring binding force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor
having failed to perform the suspensive condition which enforces a juridical relation. With this
circumstance, there can be no rescission or fulfilment of an obligation that is still non-existent, the
suspensive condition not having occurred as yet. Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation
already extant, not a failure of a condition to render binding that obligation.

Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes
full payment of the agreed purchase price. Such payment is a positive suspensive condition, the non-
fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying
title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and
without force and effect. Thus, a cause of action for specific performance does not arise.

Since the contract to sell was without force and effect, Julie Nabus validly conveyed the subject property
to another buyer, petitioner Betty Tolero, through a contract of absolute sale, and on the strength thereof,
new transfer certificates of title over the subject property were duly issued to Tolero.
G.R. No. 125585 June 8, 2005

HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPAT-BANAAG and LEON M.

BANAAG, JR., Petitioners,
vs.
HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and JOSE B. SALAZAR,
CONSUELO CRUZ and ROSALINA CRUZ-BAUTISTA, and the REGISTER OF DEEDS of
Meycauayan, Bulacan,Respondents.

Tinga, J.:

Facts:

 The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters,
located at Panghulo, Obando, Bulacan. The property had been originally in the possession of
Jose Alvarez, Eduardo’s grandfather, until his demise in 1916. It remained unregistered until 8
October 1976 when OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free
patent issued in Eduardo’s name3 that was entered in the Registry of Deeds of Meycauayan,
Bulacan.4 The subject lot is adjacent to a fishpond owned by one Ricardo Cruz (Ricardo),
predecessor-in-interest of respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes).
 Thereafter, two separate contract of sale was entered into by Eduardo with Ricardo, constituting
the area of 603 square meters of the lot, the first 503 square meters was sold on 19 December
1954, before it was titled, while the succeeding 50 square meters was sold on 18 March 1981,
after it was titled.
 In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo,
executed a mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP),
for P100,000.00 with the subject lot as collateral. Banaag deposited the owner’s duplicate
certificate of OCT No. P-153(M) with the bank.
 Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners
on the mortgage and obtain the surrender of the OCT. The Cruzes, however, were thwarted in
their bid to see the heirs. On the advice of the Bureau of Lands, NCR Office, they brought the
matter to the barangay captain of Barangay Panghulo, Obando, Bulacan. During the hearing,
petitioners were informed that the Cruzes had a legal right to the property covered by OCT and
needed the OCT for the purpose of securing a separate title to cover the interest of Ricardo.
Petitioners, however, were unwilling to surrender the OCT.
 Secured copy of OCT from RBSP. Made a photocopy of the same OCT. Showed the copy to the
Registry of Deeds which advice them to make a subdivision plan to segregate their interest in the
whole property.
 They asked the opinion of Land Registration Officer, who agreed with the advice given by the
Registry of Deeds. Made a subdivision plan with the help of 2 geodetic engineers. Presented the
plan to the Land Management Bureau who approved of the same plan.
 After the Cruzes presented the owner’s duplicate certificate, along with the deeds of sale and the
subdivision plan, the Register of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-
9326-P(M) covering 603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-
9327-P(M) covering the remaining 455 square meters in the name of Eduardo.
 On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-
P(M) in the name of Eduardo and retrieved the title they had earlier given as substitute collateral.
After securing the new separate titles, the Cruzes furnished petitioners with a copy of TCT No.
9327-P(M) through the barangay captain and paid the real property tax for 1989.
  n October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage
obligation. It was only then that he learned of the dealings of the Cruzes with the bank which
eventually led to the subdivision of the subject lot and the issuance of two separate titles thereon.
In exchange for the full payment of the loan, RBSP tried to persuade petitioners to accept TCT
No. T-9327-P(M) in the name of Eduardo.
 The trial court found that petitioners were entitled to the reliefs of reconveyance and damages.
On this matter, it ruled that petitioners were bona fide mortgagors of an unclouded title bearing no
annotation of any lien and/or encumbrance. This fact, according to the trial court, was confirmed
by the bank when it accepted the mortgage unconditionally on 25 November 1981. It found that
petitioners were complacent and unperturbed, believing that the title to their property, while
serving as security for a loan, was safely vaulted in the impermeable confines of RBSP. To their
surprise and prejudice, said title was subdivided into two portions, leaving them a portion of 455
square meters from the original total area of 1,058 square meters, all because of the fraudulent
and negligent acts of respondents and RBSP. The trial court ratiocinated that even assuming that
a portion of the subject lot was sold by Eduardo to Ricardo, petitioners were still not privy to the
transaction between the bank and the Cruzes which eventually led to the subdivision of the OCT
into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage and prejudice of
petitioners.
 The CA reversed the RTC decision. The appellate court ruled that petitioners were not bona
fide mortgagors since as early as 1954 or before the 1981 mortgage, Eduardo already sold to
Ricardo a portion of the subject lot with an area of 553 square meters. This fact, the Court of
Appeals noted, is even supported by a document of sale signed by Eduardo Jr. and Engracia
Aniceto, the surviving spouse of Eduardo, and registered with the Register of Deeds of Bulacan.
The appellate court also found that on 18 March 1981, for the second time, Eduardo sold to
Ricardo a separate area containing 50 square meters, as a road right-of-way. Clearly, the OCT
was issued only after the first sale. It also noted that the title was given to the Cruzes by RBSP
voluntarily, with knowledge even of the bank’s counsel. Hence, the imposition of damages cannot
be justified, the Cruzes themselves being the owners of the property. Certainly, Eduardo misled
the bank into accepting the entire area as a collateral since the 603-square meter portion did not
anymore belong to him. The appellate court, however, concluded that there was no conspiracy
between the bank and Salazar.

Issue: W/N the mortgage of the entire property, with the inclusion of the disputed portion of Ricardo’s
interest, is valid

Held:

A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their claim of
ownership over the portion of Lot No. 2204 with an area of 553 square meters. The duly notarized
instrument of conveyance was executed in 1954 to which no less than Eduardo was a signatory. The
execution of the deed of sale was rendered beyond doubt by Eduardo’s admission in his Sinumpaang
Salaysay dated 24 April 1963.35These documents make the affirmance of the right of the Cruzes
ineluctable.

Registration is not a requirement for validity of the contract as between the parties, for the effect of
registration serves chiefly to bind third persons. The principal purpose of registration is merely to notify
other persons not parties to a contract that a transaction involving the property had been entered into.
Where the party has knowledge of a prior existing interest which is unregistered at the time he acquired a
right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to
him.

Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. The
conveyance shall not be valid against any person unless registered, except (1) the grantor, (2) his heirs
and devisees, and (3) third persons having actual notice or knowledge thereof. Not only are petitioners
the heirs of Eduardo, some of them were actually parties to the Kasulatan executed in favor of Ricardo.
Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer required to bind the
heirs of Eduardo, petitioners herein.

The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz:

ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. (emphasis supplied)

For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof
as required by Article 2085 of the New Civil Code. The mortgagor must be the owner, otherwise the
mortgage is void. In a contract of mortgage, the mortgagor remains to be the owner of the property
although the property is subjected to a lien. A mortgage is regarded as nothing more than a mere lien,
encumbrance, or security for a debt, and passes no title or estate to the mortgagee and gives him no right
or claim to the possession of the property. In this kind of contract, the property mortgaged is merely
delivered to the mortgagee to secure the fulfillment of the principal obligation. Such delivery does not
empower the mortgagee to convey any portion thereof in favor of another person as the right to dispose is
an attribute of ownership. The right to dispose includes the right to donate, to sell, to pledge or mortgage.
Thus, the mortgagee, not being the owner of the property, cannot dispose of the whole or part thereof nor
cause the impairment of the security in any manner without violating the foregoing rule. The mortgagee
only owns the mortgage credit, not the property itself.
National Grains Authority v. IAC
Facts: Leon Soriano submitted the documents required by the NFA for pre-qualifying as a seller. These
were processed and he was given a quota of 2,640 cavans of palay. On August 1979, Soriano delivered
630 cavans of palay. The palay delivered were not rebagged, classified and weighed. When Soriano
demanded payment, he was informed that it was held in abeyance since Mr. Cabal was still investigating
on information that Soriano was not a bona fide farmer and the palay delivered was not produced from his
farmland but was taken from the warehouse of a rice trader, Ben de Guzman. Petitioner wrote Soriano
advising him to withdraw the 630 cavans. Instead of withdrawing, Soriano insisted that the palay grains
delivered be paid. NFA was ordered to pay Soriano.
Present case involves a perfected contract of sale. Soriano initially offered to sell palay grains produced
in his farmland to NFA. When the latter accepted the offer by noting in Soriano’s Farmer’s Information
Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object
of the contract, being the palay grains produced in Soriano’s farmland and the NFA was to pay the same
depending upon its quality. The contention that – since the delivery were not rebagged, classified and
weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer
thus – this is a clear case of an unaccepted offer to sell, is untenable.
Quantity being indeterminate does not affect perfection of contract; No need to create new contract. The
fact that the exact number of cavans of palay to be delivered has not been determined does not affect the
perfection of the contract. In the present case, there was no need for NFA and Soriano to enter into a new
contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his
produce as long as it does not exceed 2,640 cavans. (It did not need a new contract to make 630 cavans
a determinate thing).
Sale a consensual contract; Acceptance is on the offer and not the goods delivered. Sale is a consensual
contract, “there is perfection when there is consent upon the subject matter and price, even if neither is
delivered.” (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560). The acceptance referred to
which determines consent is the acceptance of the offer of one party by the other and not of the goods
delivered.
Compliance of mutual obligations once a contract of sale is perfected. 
From the moment the contract of
sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or “the parties
may reciprocally demand performance” thereof. (Article 1475, Civil Code, 2nd par.)
TAÑEDO VS. CA (BELINDA TAÑEDO, for herself and in representation of her brothers and sisters,
and TEOFILA CORPUZ TAÑEDO, representing her minor daughter VERNA
TAÑEDO, petitioners, vs.THE COURT OF APPEALS, SPOUSES RICARDO M. TAÑEDO AND
TERESITA BARERA TAÑEDO,respondents.)

Facts:

On October 20, 1962, Lazardo Tañedo executed a notarized deed of absolute sale in favor of his
eldest brother, Ricardo Tañedo, and the latter's wife, Teresita Barera, private respondents herein,
whereby he conveyed to the latter in consideration of P1,500.00, one hectare of whatever share I shall
have over Lot No. 191 situated in Tarlac, the said property being his “future inheritance”. Upon the death
of his father Matias, Lazaro executed an "Affidavit of Conformity" dated February 28, 1980 to "re-affirm,
respect, acknowledge and validate the sale I made in 1962." On January 13, 1981, Lazaro executed
another notarized deed of sale in favor of private respondents covering his "undivided ONE TWELVE
(1/12) of a parcel of land known as Lot 191 . . . " He acknowledged therein his receipt of P10,000.00 as
consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same property to his
children, petitioners herein, through a deed of sale dated December 29, 1980. On June 7, 1982, private
respondents recorded the Deed of Sale in their favor in the Registry of Deeds.

Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of sale
executed by Lazaro in favor of private respondents covering the property inherited by Lazaro from his
father. Petitioners claimed that their father, Lazaro, executed an "Absolute Deed of Sale" dated December
29, 1980. Conveying to his ten children his allotted portion tinder the extrajudicial partition executed by
the heirs of Matias, which deed included the land in litigation (Lot 191).

Private respondents, however presented in evidence a "Deed of Revocation of a Deed of Sale" dated
March 12, 1981 wherein Lazaro revoked the sale in favor of petitioners for the reason that it was
"simulated or fictitious without any consideration whatsoever". But Lazaro repudiated the contents of the
Deed of Revocation of a Deed of Sale and the Deed of Sale in favor of private respondents. However, he
testified that he sold the property to Ricardo, and that it was a lawyer who induced him to execute a deed
of sale in favor of his children after giving him five pesos (P5.00) to buy a "drink".

RTC:

decided in favor of private respondents, holding that petitioners failed "to adduce a proponderance of
evidence to support (their) claim."

CA:

affirmed the decision of the trial court, ruling that the Deed of Sale dated January 13, 1981 (Exh. 9)
was valid and that its registration in good faith vested title in said respondents.

Issue/s:

(1) WON the sale of a future inheritance is valid;

(2) WON the subsequent execution on January 13, 1981 (and registration with the Registry of Property)
of a deed of sale covering the same property to the same buyers valid;
(3) WON ownership of the subject property were vested to the respondents

Held:
(1) No. Article 1347 of the Civil Code, "(n)o contract may be entered into upon a future inheritance except
in cases expressly authorized by law." Consequently, said contract made in 1962 is not valid and cannot
be the source of any right nor the creator of any obligation between the parties. Hence, the "affidavit of
conformity" dated February 28, 1980, insofar as it sought to validate or ratify the 1962 sale, is also
useless;

(2) Yes. Since the said documents (also the deed of sale dated Dec. 29, 1980 in favor of petitioners) were
executed after the death of Matias (and his spouse) and after a deed of extra-judicial settlement of his
(Matias') estate was executed, thus vesting in Lazaro actual title over said property. In other words, these
dispositions, though conflicting, were no longer infected with the infirmities of the 1962 sale;

Yes. Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple sales,
as follows:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

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

The property in question is land, an immovable, and following the above-quoted law, ownership shall
belong to the buyer who in good faith registers it first in the registry of property. Thus, although the deed
of sale in favor of private respondents was later than the one in favor of petitioners, ownership would vest
in the former because of the undisputed fact of registration. On the other hand, petitioners have not
registered the sale to them at all. Petitioners contend that they were in possession of the property and
that private respondents never took possession thereof. As between two purchasers, the one who
registered the sale in his favor has a preferred right over the other who has not registered his title, even if
the latter is in actual possession of the immovable property.
Cavite Development Bank and Far East Bank and Trust Company, petitioners, vs.

Spouses Cyrus Lim ad Lolita Chan Lim and Court of Appeals, respondents.

G.R. No. 131679, February 1, 2000.

On or about June 15, 1983, Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB
and for its security, he mortgaged a parcel of land situated at No 63, Calavite St., La Loma, Quezon City,
and covered by TCT No. 300809 registered under his name. As Rodolfo Guansing defaulted in payment
of the loan, CDB foreclosed the mortgage and the latter was the highest bidder in the auction sale.
Rodolfo Guansing failed to redeem, CDB consolidated the title of the land to its name and TCT No.
355588 was issued in its favour.

On June 16, 1988, Lolita han Lim, assisted by a broker, offered to purchase the property CDB. In
its offer the following terms and conditions appear:

1. 10% option money;

2. Balance payable in cash;
3. Provided that the property shall be cleared of illegal occupants and tenants.

Pursuant to the terms agreed upon, Lim paid CDB 30,000.00 as Option Money, for which she was issued
an official receipt. However, it was discovered by Lim that subject property was original registered in the
name of Perfecto Guansing , father of Perfecto Guansing under TCT No. 91148. It appears that Rodolfo
Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver
where he made it appear that he and Perfecto Guansing where the only surviving heirs entitled to the
property and that PerfctoGuansing waived all his rights thereto. Perfecto Guansing instituted Civil Case
No. Q-39732 in the RTC, Branch 83, Quezon City for the cancellation of his son’s title of which Perfecto’s
previous title was restored and TCT No. 300809 (in the name of Rodolfo Guansing) was cancelled.

Aggrieved, Lim filed an action for specific performance and damages before the RTC of Quezon
City alleging misrepresentation on the part of the CDB and its mother company FEBTC on their ability to
sell the subject property.

Findings of the trial court and the Court of Appeals: It ruled that there was a perfected contract of
sale between the parties and that the performance by CDB of its obligation had become impossible by
virtue of the decision rendered which led to the cancellation of the title of Rodolfo Guansing.

Contention of the Petitioners: That there was no perfected contract of sale, only an option
contract was entered into by the parties and that the P30,000.00 contained in the letter-offer was an
option money and not as an earnest money.

Issue: 1. Whether or not the P30,000.00 advanced by respondents is an option money

2. Whether or not there was a perfected contract of sale being entered into by the parties

3. Whether or not the contract of sale is valid

On the first issue:

Ruling:

The P30,000.00, although denominated as option money, was actually in the nature of an earnest
money or downpayment when considered with other terms of the offer. Citing Carcelervs Court of
Appeals, it explained the nature of an option contract as:

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

Ratio:

Contracts are not defined by the parties thereto but by the principles of law. In determining the
nature of the contract, the courts are not bound by the name or the title given to it by the contracting
parties

On the second issue:

Ruling:

Given the acceptance of Lim’s offer to purchase, it appears that a contract of sale was perfected and
indeed, partially executed because of the partial payment of the purchase price. There is however, a
serious legal obstacle for CDB to perform its obligation as seller to deliver and transfer ownership of the
property.

Ratio:

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

On the third issue:

Ruling:

The sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore,
be deemed a nullity for CDB never acquired a valid title to the property because the foreclosure sale, b
virtue of which, the property had been awarded to CDB as highest bidder, is likewise void since the
mortgagor was not the owner of the property foreclosed. There is no evidence that CDB observed its duty
of diligence in ascertaining the validity of Rodolfo Guansing’s title. It cannot be considered a mortgagee in
good faith.
Ratio:

A foreclosure sale, though essentially a forced sale is still a sale in accordance with Article 1458
of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the
ownership of the thing sold to the highest bidder who, in turn, is obliged to pa therefor the bid price in
money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also
applies in a foreclosure sale. Banks are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands, for their business is affected with
public interest.
Hermosilla v. Remoquillo

Facts: Apolinario Hermosilla was occupying a lot in San Pedro Tunasan Homesite, a land of the
Republic. He divided the lot into 2. The 1st portion was given to his son Salvador and the
other(questioned lot) to his grandson Jaime Remoquillo through a Deed of Assignment. A law was
passed prohibiting the transfer of ownership of the said lot. Salvador and Jaime after made a Kasunduan
ng Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar (Kasunduan) whereby Jaime transferred
ownership of the 65 square meters (the questioned property) in favor of Salvador. NHA awarded Jaime
title. Salvador and his heirs questioned the title stating they have their house and in actual possession of
the questioned lot.

When the Kasunduan was executed in 1972 by Jaime in favor of Salvador — petitioners' predecessor-in-
interest — Lot 19, of which the questioned property forms part, was still owned by the Republic. Nemo dat
quod non habet. Nobody can give what he does not possess. Jaime could not thus have transferred
anything to Salvador via the Kasunduan.

The transfer became one in violation of law and therefore void ab initio. Hence, petitioners acquired no
right over the lot from a Void Kasunduan, for no rights are created. It is generally considered that as
between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy.

Since the property was previously a public land, petitioners have no personality to impute violation of the
law. If the title was in fact fraudulently obtained, it is the State which should file the suit to recover the
property through the Office of the Solicitor General. Consequently, Jaime’s ownership was valid not being
contrary to any law and since there was no pending other application yet. That at the time he applied for
title, he was recogned as the actual applicant / occupant.
Heirs of Arturo Reyes v. Beltran G.R. No. 176474

(property not adjudicated)

The contract to sell on which the petitioners based their claim over the subject property
was executed by Miguel Socco who was not the owner of the property, therefore had NO
right to transfer the same. Article 1459 provides that the thing must be licit and vendor
must have a right to transfer ownership at the time of delivery.

Facts: A big parcel of lot was originally owned by Spouses Laquian. When the Spouses died, the
property was left with the wife’s siblings. Through an "Extrajudicial Settlement of the Estate of the
Deceased Constancia R. Socco (wife)," the parcel of land was partitioned into 3 lots. Before the partition,
Miguel Socco, 1 of the heirs sold his share to Arturo Reyes as evidenced by the Contract to Sell stating
that he is to inherit a particular portion. But upon partition, the said portion sold was adjudicated to
respondent, Elena Socco – Beltran, and not to Miguel Socco.

SC: Article 1459 of the Civil Code on contracts of sale, “The thing must be licit and the vendor must have
a right to transfer ownership thereof at the time it is delivered.” The law specifically requires that the
vendor must have ownership of the property at the time it is delivered. Petitioners claim that the property
was constructively delivered to them in 1954 by virtue of the Contract to Sell. However, as already
pointed out by this Court, it was explicit in the Contract itself that, at the time it was executed, Miguel R.
Socco was not yet the owner of the property and was only expecting to inherit it. Hence, there was no
valid sale from which ownership of the subject property could have transferred from Miguel Socco to
Arturo Reyes. Without acquiring ownership of the subject property, Arturo Reyes also could not have
conveyed the same to his heirs, herein petitioners.

The law specifically requires that the vendor must have ownership of the property at the time it is
delivered. Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was
stated in the Contract that the vendor was not yet the owner of the subject property and was merely
expecting to inherit the same. It was also declared that conveyance of the subject to the buyer was a
conditional sale. It is, therefore, apparent that the sale of the subject property in favor of Arturo Reyes
was conditioned upon the event that Miguel Socco would actually inherit and become the owner of the
said property. Absent such occurrence, Miguel R. Socco never acquired ownership of the subject
property which he could validly transfer to Arturo Reyes. Without acquiring ownership of the subject
property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners.

-assignment was done prior to the application.