Sales – Chapter 3-12 Cases
HERMINIO TAYAG, petitioner, petitioner gave varied sums of money to the tenants as
vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO
LACSON, JUAN LACSON, TEODISIA LACSON-
ESPINOSA and THE COURT OF APPEALS,
respondents.
Before us is a petition for review on certiorari of the
Decision1 and the Resolution2 of respondent Court of
Appeals in CA-G.R. SP No. 44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her
children Amancia, Antonio, Juan, and Teodosia, all
surnamed Lacson, were the registered owners of three
parcels of land located in Mabalacat, Pampanga, covered
by Transfer Certificates of Title (TCT) Nos. 35922-R,
35923-R, and 35925-R, registered in the Register of
Deeds of San Fernando, Pampanga. The properties,
which were tenanted agricultural lands,4 were
administered by Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers,
namely, Julio Tiamson, Renato Gozun, Rosita Hernandez,
Bienvenido Tongol, Alfonso Flores, Norma Quiambao,
Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
Dominga Laxamana, Felicencia de Leon, Emiliano
Ramos, and another group, namely, Felino G. Tolentino,
Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo
Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo
Sosa, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de
Leon, Alberto Hernandez, Orlando Flores, and Aurelio
Flores,5 individually executed in favor of the petitioner
separate Deeds of Assignment6 in which the assignees
assigned to the petitioner their respective rights as
tenants/tillers of the landholdings possessed and tilled by
them for and in consideration of P50.00 per square meter.
The said amount was made payable "when the legal
impediments to the sale of the property to the petitioner no
longer existed." The petitioner was also granted the
exclusive right to buy the property if and when the
respondents, with the concurrence of the defendants-
tenants, agreed to sell the property. In the interim, the
4. That defendants Julio Tiamson, Renato Gozun, Rosita
partial payments, and the latter issued receipts for the
said amounts.
On July 24, 1996, the petitioner called a meeting of the
defendants-tenants to work out the implementation of the
terms of their separate agreements.7 However, on August
8, 1996, the defendants-tenants, through Joven Mariano,
wrote the petitioner stating that they were not attending
the meeting and instead gave notice of their collective
decision to sell all their rights and interests, as
tenants/lessees, over the landholding to the
respondents.8 Explaining their reasons for their collective
decision, they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa
lahat ng ating napagkasunduan, hindi tumanggap ng
ibang buyer o ahente, pero sinira ninyo ang aming
pagtitiwala sa pamamagitan ng demanda ninyo at
pagbibigay ng problema sa amin na hindi naman
nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang
ang aming karapatan o ang aming lupang sinasaka sa
landowner o sa mga pamilyang Lacson, dahil ayaw
naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong ito’y katangahan, lalo
sigurong magiging katangahan kung ibebenta pa namin
sa inyo ang aming lupang sinasaka, kaya pasensya na
lang Mister Tayag. Dahil sinira ninyo ang aming
pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with
the Regional Trial Court of San Fernando, Pampanga,
Branch 44, against the defendants-tenants, as well as the
respondents, for the court to fix a period within which to
pay the agreed purchase price of P50.00 per square
meter to the defendants, as provided for in the Deeds of
Assignment. The petitioner also prayed for a writ of
preliminary injunction against the defendants and the
respondents therein.10 The case was docketed as Civil
Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the
following:
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma
Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton
Allanigue, Dominga Laxamana, Felicencia de Leon,
Emiliano Ramos are original farmers or direct tillers of
landholdings over parcels of lands covered by Transfer
Certificate of Title Nos. 35922-R, 35923-R and 35925-R
which are registered in the names of defendants
LACSONS; while defendants Felino G. Tolentino, Rica
Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Alfredo
Gozun, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de
Leon, Alberto Hernandez, and Aurelio Flores are sub-
tenants over the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, et
al., entered into Deeds of Assignment with the plaintiff by
which the defendants assigned all their rights and
interests on their landholdings to the plaintiff and that on
the same date (March 17, 1996), the defendants received
from the plaintiff partial payments in the amounts
corresponding to their names. Subsequent payments
were also received:
1st PAYMENT 2nd PAYMENT CHECK NO.
TOTAL
1.Julio Tiamson - - - - - - P 20,000 P 10,621.54
231281 P 30,621.54
2. Renato Gozun - - - - - -
[son of Felix Gozun (deceased)] P 10,000
96,000 106,000.00
3. Rosita Hernandez - - - - P 5,000 14,374.24
231274 P 19,374.24
4. Bienvenido Tongol - - -
[Son of Abundio Tongol (deceased)] P 10,000
14,465.90 231285 24,465.90
5. Alfonso Flores - - - - - - P 30,000 26,648.40
231271 56,648.40
6. Norma Quiambao - - - - P 10,000 41,501.10
231279 51,501.10
7. Rosita Tolentino - - - - - P 10,000 22,126.08
231284 32,126.08
8. Jose Sosa - - - - - - - - - P 10,000 14,861.31
231291 24,861.31
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Sales – Chapter 3-12 Cases
9. Francisco Tolentino, Sr. P 10,000 24,237.62 34. Orlando Florez 10,000 ------ ------ ----- on selling/alienating their rights and interests over the
231283 34,237.62 - subject properties to their co-defendants (LACSONS) or
10. Emiliano Laxamana - - P 10,000 ------ ----- 35. Aurelio Flores 10,000 ------ ------ ------ any other persons to the damage and prejudice of the
- ------ 6. That on July 24, 1996, the plaintiff wrote the defendants plaintiff who already invested much money, efforts and
11. Ruben Torres - - - - - - TIAMSON, et al., inviting them for a meeting regarding the time in the said transactions;
[Son of Mariano Torres (deceased)] P 10,000 P negotiations/implementations of the terms of their Deeds
33,587.31 ------ P 43,587.31 of Assignment; 13. That the plaintiff is entitled to the reliefs being
12. Meliton Allanigue P 10,000 12,944.77 demanded in the complaint;
231269 P 22,944.77 7. That on August 8, 1996, the defendants TIAMSON, et
13. Dominga Laxamana P 5,000 22,269.02 al., through Joven Mariano, replied that they are no longer 14. That to prevent irreparable damages and prejudice to
231275 27,269.02 willing to pursue with the negotiations, and instead they the plaintiff, as the latter has no speedy and adequate
14. Felicencia de Leon 10,000 ------ ------ ----- gave notice to the plaintiff that they will sell all their rights remedy under the ordinary course of law, it is essential
- and interests to the registered owners (defendants that a Writ of Preliminary Injunction be issued enjoining
15. Emiliano Ramos 5,000 18,869.60 LACSONS). and restraining the defendants TIAMSON, et al., from
231280 23,869.60 rescinding their contracts with the plaintiff and from
16. Felino G. Tolentino 10,000 ------ ------ ----- A copy of the letter is hereto attached as Annex "A" etc.; selling/alienating their properties to the LACSONS or
- other persons;
17. Rica Gozun 5,000 ------ ------ ------ 8. That the defendants TIAMSON, et. al., have no right to
18. Perla Gozun 10,000 ------ ------ ------ deal with the defendants LACSON or with any third 15. That the plaintiff is willing and able to put up a
19. Benigno Tolentino 10,000 ------ ------ ----- persons while their contracts with the plaintiff are reasonable bond to answer for the damages which the
- subsisting; defendants LACSONS are inducing or have defendants would suffer should the injunction prayed for
20. Rodolfo Quiambao 10,000 ------ ------ ----- induced the defendants TIAMSON, et. al., to violate their and granted be found without basis.12
- contracts with the plaintiff;
21. Roman Laxamana 10,000 ------ ------ ----- The petitioner prayed, that after the proceedings,
- 9. That by reason of the malicious acts of all the judgment be rendered as follows:
22. Eddie San Luis 10,000 ------ ------ ----- defendants, plaintiff suffered moral damages in the forms
- of mental anguish, mental torture and serious anxiety 1. Pending the hearing, a Writ of Preliminary Injunction be
23. Ricardo Hernandez 10,000 ------ ------ ----- which in the sum of P500,000.00 for which defendants issued prohibiting, enjoining and restraining defendants
- should be held liable jointly and severally.11 Julio Tiamson, Renato Gozun, Rosita Hernandez,
24. Nicenciana Miranda 10,000 ------ ------ ----- Bienvenido Tongol, Alfonso Flores, Norma Quiambao,
- In support of his plea for injunctive relief, the petitioner, as Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr.,
25. Jose Gozun 10,000 ------ ------ ------ plaintiff, also alleged the following in his complaint: Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
26. Alfredo Sosa 5,000 ------ ------ ------ Dominga Laxamana, Felicencia de Leon, Emiliano
27. Jose Tiamson 10,000 ------ ------ ------ 11. That to maintain the status quo, the defendants Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun,
28. Augusto Tolentino 5,000 ------ ------ ----- TIAMSON, et al., should be restrained from rescinding Benigno Tolentino, Rodolfo Quiambao, Roman
- their contracts with the plaintiff, and the defendants Laxamana, Eddie San Luis, Ricardo Hernandez,
29. Sixto Hernandez 10,000 ------ ------ ----- LACSONS should also be restrained from accepting any Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
- offer of sale or alienation with the defendants TIAMSON, Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto
30. Alex Quiambao 10,000 ------ ------ ----- et al., in whatever form, the latter’s rights and interests in Hernandez, Orlando Flores, and Aurelio Flores from
- the properties mentioned in paragraph 4 hereof; further, rescinding their contracts with the plaintiff and from
31. Isidro Tolentino 10,000 ------ ------ ----- the LACSONS should be restrained from alienating their rights and interest over the aforementioned
- encumbering/alienating the subject properties covered by properties in favor of defendants LACSONS or any other
32. Ceferino de Leon ------ 11,378.70 TCT No. 35922-R, 35923-R and TCT No. 35925-R, third persons; and prohibiting the defendants LACSONS
231270 ------ Registry of Deeds of San Fernando, Pampanga; from encumbering/alienating TCT Nos. 35922-R, 35923-R
33. Alberto Hernandez 10,000 ------ ------ ----- and 35925-R of the Registry of Deeds of San Fernando,
- 12. That the defendants TIAMSON, et al., threaten to Pampanga.
rescind their contracts with the plaintiff and are also bent
2
Sales – Chapter 3-12 Cases
2. And pending the hearing of the Prayer for a Writ of
Preliminary Injunction, it is prayed that a restraining order
be issued restraining the aforementioned defendants
(TIAMSON, et al.) from rescinding their contracts with the
plaintiff and from alienating the subject properties to the
defendants LACSONS or any third persons; further,
restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos.
35922-R, 35923-R, and 35925-R of the Registry of Deeds
of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the
balance of the purchase price to the defendants
TIAMSON, et al., after the lapse of legal impediment, if
any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of
P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorney’s
fees in the sum of P100,000.00 plus litigation expenses of
P50,000.00;
Plaintiff prays for such other relief as may be just and
equitable under the premises.13
In their answer to the complaint, the respondents as
defendants asserted that (a) the defendant Angelica Vda.
de Lacson had died on April 24, 1993; (b) twelve of the
defendants were tenants/lessees of respondents, but the
tenancy status of the rest of the defendants was
uncertain; (c) they never induced the defendants Tiamson
to violate their contracts with the petitioner; and, (d) being
merely tenants-tillers, the defendants-tenants had no right
to enter into any transactions involving their properties
without their knowledge and consent. They also averred
that the transfers or assignments of leasehold rights made
by the defendants-tenants to the petitioner is contrary to
Presidential Decree (P.D.) No. 27 and Republic Act No.
6657, the Comprehensive Agrarian Reform Program
(CARP).14 The respondents interposed counterclaims for
damages against the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their
answer with counterclaim for damages, that the money
each of them received from the petitioner were in the form
of loans, and that they were deceived into signing the
deeds of assignment:
a) That all the foregoing allegations in the Answer are
hereby repleaded and incorporated in so far as they are
material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the
Deeds of Assignment are concern[ed] never knew that
what they did sign is a Deed of Assignment. What they
knew was that they were made to sign a document that
will serve as a receipt for the loan granted [to] them by the
plaintiff;
c) That the Deeds of Assignment were signed through the
employment of fraud, deceit and false pretenses of
plaintiff and made the defendants believe that what they
sign[ed] was a mere receipt for amounts received by way
of loans;
d) That the documents signed in blank were filled up and
completed after the defendants Tiamson, et al., signed the
documents and their completion and accomplishment was
done in the absence of said defendants and, worst of all,
defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected
that the defendants Tiamson, et al., did assign all their
rights and interests in the properties or landholdings they
were tilling in favor of the plaintiff. That if this is so,
assuming arguendo that the documents were voluntarily
executed, the defendants Tiamson, et al., do not have any
right to transfer their interest in the landholdings they are
tilling as they have no right whatsoever in the
landholdings, the landholdings belong to their co-
defendants, Lacson, et al., and therefore, the contract is
null and void;
f) That while it is admitted that the defendants Tiamson, et
al., received sums of money from plaintiffs, the same were
received as approved loans granted by plaintiff to the
defendants Tiamson, et al., and not as part consideration
of the alleged Deeds of Assignment; and by way of:…15
At the hearing of the petitioner’s plea for a writ of
preliminary injunction, the respondents’ counsel failed to
appear. In support of his plea for a writ of preliminary
injunction, the petitioner adduced in evidence the Deeds
of Assignment,16 the receipts17 issued by the
defendants-tenants for the amounts they received from
him; and the letter18 the petitioner received from the
defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to
dismiss/deny the petitioner’s plea for injunctive relief on
the following grounds: (a) the Deeds of Assignment
executed by the defendants-tenants were contrary to
public policy and P.D. No. 27 and Rep. Act No. 6657; (b)
the petitioner failed to prove that the respondents induced
the defendants-tenants to renege on their obligations
under the "Deeds of Assignment;" (c) not being privy to
the said deeds, the respondents are not bound by the said
deeds; and, (d) the respondents had the absolute right to
sell and dispose of their property and to encumber the
same and cannot be enjoined from doing so by the trial
court.
The petitioner opposed the motion, contending that it was
premature for the trial court to resolve his plea for
injunctive relief, before the respondents and the
defendants-tenants adduced evidence in opposition
thereto, to afford the petitioner a chance to adduce
rebuttal evidence and prove his entitlement to a writ of
preliminary injunction. The respondents replied that it was
the burden of the petitioner to establish the requisites of a
writ of preliminary injunction without any evidence on their
part, and that they were not bound to adduce any
evidence in opposition to the petitioner’s plea for a writ of
preliminary injunction.
On February 13, 1997, the court issued an Order19
denying the motion of the respondents for being
premature. It directed the hearing to proceed for the
respondents to adduce their evidence. The court ruled
that the petitioner, on the basis of the material allegations
of the complaint, was entitled to injunctive relief. It also
held that before the court could resolve the petitioner’s
plea for injunctive relief, there was need for a hearing to
enable the respondents and the defendants-tenants to
adduce evidence to controvert that of the petitioner. The
respondents filed a motion for reconsideration, which the
court denied in its Order dated April 16, 1997. The trial
court ruled that on the face of the averments of the
3
Sales – Chapter 3-12 Cases
complaint, the pleadings of the parties and the evidence
adduced by the petitioner, the latter was entitled to
injunctive relief unless the respondents and the
defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for
certiorari in the Court of Appeals for the nullification of the
February 13, 1997 and April 16, 1997 Orders of the trial
court. The case was docketed as CA-G.R. SP No. 44883.
The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent
court dated February 13, 1997 and April 16, 1997 as null
and void;
2. An order be issued directing the respondent court to
issue an order denying the application of respondent
Herminio Tayag for the issuance of a Writ of Preliminary
Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be
issued against the respondent court, prohibiting it from
issuing its own writ of injunction against Petitioners, and
thereafter making said injunction to be issued by this
Court permanent.
Such other orders as may be deemed just & equitable
under the premises also prayed for.20
The respondents asserted that the Deeds of Assignment
executed by the assignees in favor of the petitioner were
contrary to paragraph 13 of P.D. No. 27 and the second
paragraph of Section 70 of Rep. Act No. 6657, and, as
such, could not be enforced by the petitioner for being null
and void. The respondents also claimed that the
enforcement of the deeds of assignment was subject to a
supervening condition:
3. That this exclusive and absolute right given to the
assignee shall be exercised only when no legal
impediments exist to the lot to effect the smooth transfer
of lawful ownership of the lot/property in the name of the
ASSIGNEE.21
The respondents argued that until such condition took
place, the petitioner would not acquire any right to enforce
the deeds by injunctive relief. Furthermore, the petitioner’s
plea in his complaint before the trial court, to fix a period
within which to pay the balance of the amounts due to the
tenants under said deeds after the "lapse" of any legal
impediment, assumed that the deeds were valid, when, in
fact and in law, they were not. According to the
respondents, they were not parties to the deeds of
assignment; hence, they were not bound by the said
deeds. The issuance of a writ of preliminary injunction
would restrict and impede the exercise of their right to
dispose of their property, as provided for in Article 428 of
the New Civil Code. They asserted that the petitioner had
no cause of action against them and the defendants-
tenants.
On April 17, 1998, the Court of Appeals rendered its
decision against the petitioner, annulling and setting aside
the assailed orders of the trial court; and permanently
enjoining the said trial court from proceeding with Civil
Case No. 10901. The decretal portion of the decision
reads as follows:
However, even if private respondent is denied of the
injunctive relief he demands in the lower court still he
could avail of other course of action in order to protect his
interest such as the institution of a simple civil case of
collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13
February 1997 and 16 April 1997 are hereby NULLIFIED
and ordered SET ASIDE for having been issued with
grave abuse of discretion amounting to lack or excess of
jurisdiction. Accordingly, public respondent is permanently
enjoined from proceeding with the case designated as
Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined
from alienating or even encumbering their property,
especially so since they were not privies to the deeds of
assignment executed by the defendants-tenants. The
defendants-tenants were not yet owners of the portions of
the landholdings respectively tilled by them; as such, they
had nothing to assign to the petitioner. Finally, the CA
ruled that the deeds of assignment executed by the
defendants-tenants were contrary to P.D. No. 27 and Rep.
Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying
the petitioner’s motion for reconsideration.23
Hence, the petitioner filed his petition for review on
certiorari before this Court, contending as follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE
TENANTS COULD NOT BE USED AS EVIDENCE OR
BASIS FOR ANY CONCLUSION, AS THIS
ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN
THE LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE
HEARING OF A PETITION FOR PRELIMINARY
INJUNCTION AT A TIME WHEN THE LOWER COURT
(RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO
DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY
TAYAG SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT
IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT
THE TENANTS ARE NOT YET "AWARDEES OF THE
LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE
PERMANENT STOPPAGE OF THE ENTIRE
PROCEEDINGS BELOW INCLUDING THE TRIAL ON
THE MERITS OF THE CASE CONSIDERING THAT THE
ISSUE INVOLVED ONLY THE PROPRIETY OF
MAINTAINING THE STATUS QUO.27
V
THE COURT OF APPEALS CANNOT INCLUDE IN ITS
DECISION THE CASE OF THE OTHER 35 TENANTS
WHO DO NOT QUESTION THE JURISDICTION OF THE
LOWER COURT (RTC) OVER THE CASE AND WHO
ARE IN FACT STILL PRESENTING THEIR EVIDENCE
4
Sales – Chapter 3-12 Cases
TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO
PROVE AT THE SAME TIME THE COUNTER-CLAIMS
THEY FILED AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER
THE CASE FILED BY TAYAG FOR "FIXING OF
PERIOD" UNDER ART. 1197 OF THE NEW CIVIL CODE
AND FOR "DAMAGES" AGAINST THE LACSONS
UNDER ART. 1314 OF THE SAME CODE. THIS CASE
CANNOT BE SUPPRESSED OR RENDERED
NUGATORY UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently
enjoining the trial court from proceeding with Civil Case
No. 10910. He opines that the same was too drastic,
tantamount to a dismissal of the case. He argues that at
that stage, it was premature for the appellate court to
determine the merits of the case since no evidentiary
hearing thereon was conducted by the trial court. This, the
Court of Appeals cannot do, since neither party moved for
the dismissal of Civil Case No. 10910. The petitioner
points out that the Court of Appeals, in making its findings,
went beyond the issue raised by the private respondents,
namely, whether or not the trial court committed a grave
abuse of discretion amounting to excess or lack of
jurisdiction when it denied the respondent’s motion for the
denial/dismissal of the petitioner’s plea for a writ of
preliminary injunction. He, likewise, points out that the
appellate court erroneously presumed that the
leaseholders were not DAR awardees and that the deeds
of assignment were contrary to law. He contends that
leasehold tenants are not prohibited from conveying or
waiving their leasehold rights in his favor. He insists that
there is nothing illegal with his contracts with the
leaseholders, since the same shall be effected only when
there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it
was premature for the appellate court to determine the
merits of his case since no evidentiary hearing on the
merits of his complaint had yet been conducted by the trial
court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the
respondents to dismiss/deny the petitioner’s plea for a writ
of preliminary injunction after the petitioner had adduced
his evidence, testimonial and documentary, and had
rested his case on the incident, was proper and timely. It
bears stressing that the petitioner had the burden to prove
his right to a writ of preliminary injunction. He may rely
solely on the material allegations of his complaint or
adduce evidence in support thereof. The petitioner
adduced his evidence to support his plea for a writ of
preliminary injunction against the respondents and the
defendants-tenants and rested his case on the said
incident. The respondents then had three options: (a) file
a motion to deny/dismiss the motion on the ground that
the petitioner failed to discharge his burden to prove the
factual and legal basis for his plea for a writ of preliminary
injunction and, if the trial court denies his motion, for them
to adduce evidence in opposition to the petitioner’s plea;
(b) forgo their motion and adduce testimonial and/or
documentary evidence in opposition to the petitioner’s
plea for a writ of preliminary injunction; or, (c) waive their
right to adduce evidence and submit the incident for
consideration on the basis of the pleadings of the parties
and the evidence of the petitioner. The respondents opted
not to adduce any evidence, and instead filed a motion to
deny or dismiss the petitioner’s plea for a writ of
preliminary injunction against them, on their claim that the
petitioner failed to prove his entitlement thereto. The trial
court cannot compel the respondents to adduce evidence
in opposition to the petitioner’s plea if the respondents opt
to waive their right to adduce such evidence. Thus, the
trial court should have resolved the respondents’ motion
even without the latter’s opposition and the presentation
of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the
petitioner was entitled to a writ of preliminary injunction
against the respondents on the basis of the material
averments of the complaint. In its April 16, 1997 Order,
the trial court denied the respondents’ motion for
reconsideration of the previous order, on its finding that
the petitioner was entitled to a writ of preliminary
injunction based on the material allegations of his
complaint, the evidence on record, the pleadings of the
parties, as well as the applicable laws:
… For the record, the Court denied the LACSONS’
COMMENT/MOTION on the basis of the facts culled from
the evidence presented, the pleadings and the law
applicable unswayed by the partisan or personal interests,
public opinion or fear of criticism (Canon 3, Rule 3.02,
Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended,
enumerates the grounds for the issuance of a writ of
preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded,
and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance
of the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation
of the rights of the applicant respecting the subject of the
action or proceeding, and tending to render the judgment
ineffectual.
A preliminary injunction is an extraordinary event
calculated to preserve or maintain the status quo of things
ante litem and is generally availed of to prevent actual or
threatened acts, until the merits of the case can be heard.
Injunction is accepted as the strong arm of equity or a
transcendent remedy.31 While generally the grant of a
writ of preliminary injunction rests on the sound discretion
of the trial court taking cognizance of the case, extreme
caution must be observed in the exercise of such
discretion.32 Indeed, in Olalia v. Hizon,33 we held:
5
Sales – Chapter 3-12 Cases
It has been consistently held that there is no power the
exercise of which is more delicate, which requires greater
caution, deliberation and sound discretion, or more
dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never
be extended unless to cases of great injury, where courts
of law cannot afford an adequate or commensurate
remedy in damages.
Every court should remember that an injunction is a
limitation upon the freedom of action of the defendant and
should not be granted lightly or precipitately. It should be
granted only when the court is fully satisfied that the law
permits it and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of
injunction rests in the existence of a cause of action and in
the probability of irreparable injury, inadequacy of
pecuniary compensation and the prevention of the
multiplicity of suits. Where facts are not shown to bring the
case within these conditions, the relief of injunction should
be refused.35
For the court to issue a writ of preliminary injunction, the
petitioner was burdened to establish the following: (1) a
right in esse or a clear and unmistakable right to be
protected; (2) a violation of that right; (3) that there is an
urgent and permanent act and urgent necessity for the
writ to prevent serious damage.36 Thus, in the absence of
a clear legal right, the issuance of the injunctive writ
constitutes a grave abuse of discretion. Where the
complainant’s right is doubtful or disputed, injunction is not
proper. Injunction is a preservative remedy aimed at
protecting substantial rights and interests. It is not
designed to protect contingent or future rights. The
possibility of irreparable damage without proof of
adequate existing rights is not a ground for injunction.37
We have reviewed the pleadings of the parties and found
that, as contended by the respondents, the petitioner
failed to establish the essential requisites for the issuance
of a writ of preliminary injunction. Hence, the trial court
committed a grave abuse of its discretion amounting to
excess or lack of jurisdiction in denying the respondents’
comment/motion as well as their motion for
reconsideration.
First. The trial court cannot enjoin the respondents, at the
instance of the petitioner, from selling, disposing of and
encumbering their property. As the registered owners of
the property, the respondents have the right to enjoy and
dispose of their property without any other limitations than
those established by law, in accordance with Article 428 of
the Civil Code. The right to dispose of the property is the
power of the owner to sell, encumber, transfer, and even
destroy the property. Ownership also includes the right to
recover the possession of the property from any other
person to whom the owner has not transmitted such
property, by the appropriate action for restitution, with the
fruits, and for indemnification for damages.38 The right of
ownership of the respondents is not, of course, absolute.
It is limited by those set forth by law, such as the agrarian
reform laws. Under Article 1306 of the New Civil Code, the
respondents may enter into contracts covering their
property with another under such terms and conditions as
they may deem beneficial provided they are not contrary
to law, morals, good conduct, public order or public policy.
The respondents cannot be enjoined from selling or
encumbering their property simply and merely because
they had executed Deeds of Assignment in favor of the
petitioner, obliging themselves to assign and transfer their
rights or interests as agricultural farmers/laborers/sub-
tenants over the landholding, and granting the petitioner
the exclusive right to buy the property subject to the
occurrence of certain conditions. The respondents were
not parties to the said deeds. There is no evidence that
the respondents agreed, expressly or impliedly, to the said
deeds or to the terms and conditions set forth therein.
Indeed, they assailed the validity of the said deeds on
their claim that the same were contrary to the letter and
spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner
even admitted when he testified that he did not know any
of the respondents, and that he had not met any of them
before he filed his complaint in the RTC. He did not even
know that one of those whom he had impleaded as
defendant, Angelica Vda. de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are
residents of the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda.
de Lacson had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction
should lie against petitioners. As owners of the lands
being tilled by TIAMSON, et al., petitioners, under the law,
have the right to enjoy and dispose of the same. Thus,
they have the right to possess the lands, as well as the
right to encumber or alienate them. This principle of law
notwithstanding, private respondent in the lower court
sought to restrain the petitioners from encumbering and/or
alienating the properties covered by TCT No. 35922-R,
35923-R and TCT No. 35925-R of the Registry of Deeds
of San Fernando, Pampanga. This cannot be allowed to
prosper since it would constitute a limitation or restriction,
not otherwise established by law on their right of
ownership, more so considering that petitioners were not
even privy to the alleged transaction between private
respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will
show that the petitioner clearly has no cause of action
against the respondents for the principal relief prayed for
therein, for the trial court to fix a period within which to pay
to each of the defendants-tenants the balance of the
P50.00 per square meter, the consideration under the
Deeds of Assignment executed by the defendants-
tenants. The respondents are not parties or privies to the
deeds of assignment. The matter of the period for the
petitioner to pay the balance of the said amount to each of
the defendants-tenants is an issue between them, the
parties to the deed.
Third. On the face of the complaint, the action of the
petitioner against the respondents and the defendants-
tenants has no legal basis. Under the Deeds of
Assignment, the obligation of the petitioner to pay to each
of the defendants-tenants the balance of the purchase
6
Sales – Chapter 3-12 Cases
price was conditioned on the occurrence of the following
events: (a) the respondents agree to sell their property to
the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the
petitioner decides to buy the property. When he testified,
the petitioner admitted that the legal impediments referred
to in the deeds were (a) the respondents’ refusal to sell
their property; and, (b) the lack of approval of the
Department of Agrarian Reform:
Q : There is no specific agreement prior to the execution
of those documents as when they will pay?
A : We agreed to that, that I will pay them when there are
no legal impediment, sir.
Q : Many of the documents are unlattered (sic) and you
want to convey to this Honorable Court that prior to the
execution of these documents you have those tentative
agreement for instance that the amount or the cost of the
price is to be paid when there are no legal impediment,
you are using the word "legal impediment," do you know
the meaning of that?
A : When there are (sic) no more legal impediment exist,
sir.
Q : Did you make how (sic) to the effect that the meaning
of that phrase that you used the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my
question not to answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment
then especially if the Lacsons will not agree to sell their
shares to me or to us it would be hard to (sic) me to pay
them in full. And those covered by DAR. I explain[ed] to
them and it was clearly stated in the title that there is [a]
prohibited period of time before you can sell the property. I
explained every detail to them.41
It is only upon the occurrence of the foregoing conditions
that the petitioner would be obliged to pay to the
defendants-tenants the balance of the P50.00 per square
meter under the deeds of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will
mutually agree to sell the said lot to the ASSIGNEE, who
is given an exclusive and absolute right to buy the lot, the
ASSIGNOR shall receive the sum of FIFTY PESOS
(P50.00) per square meter as consideration of the total
area actually tilled and possessed by the ASSIGNOR,
less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions
relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the
ASSIGNEE shall be exercised only when no legal
impediments exist to the lot to effect the smooth transfer
of lawful ownership of the lot/property in the name of the
ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession
over the said property and shall enjoy the fruits/earnings
and/or harvest of the said lot until such time that full
payment of the agreed purchase price had been made by
the ASSIGNEE.42
There is no showing in the petitioner’s complaint that the
respondents had agreed to sell their property, and that the
legal impediments to the agreement no longer existed.
The petitioner and the defendants-tenants had yet to
submit the Deeds of Assignment to the Department of
Agrarian Reform which, in turn, had to act on and approve
or disapprove the same. In fact, as alleged by the
petitioner in his complaint, he was yet to meet with the
defendants-tenants to discuss the implementation of the
deeds of assignment. Unless and until the Department of
Agrarian Reform approved the said deeds, if at all, the
petitioner had no right to enforce the same in a court of
law by asking the trial court to fix a period within which to
pay the balance of the purchase price and praying for
injunctive relief.
We do not agree with the contention of the petitioner that
the deeds of assignment executed by the defendants-
tenants are perfected option contracts.43 An option is 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. 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. It imposes no binding obligation on the
person holding the option, aside from the consideration for
the offer. Until accepted, it is not, properly speaking,
treated as a contract.44 The second party gets in
praesenti, not lands, not an agreement that he shall have
the lands, but the right to call for and receive lands if he
elects.45 An option contract is a separate and distinct
contract from which the parties may enter into upon the
conjunction of the option.46
In this case, the defendants-tenants-subtenants, under
the deeds of assignment, granted to the petitioner not only
an option but the exclusive right to buy the landholding.
But the grantors were merely the defendants-tenants, and
not the respondents, the registered owners of the
property. Not being the registered owners of the property,
the defendants-tenants could not legally grant to the
petitioner the option, much less the "exclusive right" to buy
the property. As the Latin saying goes, "NEMO DAT
QUOD NON HABET."
Fourth. The petitioner impleaded the respondents as
parties-defendants solely on his allegation that the latter
induced or are inducing the defendants-tenants to violate
the deeds of assignment, contrary to the provisions of
Article 1314 of the New Civil Code which reads:
7
Sales – Chapter 3-12 Cases
Art. 1314. Any third person who induces another to violate
his contract shall be liable for damages to the other
contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the
said law to apply, the pleader is burdened to prove the
following: (1) the existence of a valid contract; (2)
knowledge by the third person of the existence of the
contract; and (3) interference by the third person in the
contractual relation without legal justification.
Where there was no malice in the interference of a
contract, and the impulse behind one’s conduct lies in a
proper business interest rather than in wrongful motives, a
party cannot be a malicious interferer. Where the alleged
interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an
officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who
interferes thereon is not necessarily an officious or
malicious intermeddler. The only evidence adduced by the
petitioner to prove his claim is the letter from the
defendants-tenants informing him that they had decided to
sell their rights and interests over the landholding to the
respondents, instead of honoring their obligation under
the deeds of assignment because, according to them, the
petitioner harassed those tenants who did not want to
execute deeds of assignment in his favor, and because
the said defendants-tenants did not want to have any
problem with the respondents who could cause their
eviction for executing with the petitioner the deeds of
assignment as the said deeds are in violation of P.D. No.
27 and Rep. Act No. 6657.49 The defendants-tenants did
not allege therein that the respondents induced them to
breach their contracts with the petitioner. The petitioner
himself admitted when he testified that his claim that the
respondents induced the defendants-assignees to violate
contracts with him was based merely on what "he heard,"
thus:
Q: Going to your last statement that the Lacsons induces
(sic) the defendants, did you see that the Lacsons were
inducing the defendants?
A: I heard and sometime in [the] first week of August, sir,
they went in the barrio (sic). As a matter of fact, that is the
reason why they sent me letter that they will sell it to the
Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons
individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic)
personally, the alleged negotiator and has the authority to
sell the property.50
Even if the respondents received an offer from the
defendants-tenants to assign and transfer their rights and
interests on the landholding, the respondents cannot be
enjoined from entertaining the said offer, or even
negotiating with the defendants-tenants. The respondents
could not even be expected to warn the defendants-
tenants for executing the said deeds in violation of P.D.
No. 27 and Rep. Act No. 6657. Under Section 22 of the
latter law, beneficiaries under P.D. No. 27 who have
culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that
his purpose in having the defendants-tenants execute the
Deeds of Assignment in his favor was to acquire the
landholding without any tenants thereon, in the event that
the respondents agreed to sell the property to him. The
petitioner knew that under Section 11 of Rep. Act No.
3844, if the respondents agreed to sell the property, the
defendants-tenants shall have preferential right to buy the
same under reasonable terms and conditions:
SECTION 11. Lessee’s Right of Pre-emption. – In case
the agricultural lessor desires to sell the landholding, the
agricultural lessee shall have the preferential right to buy
the same under reasonable terms and conditions:
Provided, That the entire landholding offered for sale must
be pre-empted by the Land Authority if the landowner so
desires, unless the majority of the lessees object to such
acquisition: Provided, further, That where there are two or
more agricultural lessees, each shall be entitled to said
preferential right only to the extent of the area actually
cultivated by him. …51
Under Section 12 of the law, if the property was sold to a
third person without the knowledge of the tenants thereon,
the latter shall have the right to redeem the same at a
reasonable price and consideration. By assigning their
rights and interests on the landholding under the deeds of
assignment in favor of the petitioner, the defendants-
tenants thereby waived, in favor of the petitioner, who is
not a beneficiary under Section 22 of Rep. Act No. 6657,
their rights of preemption or redemption under Rep. Act
No. 3844. The defendants-tenants would then have to
vacate the property in favor of the petitioner upon full
payment of the purchase price. Instead of acquiring
ownership of the portions of the landholding respectively
tilled by them, the defendants-tenants would again
become landless for a measly sum of P50.00 per square
meter. The petitioner’s scheme is subversive, not only of
public policy, but also of the letter and spirit of the agrarian
laws. That the scheme of the petitioner had yet to take
effect in the future or ten years hence is not a justification.
The respondents may well argue that the agrarian laws
had been violated by the defendants-tenants and the
petitioner by the mere execution of the deeds of
assignment. In fact, the petitioner has implemented the
deeds by paying the defendants-tenants amounts of
money and even sought their immediate implementation
by setting a meeting with the defendants-tenants. In fine,
the petitioner would not wait for ten years to evict the
defendants-tenants. For him, time is of the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioner’s contention that the
appellate court erred when it permanently enjoined the
RTC from continuing with the proceedings in Civil Case
No. 10910. The only issue before the appellate court was
whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction in
denying the respondents’ motion to deny or dismiss the
petitioner’s plea for a writ of preliminary injunction. Not
one of the parties prayed to permanently enjoin the trial
court from further proceeding with Civil Case No. 10910 or
to dismiss the complaint. It bears stressing that the
petitioner may still amend his complaint, and the
8
Sales – Chapter 3-12 Cases
respondents and the defendants-tenants may file motions
to dismiss the complaint. By permanently enjoining the
trial court from proceeding with Civil Case No. 10910, the
appellate court acted arbitrarily and effectively dismissed
the complaint motu proprio, including the counterclaims of
the respondents and that of the defendants-tenants. The
defendants-tenants were even deprived of their right to
prove their special and affirmative defenses.

IN LIGHT OF ALL THE FOREGOING, the petition is

PARTIALLY GRANTED. The Decision of the Court of
Appeals nullifying the February 13, 1996 and April 16,
1997 Orders of the RTC is AFFIRMED. The writ of
injunction issued by the Court of Appeals permanently
enjoining the RTC from further proceeding with Civil Case
No. 10910 is hereby LIFTED and SET ASIDE. The
Regional Trial Court of Mabalacat, Pampanga, Branch 44,
is ORDERED to continue with the proceedings in Civil
Case No. 10910 as provided for by the Rules of Court, as
amended.
SO ORDERED.

9
Sales – Chapter 3-12 Cases
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-
CASTAÑEDA and SALUD JIMENEZ, respondents.
The main issues presented for resolution in this petition
for review on certiorari of the judgment of respondent
Court of appeals, dated April 6, 1993, in CA-G.R. CV No.
347671 are (1) whether of not the "Exclusive Option to
Purchase" executed between petitioner Adelfa Properties,
Inc. and private respondents Rosario Jimenez-Castañeda
and Salud Jimenez is an option contract; and (2) whether
or not there was a valid suspension of payment of the
purchase price by said petitioner, and the legal effects
thereof on the contractual relations of the parties.
The records disclose the following antecedent facts which
culminated in the present appellate review, to wit:
1. Herein private respondents and their brothers,
Jose and Dominador Jimenez, were the registered co-
owners of a parcel of land consisting of 17,710 square
meters, covered by Transfer Certificate of Title (TCT) No.
309773,2 situated in Barrio Culasi, Las Piñas, Metro
Manila.
2. On July 28, 1988, Jose and Dominador Jimenez
sold their share consisting of one-half of said parcel of
land, specifically the eastern portion thereof, to herein
petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa."3
Subsequently, a "Confirmatory Extrajudicial Partition
Agreement"4 was executed by the Jimenezes, wherein
the eastern portion of the subject lot, with an area of 8,855
square meters was adjudicated to Jose and Dominador
Jimenez, while the western portion was allocated to herein
private respondents.
3. Thereafter, herein petitioner expressed interest in
buying the western portion of the property from private
respondents. Accordingly, on November 25, 1989, an
"Exclusive Option to Purchase"5 was executed between
petitioner and private respondents, under the following
terms and conditions:
1. The selling price of said 8,655 square meters of
the subject property is TWO MILLION EIGHT HUNDRED
FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS
ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from
ADELFA PROPERTIES, INC. as an option money shall
be credited as partial payment upon the consummation of
the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED
FIFTY PESOS (P2,806,150.00) to be paid on or before
November 30, 1989;
3. In case of default on the part of ADELFA
PROPERTIES, INC. to pay said balance in accordance
with paragraph 2 hereof, this option shall be cancelled
and 50% of the option money to be forfeited in our favor
and we will refund the remaining 50% of said money upon
the sale of said property to a third party;
4. All expenses including the corresponding capital
gains tax, cost of documentary stamps are for the account
of the VENDORS, and expenses for the registration of the
deed of sale in the Registry of Deeds are for the account
of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the
certificate of title issued to respondent Salud Jimenez had
been lost, a petition for the re-issuance of a new owner's
copy of said certificate of title was filed in court through
Atty. Bayani L. Bernardo, who acted as private
respondents' counsel. Eventually, a new owner's copy of
the certificate of title was issued but it remained in the
possession of Atty. Bernardo until he turned it over to
petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it
received summons6 on November 29, 1989, together with
a copy of a complaint filed by the nephews and nieces of
private respondents against the latter, Jose and
Dominador Jimenez, and herein petitioner in the Regional
Trial Court of Makati, docketed as Civil Case No. 89-5541,
for annulment of the deed of sale in favor of Household
Corporation and recovery of ownership of the property
covered by TCT No. 309773.7
5. As a consequence, in a letter dated November
29, 1989, petitioner informed private respondents that it
would hold payment of the full purchase price and
suggested that private respondents settle the case with
their nephews and nieces, adding that ". . . if possible,
although November 30, 1989 is a holiday, we will be
waiting for you and said plaintiffs at our office up to 7:00
p.m."8 Another letter of the same tenor and of even date
was sent by petitioner to Jose and Dominador Jimenez.9
Respondent Salud Jimenez refused to heed the
suggestion of petitioner and attributed the suspension of
payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be
annotated on the title of the lot its option contract with
private respondents, and its contract of sale with Jose and
Dominador Jimenez, as Entry No. 1437-4 and entry No.
1438-4, respectively.
7. On December 14, 1989, private respondents
sent Francisca Jimenez to see Atty. Bernardo, in his
capacity as petitioner's counsel, and to inform the latter
that they were cancelling the transaction. In turn, Atty.
Bernardo offered to pay the purchase price provided that
P500,000.00 be deducted therefrom for the settlement of
the civil case. This was rejected by private respondents.
On December 22, 1989, Atty. Bernardo wrote private
respondents on the same matter but this time reducing the
amount from P500,000.00 to P300,000.00, and this was
also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court
of Makati dismissed Civil Case No. 89-5541. Thus, on
February 28, 1990, petitioner caused to be annotated
anew on TCT No. 309773 the exclusive option to
purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private
respondents executed a Deed of Conditional Sale 10 in
favor of Emylene Chua over the same parcel of land for
P3,029,250, of which P1,500,000.00 was paid to private
respondents on said date, with the balance to be paid
upon the transfer of title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private
respondents informing the latter that in view of the
dismissal of the case against them, petitioner was willing
to pay the purchase price, and he requested that the
corresponding deed of absolute sale be executed. 11 This
was ignored by private respondents.
10
Sales – Chapter 3-12 Cases
11. On July 27, 1990, private respondents' counsel
sent a letter to petitioner enclosing therein a check for
P25,000.00 representing the refund of fifty percent of the
option money paid under the exclusive option to
purchase. Private respondents then requested petitioner
to return the owner's duplicate copy of the certificate of
title of respondent Salud Jimenez. 12 Petitioner failed to
surrender the certificate of title, hence private respondents
filed Civil Case No. 7532 in the Regional Trial Court of
Pasay City, Branch 113, for annulment of contract with
damages, praying, among others, that the exclusive
option to purchase be declared null and void; that
defendant, herein petitioner, be ordered to return the
owner's duplicate certificate of title; and that the
annotation of the option contract on TCT No. 309773 be
cancelled. Emylene Chua, the subsequent purchaser of
the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on
September 5, 1991 holding that the agreement entered
into by the parties was merely an option contract, and
declaring that the suspension of payment by herein
petitioner constituted a counter-offer which, therefore, was
tantamount to a rejection of the option. It likewise ruled
that herein petitioner could not validly suspend payment in
favor of private respondents on the ground that the
vindicatory action filed by the latter's kin did not involve
the western portion of the land covered by the contract
between petitioner and private respondents, but the
eastern portion thereof which was the subject of the sale
between petitioner and the brothers Jose and Dominador
Jimenez. The trial court then directed the cancellation of
the exclusive option to purchase, declared the sale to
intervenor Emylene Chua as valid and binding, and
ordered petitioner to pay damages and attorney's fees to
private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed
in toto the decision of the court a quo and held that the
failure of petitioner to pay the purchase price within the
period agreed upon was tantamount to an election by
petitioner not to buy the property; that the suspension of
payment constituted an imposition of a condition which
was actually a counter-offer amounting to a rejection of
the option; and that Article 1590 of the Civil Code on
suspension of payments applies only to a contract of sale
or a contract to sell, but not to an option contract which it
opined was the nature of the document subject of the
case at bar. Said appellate court similarly upheld the
validity of the deed of conditional sale executed by private
respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors
are raised:
1. Respondent court of appeals acted with grave
abuse of discretion in making its finding that the
agreement entered into by petitioner and private
respondents was strictly an option contract;
2. Granting arguendo that the agreement was an
option contract, respondent court of Appeals acted with
grave abuse of discretion in grievously failing to consider
that while the option period had not lapsed, private
respondents could not unilaterally and prematurely
terminate the option period;
3. Respondent Court of Appeals acted with grave
abuse of discretion in failing to appreciate fully the
attendant facts and circumstances when it made the
conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave
abuse of discretion in conforming with the sale in favor of
appellee Ma. Emylene Chua and the award of damages
and attorney's fees which are not only excessive, but also
without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as
the evidence presented by the parties, irresistibly leads to
the conclusion that the agreement between the parties is
a contract to sell, and not an option contract or a contract
of sale.
I implied stipulation to that effect is considered valid and,
1. In view of the extended disquisition thereon by
respondent court, it would be worthwhile at this juncture to
briefly discourse on the rationale behind our treatment of
the alleged option contract as a contract to sell, rather
than a contract of sale. The distinction between the two is
important for in contract of sale, the title passes to the
vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in
the vendor and is not to pass until the full payment of the
price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is
retained by the vendor until the full payment of the price,
such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming
effective. Thus, a deed of sale is considered absolute in
nature where there is neither a stipulation in the deed that
title to the property sold is reserved in the seller until the
full payment of the price, nor one giving the vendor the
right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties
never intended to transfer ownership to petitioner except
upon the full payment of the purchase price. Firstly, the
exclusive option to purchase, although it provided for
automatic rescission of the contract and partial forfeiture
of the amount already paid in case of default, does not
mention that petitioner is obliged to return possession or
ownership of the property as a consequence of non-
payment. There is no stipulation anent reversion or
reconveyance of the property to herein private
respondents in the event that petitioner does not comply
with its obligation. With the absence of such a stipulation,
although there is a provision on the remedies available to
the parties in case of breach, it may legally be inferred
that the parties never intended to transfer ownership to
the petitioner to completion of payment of the purchase
price.
In effect, there was an implied agreement that ownership
shall not pass to the purchaser until he had fully paid the
price. Article 1478 of the civil code does not require that
such a stipulation be expressly made. Consequently, an
therefore, binding and enforceable between the parties. It
should be noted that under the law and jurisprudence, a
contract which contains this kind of stipulation is
considered a contract to sell.
Moreover, that the parties really intended to execute a
contract to sell, and not a contract of sale, is bolstered by
the fact that the deed of absolute sale would have been
11
Sales – Chapter 3-12 Cases
issued only upon the payment of the balance of the
purchase price, as may be gleaned from petitioner's letter
dated April 16, 1990 16 wherein it informed private
respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding
deed of absolute sale."
Secondly, it has not been shown there was delivery of the
property, actual or constructive, made to herein petitioner.
The exclusive option to purchase is not contained in a
public instrument the execution of which would have been
considered equivalent to delivery. 17 Neither did petitioner
take actual, physical possession of the property at any
given time. It is true that after the reconstitution of private
respondents' certificate of title, it remained in the
possession of petitioner's counsel, Atty. Bayani L.
Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by
the vendee is to be understood as a delivery.18 However,
private respondents explained that there was really no
intention on their part to deliver the title to herein petitioner
with the purpose of transferring ownership to it. They
claim that Atty. Bernardo had possession of the title only
because he was their counsel in the petition for
reconstitution. We have no reason not to believe this
explanation of private respondents, aside from the fact
that such contention was never refuted or contradicted by
petitioner.
2. Irrefragably, the controverted document should
legally be considered as a perfected contract to sell. On
this particular point, therefore, we reject the position and
ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents,
categorized the instrument as "strictly an option contract."
The important task in contract interpretation is always the
ascertainment of the intention of the contracting parties
and that task is, of course, to be discharged by looking to
the words they used to project that intention in their
contract, all the words not just a particular word or two,
and words in context not words standing alone. 19
Moreover, judging from the subsequent acts of the parties
which will hereinafter be discussed, it is undeniable that
the intention of the parties was to enter into a contract to
sell. 20 In addition, the title of a contract does not
necessarily determine its true nature. 21 Hence, the fact
that the document under discussion is entitled "Exclusive
Option to Purchase" is not controlling where the text
thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing
offer 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. It is also sometimes called an
"unaccepted offer." An option is not of itself a purchase,
but merely secures the privilege to buy. 22 It is not a sale
of property but a sale of property but a sale of the right to
purchase. 23 It is simply a contract by which the owner of
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, that it is, the right or
privilege to buy at the election or option of the other party.
24 Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside
from the consideration for the offer. Until acceptance, it is
not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or
right in the subject matter, but is merely a contract by
which the owner of property gives the optionee the right or
privilege of accepting the offer and buying the property on
certain terms. 25
On the other hand, a contract, like a contract to sell,
involves a meeting of minds two persons whereby one
binds himself, with respect to the other, to give something
or to render some service. 26 Contracts, in general, are
perfected by mere consent, 27 which is manifested by the
meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale
is that an option is an unaccepted offer. It states the terms
and conditions on which the owner is willing to sell the
land, if the holder elects to accept them within the time
limited. If the holder does so elect, he must give notice to
the other party, and the accepted offer thereupon
becomes a valid and binding contract. If an acceptance is
not made within the time fixed, the owner is no longer
bound by his offer, and the option is at an end. A contract
of sale, on the other hand, fixes definitely the relative
rights and obligations of both parties at the time of its
execution. The offer and the acceptance are concurrent,
since the minds of the contracting parties meet in the
terms of the agreement. 29
A perusal of the contract in this case, as well as the oral
and documentary evidence presented by the parties,
readily shows that there is indeed a concurrence of
petitioner's offer to buy and private respondents'
acceptance thereof. The rule is that except where a formal
acceptance is so required, although the acceptance must
be affirmatively and clearly made and must be evidenced
by some acts or conduct communicated to the offeror, it
may be made either in a formal or an informal manner,
and may be shown by acts, conduct, or words of the
accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus,
acceptance may be shown by the acts, conduct, or words
of a party recognizing the existence of the contract of sale.
30
The records also show that private respondents accepted
the offer of petitioner to buy their property under the terms
of their contract. At the time petitioner made its offer,
private respondents suggested that their transfer
certificate of title be first reconstituted, to which petitioner
agreed. As a matter of fact, it was petitioner's counsel,
Atty. Bayani L. Bernardo, who assisted private
respondents in filing a petition for reconstitution. After the
title was reconstituted, the parties agreed that petitioner
would pay either in cash or manager's check the amount
of P2,856,150.00 for the lot. Petitioner was supposed to
pay the same on November 25, 1989, but it later offered
to make a down payment of P50,000.00, with the balance
of P2,806,150.00 to be paid on or before November 30,
1989. Private respondents agreed to the counter-offer
made by petitioner. 31 As a result, the so-called exclusive
option to purchase was prepared by petitioner and was
subsequently signed by private respondents, thereby
creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece
of land was definite and certain, while the acceptance
thereof was absolute and without any condition or
qualification. The agreement as to the object, the price of
12
Sales – Chapter 3-12 Cases
the property, and the terms of payment was clear and
well-defined. No other significance could be given to such
acts that than they were meant to finalize and perfect the
transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses
including the corresponding capital gains tax, cost of
documentary stamps are for the account of the vendors,
and expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of Adelfa properties,
Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission,
which was upheld by both the trial court and respondent
court of appeals, that the offer of petitioner to deduct
P500,000.00, (later reduced to P300,000.00) from the
purchase price for the settlement of the civil case was
tantamount to a counter-offer. It must be stressed that
there already existed a perfected contract between the
parties at the time the alleged counter-offer was made.
Thus, any new offer by a party becomes binding only
when it is accepted by the other. In the case of private
respondents, they actually refused to concur in said offer
of petitioner, by reason of which the original terms of the
contract continued to be enforceable.
At any rate, the same cannot be considered a counter-
offer for the simple reason that petitioner's sole purpose
was to settle the civil case in order that it could already
comply with its obligation. In fact, it was even indicative of
a desire by petitioner to immediately comply therewith,
except that it was being prevented from doing so because
of the filing of the civil case which, it believed in good faith,
rendered compliance improbable at that time. In addition,
no inference can be drawn from that suggestion given by
petitioner that it was totally abandoning the original
contract.
More importantly, it will be noted that the failure of
petitioner to pay the balance of the purchase price within
the agreed period was attributed by private respondents to
"lack of word of honor" on the part of the former. The
reason of "lack of word of honor" is to us a clear indication
that private respondents considered petitioner already
bound by its obligation to pay the balance of the
consideration. In effect, private respondents were
demanding or exacting fulfillment of the obligation from
herein petitioner. with the arrival of the period agreed
upon by the parties, petitioner was supposed to comply
with the obligation incumbent upon it to perform, not
merely to exercise an option or a right to buy the property.
The obligation of petitioner on November 30, 1993
consisted of an obligation to give something, that is, the
payment of the purchase price. The contract did not
simply give petitioner the discretion to pay for the
property. 32 It will be noted that there is nothing in the
said contract to show that petitioner was merely given a
certain period within which to exercise its privilege to buy.
The agreed period was intended to give time to herein
petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase
price. No evidence was presented by private respondents
to prove otherwise.
The test in determining whether a contract is a "contract of
sale or purchase" or a mere "option" is whether or not the
agreement could be specifically enforced. 33 There is no
doubt that the obligation of petitioner to pay the purchase
price is specific, definite and certain, and consequently
binding and enforceable. Had private respondents chosen
to enforce the contract, they could have specifically
compelled petitioner to pay the balance of P2,806,150.00.
This is distinctly made manifest in the contract itself as an
integral stipulation, compliance with which could legally
and definitely be demanded from petitioner as a
consequence.
This is not a case where no right is as yet created nor an
obligation declared, as where something further remains
to be done before the buyer and seller obligate
themselves. 34 An agreement is only an "option" when no
obligation rests on the party to make any payment except
such as may be agreed on between the parties as
consideration to support the option until he has made up
his mind within the time specified. 35 An option, and not a
contract to purchase, is effected by an agreement to sell
real estate for payments to be made within specified time
and providing forfeiture of money paid upon failure to
make payment, where the purchaser does not agree to
purchase, to make payment, or to bind himself in any way
other than the forfeiture of the payments made. 36 As
hereinbefore discussed, this is not the situation obtaining
in the case at bar.
While there is jurisprudence to the effect that a contract
which provides that the initial payment shall be totally
forfeited in case of default in payment is to be considered
as an option contract, 37 still we are not inclined to
conform with the findings of respondent court and the
court a quo that the contract executed between the parties
is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the
purchase price, and were not merely quoting an agreed
value for the property. The term "balance," connotes a
remainder or something remaining from the original total
sum already agreed upon.
In other words, the alleged option money of P50,000.00
was actually earnest money which was intended to form
part of the purchase price. The amount of P50,000.00 was
not distinct from the cause or consideration for the sale of
the property, but was itself a part thereof. It is a statutory
rule that whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as
proof of the perfection of the contract. 38 It constitutes an
advance payment and must, therefore, be deducted from
the total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.
There are clear distinctions between earnest money and
option money, viz.: (a) earnest money is part of the
purchase price, while option money ids the money given
as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale,
while option money applies to a sale not yet perfected;
and (c) when earnest money is given, the buyer is bound
to pay the balance, while when the would-be buyer gives
option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are
apparent in the so-called option contract under review,
even though it was called "option money" by the parties.
In addition, private respondents failed to show that the
payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to
the exercise of the right to buy. On the contrary, it has
been sufficiently established that such payment was but
an element of the performance of petitioner's obligation
under the contract to sell. 40
13
Sales – Chapter 3-12 Cases
II
1. This brings us to the second issue as to whether
or not there was valid suspension of payment of the
purchase price by petitioner and the legal consequences
thereof. To justify its failure to pay the purchase price
within the agreed period, petitioner invokes Article 1590 of
the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should
he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has
caused the disturbance or danger to cease, unless the
latter gives security for the return of the price in a proper
case, or it has been stipulated that, notwithstanding any
such contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
Respondent court refused to apply the aforequoted
provision of law on the erroneous assumption that the true
agreement between the parties was a contract of option.
As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore,
Article 1590 would properly apply.
Both lower courts, however, are in accord that since Civil
Case No. 89-5541 filed against the parties herein involved
only the eastern half of the land subject of the deed of
sale between petitioner and the Jimenez brothers, it did
not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of
the land which is covered by the contract subject of the
present case. We have gone over the complaint for
recovery of ownership filed in said case 41 and we are not
persuaded by the factual findings made by said courts. At
a glance, it is easily discernible that, although the
complaint prayed for the annulment only of the contract of
sale executed between petitioner and the Jimenez
brothers, the same likewise prayed for the recovery of
therein plaintiffs' share in that parcel of land specifically
covered by TCT No. 309773. In other words, the plaintiffs
therein were claiming to be co-owners of the entire parcel
of land described in TCT No. 309773, and not only of a
portion thereof nor, as incorrectly interpreted by the lower
courts, did their claim pertain exclusively to the eastern
half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in
suspending payment of the balance of the purchase price
by reason of the aforesaid vindicatory action filed against
it. The assurance made by private respondents that
petitioner did not have to worry about the case because it
was pure and simple harassment 42 is not the kind of
guaranty contemplated under the exceptive clause in
Article 1590 wherein the vendor is bound to make
payment even with the existence of a vindicatory action if
the vendee should give a security for the return of the
price.
2. Be that as it may, and the validity of the
suspension of payment notwithstanding, we find and hold
that private respondents may no longer be compelled to
sell and deliver the subject property to petitioner for two
reasons, that is, petitioner's failure to duly effect the
consignation of the purchase price after the disturbance
had ceased; and, secondarily, the fact that the contract to
sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February
28, 1990 when petitioner caused its exclusive option to be
annotated anew on the certificate of title, it already knew
of the dismissal of civil Case No. 89-5541. However, it
was only on April 16, 1990 that petitioner, through its
counsel, wrote private respondents expressing its
willingness to pay the balance of the purchase price upon
the execution of the corresponding deed of absolute sale.
At most, that was merely a notice to pay. There was no
proper tender of payment nor consignation in this case as
required by law.
The mere sending of a letter by the vendee expressing the
intention to
pay, without the accompanying payment, is not
considered a valid tender of payment. 43 Besides, a mere
tender of payment is not sufficient to compel private
respondents to deliver the property and execute the deed
of absolute sale. It is consignation which is essential in
order to extinguish petitioner's obligation to pay the
balance of the purchase price. 44 The rule is different in
case of an option contract 45 or in legal redemption or in a
sale with right to repurchase, 46 wherein consignation is
not necessary because these cases involve an exercise of
a right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of
payment would be sufficient to preserve the right or
privilege. This is because the provisions on consignation
are not applicable when there is no obligation to pay. 47 A
contract to sell, as in the case before us, involves the
performance of an obligation, not merely the exercise of a
privilege of a right. consequently, performance or payment
may be effected not by tender of payment alone but by
both tender and consignation.
Furthermore, petitioner no longer had the right to suspend
payment after the disturbance ceased with the dismissal
of the civil case filed against it. Necessarily, therefore, its
obligation to pay the balance again arose and resumed
after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment, as in fact it
has deposit the money with the trial court when this case
was originally filed therein.
By reason of petitioner's failure to comply with its
obligation, private respondents elected to resort to and did
announce the rescission of the contract through its letter
to petitioner dated July 27, 1990. That written notice of
rescission is deemed sufficient under the circumstances.
Article 1592 of the Civil Code which requires rescission
either by judicial action or notarial act is not applicable to a
contract to sell. 48 Furthermore, judicial action for
rescission of a contract is not necessary where the
contract provides for automatic rescission in case of
breach,49 as in the contract involved in the present
controversy.
We are not unaware of the ruling in University of the
Philippines vs. De los Angeles, etc. 50 that the right to
rescind is not absolute, being ever subject to scrutiny and
review by the proper court. It is our considered view,
however, that this rule applies to a situation where the
extrajudicial rescission is contested by the defaulting
party. In other words, resolution of reciprocal contracts
may be made extrajudicially unless successfully impugned
in court. If the debtor impugns the declaration, it shall be
subject to judicial determination51 otherwise, if said party
does not oppose it, the extrajudicial rescission shall have
legal effect. 52
14
Sales – Chapter 3-12 Cases
In the case at bar, it has been shown that although
petitioner was duly furnished and did receive a written
notice of rescission which specified the grounds therefore,
it failed to reply thereto or protest against it. Its silence
thereon suggests an admission of the veracity and validity
of private respondents' claim. 53 Furthermore, the
initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic
rescission clause in the contract. 54 But then, the records
bear out the fact that aside from the lackadaisical manner
with which petitioner treated private respondents' latter of
cancellation, it utterly failed to seriously seek redress from
the court for the enforcement of its alleged rights under
the contract. If private respondents had not taken the
initiative of filing Civil Case No. 7532, evidently petitioner
had no intention to take any legal action to compel specific
performance from the former. By such cavalier disregard,
it has been effectively estopped from seeking the
affirmative relief it now desires but which it had theretofore
disdained.

WHEREFORE, on the foregoing modificatory premises,

and considering that the same result has been reached by
respondent Court of Appeals with respect to the relief
awarded to private respondents by the court a quo which
we find to be correct, its assailed judgment in CA-G.R. CV
No. 34767 is hereby AFFIRMED.

SO ORDERED.

15
Sales – Chapter 3-12 Cases
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR,
petitioners,
vs.
THE HON. COURT OF APPEALS AND SPOUSES
MACARIA LABINGISA REYES AND ROBERTO REYES,
respondents.
This is a petition for review on certiorari of the decision of the
Court of Appeals in CA-G.R. No. 24176 entitled, "Spouses
Julio Villamor and Marina Villamor, Plaintiffs-Appellees,
versus Spouses Macaria Labing-isa Reyes and Roberto
Reyes, Defendants-Appellants," which reversed the decision
of the Regional Trial Court (Branch 121) at Caloocan City in
Civil Case No. C-12942.
The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square
meter lot located at Baesa, Caloocan City, as evidenced by
Transfer Certificate of Title No. (18431) 18938, of the
Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of
the lot to the Spouses Julio and Marina and Villamor for the
total amount of P21,000.00. Earlier, Macaria borrowed
P2,000.00 from the spouses which amount was deducted
from the total purchase price of the 300 square meter lot sold.
The portion sold to the Villamor spouses is now covered by
TCT No. 39935 while the remaining portion which is still in the
name of Macaria Labing-isa is covered by TCT No. 39934
(pars. 5 and 7, Complaint). On November 11, 1971, Macaria
executed a "Deed of Option" in favor of Villamor in which the
remaining 300 square meter portion (TCT No. 39934) of the
lot would be sold to Villamor under the conditions stated
therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila,
Philippines, this 11th day of November, 1971, by and
between Macaria Labing-isa, of age, married to Roberto
Reyes, likewise of age, and both resideing on Reparo St.,
Baesa, Caloocan City, on the one hand, and on the other
hand the spouses Julio Villamor and Marina V. Villamor, also
of age and residing at No. 552 Reparo St., corner Baesa
Road, Baesa, Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a
parcel of land with an area of 600 square meters, more or
less, more particularly described in TCT No. (18431) 18938 of
the Office of the Register of Deeds for the province of Rizal,
issued in may name, I having inherited the same from my
deceased parents, for which reason it is my paraphernal
property;
That I, with the conformity of my husband, Roberto Reyes,
have sold one-half thereof to the aforesaid spouses Julio
Villamor and Marina V. Villamor at the price of P70.00 per sq.
meter, which was greatly higher than the actual reasonable
prevailing value of lands in that place at the time, which
portion, after segregation, is now covered by TCT No. 39935
of the Register of Deeds for the City of Caloocan, issued on
August 17, 1971 in the name of the aforementioned spouses
vendees;
That the only reason why the Spouses-vendees Julio Villamor
and Marina V. Villamor, agreed to buy the said one-half
portion at the above-stated price of about P70.00 per square
meter, is because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining one-half
portion still owned by me and now covered by TCT No. 39935
of the Register of Deeds for the City of Caloocan, whenever
the need of such sale arises, either on our part or on the part
of the spouses (Julio) Villamor and Marina V. Villamor, at the
same price of P70.00 per square meter, excluding whatever
improvement may be found the thereon;
That I am willing to have this contract to sell inscribed on my
aforesaid title as an encumbrance upon the property covered
thereby, upon payment of the corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree
to, and accept, the above provisions of this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is signed in the
City of Manila, Philippines, by all the persons concerned, this
11th day of November, 1971.
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity:
MARINA VILLAMOR ROBERTO REYES
Signed in the Presence Of:
MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971,
personally appeared before me Roberto Reyes, Macaria
Labingisa, Julio Villamor and Marina Ventura-Villamor, known
to me as the same persons who executed the foregoing Deed
of Option, which consists of two (2) pages including the page
whereon this acknowledgement is written, and signed at the
left margin of the first page and at the bottom of the
instrument by the parties and their witnesses, and sealed with
my notarial seal, and said parties acknowledged to me that
the same is their free act and deed. The Residence
Certificates of the parties were exhibited to me as follows:
Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971,
and B-502025, issued at Makati, Rizal on Feb. 18, 1971;
Macaria Labingisa, A-3339130 and B-1266104, both issued
at Caloocan City on April 15, 1971, their joint Tax Acct.
Number being 3028-767-6; Julio Villamor, A-804, issued at
Manila on Jan. 14, 1971, and B-138, issued at Manila on
March 1, 1971; and Marina Ventura-Villamor, A-803, issued
at Manila on Jan. 14, 1971, their joint Tax Acct. Number
being 608-202-6.
ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971
Doc. No. 1526;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes,
retired in 1984, they offered to repurchase the lot sold by
them to the Villamor spouses but Marina Villamor refused and
reminded them instead that the Deed of Option in fact gave
them the option to purchase the remaining portion of the lot.
The Villamors, on the other hand, claimed that they had
expressed their desire to purchase the remaining 300 square
meter portion of the lot but the Reyeses had been ignoring
them. Thus, on July 13, 1987, after conciliation proceedings
16
Sales – Chapter 3-12 Cases
in the barangay level failed, they filed a complaint for specific 5. FAILING TO CONSIDER THAT EQUITABLE
performance against the Reyeses. CONSIDERATION TILT IN FAVOR OF THE DEFENDANT-
APPELLANTS; and
On July 26, 1989, judgment was rendered by the trial court in
favor of the Villamor spouses, the dispositive portion of which 6. HOLDING DEFENDANT-APPELLANTS LIABLE TO
states: PAY PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00
FOR AND BY WAY OF ATTORNEY'S FEES. (pp. 31-32,
WHEREFORE, and (sic) in view of the foregoing, judgment is Rollo)
hereby rendered in favor of the plaintiffs and against the
defendants ordering the defendant MACARIA LABING-ISA On February 12, 1991, the Court of Appeals rendered a
REYES and ROBERTO REYES, to sell unto the plaintiffs the decision reversing the decision of the trial court and
land covered by T.C.T No. 39934 of the Register of Deeds of dismissing the complaint. The reversal of the trial court's
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as decision was premised on the finding of respondent court that
and for attorney's fees and to pay the cost of suit. the Deed of Option is void for lack of consideration.
The counterclaim is hereby DISMISSED, for LACK OF The Villamor spouses brought the instant petition for review
MERIT. on certiorari on the following grounds:
SO ORDERED. (pp. 24-25, Rollo) I. THE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT THE PHRASE WHENEVER THE NEED
Not satisfied with the decision of the trial court, the Reyes FOR SUCH SALE ARISES ON OUR (PRIVATE
spouses appealed to the Court of Appeals on the following RESPONDENT) PART OR ON THE PART OF THE
assignment of errors: SPOUSES JULIO D. VILLAMOR AND MARINA V.
VILLAMOR' CONTAINED IN THE DEED OF OPTION
1. HOLDING THAT THE DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;
EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE
PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS II. ASSUMING FOR THE SAKE OF ARGUMENT
IS STILL VALID AND BINDING DESPITE THE LAPSE OF THAT THE QUESTIONED PHRASE IS INDEED A
MORE THAN THIRTEEN (13) YEARS FROM THE CONDITION, THE COURT OF APPEALS ERRED IN NOT
EXECUTION OF THE CONTRACT; FINDING, THAT THE SAID CONDITION HAD ALREADY
BEEN FULFILLED;
2. FAILING TO CONSIDER THAT THE DEED OF
OPTION CONTAINS OBSCURE WORDS AND III. ASSUMING FOR THE SAKE OF ARGUMENT
STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THAT THE QUESTIONED PHRASE IS INDEED A
THE PLAINTIFF-APPELLEES WHO UNILATERALLY CONDITION, THE COURT OF APPEALS ERRED IN
DRAFTED AND PREPARED THE SAME; HOLDING THAT THE IMPOSITION OF SAID CONDITION
PREVENTED THE PERFECTION OF THE CONTRACT OF
3. HOLDING THAT THE DEED OF OPTION SALE DESPITE THE EXPRESS OFFER AND
EXPRESSED THE TRUE INTENTION AND PURPOSE OF ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE IV. THE COURT OF APPEALS ERRED IN FINDING
PLAINTIFF-APPELLEES; THAT THE DEED OF OPTION IS VOID FOR LACK OF
CONSIDERATION;
4. FAILING TO PROTECT THE DEFENDANT-
APPELLANTS ON ACCOUNT OF THEIR IGNORANCE V. THE COURT OF APPEALS ERRED IN HOLDING
PLACING THEM AT A DISADVANTAGE IN THE DEED OF THAT A DISTINCT CONSIDERATION IS NECESSARY TO
OPTION; SUPPORT THE DEED OF OPTION DESPITE THE
EXPRESS OFFER AND ACCEPTANCE CONTAINED
THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of
the Deed of Option whereby the private respondents agreed
to sell their lot to petitioners "whenever the need of such sale
arises, either on our part (private respondents) or on the part
of Julio Villamor and Marina Villamor (petitioners)." The court
a quo, rule that the Deed of Option was a valid written
agreement between the parties and made the following
conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the
parties are evidence by a writing, hence, the controverting
oral testimonies of the herein defendants cannot be any
better than the documentary evidence, which, in this case, is
the Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have
been reduced to writing it is to be considered as containing all
such terms, and therefore, there can be, between the parties
and their successors in interest no evidence of their terms of
the agreement, other than the contents of the writing. ...
(Section 7 Rule 130 Revised Rules of Court) Likewise, it is a
general and most inflexible rule that wherever written
instruments are appointed either by the requirements of law,
or by the contract of the parties, to be the repositories and
memorials of truth, any other evidence is excluded from being
used, either as a substitute for such instruments, or to
contradict or alter them. This is a matter both of principle and
of policy; of principle because such instruments are in their
nature and origin entitled to a much higher degree of credit
than evidence of policy, because it would be attended with
great mischief if those instruments upon which man's rights
depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to
writing, the document itself, being constituted by the parties
as the expositor of their intentions, it is the only instrument of
evidence in respect of that agreement which the law will
recognize so long as it exists for the purpose of evidence.
(Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy,
W.R. 68, cited in Francisco's Rules of Court, Vol. VII Part I p.
153) (Emphasis supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said
deed of option is void for lack of consideration. The appellate
court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square
meter for the portion purchased by them although the
prevailing price at that time was only P25.00 in consideration
17
Sales – Chapter 3-12 Cases
of the option to buy the remainder of the land. This does not
seem to be the case. In the first place, the deed of sale was
never produced by them to prove their claim. Defendant-
appellants testified that no copy of the deed of sale had ever
been given to them by the plaintiff-appellees. In the second
place, if this was really the condition of the prior sale, we see
no reason why it should be reiterated in the Deed of Option.
On the contrary, the alleged overprice paid by the plaintiff-
appellees is given in the Deed as reason for the desire of the
Villamors to acquire the land rather than as a consideration
for the option given to them, although one might wonder why
they took nearly 13 years to invoke their right if they really
were in due need of the lot.
At all events, the consideration needed to support a unilateral
promise to sell is a dinstinct one, not something that is as
uncertain as P70.00 per square meter which is allegedly
'greatly higher than the actual prevailing value of lands.' A
sale must be for a price certain (Art. 1458). For how much the
portion conveyed to the plaintiff-appellees was sold so that
the balance could be considered the consideration for the
promise to sell has not been shown, beyond a mere
allegation that it was very much below P70.00 per square
meter.
The fact that plaintiff-appellees might have paid P18.00 per
square meter for another land at the time of the sale to them
of a portion of defendant-appellant's lot does not necessarily
prove that the prevailing market price at the time of the sale
was P18.00 per square meter. (In fact they claim it was
P25.00). It is improbable that plaintiff-appellees should pay
P52.00 per square meter for the privilege of buying when the
value of the land itself was allegedly P18.00 per square
meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682,
consideration is "the why of the contracts, the essential
reason which moves the contracting parties to enter into the
contract." The cause or the impelling reason on the part of
private respondent executing the deed of option as appearing
in the deed itself is the petitioner's having agreed to buy the
300 square meter portion of private respondents' land at
P70.00 per square meter "which was greatly higher than the
actual reasonable prevailing price." This cause or
consideration is clear from the deed which stated:
That the only reason why the spouses-vendees Julio Villamor
and Marina V. Villamor agreed to buy the said one-half
portion at the above stated price of about P70.00 per square
meter, is because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining one-half
portion still owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due
consideration to petitioners' evidence which shows that in
1969 the Villamor spouses bough an adjacent lot from the
brother of Macaria Labing-isa for only P18.00 per square
meter which the private respondents did not rebut. Thus,
expressed in terms of money, the consideration for the deed
of option is the difference between the purchase price of the
300 square meter portion of the lot in 1971 (P70.00 per
sq.m.) and the prevailing reasonable price of the same lot in
1971. Whatever it is, (P25.00 or P18.00) though not
specifically stated in the deed of option, was ascertainable.
Petitioner's allegedly paying P52.00 per square meter for the
option may, as opined by the appellate court, be improbable
but improbabilities does not invalidate a contract freely
entered into by the parties.
The "deed of option" entered into by the parties in this case
had unique features. Ordinarily, an optional contract is a
privilege existing in one person, for which he had paid a
consideration and which gives him the right to buy, for
example, certain merchandise or certain specified property,
from another person, if he chooses, at any time within the
agreed period at a fixed price (Enriquez de la Cavada v. Diaz,
37 Phil. 982). If We look closely at the "deed of option" signed
by the parties, We will notice that the first part covered the
statement on the sale of the 300 square meter portion of the
lot to Spouses Villamor at the price of P70.00 per square
meter "which was higher than the actual reasonable
prevailing value of the lands in that place at that time (of
sale)." The second part stated that the only reason why the
Villamor spouses agreed to buy the said lot at a much higher
price is because the vendor (Reyeses) also agreed to sell to
the Villamors the other half-portion of 300 square meters of
the land. Had the deed stopped there, there would be no
dispute that the deed is really an ordinary deed of option
granting the Villamors the option to buy the remaining 300
square meter-half portion of the lot in consideration for their
having agreed to buy the other half of the land for a much
higher price. But, the "deed of option" went on and stated that
the sale of the other half would be made "whenever the need
of such sale arises, either on our (Reyeses) part or on the
part of the Spouses Julio Villamor and Marina V. Villamor. It
appears that while the option to buy was granted to the
Villamors, the Reyeses were likewise granted an option to
sell. In other words, it was not only the Villamors who were
granted an option to buy for which they paid a consideration.
The Reyeses as well were granted an option to sell should
the need for such sale on their part arise.
In the instant case, the option offered by private respondents
had been accepted by the petitioner, the promise, in the
same document. The acceptance of an offer to sell for a price
certain created a bilateral contract to sell and buy and upon
acceptance, the offer, ipso facto assumes obligations of a
vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil.
948). Demandabilitiy may be exercised at any time after the
execution of the deed. In Sanchez v. Rigos, No. L-25494,
June 14, 1972, 45 SCRA 368, 376, We held:
In other words, since there may be no valid contract without a
cause of consideration, the promisory is not bound by his
promise and may, accordingly withdraw it. Pending notice of
its withdrawal, his accepted promise partakes, however, of
the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code,
"perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally
demand perform of contracts." Since there was, between the
parties, a meeting of minds upon the object and the price,
there was already a perfected contract of sale. What was,
however, left to be done was for either party to demand from
the other their respective undertakings under the contract. It
may be demanded at any time either by the private
respondents, who may compel the petitioners to pay for the
property or the petitioners, who may compel the private
respondents to deliver the property.
However, the Deed of Option did not provide for the period
within which the parties may demand the performance of their
respective undertakings in the instrument. The parties could
not have contemplated that the delivery of the property and
the payment thereof could be made indefinitely and render
uncertain the status of the land. The failure of either parties to
demand performance of the obligation of the other for an
unreasonable length of time renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written
contract must be brought within ten (10) years. The Deed of
Option was executed on November 11, 1971. The
acceptance, as already mentioned, was also accepted in the
same instrument. The complaint in this case was filed by the
petitioners on July 13, 1987, seventeen (17) years from the
time of the execution of the contract. Hence, the right of
18
Sales – Chapter 3-12 Cases
action had prescribed. There were allegations by the
petitioners that they demanded from the private respondents
as early as 1984 the enforcement of their rights under the
contract. Still, it was beyond the ten (10) years period
prescribed by the Civil Code. In the case of Santos v.
Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court
affirming and subscribing to the observations of the court a
quo held, thus:

... Assuming that Rosa Ganayo, the oppositor herein, had the
right based on the Agreement to Convey and Transfer as
contained in Exhibits '1' and '1-A', her failure or the
abandonment of her right to file an action against Pulmano
Molintas when he was still a co-owner of the on-half (1/2)
portion of the 10,000 square meters is now barred by laches
and/or prescribed by law because she failed to bring such
action within ten (10) years from the date of the written
agreement in 1941, pursuant to Art. 1144 of the New Civil
Code, so that when she filed the adverse claim through her
counsel in 1959 she had absolutely no more right whatsoever
on the same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro

Manila is continuously on the rise. To allow the petitioner to
demand the delivery of the property subject of this case
thirteen (13) years or seventeen (17) years after the
execution of the deed at the price of only P70.00 per square
meter is inequitous. For reasons also of equity and in
consideration of the fact that the private respondents have no
other decent place to live, this Court, in the exercise of its
equity jurisdiction is not inclined to grant petitioners' prayer.

ACCORDINGLY, the petition is DENIED. The decision of

respondent appellate court is AFFIRMED for reasons cited in
this decision. Judgement is rendered dismissing the
complaint in Civil Case No. C-12942 on the ground of
prescription and laches.

SO ORDERED.

19
Sales – Chapter 3-12 Cases
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Appeal from a decision of the Court of First Instance of
Nueva Ecija to the Court of Appeals, which certified the
case to Us, upon the ground that it involves a question
purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas
Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs.
Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated
in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described
in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the
understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise
his right to buy the property" within the stipulated period.
Inasmuch as several tenders of payment of the sum of
Pl,510.00, made by Sanchez within said period, were
rejected by Mrs. Rigos, on March 12, 1963, the former
deposited said amount with the Court of First Instance of
Nueva Ecija and commenced against the latter the
present action, for specific performance and damages.
After the filing of defendant's answer — admitting some
allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract
between the parties "is a unilateral promise to sell, and
the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and
void" — on February 11, 1964, both parties, assisted by
their respective counsel, jointly moved for a judgment on
the pleadings. Accordingly, on February 28, 1964, the
lower court rendered judgment for Sanchez, ordering Mrs.
Rigos to accept the sum judicially consigned by him and
to execute, in his favor, the requisite deed of conveyance.
Mrs. Rigos was, likewise, sentenced to pay P200.00, as
attorney's fees, and other costs. Hence, this appeal by
Mrs. Rigos.
This case admittedly hinges on the proper application of
Article 1479 of our Civil Code, which provides:
ART. 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.
In his complaint, plaintiff alleges that, by virtue of the
option under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and committed
to buy" the land described in the option, copy of which
was annexed to said pleading as Annex A thereof and is
quoted on the margin.1 Hence, plaintiff maintains that the
promise contained in the contract is "reciprocally
demandable," pursuant to the first paragraph of said
Article 1479. Although defendant had really "agreed,
promised and committed" herself to sell the land to the
plaintiff, it is not true that the latter had, in turn, "agreed
and committed himself " to buy said property. Said Annex
A does not bear out plaintiff's allegation to this effect.
What is more, since Annex A has been made "an integral
part" of his complaint, the provisions of said instrument
form part "and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract
to buy and sell." It merely granted plaintiff an "option" to
buy. And both parties so understood it, as indicated by the
caption, "Option to Purchase," given by them to said
instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land
therein described to the plaintiff for P1,510.00, but there is
nothing in the contract to indicate that her aforementioned
agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the
sale of the land.
Relying upon Article 1354 of our Civil Code, the lower
court presumed the existence of said consideration, and
this would seem to be the main factor that influenced its
decision in plaintiff's favor. It should be noted, however,
that:
(1) Article 1354 applies to contracts in general,
whereas the second paragraph of Article 1479 refers to
"sales" in particular, and, more specifically, to "an
accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be
"binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be
"supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes
the existence of said distinct consideration. In other
words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred
in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and,
by joining in the petition for a judgment on the pleadings,
plaintiff has impliedly admitted the truth of said averment
in defendant's answer. Indeed as early as March 14,
1908, it had been held, in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without
offering proof as to the truth of his own allegations, and
without giving the opposing party an opportunity to
introduce evidence, must be understood to admit the truth
of all the material and relevant allegations of the opposing
party, and to rest his motion for judgment on those
allegations taken together with such of his own as are
admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4
and Mercy's Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co.
v. Atlantic Gulf & Pacific Co.,6 from which We quote:
The main contention of appellant is that the option granted
to appellee to sell to it barge No. 10 for the sum of
P30,000 under the terms stated above has no legal effect
because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil
Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
20
Sales – Chapter 3-12 Cases
An accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration
distinct from the price."
On the other hand, Appellee contends that, even granting
that the "offer of option" is not supported by any
consideration, that option became binding on appellant
when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention,
appellee invokes article 1324 of the Civil Code which
provides:
"ART. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration as something paid or promised."
There is no question that under article 1479 of the new
Civil Code "an option to sell," or "a promise to buy or to
sell," as used in said article, to be valid must be
"supported by a consideration distinct from the price." This
is clearly inferred from the context of said article that a
unilateral promise to buy or to sell, even if accepted, is
only binding if supported by 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. It is not
disputed that the option is without consideration. It can
therefore be withdrawn notwithstanding the acceptance of
it by appellee.
It is true that under article 1324 of the new Civil Code, the
general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before
acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as
modified by the provision of article 1479 above referred to,
which applies to "a promise to buy and sell" specifically.
As already stated, this rule requires that a promise to sell
to be valid must be supported by a consideration distinct
from the price.
We are not oblivious of the existence of American
authorities which hold that an offer, once accepted,
cannot be withdrawn, regardless of whether it is supported
or not by a consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule applicable to
offer and acceptance as contained in our new Civil Code.
But we are prevented from applying them in view of the
specific provision embodied in article 1479. While under
the "offer of option" in question appellant has assumed a
clear obligation to sell its barge to appellee and the option
has been exercised in accordance with its terms, and
there appears to be no valid or justifiable reason for
appellant to withdraw its offer, this Court cannot adopt a
different attitude because the law on the matter is clear.
Our imperative duty is to apply it unless modified by
Congress.
However, this Court itself, in the case of Atkins, Kroll and
Co., Inc. v. Cua Hian Tek,8 decided later that
Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co.,9 saw no distinction between Articles 1324 and
1479 of the Civil Code and applied the former where a
unilateral promise to sell similar to the one sued upon
here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack
of a separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance.
Speaking through Associate Justice, later Chief Justice,
Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at
the price fixed whenever the offeree should decide to
exercise his option within the specified time. After
accepting the promise and before he exercises his option,
the holder of the option is not bound to buy. He is free
either to buy or not to buy later. In this case, however,
upon accepting herein petitioner's offer a bilateral promise
to sell and to buy ensued, and the respondent ipso facto
assumed the obligation of a purchaser. He did not just get
the right subsequently to buy or not to buy. It was not a
mere option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option
which is not binding for lack of consideration, the
authorities hold that:
"If the option is given without a consideration, it is a mere
offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient
consideration. ... . (77 Corpus Juris Secundum, p. 652.
See also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the
defendant, that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which
was accepted by letter, and of the acceptance the offerer
had knowledge before said offer was withdrawn. The
concurrence of both acts — the offer and the acceptance
— could at all events have generated a contract, if none
there was before (arts. 1254 and 1262 of the Civil Code)."
(Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract
without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which,
if accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict
between Articles 1324 — on the general principles on
contracts — and 1479 — on sales — of the Civil Code, in
line with the cardinal rule of statutory construction that, in
construing different provisions of one and the same law or
code, such interpretation should be favored as will
reconcile or harmonize said provisions and avoid a conflict
between the same. Indeed, the presumption is that, in the
process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision
in Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co., 10 holding that Art. 1324 is modified by Art.
1479 of the Civil Code, in effect, considers the latter as an
exception to the former, and exceptions are not favored,
unless the intention to the contrary is clear, and it is not
so, insofar as said two (2) articles are concerned. What is
more, the reference, in both the second paragraph of Art.
1479 and Art. 1324, to an option or promise supported by
21
Sales – Chapter 3-12 Cases
or founded upon a consideration, strongly suggests that
the two (2) provisions intended to enforce or implement
the same principle.

Upon mature deliberation, the Court is of the considered

opinion that it should, as it hereby reiterates the doctrine
laid down in the Atkins, Kroll & Co. case, and that, insofar
as inconsistent therewith, the view adhered to in the
Southwestern Sugar & Molasses Co. case should be
deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby

affirmed, with costs against defendant-appellant Severina
Rigos. It is so ordered.

22
Sales – Chapter 3-12 Cases
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO
DEYPALUBUS, respondents.
Assailed in this petition for review is the Resolution of the
respondent Court of Appeals dated 21 March 1979 in
C.A.-G.R. No. SP-04866 setting aside its earlier decision
therein, promulgated on 6 December 1978, which
reversed the decision of the then Court of First Instance
(now Regional Trial Court) of Iloilo City. The latter nullified
the Orders of the Secretary of the Department of
Agriculture and Natural Resources (DANR) dated 29
August 1969, 20 November 1969 and 21 April 1970,
declared binding the Fishpond Lease Agreement (FLA)
issued to private respondent and disallowed petitioner
from repurchasing from private respondent a portion of the
fishery lot located at Dumangas, Iloilo, covered by the
FLA.
The pleadings of the parties and the decision of the
respondent Court disclose the factual antecedents of this
case.
A fishery lot, encompassing an area of 9.4 hectares and
designated as Lot No. 518-A of the Cadastral Survey of
Dumangas, Iloilo, was previously covered by Fishpond
Permit No. F-2021 issued in the name of Anecita Dionio.
Upon Anecita's death, her heirs, petitioner Diamante and
Primitivo Dafeliz, inherited the property which they later
divided between themselves; petitioner got 4.4. hectares
while Dafeliz got 5 hectares. It is the petitioner's share that
is the subject of the present controversy. Primitivo Dafeliz
later sold his share to private respondent.
On 21 May 1959, petitioner sold to private respondent his
leasehold rights over the property in question for
P8,000.00 with the right to repurchase the same within
three (3) years from said date.
On 16 August 1960, private respondent filed an
application with the Bureau of Fisheries, dated 12 July
1960, for a fishpond permit and a fishpond lease
agreement over the entire lot, submitting therewith the
deeds of sale executed by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17
October 1960, sold all his remaining rights over the
property in question to the private respondent for
P4,000.00.
On 25 October 1960, private respondent, with his wife's
consent, executed in favor of the petitioner an Option to
Repurchase the property in question within ten (10) years
from said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries
the definite deed of sale; he did not, however, submit the
Option to Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries
issued to private respondent Fishpond Permit No. 4953-Q;
on 17 December 1962, it approved FLA No. 1372 in the
latter's favor.
On 11 December 1963, petitioner, contending that he has
a valid twenty-year option to repurchase the subject
property, requested the Bureau of Fisheries to nullify FLA
No. 1372 insofar as the said property is concerned. On 18
December 1964, his letter-complaint was dismissed.
Petitioner then sought a reconsideration of the dismissal;
the same was denied on 29 April 1965. His appeal to the
Secretary of the DANR was likewise dismissed on 30
October 1968. Again, on 20 November 1968, petitioner
sought for a reconsideration; this time, however, he was
successful. On 29 August 1969, the DANR Secretary
granted his motion in an Order cancelling FLA No. 1372
and stating, inter alia, that:
Evidently, the application as originally filed, could not be
favorably acted upon by reason of the existing right of a
third party over a portion thereof. It was only the
submission of the deed of absolute sale which could
eliminate the stumbling block to the approval of the
transfer and the issuance of a permit or lease agreement.
It was on the basis of this deed of sale, in fact, the one
entitled "option to repurchase" executed barely a week
from the execution of the deed of absolute sale, (which)
reverted, in effect, the status of the land in question to
what it was after the execution of the deed of sale with
right to repurchase; that is, the land was again placed
under an encumbrance in favor of a third party.
Circumstantially, there is a ground (sic) to believe that the
deed of absolute sale was executed merely with the end
in view of circumventing the requirements for the approval
of the transfer of leasehold rights of Diamante in favor of
Deypalubos; and the subsequent execution of the "Option
to Repurchase" was made to assure the maintenance of a
vendor a retro's rights in favor of Diamante. There was,
therefore, a misrepresentation of an essential or material
fact committed by the lessee-appellee (Deypalubos) in his
application for the permit and the lease agreement,
without which the same could not have been issued. 1
The Secretary based his action on Section 20 of Fisheries
Administrative Order No. 60, the second paragraph of
which reads:
Any and all of the statements made in the corresponding
application shall be considered as essential conditions
and parts of the permit or lease granted. Any false
statements in the application of facts or any alteration,
change or modification of any or all terms and conditions
made therein shall ipso facto cause the cancellation of the
permit or lease.
Private respondent moved for a reconsideration of this last
Order arguing that the DANR Secretary's previous Order
of 30 October 1968 dismissing petitioner's letter-complaint
had already become final on the ground that he (private
respondent) was not served a copy of petitioner's 20
November 1968 motion for reconsideration. On 20
November 1969, private respondent's motion for
reconsideration was denied; a second motion for
reconsideration was likewise denied on 20 April 1970.
On 5 May 1970, private respondent filed with the Court of
First Instance of Iloilo City a special civil action for
certiorari with preliminary injunction (docketed as Civil
Case No. 8209), seeking to annul the Secretary's Orders
of 20 April 1970, 20 November 1969 and 29 August 1969
on the ground that the Secretary: (1) gravely abused his
discretion in not giving him the opportunity to be heard on
the question of whether or not the Option to Repurchase
was forged; and (2) has no jurisdiction to set aside FLA
No. 1372 as the Order of the Bureau of Fisheries
dismissing petitioner's 11 December 1963 letter-complaint
had already become final.
23
Sales – Chapter 3-12 Cases
After issuing a temporary restraining order and a writ of
preliminary injunction, the lower court tried the case jointly
with Criminal Case No. 520 wherein both the petitioner
and a certain Atty. Agustin Dioquino, the Notary Public
who notarized the 25 October 1960 Option to
Repurchase, were charged with falsification of a public
document.
After due trial, the lower court acquitted the accused in the
criminal case and decided in favor of the private
respondent in Civil Case No. 8209; the court ruled that: (1)
the DANR Secretary abused his discretion in issuing the
questioned Orders, (2) petitioner cannot repurchase the
property in question as the Option to Repurchase is of
doubtful validity, and (3) FLA No. 1372 in the name of
private respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6
December 1978, reversed the decision of the trial court 2
on the ground that no grave abuse of discretion was
committed by respondent Secretary inasmuch as private
respondent was given the opportunity to be heard on his
claim that the Option to Repurchase is spurious, and that
the trial court merely indulged in conjectures in not
upholding its validity. Said the respondent Court:
With all the foregoing arguments appellee had
exhaustively adduced to show the spuriousness of the
deed of "Option to Repurchase", appellee can hardly
complain of not having been given an opportunity to be
heard, which is all that is necessary in relation to the
requirement of notice and hearing in administrative
proceedings. Moreover, appellee never asked for a formal
hearing at the first opportunity that he had to do so, as
when he filed his first motion for reconsideration. He
asked for a formal hearing only in his second motion for
reconsideration evidently as a mere afterthought, upon
realizing that his arguments were futile without proofs to
support them.
The only remaining question, therefore, is whether the
Secretary acted with grave abuse of discretion in giving
weight to the alleged execution by appellee of the deed of
Option to Repurchase, on the basis of the xerox copy of
said deed as certified by the Notary Public, Agustin
Dioquino.
With such documentary evidence duly certified by the
Notary Public, which is in effect an affirmation of the
existence of the deed of "Option of Repurchase" (sic) and
its due execution, the Secretary may not be said to have
gravely abused his discretion in giving the document
enough evidentiary weight to justify his action in applying
the aforequoted provisions of Fisheries Adm. Order No.
60. This piece of evidence may be considered substantial
enough to support the conclusion reached by the
respondent Secretary, which is all that is necessary to
sustain an administrative finding of fact (Ortua vs.
Encarnacion, 59 Phil. 635; Ang Tibay vs. CIR, 69 Phil.
635; Ramos vs. The Sec. of Agriculture and Natural
Resources, et al. L-29097, Jan. 28, 1974, 55 SCRA 330).
Reviewing courts do not re-examine the sufficiency of the
evidence in an administrative case, if originally instituted
as such, nor are they authorized to receive additional
evidence that was not submitted to the administrative
agency concerned. For common sense dictates that the
question of whether the administrative agency abused its
discretion in weighing evidence should be resolved solely
on the basis of the proof that the administrative authorities
had before them and no other (Timbancaya vs. Vicente, L-
19100, Dec. 27, 1963, 9 SCRA 852). In the instant case
the evidence presented for the first time before the court a
quo could be considered only for the criminal case heard
jointly with this case.
The lower court's action of acquitting the notary public,
Agustin Dioquino, and appellant Diamante in Criminal
Case No. 520 for falsification of public document is in itself
a finding that the alleged forgery has not been
conclusively established. This finding is quite correct
considering the admission of the NBI handwriting expert
that admission of the NBI handwriting expert that he
cannot make any finding on the question of whether
appellee's signature on the deed of "Option to
Repurchase" is forged or not, because of the lack of (sic)
specimen signature of appellee for comparative
examination. The Secretary may have such signature in
the application papers of appellee on file with the former's
office upon which to satisfy himself of (sic) the
genuineness of appellee's signature. It would be strange,
indeed, that appellee had not provided the NBI expert with
a specimen of his signature when his purpose was to
have an expert opinion that his signature on the
questioned document is forged.
On the other hand, as to the signature of his wife, the
latter herself admitted the same to be her own. Thus —
Q There is a signature below the typewritten words
"with my marital consent" and above the name Edelina
Duyo, whose signature is this?
A That is my signature. (T.s.n., Crim. Case No.
520, April 5, 1971, p. 14).
In not finding in favor of the perfect validity of the "Option
to Repurchase," the court a quo merely indulged in
conjectures. Thus, believing the testimony of appellee that
the later (sic) could not have executed the deed of option
to repurchase after spending allegedly P12,000.00, and
that if there was really a verbal agreement upon the
execution of the deed of absolute sale, as alleged by
appellant, that appellant's right to repurchase, as was
stipulated in the earlier deed of sale, shall be preserved,
such agreement should have been embodied in the deed
of sale of October 17, 1960 (Exh. D), the court doubted
the genuineness of the deed of Option to Repurchase
(sic).
It is highly doubtful if appellee had spent P12,000.00
during the period from October 17, 1960 to October 25,
1960 when the deed of option was executed. Likewise,
the right to repurchase could not have been embodied in
the deed of absolute sale since, as the Secretary of DANR
found, the purpose of the deed of absolute sale is to
circumvent the law and insure the approval of appellee's
application, as with his right to 4.4 hectares appearing to
be subject to an encumbrance, his application would not
have been given favorable action.
Above all, the speculation and conjectures as indulged in
by the court a quo cannot outweigh the probative effect of
the document itself, a certified xerox copy thereof as
issued by the Notary Public, the non-presentation of the
original having been explained by its loss, as was the
testimony of the same Notary Public, who justly won
acquittal when charged with falsification of public
document at the instance of appellee. The fact that the
spaces for the document number, page and book
numbers were not filled up in the photostatic copy
presented by the representative of the Bureau of Records
24
Sales – Chapter 3-12 Cases
Management does not militate against the genuineness of
the document. It simply means that the copy sent to the
said Bureau happens to have those spaces unfilled up
(sic). But the sending of a copy of the document to the
Bureau of Records Management attests strongly to the
existence of such document, the original of which was
duly executed, complete with the aforesaid data duly
indicated thereon, as shown by the xerox copy certified
true by the Notary Public.
Indeed, in the absence of positive and convincing proof of
forgery, a public instrument executed with the intervention
of a Notary Public must be held in high respect and
accorded full integrity, if only upon the presumption of the
regularity of official functions as in the nature of those
upon the presumption of the regularity of official functions
as in the nature of those of a notary public (Bautista vs.
Dy Bun Chin, 49 OG 179; El Hogar Filipino vs. Olviga, 60
Phil. 17).
Subsequently, the respondent Court, acting on private
respondent's motion for reconsideration, promulgated on
21 March 1979 the challenged Resolution 3 setting aside
the earlier decision and affirmed, in toto, the ruling of the
trial court, thus:
. . . the respondent (DANR) Secretary had gone beyond
his statutory authority and had clearly acted in abuse of
discretion in giving due weight to the alleged option to
repurchase whose (sic) genuiness (sic) and due execution
had been impugned and denied by petitioner-appellee
(Deypalubos). While the certified true copy of the option to
repurchase may have been the basis of the respondent
Secretary in resolving the motion for reconsideration, the
Court believes that he should have first ordered the
presentation of evidence to resolve this factual issue
considering the conflicting claims of the parties. As earlier
pointed out, all that was submitted to the Bureau of
Fisheries and consequently to the respondent Secretary,
was a xerox copy of the questioned document which was
certified to by a notary public to be a copy of a deed found
in his notarial file which did not bear any specimen of the
signatures of the contracting parties. And assuming that a
certification made by a notary public as to the existence of
a document should be deemed an affirmation that such
document actually exists. Nevertheless, (sic) when such
claim is impugned, the one who assails the existence of a
document should be afforded the opportunity to prove
such claim, because, at most, the presumption of
regularity in the performance of official duties is merely
disputable and can be rebutted by convincing and positive
evidence to the contrary.
His motion for reconsideration having been denied, the
petitioner filed the instant petition for review.
Petitioner contends that the Rules of Court should not be
strictly applied to administrative proceedings and that the
findings of fact of administrative bodies, absent a showing
of arbitrariness, should be accorded respect.
While the petition has merit, petitioner's victory is hollow
and illusory for, as shall hereafter be shown, even as We
reverse the assailed resolution of the respondent Court of
Appeals, the questioned decision of the Secretary must,
nevertheless, be set aside on the basis of an erroneous
conclusion of law with respect to the Option to
Repurchase.
The respondent Court correctly held in its decision of 6
December 1978 that the respondent Secretary provided
the private respondent sufficient opportunity to question
the authenticity of the Option to Repurchase and
committed no grave abuse of discretion in holding that the
same was in fact executed by private respondent. We
thus find no sufficient legal and factual moorings for
respondent Court's sudden turnabout in its resolution of
21 March 1979. That private respondent and his wife
executed the Option to Repurchase in favor of petitioner
on 25 October 1960 is beyond dispute. As determined by
the respondent Court in its decision of 6 December 1978,
private respondent's wife, Edelina Duyo, admitted having
affixed her signature to the said document. Besides, the
trial court itself in Criminal Case No. 520 which was jointly
tried with the civil case, acquitted both the petitioners and
the notary public, before whom the Option to Repurchase
was acknowledged, of the crime of falsification of said
document.
We hold, however, that the respondent Secretary gravely
erred in holding that private respondent's non-disclosure
and suppression of the fact that 4.4 hectares of the area
subject of the application is burdened with or encumbered
by the Option to Repurchase constituted a falsehood or a
misrepresentation of an essential or material fact which,
under the second paragraph of Section 29 of Fisheries
Administrative Order No. 60 earlier quoted, "shall ipso
facto cause the cancellation of the permit or lease." In
short, the Secretary was of the opinion that the Option to
Repurchase was an encumbrance on the property which
affected the absolute and exclusive character of private
respondent's ownership over the 4.4 hectares sold to him
by petitioner. This is a clear case of a misapplication of
the law on conventional redemption and a
misunderstanding of the effects of a right to repurchase
granted subsequently in an instrument different from the
original document of sale.
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the
vendor reserves the right to repurchase the thing sold,
with the obligation to comply with the provisions of article
1616 and other stipulations which may have been agreed
upon.
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on
29 November 1968, or barely seven (7) days before the
respondent Court promulgated its decision in this case,
this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor
by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other
right like the option to buy in the instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5
decided in 1927, this Court had already ruled that "an
agreement to repurchase becomes a promise to sell when
made after the sale, because when the sale is made
without such an agreement, the purchaser acquires the
thing sold absolutely, and if he afterwards grants the
vendor the right to repurchase, it is a new contract entered
into by the purchaser, as absolute owner already of the
object. In that case the vendor has not reserved to himself
the right to repurchase."
25
Sales – Chapter 3-12 Cases
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court
found another occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private
respondent in the present case, was merely a promise to
sell, which must be governed by Article 1479 of the Civil
Code which reads as follows:
Art. 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.
A copy of the so-called Option to Repurchase is neither
attached to the records nor quoted in any of the pleadings
of the parties. This Court cannot, therefore, properly rule
on whether the promise was accepted and a consideration
distinct from the price, supports the option. Undoubtedly,
in the absence of either or both acceptance and separate
consideration, the promise to sell is not binding upon the
promissor (private respondent).
A unilateral promise to buy or sell is a mere offer, which is
not converted into a contract except at the moment it is
accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance,
however, a bilateral contract to sell and to buy is created,
and the offeree ipso facto assumes the obligations of a
purchaser; the offeror, on the other hand, would be liable
for damages if he fails to deliver the thing he had offered
for sale.
xxx xxx xxx
. . . The contract of option is a separate and distinct
contract from the contract which the parties may enter into
upon the consummation of the option, and a consideration
for an optional contract is just as important as the
consideration for any other kind of contract. Thus, a
distinction should be drawn between the consideration for
the option to repurchase, and the consideration for the
contract of repurchase itself.7
Even if the promise was accepted, private respondent was
not bound thereby in the absence of a distinct
consideration. 8
It may be true that the foregoing issues were not squarely
raised by the parties. Being, however, intertwined with the
issue of the correctness of the decision of the respondent
Secretary and, considering further that the determination
of said issues is essential and indispensable for the
rendition of a just decision in this case, this Court does not
hesitate to rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not considered a
direct challenge to the decision of the court below, we still
believe that the objection takes a narrow view of practice
and procedure contrary to the liberal spirit which pervades
the Rules of Court. The first injunction of the new Rules
(Rule 1, section 2) is that they "shall be liberally construed
in order to promote their object and to assist the parties in
obtaining just, speedy, and inexpensive determination of
every action and proceeding." In line with the modern
trends of procedure, we are told that, "while an
assignment of error which is required by law or rule of
court has been held essential to appellate review, and
only those assigned will be considered, there are a
number of cases which appear to accord to the appellate
court a broad discretionary power to waive the lack of
proper assignment of errors and consider errors not
assigned. And an unassigned error closely related to an
error properly assigned, or upon which the determination
of the question raised by the error properly assigned is
dependent, will be considered by the appellate court
notwithstanding the failure to assign it as error." (4 C.J.S.,
1734; 3 C.J., 1341, footnote 77). At the least, the
assignment of error, viewed in this light, authorizes us to
examine and pass upon the decision of the court below.
In Insular Life Assurance Co., Ltd. Employees
Association-NATU vs. Insular Life Assurance Co., Ltd., 10
this Court ruled:
. . . (t)he Supreme Court has ample authority to review
and resolve matter not assigned and specified as errors
by either of the parties in the appeal if it finds the
consideration and determination of the same essential
and indispensable in order to arrive at a just decision in
the case. 11 This Court, thus, has the authority to waive
the lack of proper assignment of errors if the unassigned
errors closely relate to errors properly pinpointed out or if
the unassigned errors refer to matters upon which the
determination of the questions raised by the errors
properly assigned depend. 12
The same also applies to issues not specifically raised by
the parties. The Supreme Court, likewise, has broad
discretionary power, in the resolution of a controversy, to
take into consideration matters on record which the
parties fail to submit to the Court as specific questions for
determination. 13 Where the issues already raised also
rest on other issues not specifically presented, as long as
the latter issues bear relevance and close relation to the
former and as long as they arise from matters on record,
the Court has the authority to include them in its
discussion of the controversy as well as to pass upon
them. In brief, in those cases wherein questions not
particularly raised by the parties surface as necessary for
the complete adjudication of the rights and obligations of
the parties and such questions fall within the issues
already framed by the parties, the interests of justice
dictate that the Court consider and resolve them.
WHEREFORE, the instant petition is GRANTED. The
Resolution of respondent Court of Appeals of 21 March
1979 in C.A.-G.R. No. SP-04866 and the Decision of the
trial court in Civil Case No. 8209, insofar as they declare,
for the reasons therein given, Fishpond Lease Agreement
No. 1372, valid and binding, are hereby REVERSED and
SET ASIDE. The challenged Orders of the respondent
Secretary of Agriculture and Natural Resources of 29
August 1969, 20 November 1969 and 21 April 1970 are
likewise REVERSED and SET ASIDE and Fishpond
Lease Agreement No. 1372 is ordered REINSTATED.
No pronouncement as to costs.
IT IS SO ORDERED.
26
Sales – Chapter 3-12 Cases
BIBLE BAPTIST CHURCH and PASTOR REUBEN
BELMONTE, petitioners,
vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO
MEDINA VILLANUEVA, respondents.
This petition for review on certiorari seeks to annul the
Decision1 dated August 7, 1996, of the Court of Appeals
in CA-G.R. CV No. 45956, and its Resolution2 dated
September 12, 1996, denying reconsideration of the
decision. In the questioned issuances, the Court of
Appeals affirmed the Decision3 dated June 8, 1993, of the
Regional Trial Court of Manila, Branch 3, in Civil Case No.
90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner
Baptist Church) entered into a contract of lease4 with Mr.
& Mrs. Elmer Tito Medina Villanueva (respondent spouses
Villanueva). The latter are the registered owners of a
property located at No. 2436 (formerly 2424) Leon Guinto
St., Malate, Manila. The pertinent stipulations in the lease
contract were:
1. That the LESSOR lets and leases to the LESSEE a
store space known as 2424 Leon Guinto Sr. St., Malate,
Manila, of which property the LESSOR is the registered
owner in accordance with the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and
shall be for the period of Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5)
days of each calendar month, beginning Twelve (12)
months from the date of this agreement, a monthly rental
of Ten Thousand Pesos (P10,000.00) Philippine
Currency, plus 10% escalation clause per year starting on
June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the
LESSEE shall pay the sum of Eighty Four Thousand
Pesos (P84,000.00) Philippine Currency. Said sum is to
be paid directly to the Rural Bank, Valenzuela, Bulacan for
the purpose of redemption of said property which is
mortgaged by the LESSOR.
5. That the title will remain in the safe keeping of the Bible
Baptist Church, Malate, Metro Manila until the expiration
of the lease agreement or the leased premises be
purchased by the LESSEE, whichever comes first. In the
event that the said title will be lost or destroyed while in
the possession of the LESSEE, the LESSEE agrees to
pay all costs involved for the re-issuance of the title.
6. That the leased premises may be renovated by the
LESSEE, to the satisfaction of the LESSEE to be fit and
usable as a Church.
7. That the LESSOR will remove all other tenants from the
leased premises no later than March 15, 1986. It is further
agreed that if those tenants are not vacated by June 1,
1986, the rental will be lowered by the sum of Three
Thousand Pesos (P3,000.00) per month until said tenants
have left the leased premises.
8. That the LESSEE has the option to buy the leased
premises during the Fifteen (15) years of the lease. If the
LESSEE decides to purchase the premises the terms will
be: A) A selling Price of One Million Eight Hundred
Thousand Pesos (P1.8 million), Philippine Currency. B) A
down payment agreed upon by both parties. C) The
balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
x x x.5
The foregoing stipulations of the lease contract are the
subject of the present controversy.
Although the same lease contract resulted in several
cases6 filed between the same parties herein, petitioner
submits, for this Court's review, only the following errors
allegedly committed by the Court of Appeals:
a) Respondent Court of Appeals erred in finding that the
option to buy granted the petitioner Baptist Church under
its contract of lease with the Villanuevas did not have a
consideration and, therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that the
option to buy did not have a fixed price agreed upon by
the parties for the purchase of the property; and
c) [F]inally, respondent court erred in not awarding
petitioners Baptist Church and its pastor attorney's fees.7
In sum, this Court has three issues to resolve: 1) Whether
or not the option to buy given to the Baptist Church is
founded upon a consideration; 2) Whether or not by the
terms of the lease agreement, a price certain for the
purchase of the land had been fixed; and 3) Whether or
not the Baptist Church is entitled to an award for
attorney's fees.
The stipulation in the lease contract which purportedly
gives the lessee an option to buy the leased premises at
any time within the duration of the lease, is found in
paragraph 8 of the lease contract, viz:
8. That the LESSEE has the option to buy the leased
premises during the Fifteen (15) years of the lease. If the
LESSEE decides to purchase the premises the terms will
be: A) A selling Price of One Million Eight Hundred
Thousand Pesos (P1.8 million), Philippine Currency. B) A
down payment agreed upon by both parties. C) The
balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
Under Article 1479 of the Civil Code, it is provided:
Art. 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.
The second paragraph of Article 1479 provides for the
definition and consequent rights and obligations under an
option contract. For an option contract to be valid and
enforceable against the promissor, there must be a
separate and distinct consideration that supports it.
In this case, petitioner Baptist Church seeks to buy the
leased premises from the spouses Villanueva, under the
option given to them. Petitioners claim that the Baptist
Church "agreed to advance the large amount needed for
27
Sales – Chapter 3-12 Cases
the rescue of the property but, in exchange, it asked the
Villanuevas to grant it a long term lease and an option to
buy the property for P1.8 million."8 They argue that the
consideration supporting the option was their agreement
to pay off the Villanueva's P84,000 loan with the bank,
thereby freeing the subject property from the mortgage
encumbrance. They state further that the Baptist Church
would not have agreed to advance such a large amount
as it did to rescue the property from bank foreclosure had
it not been given an enforceable option to buy that went
with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the
Baptist Church did not pay a separate and specific sum of
money to cover the option alone. But the P84,000 it paid
the Villanuevas in advance should be deemed
consideration for the one contract they entered into – the
lease with option to buy."9 They rely on the case of
Teodoro v. Court of Appeals10 to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid
in order to release the Villanuevas' property from the
mortgage should be deemed the separate consideration
to support the contract of option. It must be pointed out
that said amount was in fact apportioned into monthly
rentals spread over a period of one year, at P7,000 per
month. Thus, for the entire period of June 1985 to May
1986, petitioner Baptist Church's monthly rent had already
been paid for, such that it only again commenced paying
the rentals in June 1986. This is shown by the testimony
of petitioner Pastor Belmonte where he states that the
P84,000 was advance rental equivalent to monthly rent of
P7,000 for one year, such that for the entire year from
1985 to 1986 the Baptist Church did not pay monthly
rent.11
This Court agrees with respondents that the amount of
P84,000 has been fully exhausted and utilized by their
occupation of the premises and there is no separate
consideration to speak of which could support the
option.12
Second, petitioners' reliance on the case of Teodoro v.
Court of Appeals13 is misplaced. The facts of the Teodoro
case reveal that therein respondent Ariola was the
registered lessee of a property owned by the Manila
Railroad Co. She entered into an agreement whereby she
allowed Teodoro to occupy a portion of the rented
property and gave Teodoro an option to buy the same,
should Manila Railroad Co. decide to sell the property to
Ariola. In addition, Teodoro, who was occupying only a
portion of the subject rented property, also undertook to
pay the Manila Railroad Co., the full amount of the rent
supposed to be paid by the registered lessor Ariola.
Consequently, unlike this case, Teodoro paid over and
above the amount due for her own occupation of a portion
of the property. That amount, which should have been
paid by Ariola as lessor, and for her own occupation of the
property, was deemed by the Court as sufficient
consideration for the option to buy which Ariola gave to
Teodoro upon Ariola's acquiring the property.
Hence, in Teodoro, this Court was able to find that a
separate consideration supported the option contract and
thus, its enforcement may be demanded. Petitioners,
therefore, cannot rely on Teodoro, for the case even
supports the respondents' stand that a consideration that
is separate and distinct from the purchase price is
required to support an option contract.
Petitioners further insist that a consideration need not be a
separate sum of money. They posit that their act of
advancing the money to "rescue" the property from
mortgage and impending foreclosure, should be enough
consideration to support the option.
In Villamor v. Court of Appeals,14 this Court defined
consideration as "the why of the contracts, the essential
reason which moves the contracting parties to enter into
the contract."15 This definition illustrates that the
consideration contemplated to support an option contract
need not be monetary. Actual cash need not be
exchanged for the option. However, by the very nature of
an option contract, as defined in Article 1479, the same is
an onerous contract for which the consideration must be
something of value, although its kind may vary.
Specifically, in Villamor v. Court of Appeals,16 half of a
parcel of land was sold to the spouses Villamor for P70
per square meter, an amount much higher than the
reasonable prevailing price. Thereafter, a deed of option
was executed whereby the sellers undertook to sell the
other half to the same spouses. It was stated in the deed
that the only reason the spouses bought the first half of
the parcel of land at a much higher price, was the
undertaking of the sellers to sell the second half of the
land, also at the same price. This Court held that the
cause or consideration for the option, on the part of the
spouses-buyers, was the undertaking of the sellers to sell
the other half of the property. On the part of the sellers,
the consideration supporting the option was the much
higher amount at which the buyers agreed to buy the
property. It was explicit from the deed therein that for the
parties, this was the consideration for their entering into
the contract.
It can be seen that the Court found that the
buyer/optionee had parted with something of value, which
was the amount he paid over and above the actual
prevailing price of the land. Such amount, different from
the price of the land subject of the option, was deemed
sufficient and distinct consideration supporting the option
contract. Moreover, the parties stated the same in their
contract.
Villamor is distinct from the present case because, First,
this Court cannot find that petitioner Baptist Church parted
with anything of value, aside from the amount of P84,000
which was in fact eventually utilized as rental payments.
Second, there is no document that contains an agreement
between the parties that petitioner Baptist Church's
supposed rescue of the mortgaged property was the
consideration which the parties contemplated in support of
the option clause in the contract. As previously stated, the
amount advanced had been fully utilized as rental
payments over a period of one year. While the Villanuevas
may have them to thank for extending the payment at a
time of need, this is not the separate consideration
contemplated by law.
Noting that the option clause was part of a lease contract,
this Court looked into its previous ruling in the early case
of Vda. De Quirino v. Palarca,17 where the Court did say
that "in reciprocal contracts, like the one in question,18
the obligation or promise of each party is the
consideration for that of the other."19 However, it must be
noted that in that case, it was also expressly stated in the
deed that should there be failure to exercise the option to
buy the property, the optionee undertakes to sell the
28
Sales – Chapter 3-12 Cases
building and/or improvements he has made on the
premises. In addition, the optionee had also been paying
an amount of rent that was quite high and in fact turned
out to be too burdensome that there was a subsequent
agreement to reduce said rentals. The Court found that
"the amount of rentals agreed upon x x x – which amount
turned out to be so burdensome upon the lessee, that the
lessor agreed, five years later, to reduce it – as well as the
building and/or improvements contemplated to be
constructed and/or introduced by the lessee, were,
undoubtedly, part of the consideration for his option to
purchase the leased premises."20
Again, this Court notes that the parties therein clearly
stipulated in their contract that there was an undertaking
on the part of the optionee to sell the improvements made
on the property if the option was not exercised. Such is a
valuable consideration that could support the option
contract. Moreover, there was the excessive rental
payments that the optionee paid for five years, which the
Court also took into account in deciding that there was a
separate consideration supporting the option.
To summarize the rules, an option contract needs to be
supported by a separate consideration. The consideration
need not be monetary but could consist of other things or
undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value,
in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract
is not monetary, said consideration must be clearly
specified as such in the option contract or clause.
This Court also notes that in the present case both the
Regional Trial Court and the Court of Appeals agree that
the option was not founded upon a separate and distinct
consideration and that, hence, respondents Villanuevas
cannot be compelled to sell their property to petitioner
Baptist Church.
The Regional Trial Court found that "[a]ll payments made
under the contract of lease were for rentals. No money
[was] ever exchanged for and in consideration of the
option." Hence, the Regional Trial Court found the action
of the Baptist Church to be "premature and without basis
to compel the defendant to sell the leased premises." The
Regional Trial Court consequently ruled:
conditions of the agreement, the aggrieved party can
WHEREFORE, judgment is rendered: collect reasonable attorney's fees.23
1) Denying plaintiffs' application for writ of injunction; In view of this Court's finding that the option contract is not
enforceable for being without consideration, the
2) That defendant cannot be compelled to sell to plaintiffs respondents Villanueva spouses' refusal to comply with it
the leased premises in accordance with par. 8 of the cannot be the basis of a claim for attorney's fees.
contract of lease;
Hence, this Court agrees with as the Court of Appeals,
3) Defendant is hereby ordered to reimburse plaintiffs the which affirmed the findings of the Regional Trial Court,
sum of P15, 919.75 plus 12% interest representing real that such claim is to be dismissed for lack of factual and
estate taxes, plaintiffs paid the City Treasurer's Office of legal basis.
Manila;
WHEREFORE, the Decision and Resolution of the Court
4) Declaring that plaintiff made a valid and legal of Appeals subject of the petition are hereby AFFIRMED.
consignation to the Court of the initial amount of
P18,634.00 for the month of November and December No costs.
1990 and every month thereafter.
SO ORDERED.
All other claims of the plaintiffs are hereby dismissed for
lack of merit.
No pronouncement as to costs.
SO ORDERED. 21
On appeal, the Court of Appeals agreed with the Regional
Trial Court and found that the option to buy the leased
premises was not binding upon the Villanuevas for non-
compliance with Article 1479. It found that said option was
not supported by a consideration as "no money was ever
really exchanged for and in consideration of the option." In
addition, the appellate court determined that in the instant
case, "the price for the object is not yet certain." Thus, the
Court of Appeals affirmed the Regional Trial Court
decision and dismissed the appeal for lack of merit.22
Having found that the option to buy granted to the
petitioner Baptist Church was not founded upon a
separate consideration, and hence, not enforceable
against respondents, this Court finds no need to discuss
whether a price certain had been fixed as the purchase
price.
Anent the claim for attorney's fees, it is stipulated in
paragraph 13 of the lease agreement that in the event of
failure of either of the parties to comply with any of the
29
Sales – Chapter 3-12 Cases
A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-
appellees.
By a public instrument dated June 11, 1914, the plaintiff
sold to the defendant Marciana Felix, with the consent of
her husband, the defendant Balbino Tioco, four parcels of
land, described in the instrument. The defendant Felix
paid, at the time of the execution of the deed, the sum of
P3,000 on account of the purchase price, and bound
herself to pay the remainder in installments, the first of
P2,000 on July 15, 1914, and the second of P5,000 thirty
days after the issuance to her of a certificate of title under
the Land Registration Act, and further, within ten years
from the date of such title P10, for each coconut tree in
bearing and P5 for each such tree not in bearing, that
might be growing on said four parcels of land on the date
of the issuance of title to her, with the condition that the
total price should not exceed P85,000. It was further
stipulated that the purchaser was to deliver to the vendor
25 per centum of the value of the products that she might
obtain from the four parcels "from the moment she takes
possession of them until the Torrens certificate of title be
issued in her favor."
It was also covenanted that "within one year from the date
of the certificate of title in favor of Marciana Felix, this
latter may rescind the present contract of purchase and
sale, in which case Marciana Felix shall be obliged to
return to me, A. A. Addison, the net value of all the
products of the four parcels sold, and I shall obliged to
return to her, Marciana Felix, all the sums that she may
have paid me, together with interest at the rate of 10 per
cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in
Court of First Instance of Manila to compel Marciana Felix
to make payment of the first installment of P2,000,
demandable in accordance with the terms of the contract
of sale aforementioned, on July 15, 1914, and of the
interest in arrears, at the stipulated rate of 8 per cent per
annum. The defendant, jointly with her husband,
answered the complaint and alleged by way of special
defense that the plaintiff had absolutely failed to deliver to
the defendant the lands that were the subject matter of
the sale, notwithstanding the demands made upon him for
this purpose. She therefore asked that she be absolved
from the complaint, and that, after a declaration of the
rescission of the contract of the purchase and sale of said
lands, the plaintiff be ordered to refund the P3,000 that
had been paid to him on account, together with the
interest agreed upon, and to pay an indemnity for the
losses and damages which the defendant alleged she had
suffered through the plaintiff's non-fulfillment of the
contract.
The evidence adduced shows that after the execution of
the deed of the sale the plaintiff, at the request of the
purchaser, went to Lucena, accompanied by a
representative of the latter, for the purpose of designating
and delivering the lands sold. He was able to designate
only two of the four parcels, and more than two-thirds of
these two were found to be in the possession of one Juan
Villafuerte, who claimed to be the owner of the parts so
occupied by him. The plaintiff admitted that the purchaser
would have to bring suit to obtain possession of the land
(sten. notes, record, p. 5). In August, 1914, the surveyor
Santamaria went to Lucena, at the request of the plaintiff
and accompanied by him, in order to survey the land sold
to the defendant; but he surveyed only two parcels, which
are those occupied mainly by the brothers Leon and Julio
Villafuerte. He did not survey the other parcels, as they
were not designated to him by the plaintiff. In order to
make this survey it was necessary to obtain from the Land
Court a writ of injunction against the occupants, and for
the purpose of the issuance of this writ the defendant, in
June, 1914, filed an application with the Land Court for
the registration in her name of four parcels of land
described in the deed of sale executed in her favor by the
plaintiff. The proceedings in the matter of this application
were subsequently dismissed, for failure to present the
required plans within the period of the time allowed for the
purpose.
The trial court rendered judgment in behalf of the
defendant, holding the contract of sale to be rescinded
and ordering the return to the plaintiff the P3,000 paid on
account of the price, together with interest thereon at the
rate of 10 per cent per annum. From this judgment the
plaintiff appealed.
In decreeing the rescission of the contract, the trial judge
rested his conclusion solely on the indisputable fact that
up to that time the lands sold had not been registered in
accordance with the Torrens system, and on the terms of
the second paragraph of clause (h) of the contract,
whereby it is stipulated that ". . . within one year from the
date of the certificate of title in favor of Marciana Felix, this
latter may rescind the present contract of purchase and
sale . . . ."
The appellant objects, and rightly, that the cross-complaint
is not founded on the hypothesis of the conventional
rescission relied upon by the court, but on the failure to
deliver the land sold. He argues that the right to rescind
the contract by virtue of the special agreement not only
did not exist from the moment of the execution of the
contract up to one year after the registration of the land,
but does not accrue until the land is registered. The
wording of the clause, in fact, substantiates the
contention. The one year's deliberation granted to the
purchaser was to be counted "from the date of the
certificate of title ... ." Therefore the right to elect to
rescind the contract was subject to a condition, namely,
the issuance of the title. The record show that up to the
present time that condition has not been fulfilled;
consequently the defendant cannot be heard to invoke a
right which depends on the existence of that condition. If
in the cross-complaint it had been alleged that the
fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been
proven, perhaps the condition would have been
considered as fulfilled (arts. 1117, 1118, and 1119, Civ.
Code); but this issue was not presented in the defendant's
answer.
However, although we are not in agreement with the
reasoning found in the decision appealed from, we
consider it to be correct in its result. The record shows
that the plaintiff did not deliver the thing sold. With respect
to two of the parcels of land, he was not even able to
show them to the purchaser; and as regards the other
two, more than two-thirds of their area was in the hostile
and adverse possession of a third person.
The Code imposes upon the vendor the obligation to
deliver the thing sold. The thing is considered to be
delivered when it is placed "in the hands and possession
of the vendee." (Civ. Code, art. 1462.) It is true that the
same article declares that the execution of a public
30
Sales – Chapter 3-12 Cases
instruments is equivalent to the delivery of the thing which
is the object of the contract, but, in order that this symbolic
delivery may produce the effect of tradition, it is necessary
that the vendor shall have had such control over the thing
sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon
the purchaser the ownership and the right of possession.
The thing sold must be placed in his control. When there
is no impediment whatever to prevent the thing sold
passing into the tenancy of the purchaser by the sole will
of the vendor, symbolic delivery through the execution of a
public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have
the enjoyment and material tenancy of the thing and make
use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to reality —
the delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his
commentaries on article 1604 of the French Civil code,
"the word "delivery" expresses a complex idea . . . the
abandonment of the thing by the person who makes the
delivery and the taking control of it by the person to whom
the delivery is made."
The execution of a public instrument is sufficient for the
purposes of the abandonment made by the vendor; but it
is not always sufficient to permit of the apprehension of
the thing by the purchaser.
The supreme court of Spain, interpreting article 1462 of
the Civil Code, held in its decision of November 10, 1903,
(Civ. Rep., vol. 96, p. 560) that this article "merely
declares that when the sale is made through the means of
a public instrument, the execution of this latter is
equivalent to the delivery of the thing sold: which does not
and cannot mean that this fictitious tradition necessarily
implies the real tradition of the thing sold, for it is
incontrovertible that, while its ownership still pertains to
the vendor (and with greater reason if it does not), a third
person may be in possession of the same thing;
wherefore, though, as a general rule, he who purchases
by means of a public instrument should be deemed . . . to
be the possessor in fact, yet this presumption gives way
before proof to the contrary."
It is evident, then, in the case at bar, that the mere payment, with the costs of both instances against the
execution of the instrument was not a fulfillment of the appellant. So ordered.
vendors' obligation to deliver the thing sold, and that from
such non-fulfillment arises the purchaser's right to
demand, as she has demanded, the rescission of the sale
and the return of the price. (Civ. Code, arts. 1506 and
1124.)
Of course if the sale had been made under the express
agreement of imposing upon the purchaser the obligation
to take the necessary steps to obtain the material
possession of the thing sold, and it were proven that she
knew that the thing was in the possession of a third
person claiming to have property rights therein, such
agreement would be perfectly valid. But there is nothing in
the instrument which would indicate, even implicitly, that
such was the agreement. It is true, as the appellant
argues, that the obligation was incumbent upon the
defendant Marciana Felix to apply for and obtain the
registration of the land in the new registry of property; but
from this it cannot be concluded that she had to await the
final decision of the Court of Land Registration, in order to
be able to enjoy the property sold. On the contrary, it was
expressly stipulated in the contract that the purchaser
should deliver to the vendor one-fourth "of the products ...
of the aforesaid four parcels from the moment when she
takes possession of them until the Torrens certificate of
title be issued in her favor." This obviously shows that it
was not forseen that the purchaser might be deprived of
her possession during the course of the registration
proceedings, but that the transaction rested on the
assumption that she was to have, during said period, the
material possession and enjoyment of the four parcels of
land.
Inasmuch as the rescission is made by virtue of the
provisions of law and not by contractual agreement, it is
not the conventional but the legal interest that is
demandable.
It is therefore held that the contract of purchase and sale
entered into by and between the plaintiff and the
defendant on June 11, 1914, is rescinded, and the plaintiff
is ordered to make restitution of the sum of P3,000
received by him on account of the price of the sale,
together with interest thereon at the legal rate of 6 per
annum from the date of the filing of the complaint until
31
Sales – Chapter 3-12 Cases
NAVOTAS INDUSTRIAL CORPORATION, represented
herein by its acting president DANIEL L. BAUTISTA,
Petitioners,
vs.
GERMAN D. CRUZ, MARCELO D. CRUZ, ROSALINA
CRUZ-LAIZ, MARIANO A. CRUZ, JR., THE HEIRS OF
ROGELIO D. CRUZ, namely, SYLVIA, ROSYL, ROGELIO,
JR., SERGIO and ESTRELLA, all surnamed CRUZ, the
HEIRS OF SERAFIN D. CRUZ, namely, ADELAIDA,
MERCEDITAS and GABRIEL, all surnamed CRUZ, MARIA
CRISTINA CRUZ-YCASIANO, MONICA CRUZ-DADIVAS
and CARMEN VDA. DE CRUZ, Respondent.
This is a petition for review on certiorari of the Decision1 of
the Court of Appeals (CA) in CA-G.R. CV No. 69818,
reversing the Decision of the Regional Trial Court (RTC) in
Civil Case No. 2427-MN.
The Antecedents
Carmen Vda. De Cruz was the owner of a parcel of land
located in Navotas, Rizal, with an area of 13,999 square
meters, covered by Transfer Certificate of Title (TCT) No.
81574.2
On October 5, 1966, Carmen Cruz, as lessor, and the
Navotas Industrial Corporation (NIC), through its president,
Cipriano C. Bautista, as lessee, executed a contract of lease
over one-half portion of the said property, shown in the sketch
appended thereto as Annex "A." The lease was for the period
of October 1, 1966 to midnight of October 1, 1990. The
property was to be used for shipyard slipways and the
lessee’s other allied businesses. The NIC obliged itself to
construct two slipways, with all its accessories, within the first
10 years of the lease with a total value of not less than
₱450,000.00.3
On March 14, 1973, the property was mortgaged to the China
Banking Corporation (CBC) as security for a loan by two of
Carmen Cruz’s children, Mariano and Gabriel.4 The owner’s
duplicate of the title was delivered to and kept by the CBC as
mortgagee.
On December 31, 1974, Carmen Cruz executed a Deed of
Absolute Sale of Realty with Assumption of Mortgage in
which she, as vendor, sold and conveyed the property to her
children, namely, Serafin D. Cruz (married
to Adelaida Cruz), Mariano Cruz, Rogelio Cruz, Sr.
Carmencita Cruz and Sr. Mary Carmela Cruz, for the
purchase price of ₱350,000.00 which the vendor
acknowledged to have received from the vendees.5
In a Letter6 dated November 22, 1976, Mariano Cruz, in his
behalf and in behalf of the other vendees, requested CBC to
conform to the sale of the property, a copy of which was
attached to the said letter. The CBC refused.
In the meantime, relations between Carmen Cruz and her
children became strained. She believed that her children had
ignored her and failed to take care of her.
On June 27, 1977, Mariano Cruz, for himself and in behalf of
the other vendees, presented the said deed of sale to the
Register of Deeds for registration purposes.7 In the same
letter, they requested the Register of Deeds to request the
CBC for the transmittal of the owner’s TCT No. 81574 for the
annotation of the Deed of Sale with Assumption of Mortgage.
However, on June 28, 1977, the CBC, through counsel, wrote
Mariano Cruz, informing him that Carmen Cruz had instructed
it not to conform to the Deed of Sale with Assumption of
Mortgage, and not to surrender the owner’s duplicate of the
said title.
In the meantime, the balance of the loan account secured by
the mortgage was paid to the CBC. Thus, on June 29, 1977,
the CBC executed a Cancellation of Real Estate Mortgage
over the property.8 However, the deed was not presented to
the Register of Deeds for registration.
On the same day, Mariano Cruz executed an Affidavit of
Adverse Claim9 stating, inter alia, that he and the others
named therein were the vendees of the property as
evidenced by a Deed of Sale with Assumption of Mortgage
appended thereto, and that, to protect their rights and
interests, the said affidavit of adverse claim was being
executed as a cautionary notice to third persons and the
world that the property had been sold to them. It was,
likewise, stated that Carmen Cruz had ordered the CBC not
to surrender the owner’s duplicate of TCT No. 81574. The
aforesaid affidavit of adverse claim was inscripted at the
dorsal portion of the title10 on June 30, 1977 as Entry No.
22178.
In a Letter11 dated July 1, 1977, the Register of Deeds
requested CBC to surrender the owner’s duplicate of TCT No.
81574, pursuant to Section 72 of Act 496, in order that proper
memorandum be made thereon. The Register of Deeds was
obviously unaware that the CBC had already executed the
cancellation of real estate mortgage on June 29, 1977.
On July 30, 1977, Carmen Cruz, as lessor, and the NIC, as
lessee, executed a Supplementary Lease Agreement;12 the
October 5, 1966 Contract of Lease earlier executed by the
parties was modified, in that the terms of the
lease was extended for another 15 years to expire on
October 1, 2005. The lessee was, likewise, given up to
October 1, 1982 within which to construct the two slipways at
a cost of not less than ₱600,000.00 and increasing the lease
rental for the property. The lessee was granted the option to
buy the property for the price of ₱1,600,000.00. On the same
day, the parties executed a Contract of Lease13 over an
additional portion of the property, with an area of 590.58
square meters, as shown in the sketch appended thereto.
However, the said contracts were not presented for
registration to the Register of Deeds.
On September 14, 1977, the aforesaid Cancellation of Real
Estate Mortgage the CBC had earlier executed (on June 29,
1977) was presented to the Register of Deeds and annotated
at the dorsal portion of TCT No. 81574 as Entry No. 27796.
The following were, likewise, presented to the Register of
Deeds for registration, and, thereafter, annotated at the
dorsal portion of the said title: the Contract of Lease dated
October 5, 1966 (Entry No. 27797), the July 30, 1977
Contract of Lease (Entry No. 27798), and the Supplementary
Lease Agreement (Entry No. 27799).14
In the meantime, Mariano Cruz and the other vendees
presented the Deed of Sale with Assumption of Mortgage to
the Register of Deeds for registration. On December 19,
1977, the Register of Deeds cancelled the said title and
issued TCT No. 11272 in the names of the new owners. TCT
No. 11272 was later cancelled by TCT No. R-11830.
In a Letter15 dated October 20, 1978, Mariano Cruz, et al.
informed the NIC that the property had been sold to them,
and gave it 30 days from receipt of the letter to vacate the
property and return possession to them. The vendees,
likewise, informed the NIC that since the October 5, 1966
Contracts of Lease and the July 30, 1977 Supplementary
Lease Agreement were annotated at the back of TCT No.
81574 only on September 14, 1977, after the affidavit of
adverse claim of Mariano Cruz, et al. was annotated on June
29, 1977, such contracts were null and void. However, the
NIC refused to vacate the property.
In the meantime, the property was subdivided into three lots:
Lots 1-A, 1-B and 1-C. Lot 1-A had an area of 6,307 square
meters, covered by TCT No. 8509916 issued on July 5, 1982.
32
Sales – Chapter 3-12 Cases
Carmen Cruz filed a complaint with the RTC of Navotas
against Cipriano Bautista, in his capacity as president of the
NIC, for the declaration of nullity of the July 30, 1977
Supplementary Lease Agreement and Contract of Lease, and
for the cancellation of the annotation at the back of TCT No.
81574 referring to the said contracts. The complaint was
amended to implead the NIC as party-defendant. Carmen
Cruz alleged therein that she was the owner-lessor of the
property subject of the said contract; the NIC failed to
construct the two slipways within the period stated in the
lease contract; it took advantage of the animosity between
her and her children, and caused the preparation of the July
30, 1977 Supplementary Lease Agreement and Contract of
Lease; the NIC was able to insert therein blatantly erroneous,
one-sided and highly unfair provisions; and that the said
contracts were even extended for a period long beyond her
life expectancy (the plaintiff was then almost 80 years old).
She further alleged that the provisions in the Contract of
Lease and Supplementary Lease Agreement which granted
NIC the exclusive option to buy the property, was a sham.
She prayed that, after due proceedings, judgment be
rendered in her favor:
WHEREFORE, it is respectfully prayed that judgment be
rendered declaring the Supplementary Contract of Lease
dated July 30, 1977 as null and void ab initio; ordering the
defendant and all persons claiming possession of the
premises under it to vacate and turn over the premises to the
plaintiffs; ordering the defendant to pay the reasonable
monthly rental of ₱10,000.00 for the occupancy of the
premises, beginning October 1, 1990, until it vacates the
premises; ordering the defendant to pay the plaintiffs the sum
of ₱30,000.00 as moral damages; the sum of ₱50,000.00 as
attorney’s fees, and the sum of ₱1,000.00 as appearance fee
of the undersigned counsel; to pay the sum of ₱5,000.00 as
litigation expenses; plus costs of suit.
Plaintiffs further pray for such other relief and remedies they
are entitled to in the premises.17
Mariano Cruz and his siblings filed a complaint-in-intervention
in the said case, alleging that they were the co-owners of the
property, and praying that judgment be rendered in their
favor, as follows:
WHEREFORE, it is respectfully prayed that judgment be
rendered rescinding the Contract of Lease dated October 5,
1966, (Annex "B"), declaring as null and void the
Supplementary Lease Agreement (Annex "C"), and the
Contract of Lease (Annex "D"), both dated July 30, 1977, for
having been entered into by the plaintiff who had long ceased
to be the owner of the property in question, awarding the sum
of ₱450,000.00, actual damages, representing the value of
the improvements which the defendants bound themselves to
introduce in the premises; awarding the plaintiffs-intervenors
the sum of ₱100,000.00 as exemplary damages; the sum of
₱150,000.00 as moral damages; ₱50,000.00 as attorney’s
fees and ₱10,000.00 as litigation expenses.
Plaintiffs-intervenors further pray for such other relief and
remedies they are entitled to in the premises.18
However, Carmen Cruz filed a motion to dismiss the
amended complaint. On February 6, 1984, the trial court
issued an Order19 granting the motion and dismissing the
amended complaint and the complaint-in-intervention. The
order became final and executory.
On June 23, 1990, Mariano Cruz, et al. wrote the NIC that
they would no longer renew the October 5, 1966 contract of
lease which was to expire on October 1, 1990; as far as they
were concerned, the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease were null and void, the
same having been executed and annotated on September
14, 1977 at the back of TCT No. 81574 long after the
annotation of the affidavit of the adverse claim of Mariano
Cruz, et al. on June 30, 1977.20
In a Letter21 dated January 11, 1991, Mariano Cruz, et al.
wrote the NIC, demanding that it vacate the property within
30 days from notice thereof, otherwise, a complaint for
unlawful detainer would be filed against it. However, the NIC
refused to vacate the property.
On April 18, 1991, Mariano Cruz and his siblings filed a
Complaint22 against the NIC with the Municipal Trial Court
(MTC) of Navotas for ejectment. However, on June 11, 1992,
the trial court issued an Order23
dismissing the complaint, on the ground that it had no
jurisdiction over the case, it appearing that the validity of the
July 30, 1977 Supplementary Lease Agreement and the
Contract of Lease, in relation to the deed of absolute sale
with assumption of mortgage executed by Carmen Cruz,
were intertwined with the issue of NIC’s right of possession.
The plaintiffs sought a motion for reconsideration of the
decision, which the MTC denied on September 15, 1992. The
plaintiffs appealed to the RTC, which rendered a decision
granting the appealed decision.24 The plaintiffs-appellants
filed a petition for review with the CA. On July 13, 1993, the
CA affirmed the decision of the RTC and dismissed the
petition.25 The decision became final and executory.
In the meantime, Mariano Cruz died intestate and was
survived by his son Mariano Cruz, Jr.; Rogelio Cruz, likewise,
died and was survived by his children Sylvia, Rosyl, Rogelio,
Jr., Sergio and Estrella, all surnamed Cruz; Serafin Cruz also
died and was survived by his wife Adelaida, and his children
Merceditas and Gabriel. TCT No. 81574 was reconstituted
and TCT No. R-85099 was issued.
On January 24, 1995, German and Marcelo Cruz, Rosalina
Cruz-Laiz, Mariano Cruz, Jr. and the said heirs filed a
Complaint against Carmen Cruz, as unwilling plaintiff, and the
NIC with the RTC of Malabon for the nullification of the July
30, 1977 Supplementary Lease Agreement and Contract of
Lease. The complaint was amended to allege that they were
the co-owners of the property covered by TCT No. 85099
based on the Deed of Sale with Assumption of Mortgage
executed by Carmen Cruz on December 31, 1974; an
affidavit of adverse claim was annotated at the dorsal portion
of TCT No. 81574 on June 30, 1977, despite which NIC
caused Carmen Cruz to execute, on July 30, 1977, a
Supplementary Lease Agreement and Contract of Lease by
taking advantage of her age, mental weakness and lack of
will; and that NIC failed to pay rentals for the property. The
plaintiffs prayed that:
WHEREFORE, it is respectfully prayed that, after trial on the
merits, judgment be rendered in favor of the plaintiffs as
follows:
1. Under the First Alternative Cause of Action, declaring the
Contract of Lease dated 30 July 1977 and the Supplementary
Lease Contract dated 30 July 1977, Annex "D" hereof, as null
and void ab initio; or, alternatively,
Under the Second Alternative Cause of Action, annulling the
said Contract of Lease and Supplementary Lease Contract.
Under the Third Alternative Cause of Action, rescinding and
canceling the Contract of Lease and Supplementary Lease
Agreement, ordering the defendants to vacate the leased
premises and to pay plaintiffs all unpaid rentals from 1
October 1991 until defendants vacate the premises.
2. Under the Second Cause of Action, ordering defendants
NAVOTAS and Bautista to vacate and surrender the
possession of the subject property and all improvements
thereon to the plaintiffs;
33
Sales – Chapter 3-12 Cases
3. Under the Third Cause of Action, ordering defendants
NAVOTAS and Bautista, jointly and severally, to pay plaintiffs
the reasonable compensation for the use of the premises in
the amount of at least ₱10,000.00 a month from October
1990 up to the filing of this Complaint, totalling ₱500,000.00,
as well as ₱10,000.00 every month thereafter until
defendants shall have vacated and surrendered the premises
to the plaintiffs.
4. Under the Fourth Cause of Action, ordering defendants
NAVOTAS and Bautista, jointly and severally, to pay the
plaintiffs exemplary damages of at least ₱50,000.00 or such
amount as the Honorable Court may deem just and equitable
in the premises; and
5. Under the Fifth Cause of Action, ordering defendants
NAVOTAS and Bautista to pay plaintiff attorney’s fees and
expenses of litigation in such amount as may be established
during the trial, but not less than ₱35,000.00.
Plaintiffs pray for such other reliefs just and equitable in the
premises.26
In her answer with cross-claim, Carmen Cruz alleged, inter
alia, that she was willing to be made a party-plaintiff, although
she was initially reluctant to become one because of the
burden of a court hearing; she admitted that the plaintiffs
were the co-owners of the property; Bautista was granted an
"exclusive option to buy" the leased property at the
ridiculously low fixed price of ₱1,600,000.00, which,
according to Carmen Cruz, was an option unsupported by
any consideration; hence, null and void.27
Carmen Cruz prayed that, after due proceedings, judgment
be rendered in her favor:
WHEREFORE, it is most respectfully prayed that the
complaint as against answering defendant be dismissed, and
that:
AS TO THE CROSS-CLAIM
a) The Contract of Lease and the Supplemental Lease
Contract be declared null and void due to vitiated consent;
b) In the event that monetary judgment be rendered by this
Honorable Court against answering defendant in favor of the
plaintiffs, her co-defendants, Navotas Industrial Corporation
and Bautista, be made to reimburse her for all or part of the
said judgment;
c) Co-defendants be ordered to pay her moral as well as
exemplary damages in the amount which this Honorable
Court may deem just and proper;
d) Co-defendants, instead of answering defendants, be,
likewise, ordered to pay the plaintiffs, the rentals in arrears
over the premises which now amounts to ₱147,000.00.
BOTH AS TO COUNTERCLAIM AND CROSS-CLAIM
a) Plaintiffs and co-defendants be ordered, jointly and
severally, to reimburse answering defendant the sum of
₱30,000.00 which the latter paid her counsel as and for
attorney’s fees for unnecessarily dragging her into this suit
including the amount of ₱1,000.00 which she will pay her
lawyer for every appearance;
b) Likewise, the costs of suit and other litigation expenses.
Other reliefs and remedies reasonable under the premises
are similarly prayed for.28
In its amended answer, NIC alleged that its July 30, 1977
Supplementary Lease Agreement and Contract of Lease
were valid, whereas the deed of absolute sale with
assumption of mortgage executed by Carmen Cruz in favor of
the plaintiffs was null and void for being simulated and
fraudulent. NIC and Bautista further alleged that it was
exercising its option to buy the subject property now covered
by TCT No. 85099;29 it, likewise, offered ₱1,600,000.00 as
consideration for the sale to be paid upon the execution of a
deed of transfer.30
NIC and Bautista prayed that, after due proceeding, judgment
be rendered in their favor, thus:
WHEREFORE, premises considered, herein answering
defendants respectfully prayed that the complaint be
dismissed for lack of merit.
On the Counterclaim: (a) that the "Contract of Lease" and the
"Supplementary Lease Agreement" be declared valid, legal
and binding between Carmen Vda. de Cruz and defendants
Navotas and Bautista, as well as their respective heirs,
successors or assigns, while the "Deed of Absolute Sale with
Assumption of Mortgage" be declared null and void so far as
it prejudiced and adversely affected the rights of defendants
Navotas and Bautista on the portion of the property leased to
it; (b) that the plaintiffs and Carmen Vda. de Cruz be ordered
to accept the sum of ₱1,600,000.00 representing the option
money for the purchase of the property subject of the lease
contract specifically that which is now covered by
TRANSFER CERTIFICATE OF TITLE NO. R-85099 and to
execute and sign the necessary deed of conveyance
therefore in favor of defendant Navotas and/or Bautista; and
(c) that plaintiffs and Carmen Vda. de Cruz be ordered and
condemned, jointly and severally, to pay defendants Navotas
and Bautista moral and exemplary damages of not less than
₱80,000.00, attorney’s fees and litigation expenses of not
less than ₱50,000.00, and the costs of suit.
Herein answering defendants further pray for such other
reliefs and remedies available in the premises.31
In the meantime, Carmen Cruz died intestate on November
20, 1995 at the age of 97. She was survived by the plaintiffs
as her heirs.32
On March 7, 2000, the trial court rendered judgment in favor
of the NIC and Bautista. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered:
a) Affirming the validity of the Contract of Lease and the
Supplementary Lease Agreement, both dated 30 July 1977,
including the provision granting defendants exclusive option
to buy the subject property.
b) Affirming the full rental payments made by defendants
Navotas and Bautista for the lease of the subject property
until the expiration thereof.
c) Denying the claims for actual and compensatory, moral
and exemplary damages as well as attorney’s fees interposed
by plaintiffs against defendants.
d) Denying the claims for moral and exemplary damages
interposed by defendants Navotas and Bautista against
plaintiffs.
e) The Deed of Absolute Sale with Assumption of Mortgage is
hereby declared null and void as far as it prejudiced and is
adversely affecting the rights of defendants Navotas and
Bautista on the portion thereof leased to them. The plaintiffs,
as heirs of defendant Cruz, are hereby ordered to accept the
sum of ₱1,600,000.00 representing the option money for the
34
Sales – Chapter 3-12 Cases
purchase of the subject property subject of the lease contract
specifically that which is now covered by Transfer Certificate
of Title No. R-85099 and to execute and sign the necessary
deed of conveyance therefor in favor of defendants Navotas
and/or Bautista.
f) Ordering plaintiffs to pay defendants Navotas and Bautista
₱20,000.00 by way of reasonable attorney’s fees.
Costs against the plaintiffs.33
The trial court declared that when defendant Carmen Cruz
executed the July 30, 1977 Supplementary Lease Agreement
and Contract of Lease, she was still the owner of the
property; as such, NIC was not bound by the deed of sale
with assumption of mortgage executed by Carmen Cruz
because it was not a party thereto; and that such deed was
not registered with the Office of the Register of Deeds. The
trial court ruled that the plaintiffs failed to prove fraud and
undue influence on Carmen Cruz and/or that NIC took
advantage of her mental weakness. The RTC ruled that only
Carmen Cruz had the right to rescind the contracts of lease
and supplementary lease agreement. The option to buy the
property granted to NIC was supported by a consideration,
more specifically the ₱42,000.00 rental payment it made
upon the execution of the said contracts.
The plaintiffs appealed the decision to the CA wherein they
alleged that:
I WERE RENDERED RESCINDED BY REASON OF
THE TRIAL COURT ERRED IN HOLDING THAT
APPELLEES WERE NOT BOUND BY THE DEED OF
ABSOLUTE SALE OF REALTY WITH ASSUMPTION OF
MORTGAGE WHICH APPELLANTS ANNOTATED AS AN
ADVERSE CLAIM ON THE CERTIFICATE OF TITLE OF
THE PROPERTY AS EARLY AS 30 JUNE 1977 BEFORE
APPELLEES REGISTERED THE QUESTIONED LEASE
CONTRACTS ON 14 SEPTEMBER 1977.
II
THE TRIAL COURT ERRED IN COMPLETELY IGNORING
THE OVERWHELMING EVIDENCE ON RECORD
SHOWING THAT APPELLEES HAD ACTUAL AND
CONSTRUCTIVE NOTICE OF THE SALE OF THE
SUBJECT PROPERTY TO THE CRUZ CHILDREN IN 1974,
AND THUS KNEW OR OUGHT TO HAVE KNOWN THAT IN
EXECUTING THE QUESTIONED LEASE CONTRACTS
WITH MRS. CRUZ IN 1977, THEY WERE DEALING WITH
ONE WHO WAS NO LONGER THE OWNER OF THE
PROPERTY WHO CAN BIND THE SAME UNDER THE
QUESTIONED LEASE CONTRACTS.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE
CONSENT OF MRS. CRUZ TO THE SUBJECT LEASE
CONTRACTS HAD NOT BEEN VITIATED BY UNDUE AND
IMPROPER PRESSURE AND INFLUENCE ON THE PART
OF APPELLEES CONSIDERING THAT:
A. THE UNDISPUTED EVIDENCE ON RECORD READILY
BEARS OUT THE UNDUE AND IMPROPER PRESSURE
AND INFLUENCE EXERTED BY APPELLEES ON MRS.
CRUZ TO OBTAIN HER CONSENT TO THE SUBJECT
LEASE CONTRACTS;
B. THE VERY TERMS AND CONDITIONS OF THE LEASE
CONTRACTS, WHICH ARE GROSSLY
DISADVANTAGEOUS TO MRS. CRUZ, POINT TO
APPELLEES’ USE OF UNDUE PRESSURE AND
INFLUENCE ON HER TO OBTAIN HER CONSENT TO THE
SUBJECT LEASE CONTRACTS.
IV
THE TRIAL COURT ERRED IN NOT HOLDING, IN THE
ALTERNATIVE, THAT THE SUBJECT LEASE CONTRACTS
APPELLEES’ MATERIAL BREACHES OF THE TERMS AND
CONDITIONS CONSIDERING THAT:
A. APPELLEES HAD ADMITTEDLY FAILED TO
CONSTRUCT THE SLIPWAYS AS REQUIRED UNDER THE
LEASE CONTRACT;
B. THE EVIDENCE FULLY ESTABLISHES THAT
APPELLEES HAVE NOT PAID THE RENTALS DUE ON
THE PROPERTY SINCE 1991.
V decision; hence, it filed the instant petition for review on
THE TRIAL COURT ERRED IN DECLARING THE DEED OF
ABSOLUTE SALE WITH ASSUMPTION OF MORTGAGE AS
NULL AND VOID AS AGAINST APPELLEES CONSIDERING
THAT THE SAME HAS BEEN CONFIRMED AND
RECOGNIZED IN SUBJECT TRANSFERS AFFECTING THE
SAME PROPERTY.
VI
THE TRIAL COURT ERRED IN HOLDING THAT THE
OPTION CONTRACT FOR APPELLEES’ PURCHASE OF
THE SUBJECT PROPERTY WAS SUPPORTED BY A
SEPARATE CONSIDERATION AND THUS VALID AND
BINDING ON APPELLANTS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING APPELLEES
LIABLE TO APPELLANTS FOR ACTUAL AND
COMPENSATORY DAMAGES CONSISTING OF THE
REASONABLE RENTALS ON THE PROPERTY FROM 2
OCTOBER 1990 UNTIL THE RETURN THEREOF TO
APPELLANTS.
VIII
THE TRIAL COURT ERRED IN ABSOLVING APPELLEES
OF LIABILITY TO APPELLANTS FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY’S FEES.34
On July 18, 2003, the CA rendered judgment granting the
appeal, and reversing the decision of the RTC. The CA ruled
that the appellees had constructive notice of the Deed of Sale
with Assumption of Mortgage, which Carmen Cruz executed
in favor of the appellants, based on the affidavit of adverse
claim annotated on June 29, 1977 at the dorsal portion of
TCT No. 81574. The CA declared that the adverse claim
annotated at the dorsal portion of the said title continued to
be effective and remained a lien until cancelled. The CA held
that the option granted to the appellee NIC to purchase the
property was not effective because there was no
consideration therefor, apart from NIC’s rental payments.
Besides, the CA emphasized, when Carmen Cruz executed
the July 30, 1977 Supplementary Lease Agreement and
Contract of Lease, she was no longer the owner of the
property.
The CA denied NIC’s motion for reconsideration of the said
certiorari, alleging that:
A.
THE COURT OF APPEALS COMMITTED A CLEAR AND
REVERSIBLE ERROR WHEN IT DECLARED THAT THE
QUESTIONED LEASE CONTRACTS WERE NULL AND
35
Sales – Chapter 3-12 Cases
VOID, IT APPEARING IN AN ADVERSE CLAIM
ANNOTATED ON THE CERTIFICATE OF TITLE OF
CARMEN VDA. DE CRUZ THAT SHE WAS NO LONGER
THE OWNER OF THE PROPERTY SUBJECT MATTER
THEREOF WHEN THE LEASE WAS EXECUTED ON JULY
30, 1977.
B.
THE COURT OF APPEALS COMMITTED A CLEAR AND
REVERSIBLE ERROR WHEN IT RULED THAT THE
OPTION TO BUY THE LEASED PROPERTY CONTAINED
IN THE SUPPLEMENTARY LEASE CONTRACT IS NOT
VALID AND BINDING FOR LACK OF CONSIDERATION
AND CAPACITY OF CARMEN VDA. DE CRUZ TO CONVEY
THE SAME.
C.
THE COURT OF APPEALS COMMITTED A CLEAR AND
REVERSIBLE ERROR WHEN IT FAILED TO RECOGNIZE A
PRIOR JUDGMENT BASED ON A COMPROMISE AS A
BAR TO THE PROCEEDINGS IN THIS INSTANT CASE.35
On the first issue, the petitioner avers that the adverse claim
annotated at the dorsal portion of TCT No. 81574 was
ineffective because the respondents failed to submit to the
Register of Deeds the owner’s duplicate of TCT No. 81574,
as mandated by Section 110 of Act No. 496. The annotation
of the adverse claim in the Office of the Register of Deeds on
June 29, 1977 on TCT No. 81574 despite such failure to
present the owner’s duplicate of the said title rendered such
inscription ineffectual, not binding on it and Carmen Cruz.
Hence, the petitioner posits, Carmen Cruz remained the
lawful owner of the property. Even Carmen Cruz maintained
that she was the owner of the property in her complaint in
Civil Case No. C-7040 filed after the execution of the deed of
absolute sale with assumption of real estate mortgage; she
even executed the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease in its favor. According to
the petitioner, the said deed of sale was fictitious as, in fact, it
was rejected by Carmen Cruz.
For their part, the respondents aver that the petitioner had
constructive notice of the said sale, based on the inscription
of the affidavit of adverse claim on June 29, 1977 at the
dorsal portion of TCT No. 81574. Besides, the respondents
posit, Cipriano Bautista even admitted having known of the
said adverse claim before the July 30, 1977 Contract of
Lease and Supplementary Lease Agreement were registered
in the Office of the Register of Deeds. The respondents cited
the ruling of this Court in Sajonas v. Court of Appeals36 to
support their claim.
On the second issue, the petitioner avers that the exclusive
option granted to it by Carmen Cruz under the Supplementary
Lease Agreement was essentially a mutual promise to buy
and sell, equivalent to a reciprocal contract under the first
paragraph of Article 1479 of the New Civil Code. But in the
same breath, the petitioner argues that its exclusive option to
buy the property for ₱1,600,000.00 was supported by a
consideration apart from the said amount. The petitioner
insists that the ₱42,000.00 which it paid to Carmen Cruz as
rental upon the execution of the Supplementary Lease
Agreement was "advance money," which motivated Carmen
Cruz to grant the option to the petitioner.
On the third issue, the petitioner argues that the respondents’
action was barred by the order of the RTC in Civil Case No.
C-7040 dismissing the complaint and complaint-in-
intervention therein, based on a compromise agreement of
Carmen Cruz and petitioner NIC.
The Ruling of the Court
The annotation of an adverse claim is a measure designed to
protect the interest of a person over a part of real property,
and serves as a notice and warning to third parties dealing
with the said property that someone is claiming an interest
over it or has a better right than the registered owner
thereof.37
On the first issue, we agree with the ruling of the CA that the
petitioner had constructive notice of the Deed of Sale with
Assumption of Mortgage executed by Carmen Cruz in favor
of the respondents. The affidavit of adverse claim the
respondents executed on June 29, 1977 was annotated at
the dorsal portion of TCT No. 81574 on June 30, 1977, to wit:
A review of the facts and circumstances in the case at bar
reveals that at the time the Supplementary Lease Agreement
and Contract of Lease both dated July 30, 1977 were
executed by and between CARMEN and herein appellees,
CARMEN was apparently no longer the owner of the land
covered by TCT No. 81574 subject of this controversy.
Obviously, appellees cannot turn a blind eye on the
inscription found on CARMEN’s certificate of title at the time
the Supplementary Lease Agreement and Contract of Lease
were signed on July 30, 1977. Basic is the rule that the
annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property
and serves as a notice and warning to third parties dealing
with said property that someone is claiming an interest on the
same or a better right than the registered owner thereof. A
subsequent transaction involving the property cannot prevail
over the adverse claim which was previously annotated in the
certificate of title of the property. Here, the records are
obvious, the notice of adverse claim executed on June 29,
1977 was annotated on the title on June 30, 1977, that is, one
month prior to the signing of the disputed lease contracts on
July 30, 1977. Said contracts of lease were belatedly
annotated two months after its execution or on September 14,
1977 only, after appellees were allegedly warned by
CARMEN that her children are desirous of the property
leased in their favor. To say the least, this warning from
CARMEN should have aroused appellees’ suspicion
regarding the status of the prime property they intend to lease
for another fifteen (15) years. …38
Section 110 of Act No. 496 was the law in force when
Carmen Cruz executed the Deed of Sale with Assumption of
Mortgage, and when the respondents executed the affidavit
of adverse claim and presented it to the Register of Deeds on
June 30, 1977. The petitioner’s reliance on the said provision
is misplaced. Indeed, the Register of Deeds acted in accord
with Section 110 of Act No. 496 when he inscribed the
affidavit of adverse claim at the dorsal portion of TCT No.
81574, despite the non-production of the owner’s duplicate of
TCT No. 81574 simultaneously with the presentation of the
affidavit of adverse claim. The law reads:
SEC. 110. Whoever claims any part or interest in registered
land adverse to the registered owner, arising subsequent to
the date of the original registration, may, if no other provision
is made in this Act for registering the same, make a
statement in writing setting forth fully his alleged right or
interest, and how or under whom acquired, and a reference to
the volume and page of the certificate of title of the registered
owner, and a description of the land in which the right or
interest is claimed.
The statement shall be signed and sworn to, and shall state
the adverse claimant’s residence, and designate a place at
which all notices may be served upon him. This statement
shall be entitled to registration as an adverse claim, and the
court, upon a petition of any party-in-interest, shall grant a
speedy hearing upon the question of the validity of such
adverse claim and shall enter such decree therein as justice
and equity may require. If the claim is adjudged to be invalid,
the registration shall be cancelled. If in any case the court,
36
Sales – Chapter 3-12 Cases
after notice and hearing, shall find that a claim thus registered
was frivolous or vexatious, it may tax the adverse claimant
double or treble costs in its discretion.
Irrefragably, the Deed of Sale with Assumption of Mortgage
which Carmen Cruz executed on December 31, 1974 was a
voluntary act; and under Section 50 of the law, the act of
registration shall be the operative act to convey and affect the
land. Indeed, Section 55 of Act No. 496 provides that the
presentation of the owner’s duplicate certificate of title for the
registration of any voluntary instrument is required:
SEC. 55. No new certificate of title shall be entered, no
memorandum shall be made upon any certificate of title by
the register of deeds, in pursuance of any deed or other
voluntary instrument, unless the owner’s duplicate certificate
is presented for such indorsement, except in cases expressly
provided for in this Act, or upon the order of the court for
cause shown; and whenever such order is made, a
memorandum thereof shall be entered upon the new
certificate of title and upon the owner’s duplicate: Provided,
however, That in case the mortgagee refuses or fails to
deliver within a reasonable time to the register of deeds the
duplicate or copy of the certificate of title surrendered by the
owner, after advice by said officer, in order to enable him to
register or annotate thereon another real right acquired by
said owner, the record or annotation made on the certificate
in the register book shall be valid for all legal purposes.
The production of the owner’s duplicate certificate whenever
any voluntary instrument is presented for registration shall be
conclusive authority from the registered owner to the register
of deeds to enter a new certificate or to make a memorandum
of registration in accordance with such instrument, and the
new certificate or memorandum shall be binding upon the
registered owner and upon all persons claiming under him, in
favor of every purchaser for value and in good faith: Provided,
however, That in all cases of registration procured by fraud
the owner may pursue all his legal and equitable remedies
against the parties to such fraud, without prejudice, however,
to the rights of any innocent holder for value of a certificate of
title: And provided, further, That after the transcription of the
decree of registration under this Act procured by the
presentation of a forged duplicate certificate, or of a forged
deed or other instrument, shall be null and void. In case of the
loss or theft of an owner’s duplicate certificate, notice shall be
sent by the owner or by someone in his behalf to the register
of deeds of the province in which the land lies as soon as the
loss or theft is discovered.
This Court explained the rationale of the requirement in L.P.
Leviste & Company, Inc. v. Noblejas:39
The basis of respondent Villanueva’s adverse claim was an
agreement to sell executed in her favor by Garcia Realty. An
agreement to sell is a voluntary instrument as it is a willful act
of the registered owner. As such voluntary instrument,
Section 50 of Act No. 496 expressly provides that the act of
registration shall be the operative act to convey and affect the
land. And Section 55 of the same Act requires the
presentation of the owner’s duplicate certificate of title for the
registration of any deed or voluntary instrument. As the
agreement to sell involves an interest less than an estate in
fee simple, the same should have been registered by filing it
with the Register of Deeds who, in turn, makes a brief
memorandum thereof upon the original and owner’s duplicate
certificate of title. The reason for requiring the production of
the owner’s duplicate certificate in the registration of a
voluntary instrument is that, being a willful act of the
registered owner, it is to be presumed that he is
interested in registering the instrument and would willingly
surrender, present or produce his duplicate certificate of title
to the Register of Deeds in order to accomplish such
registration. …40
However, in this case, Carmen Cruz had ordered the CBC,
the mortgagee and custodian of the owner’s duplicate of TCT
No. 81574, not to surrender the owner’s duplicate of the said
title to the Register of Deeds. The latter thus acted in accord
with law when the affidavit of adverse claim was inscribed at
the dorsal portion of TCT No. 81574 on June 30, 1977.
Indeed, this Court ruled in L.P. Leviste & Company, Inc. v.
Noblejas41 that:
… However, where the owner refuses to surrender the
duplicate certificate for the annotation of the voluntary
instrument, the grantee may file with the Register of Deeds a
statement setting forth his adverse claim, as provided for in
Section 110 of Act No. 496. In such a case, the annotation of
the instrument upon the entry book is sufficient to affect the
real estate to which it relates, although Section 72 of Act No.
496 imposes upon the Register of Deeds the duty to require
the production by the Registered owner of his duplicate
certificate for the inscription of the adverse claim. The
annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property
where the registration of such interest or right is not,
otherwise, provided for by the Land Registration Act, and
serves as a notice and warning to third parties dealing with
said property that someone is claiming an interest on the
same or a better right than the registered owner thereof.42
Moreover, on June 29, 1977, the balance of Mariano Cruz
and Gabriel Cruz’s account with the CBC had already been
paid, presumably by Mariano Cruz; and the CBC had
executed a cancellation of real estate mortgage. However,
the said deed was inexplicably not presented to the Register
of Deeds for registration.
The general rule is that a person dealing with registered land
is not required to go behind the register to determine the
condition of the property. However, such person is charged
with notice of the burden on the property which is noted on
the face of the register or certificate of title.43 A person who
deals with registered land is bound by the liens and
encumbrances including adverse claim annotated therein.44
In the present action, the petitioner caused the annotation of
the July 30, 1977 Supplementary Lease Agreement and
Contract of Sale only on September 14, 1977, long after the
annotation of the respondents’ adverse claim at the dorsal
portion of TCT No. 81574 on June 30, 1977. Thus, as of that
date, the petitioner had constructive knowledge of the Deed
of Sale with Assumption of Mortgage Carmen Cruz executed
on December 31, 1974 in favor of her children. Even before
July 30, 1977, the petitioner had knowledge that Carmen
Cruz was no longer the owner of the property, and had no
more right to execute the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease. The registration of the
said lease contracts was of no moment, since it is understood
to be without prejudice to the better rights of third parties.45
While it is true that in the complaint and amended complaint
in Civil Case No. C-7040, Carmen Cruz alleged that she was
the owner-lessor of the
property, such allegation cannot detract from the fact that the
property had already been registered under the names of the
respondents under TCT No. 11272, later cancelled by TCT
No. R-11830. The petitioner was informed by the respondents
that they were the registered owners of the property.
Moreover, the already aging Carmen Cruz and her children
had a domestic quarrel, and animosity that caused her to go
into seclusion; she thought then that her children had
abandoned her. The attendant circumstances must have
influenced Carmen Cruz to erroneously allege in her
complaint that she was the owner of the property.46
37
Sales – Chapter 3-12 Cases
Even then, on February 23, 1988, Carmen Cruz executed an
Affidavit in which she swore that she had sold the property to
her children:
3. That among the parcels of land which I have sold was that
parcel located in Barrio Almacen, Navotas, Rizal, then
covered by Transfer Certificate of Title No. 81574 of the
Register of Deeds of Rizal in favor of my children Serafin D.
Cruz, Mariano D. Cruz, Rogelio D. Cruz, Sr. Carmencita Cruz
and Sr. Mary Carmellas as vendees, with the agreement that
the then existing mortgage with the China Banking
Corporation shall be assumed and settled by said vendees,
as embodied in a document entitled "Deed of Absolute Sale
of Realty with Assumption of Mortgage," which I executed on
December 31, 1974 and entered in the notarial register of
Notary Public P. Dario Guevarra, Jr. as Doc. No. 198, Page
No. 41, Book No. 198, Series of 1975.47
… In her answer to the amended complaint in the court a quo,
7. That in view of these developments and considering my
advanced age and present physical condition and now
realizing that I may have been unduly taken advantage of by
some parties to promote their own selfish interests, I now
hereby execute this sworn statement and hereby affirm the
validity of the sale of said parcel of land covered by TCT No.
81574 of the Register of Deeds of Rizal and hereby state that
said sale was entered into by me of my own free will and for
valuable consideration.48
In her answer to the respondents’ amended complaint in the
trial court, Carmen Cruz reiterated that she had sold the
property to her children:
2.5. On 31 December 1974, she sold the subject property to
the plaintiffs for valuable consideration, free from all liens and
encumbrances and claim of third parties, except that
pertaining to a real estate mortgage with China Banking
Corporation as evidenced by a notarized "Deed of Absolute
Sale of Realty with Assumption of Mortgage" dated 31
December 1974, a photocopy of which is hereto attached and
made an integral part hereof as Annex "B";
2.6. After she sold the subject lot to the plaintiffs herein, the
latter tried to effect the registration and annotation of the said
transfer with the Registry of Deeds of Rizal sometime in 28
June 1977 but China Banking Corporation, the mortgagee,
through its legal counsel, Atty. Arsenio Sy Santos, refused to
release the title thus the delay in the registration of the said
"Deed of Sale with Assumption of Mortgage" which she
executed in favor of the plaintiffs involving the subject parcel
of land with the Registry of Deeds;
2.7. In order to protect their rights and interests over the
subject property, the plaintiffs, through their appointed
attorney-in-fact, Mariano A. Cruz, annotated an adverse claim
on the title which was then still under answering defendant’s
name, as a cautionary notice to third persons and the whole
world that said title has been transferred by answering
defendant in favor of the plaintiffs herein and that any
voluntary dealing thereon shall be considered subject to the
said adverse claim.49
Carmen Cruz also alleged, in her amended complaint in Civil
Case No. C-7040, that the July 30, 1977 Contract of Lease
and Supplementary Lease Agreement she executed in favor
of the petitioner were fraudulent.50
Carmen Cruz alleged that the defendant therein (now the
petitioner) was granted an "exclusive option to buy the leased
property at the ridiculously low price of ₱1,600,000.00,
payable over an unspecified period – an option unsupported
by any consideration – hence, null and void."51 She
elaborated that:
15. That the above-quoted provision is not only a foolery,
trickery and a product of deception because the exercise of
the "option" is not fixed – the same maybe conveniently
exercised by the defendant at anytime up to the year 2005.
Even the fixing of the sum worded as "flat sum" of One Million
Six Hundred Thousand – the valuation fifteen (15) years,
hence, (2005) without providing for the "inflation and
deflation" of the currency is grossly prejudicial and unfair.
Moreover, the provision which states that if and when
defendants finally decides to exercise their option during the
lifetime of the Lessor, the lessee will continue paying the
rentals is not only illogical, untrue and deceptive, the same
being used mainly as a ploy to win the sympathy and titillate
the ego of the old woman. It is rather unbelievable that being
already the owner, defendants will still pay the rentals. This,
to our mind, is the height of hyprocracy.52
On the second issue, we reject the petitioner’s contention that
the exclusive option granted to it by Carmen Cruz under the
Supplementary Lease Agreement is essentially a mutual
promise to buy and sell, equivalent to a reciprocal contract
under the first paragraph of Article 1479 of the New Civil
Code, which reads:
ART. 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.
In the first place, the petitioner insisted in its pleadings in the
court a quo that under the Supplementary Lease Agreement
and Contract of Lease, it was granted the exclusive option to
purchase the property leased. The petitioner maintained its
theory of the case in the CA. The petitioner cannot change its
theory, and claim this time that it and Carmen Cruz entered
into a promise to buy and sell the property leased.53
Considering that Carmen Cruz was no longer the owner of
the property when she executed the July 30, 1977
Supplementary Lease Agreement and Contract of Lease, and
that the respondents had acquired ownership over the
property as of December 31, 1974 (which the petitioner had
constructive knowledge of since June 30, 1977), the
petitioner’s claim that it had the option to buy the property or
to compel the respondents to sell the property to it has no
legal and factual basis.
Even after a careful study of the merits of the petition, the
Court finds that the petitioner’s claim is untenable. The
relevant portions of the Supplementary Lease Agreement
read:
4. The LESSEE is hereby granted an exclusive option to buy
the property including all improvements already made by the
LESSEE (slipways and camarines) subject matter of this
contract comprising SIX THOUSAND NINE HUNDRED
FORTY-NINE Point FIVE Square Meters (6,949.5) which is
one-half portion of the area covered by TCT No. 81574 and
same property subject matter of this contract should also be
equally divided with one-half frontage along M. Naval Street
and along the Navotas River Bank shoreline during the period
of the lease. The price of the property is agreed to be fixed for
the duration of the Option to Buy at a flat sum of ONE
MILLION SIX HUNDRED THOUSAND PESOS
(₱1,600,000.00), Philippine Currency, payable over a period
to be mutually agreed upon. Should the LESSEE exercise the
option to buy during the lifetime of the LESSOR, the LESSEE
will continue to pay the monthly rental to the LESSOR during
her lifetime.
38
Sales – Chapter 3-12 Cases
5. The LESSEE shall pay to the LESSOR the sum of FORTY-
TWO THOUSAND (₱42,000.00) PESOS upon signing of this
contract as consideration thereof, to be applied as against the
rental for the period from October 1, 1990 to September 30,
1991.54
It must be stressed that an option contract is a contract
granting a privilege to buy or sell within an agreed time and at
a determined price. Such a contract is a separate and distinct
contract from the time the parties may enter into upon the
construction of the option.55 In Carceller v. Court of
Appeals,56 the Court held that an option contract is a
preparatory contract in which one party grants to the other,
for a fixed period and under specified conditions, the power to
decide, whether or not to enter into a principal contract. The
Court further stated that:
… It binds the party who has given the option, not to enter
into the principal contract with any other person during the
period designated, and, within that period, to enter into such
contract with the one to whom the option was granted, if the
latter should decide to use the option. It is a separate
agreement distinct from the contract which the parties may
enter into upon the consummation of the option.57
On the third issue, the respondents’ action in the court a quo
was not barred by the order of the RTC dismissing the
complaint of Carmen Cruz, and the respondents’ complaint-
in-intervention in Civil Case No. 5114. Contrary to the
petitioner’s claim, Carmen Cruz (the plaintiff therein) and the
petitioner (the defendant therein) did not enter into any
compromise agreement in the said case. Moreover, the
dismissal of the complaint, and, consequently, the
respondents’ complaint-in-intervention was upon motion of
plaintiff Carmen Cruz and without prejudice.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED
for lack of merit. The Decision of the Court of Appeals in CA-
G.R. CV No. 69818 is AFFIRMED. Costs against the
petitioner.
SO ORDERED.

It is only when the option is exercised may a sale be

perfected.58 An option contract needs to be supported by a
separate consideration. The Court defined consideration for
an option in Bible Baptist Church v. Court of Appeals,59 as
follows:

… The consideration need not be monetary but could consist

of other things or undertakings. However, if the consideration
is not monetary, these must be things or undertakings of
value, in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract is
not monetary, said consideration must be clearly specified as
such in the option contract or clause.

In the present case, there was no given period for the

petitioner to exercise its option; it had yet to be determined
and fixed at a future time by the parties, subsequent to the
execution of the Supplementary Lease Agreement. There
was, likewise, no consideration for the option. The amount of
₱42,000.00 paid by the petitioner to Carmen Cruz on July 30,
1977 was payment for rentals from October 1, 1990 to
September 30, 1991, and not as a consideration for the
option granted to the petitioner.

39
Sales – Chapter 3-12 Cases
PHILIPPINE NATIONAL OIL COMPANY AND PNOC
DOCKYARD & ENGINEERING CORPORATION,
Petitioners, v. KEPPEL PHILIPPINES HOLDINGS, INC.,
Respondent.
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 20111 and resolution dated
14 May 20122 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 20063 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 agreement5 (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.7chanrobleslaw
At the end of the 25-year Jease period, Keppel was given
the "firm and absolute option to purchase8the 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.10chanrobleslaw
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.12chanrobleslaw
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
Corporation14 (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-50724.16chanrobleslaw
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
Filipinos17 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.18chanrobleslaw
To compel PNOC to comply with the Agreement, Keppel
instituted a complaint for specific performance with 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.22chanrobleslaw
After due proceedings, the RTC rendered a decision23in
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.24chanrobleslaw
PNOC elevated the case to the CA to appeal the RTC
decision.25cralawred 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.28chanrobleslaw
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
years30; (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 lease31; 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.36chanrobleslaw
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
40
Sales – Chapter 3-12 Cases
and must be supported by a consideration other than the
rental fees provided in the agreement.38chanrobleslaw
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.41chanrobleslaw
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:
chanRoblesvirtualLawlibraryFirst, 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.44chanrobleslaw
THE COURT'S RULING
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or
private, in Filipino hands is the policy consistently adopted
in all three of our constitutions.45 Under the 1935,46
1973,47 and 198748 Constitutions, no private land shall
be transferred, assigned, or conveyed except to
individuals, corporations, or associations qualified to
acquire or hold lands of the public domain. Consequently,
only Filipino citizens, or corporations or associations
whose capital is 60% owned by Filipinos citizens, are
constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided
not only outright conveyances of land to foreigners,49: but
also arrangements where the rights of ownership were
gradually transferred to foreigners.50 In Lui Shui,51 we
considered a 99-year lease agreement, which gave the
foreigner-lessee the option to buy the land and prohibited
the Filipino owner-lessor from selling or otherwise
disposing the land, amounted to -
a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land
(Jus possidendi, jus utendi, jus fruendi, and jus abutendi)
but also of the right to dispose of it (jus disponendi) —
rights the sum total of which make up ownership.52
[Emphasis supplied]
In the present case, PNOC submits that a similar scheme
is apparent from the agreement's terms, but a review of
the overall circumstances leads us to reject PNOC's
claim.
The agreement was executed to enable Keppel to use the
land for its shipbuilding and ship repair business.53 The
industrial/commercial purpose behind the agreement
differentiates the present case from Lui She where the
leased property was primarily devoted to residential
use.54 Undoubtedly, the establishment and operation of a
shipyard business involve significant investments.
Keppel's uncontested testimony showed that it incurred
P60 million costs solely for preliminary activities to make
the land suitable as a shipyard, and subsequently
introduced improvements worth P177 million.55 Taking
these investments into account and the nature of the
business that Keppel conducts on the land, we find it
reasonable that the agreement's terms provided for an
extended duration of the lease and a restriction on the
rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not
completely denied its ownership rights during the course
of the lease. It could dispose of the lands or assign its
rights thereto, provided it secured Keppel's prior written
consent.57 That Lusteveco was able to convey the land in
favour of PNOC during the pendency of the lease58
should negate a finding that the agreement's terms
amounted to a virtual transfer of ownership of the land to
Keppel.
II. The validity of the option contract
II.A
An option contract must be supported by a separate
consideration that is either clearly 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:ChanRoblesVirtualawlibrary
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.59chanrobleslaw
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.63chanrobleslaw
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
41
Sales – Chapter 3-12 Cases
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.67chanrobleslaw
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.72chanrobleslaw
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. CA73 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.75chanrobleslaw
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.80chanrobleslaw
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.83chanrobleslaw
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.
42
Sales – Chapter 3-12 Cases
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.86chanrobleslaw
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.95chanrobleslaw
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.
II. B.
An option, though unsupported by a separate
consideration, remains an offer that, if duly 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.97chanrobleslaw
Sanchez v. Rigos reconciled the apparent conflict
between Articles 1324 and 1479 of the Civil Code, which
are quoted below:ChanRoblesVirtualawlibrary
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. Rigos
harmonised the two provisions, consistent with the
established rules of statutory
construction.99chanrobleslaw
Thus, when an offer is supported by a separate
consideration, a valid option contract exists, i.e., there is a
contracted offer100 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.102chanrobleslaw
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
43
Sales – Chapter 3-12 Cases
2009, Eulogio v Apeles107 referred to Southwestern
Sugar v. AGPC as the controlling doctrine108 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-Suarez109 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.110chanrobleslaw
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.111Sanchez
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.
Rigos remains 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.119chanrobleslaw
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.
III. Keppel's constitutional right to acquire full title to
the land
Filipinization is the spirit that pervades the constitutional
provisions on national patrimony and economy. The
Constitution has reserved the ownership of public and
private lands,120 the ownership and operation of public
utilities,121 and certain areas of investment122 to Filipino
citizens, associations, and corporations. To qualify, sixty
per cent (60%) of the association or corporation's capital
must be owned by Filipino citizens. Although the 60%
Filipino equity proportion has been adopted in our
Constitution since 1935, it was only in 2011 that the Court
interpreted what the term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal
and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino nationals."
124 Clarifying the ruling, the Court decreed that the 60%
Filipino ownership requirement applies separately to each
class of shares, whether with or without voting rights,125
thus:ChanRoblesVirtualawlibrary
Applying uniformly the 60-40 ownership requirement in
favour of Filipino citizens to each class of shares,
regardless of differences in voting rights, privileges and
restrictions, guarantees effective Filipino control of public
utilities, as mandated by the Constitution.126
Although the ruling was made in the context of ownership
and operation of public utilities, the same should be
applied to the ownership of public and private lands, since
the same proportion of Filipino ownership is required and
the same nationalist policy pervades.
The uncontested fact is that, as of November 2000,
Keppel's capital is 60% Filipino-owned.127 However,
there is nothing in the records showing the nature and
composition of Keppel's shareholdings, i.e., whether its
shareholdings are divided into different classes, and 60%
of each share class is legally and beneficially owned by
Filipinos - understandably because when Keppel
exercised its option to buy the land in 2000, the Gamboa
ruling had not yet been promulgated. The Court cannot
deny Keppel its option to buy the land by retroactively
applying the Gamboa ruling without violating Keppel's
vested right. Thus, Keppel's failure to prove the nature
and composition of its shareholdings in 2000 could not
prevent it from validly exercising its option to buy the land.
Nonetheless, the Court cannot completely disregard the
effect of the Gamboa ruling; the 60% Filipino equity
proportion is a continuing requirement to hold land in the
Philippines. Even in Gamboa, the Court prospectively
applied its ruling, thus enabling the public utilities to meet
the nationality requirement before the Securities and
Exchange Commission commences administrative
investigation and cases, and imposes sanctions for
noncompliance on erring corporations.128 In this case,
Keppel must be allowed to prove whether it meets the
required Filipino equity ownership and proportion in
accordance with the Gamboa ruling before it can acquire
full title to the land.
In view of the foregoing, the Court AFFIRMS the decision
dated 19 December 2011 and the resolution dated 14
May 2012 of the CA in CA-G.R. CV No. 86830 insofar as
these rulings uphold the respondent Keppel Philippines
Holdings, Inc.'s option to buy the land, and REMANDS the
case to the Regional Trial Court of Batangas City, Branch
84, for the determination of whether the respondent
Keppel Philippines Holdings, Inc. meets the required
Filipino equity ownership and proportion in accordance
with the Court's ruling in Gamboa v. Teves, to allow it to
acquire full title to the land.
44
Sales – Chapter 3-12 Cases
SO ORDERED.

45
Sales – Chapter 3-12 Cases
POLYTECHNIC UNIVERSITY
OF THE PHILIPPINES,
Petitioner,
- versus -
GOLDEN HORIZON REALTY
CORPORATION,
Respondent.
The above-titled consolidated petitions filed under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, seek to
reverse the Decision[1] dated June 25, 2008 and Resolution
dated August 22, 2008 of the Court of Appeals (CA) in CA-
G.R. CV No. 84399 which affirmed the Decision[2] dated
November 25, 2004 of the Regional Trial Court (RTC) of
Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a
government- owned and controlled corporation, created
under Commonwealth Act No. 182, as amended by Com. Act
No. 311 and Presidential Decree (P.D.) No. 668. Petitioner
Polytechnic University of the Philippines (PUP) is a public,
non-sectarian, non-profit educational institution created in
1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare
property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC Compound and
covered by Transfer Certificate of Title Nos. 92885, 110301
and 145470.
On September 7, 1977, NDC entered into a Contract of
Lease (C-33-77) with Golden Horizon Realty Corporation
(GHRC) over a portion of the property, with an area of 2,407
square meters for a period of ten (10) years, renewable for
another ten (10) years with mutual consent of the parties.[3]
On May 4, 1978, a second Contract of Lease (C-12-78) was
executed between NDC and GHRC covering 3,222.80 square
meters, also renewable upon mutual consent after the
expiration of the ten (10)-year lease period. In addition,
GHRC as lessee was granted the option to purchase the area
leased, the price to be negotiated and determined at the time
the option to purchase is exercised.[4]
Under the lease agreements, GHRC was obliged to construct
at its own expense buildings of strong material at no less than
the stipulated cost, and other improvements which shall
automatically belong to the NDC as lessor upon the
expiration of the lease period. Accordingly, GHRC introduced
permanent improvements and structures as required by the
terms of the contract. After the completion of the industrial
complex project, for which GHRC spent P5 million, it was
leased to various manufacturers, industrialists and other
businessmen thereby generating hundreds of jobs.[5]
On June 13, 1988, before the expiration of the ten (10)-year
period under the second lease contract, GHRC wrote a letter
to NDC indicating its exercise of the option to renew the lease
for another ten (10) years. As no response was received from
NDC, GHRC sent another letter on August 12, 1988,
reiterating its desire to renew the contract and also requesting
for priority to negotiate for its purchase should NDC opt to sell
the leased premises.[6] NDC still did not reply but continued
to accept rental payments from GHRC and allowed the latter
to remain in possession of the property.
Sometime after September 1988, GHRC discovered that
NDC had decided to secretly dispose the property to a third
party. On October 21, 1988, GHRC filed in the RTC a
complaint for specific performance, damages with preliminary
injunction and temporary restraining order.[7]
In the meantime, then President Corazon C. Aquino issued
Memorandum Order No. 214 dated January 6, 1989, ordering
the transfer of the whole NDC Compound to the National
Government, which in turn would convey the said property in
favor of PUP at acquisition cost. The memorandum order
cited the serious need of PUP, considered the Poor Mans
University, to expand its campus, which adjoins the NDC
Compound, to accommodate its growing student population,
and the willingness of PUP to buy and of NDC to sell its
property. The order of conveyance of the 10.31-hectare
property would automatically result in the cancellation of
NDCs total obligation in favor of the National Government in
the amount of P57,193,201.64.[8]
On February 20, 1989, the RTC issued a writ of preliminary
injunction enjoining NDC and its attorneys, representatives,
agents and any other persons assisting it from proceeding
with the sale and disposition of the leased premises.[9]
On February 23, 1989, PUP filed a motion to intervene as
party defendant, claiming that as a purchaser pendente lite of
a property subject of litigation it is entitled to intervene in the
proceedings. The RTC granted the said motion and directed
PUP to file its Answer-in-Intervention.[10]
PUP also demanded that GHRC vacate the premises,
insisting that the latters lease contract had already expired.
Its demand letter unheeded by GHRC, PUP filed an
ejectment case (Civil Case No. 134416) before the
Metropolitan Trial Court (MeTC) of Manila on January 14,
1991.[11]
Due to this development, GHRC filed an Amended and/or
Supplemental Complaint to include as additional defendants
PUP, Honorable Executive Secretary Oscar Orbos and Judge
Ernesto A. Reyes of the Manila MeTC, and to enjoin the
afore-mentioned defendants from prosecuting Civil Case No.
134416 for ejectment. A temporary restraining order was
subsequently issued by the RTC enjoining PUP from
prosecuting and Judge Francisco Brillantes, Jr. from
proceeding with the ejectment case.[12]
In its Second Amended and/or Supplemental Complaint,
GHRC argued that Memorandum Order No. 214 is a nullity,
for being violative of the writ of injunction issued by the trial
court, apart from being an infringement of the Constitutional
prohibition against impairment of obligation of contracts, an
encroachment on legislative functions and a bill of attainder.
In the alternative, should the trial court adjudge the
memorandum order as valid, GHRC contended that its
existing right must still be respected by allowing it to purchase
the leased premises.[13]
Pre-trial was set but was suspended upon agreement of the
parties to await the final resolution of a similar case involving
NDC, PUP and another lessee of NDC, Firestone Ceramics,
Inc. (Firestone), then pending before the RTC of Pasay
City.[14]
On November 14, 2001, this Court rendered a decision in
G.R. Nos. 143513 (Polytechnic University of the Philippines v.
Court of Appeals) and 143590 (National Development
Corporation v. Firestone Ceramics, Inc.),[15] which declared
that the sale to PUP by NDC of the portion leased by
Firestone pursuant to Memorandum Order No. 214 violated
the right of first refusal granted to Firestone under its third
lease contract with NDC. We thus decreed:
WHEREFORE, the petitions in G.R. No. 143513 and G.R.
No. 143590 are DENIED. Inasmuch as the first contract of
lease fixed the area of the leased premises at 2.90118
hectares while the second contract placed it at 2.60 hectares,
let a ground survey of the leased premises be immediately
conducted by a duly licensed, registered surveyor at the
expense of private respondent FIRESTONE CERAMICS,
INC., within two (2) months from the finality of the judgment in
this case. Thereafter, private respondent FIRESTONE
CERAMICS, INC., shall have six (6) months from receipt of
the approved survey within which to exercise its right to
purchase the leased property at P1,500.00 per square meter,
and petitioner Polytechnic University of the Philippines is
ordered to reconvey the property to FIRESTONE
CERAMICS, INC., in the exercise of its right of first refusal
upon payment of the purchase price thereof.
SO ORDERED.[16]
The RTC resumed the proceedings and when mediation and
pre-trial failed to settle the case amicably, trial on the merits
ensued.[17]
On November 25, 2004, the RTC rendered its decision
upholding the right of first refusal granted to GHRC under its
lease contract with NDC and ordering PUP to reconvey the
46
Sales – Chapter 3-12 Cases
said portion of the property in favor of GHRC. The dispositive
portion reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants
ordering the plaintiff to cause immediate ground survey of the
premises subject of the leased contract under Lease Contract
No. C-33-77 and C-12-78 measuring 2,407 and 3,222.8
square meters respectively, by a duly licensed and registered
surveyor at the expense of the plaintiff within two months
from receipt of this Decision and thereafter, the plaintiff shall
have six (6) months from receipt of the approved survey
within which to exercise its right to purchase the leased
property at P554.74 per square meter. And finally, the
defendant PUP, in whose name the property is titled, is
hereby ordered to reconvey the aforesaid property to the
plaintiff in the exercise of its right of its option to buy or first
refusal upon payment of the purchase price thereof.
The defendant NDC is hereby further ordered to pay the
plaintiff attorneys fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed
and this decision shall bind defendant Metropolitan Trial
Court, Branch 20 of Manila.
With costs against defendants NDC and PUP.
SO ORDERED.[18]
NDC and PUP separately appealed the decision to the
CA.[19] By Decision of June 25, 2008, the CA affirmed in toto
the decision of the RTC.[20]
Both the RTC and the CA applied this Courts ruling in
Polytechnic University of the Philippines v. Court of Appeals
(supra), considering that GHRC is similarly situated as a
lessee of NDC whose right of first refusal under the lease
contract was violated by the sale of the property to PUP
without NDC having first offered to sell the same to GHRC
despite the latters request for the renewal of the lease and/or
to purchase the leased premises prior to the expiration of the
second lease contract. The CA further agreed with the RTCs
finding that there was an implied renewal of the lease upon
the failure of NDC to act on GHRCs repeated requests for
renewal of the lease contract, both verbal and written, and
continuing to accept monthly rental payments from GHRC
which was allowed to continue in possession of the leased
premises.
The CA also rejected the argument of NDC and PUP that
even assuming that GHRC had the right of first refusal, said
right pertained only to the second lease contract, C-12-78
covering 3,222.80 square meters, and not to the first lease
contract, C-33-77 covering 2,407 square meters, which had
already expired. It sustained the RTCs finding that the two (2)
lease contracts were interrelated because each formed part
of GHRCs industrial complex, such that business operations
would be rendered useless and inoperative if the first contract
were to be detached from the other, as similarly held in the
afore-mentioned case of Polytechnic University of the
Philippines v. Court of Appeals.
Petitioner PUP argues that respondents right to exercise the
option to purchase had expired with the termination of the
original contract of lease and was not carried over to the
subsequent implied new lease between respondent and
petitioner NDC. As testified to by their witnesses Leticia
Cabantog and Atty. Rhoel Mabazza, there was no agreement
or document to the effect that respondents request for
extension or renewal of the subject contracts of lease for
another ten (10) years was approved by NDC. Hence,
respondent can no longer exercise the option to purchase the
leased premises when the same were conveyed to PUP
pursuant to Memorandum Order No. 214 dated January 6,
1989, long after the expiration of C-33-77 and C-12-78 in
September 1988.[21]
Petitioner PUP further contends that while it is conceded that
there was an implied new lease between respondent and
petitioner NDC after the expiration of the lease contracts, the
same did not include the right of first refusal originally granted
to respondent. The CA should have applied the ruling in
Dizon v. Magsaysay[22] that the lessee cannot any more
exercise its option to purchase after the lapse of the one (1)-
year period of the lease contract. With the implicit renewal of
the lease on a monthly basis, the other terms of the original
contract of lease which are revived in the implied new lease
under Article 1670 of the Civil Code are only those terms
which are germane to the lessees right of continued
enjoyment of the property leased. The provision entitling the
lessee the option to purchase the leased premises is not
deemed incorporated in the impliedly renewed contract
because it is alien to the possession of the lessee.
Consequently, as in this case, respondents right of option to
purchase the leased premises was not violated despite the
impliedly renewed contract of lease with NDC. Respondent
cannot favorably invoke the decision in G.R. Nos. 143513
and 143590 (Polytechnic University of the Philippines v. Court
of Appeals) for the simple reason, among others, that unlike
in said cases, the contracts of lease of respondent with NDC
were not mutually extended or renewed for another ten (10)
years. Thus, when the leased premises were conveyed to
PUP, respondent did not any more have any right of first
refusal, which incidentally appears only in the second lease
contract and not in the first lease contract.[23]
On its part, petitioner NDC assails the CA in holding that the
contracts of lease were impliedly renewed for another ten
(10)-year period. The provisions of C-33-77 and C-12-78
clearly state that the lessee is granted the option to renew for
another ten (10) years with the mutual consent of both
parties. As regards the continued receipt of rentals by NDC
and possession by the respondent of the leased premises,
the impliedly renewed lease was only month-to-month and
not ten (10) years since the rentals are being paid on a
monthly basis, as held in Dizon v. Magsaysay.[24]
Petitioner NDC further faults the CA in sustaining the RTCs
decision which erroneously granted respondent the option to
purchase the leased premises at the rate of P554.74 per
square meter, the same rate for which NDC sold the property
to petitioner PUP and/or the National Government, which is
the mere acquisition cost thereof. It must be noted that such
consideration or rate was imposed by Memorandum Order
No. 214 under the premise that it shall, in effect, be a sale
and/or purchase from one (1) government agency to another.
It was intended merely as a transfer of one (1) user of the
National Government to another, with the beneficiary, PUP in
this case, merely returning to the petitioner/transferor the cost
of acquisition thereof, as appearing on its accounting books.
It does not in any way reflect the true and fair market value of
the property, nor was it a price a willing seller would demand
and accept for parting with his real property. Such benefit,
therefore, cannot be extended to respondent as a private
entity, as the latter does not share the same pocket, so to
speak, with the National Government.[25]
The issue to be resolved is whether or not our ruling in
Polytechnic University of the Philippines v. Court of Appeals
applies in this case involving another lessee of NDC who
claimed that the option to purchase the portion leased to it
was similarly violated by the sale of the NDC Compound in
favor of PUP pursuant to Memorandum Order No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of
Lease shall be in full force and effect for a period of ten (10)
years counted from the effectivity of the payment of rental as
provided under sub-paragraph (b) of Article I, with option to
renew for another ten (10) years with the mutual consent of
both parties. In no case should the rentals be increased by
more than 100% of the original amount fixed.
47
Sales – Chapter 3-12 Cases
Lessee shall also have the option to purchase the area
leased, the price to be negotiated and determined at the time
the option to purchase is exercised. [EMPHASIS SUPPLIED]
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 formers 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.[26] It binds the party, who has given the
option, not to enter into the principal contract with any other
person during the period designated, and, within that period,
to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option.[27]
Upon the other hand, a right of first refusal is a contractual
grant, not of the sale of a property, but of the first priority to
buy the property in the event the owner sells the same.[28]
As distinguished from an option contract, in a right of first
refusal, while the object might be made determinate, the
exercise of the right of first refusal would be dependent not
only on the owners eventual intention to enter into a binding
juridical relation with another but also on terms, including the
price, that are yet to be firmed up.[29]
As the option to purchase clause in the second lease contract
has no definite period within which the leased premises will
be offered for sale to respondent lessee and the price is
made subject to negotiation and determined only at the time
the option to buy is exercised, it is obviously a mere right of
refusal, usually inserted in lease contracts to give the lessee
the first crack to buy the property in case the lessor decides
to sell the same. That respondent was granted a right of first
refusal under the second lease contract appears not to have
been disputed by petitioners. What petitioners assail is the
CAs erroneous conclusion that such right of refusal subsisted
even after the expiration of the original lease period, when
respondent was allowed to continue staying in the leased
premises under an implied renewal of the lease and without
the right of refusal carried over to such month-to-month lease.
Petitioners thus maintain that no right of refusal was violated
by the sale of the property in favor of PUP pursuant to
Memorandum Order No. 214.
Petitioners position is untenable.
When a lease contract contains a right of first refusal, the
lessor has the legal duty to the lessee not to sell the leased
property to anyone at any price until after the lessor has
made an offer to sell the property to the lessee and the
lessee has failed to accept it. Only after the lessee has failed
to exercise his right of first priority could the lessor sell the
property to other buyers under the same terms and conditions
offered to the lessee, or under terms and conditions more
favorable to the lessor.[30]
Records showed that during the hearing on the application for
a writ of preliminary injunction, respondent adduced in
evidence a letter of Antonio A. Henson dated 15 July 1988
addressed to Mr. Jake C. Lagonera, Director and Special
Assistant to Executive Secretary Catalino Macaraeg,
reviewing a proposed memorandum order submitted to
President Corazon C. Aquino transferring the whole NDC
Compound, including the premises leased by respondent, in
favor of petitioner PUP. This letter was offered in evidence by
respondent to prove the existence of documents as of that
date and even prior to the expiration of the second lease
contract or the lapse of the ten (10)-year period counted from
the effectivity of the rental payment -- that is, one hundred
and fifty (150) days from the signing of the contract (May 4,
1978), as provided in Art. I, paragraph (b) of C-12-78, or on
October 1, 1988.
Respondent thus timely exercised its option to purchase on
August 12, 1988. However, considering that NDC had been
negotiating through the National Government for the sale of
the property in favor of PUP as early as July 15, 1988 without
first offering to sell it to respondent and even when
respondent communicated its desire to exercise the option to
purchase granted to it under the lease contract, it is clear that
NDC violated respondents right of first refusal. Under the
premises, the matter of the right of refusal not having been
carried over to the impliedly renewed month-to-month lease
after the expiration of the second lease contract on October
21, 1988 becomes irrelevant since at the time of the
negotiations of the sale to a third party, petitioner PUP,
respondents right of first refusal was still subsisting.
Petitioner NDC in its memorandum contended that the CA
erred in applying the ruling in Polytechnic University of the
Philippines v. Court of Appeals pointing out that the case of
lessee Firestone Ceramics, Inc. is different because the lease
contract therein had not yet expired while in this case
respondents lease contracts have already expired and never
renewed. The date of the expiration of the lease contract in
said case is December 31, 1989 which is prior to the
issuance of Memorandum Order No. 214 on January 6, 1989.
In contrast, respondents lease contracts had already expired
(September 1988) at the time said memorandum order was
issued.[31]
Such contention does not hold water. As already mentioned,
the reckoning point of the offer of sale to a third party was not
the issuance of Memorandum Order No. 214 on January 6,
1989 but the commencement of such negotiations as early as
July 1988 when respondents right of first refusal was still
subsisting and the lease contracts still in force. Petitioner
NDC did not bother to respond to respondents letter of June
13, 1988 informing it of respondents exercise of the option to
renew and requesting to discuss further the matter with NDC,
nor to the subsequent letter of August 12, 1988 reiterating the
request for renewing the lease for another ten (10) years and
also the exercise of the option to purchase under the lease
contract. Petitioner NDC had dismissed these letters as mere
informative in nature, and a request at its best.[32]
Perusal of the letter dated August 12, 1988, however, belies
such claim of petitioner NDC that it was merely informative,
thus:
August 12, 1988
HON. ANTONIO HENSON
General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988
formally advising your goodselves of our intention to exercise
our option for another ten (10) years. Should the National
Development Company opt to sell the property covered by
said leases, we also request for priority to negotiate for its
purchase at terms and/or conditions mutually acceptable.
As a backgrounder, we wish to inform you that since the start
of our lease, we have improved on the property by
constructing bodega-type buildings which presently house all
legitimate trading and manufacturing concerns. These
business are substantial taxpayers, employ not less than 300
employees and contribute even foreign earnings.
It is in this context that we are requesting for the extension of
the lease contract to prevent serious economic disruption and
dislocation of the business concerns, as well as provide
ourselves, the lessee, an opportunity to recoup our
investments and obtain a fair return thereof.
Your favorable consideration on our request will be very
much appreciated.
48
Sales – Chapter 3-12 Cases
very truly yours,
TIU HAN TENG
President[33]
As to petitioners argument that respondents right of first
refusal can be invoked only with respect to the second lease
contract which expressly provided for the option to purchase
by the lessee, and not in the first lease contract which
contained no such clause, we sustain the RTC and CA in
finding that the second contract, covering an area of 3,222.80
square meters, is interrelated to and inseparable from the first
contract over 2,407 square meters. The structures built on the
leased premises, which are adjacent to each other, form part
of an integrated system of a commercial complex leased out
to manufacturers, fabricators and other businesses.
Petitioners submitted a sketch plan and pictures taken of the
driveways, in an effort to show that the leased premises can
be used separately by respondent, and that the two (2) lease
contracts are distinct from each other.[34] Such was a
desperate attempt to downplay the commercial purpose of
respondents substantial improvements which greatly
contributed to the increased value of the leased premises. To
prove that petitioner NDC had considered the leased
premises as a single unit, respondent submitted evidence
showing that NDC issued only one (1) receipt for the rental
payments for the two portions.[35] Respondent further
presented the blueprint plan prepared by its witness, Engr.
Alejandro E. Tinio, who supervised the construction of the
structures on the leased premises, to show the building
concept as a one-stop industrial site and integrated
commercial complex.[36]
In fine, the CA was correct in declaring that there exists no
justifiable reason not to apply the same rationale in
Polytechnic University of the Philippines v. Court of Appeals
in the case of respondent who was similarly prejudiced by
petitioner NDCs sale of the property to PUP, as to entitle the
respondent to exercise its option to purchase until October
1988 inasmuch as the May 4, 1978 contract embodied the
option to renew the lease for another ten (10) years upon
mutual consent and giving respondent the option to purchase
the leased premises for a price to be negotiated and
determined at the time such option was exercised by
respondent. It is to be noted that Memorandum Order No.
214 itself declared that the transfer is subject to such
liens/leases existing [on the subject property]. Thus:
...we now proceed to determine whether FIRESTONE should
be allowed to exercise its right of first refusal over the
property. Such right was expressly stated by NDC and
FIRESTONE in par. XV of their third contract denominated as
A-10-78 executed on 22 December 1978 which, as found by
the courts a quo, was interrelated to and inseparable from
their first contract denominated as C-30-65 executed on 24
August 1965 and their second contract denominated as C-26-
68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during
the term of this Agreement, or any extension thereof, the
LESSOR shall first give to the LESSEE, which shall have the
right of first option to purchase the leased premises subject to
mutual agreement of both parties.
In the instant case, the right of first refusal is an integral and
indivisible part of the contract of lease and is inseparable
from the whole contract. The consideration for the right is
built into the reciprocal obligations of the parties. Thus, it is
not correct for petitioners to insist that there was no
consideration paid by FIRESTONE to entitle it to the exercise
of the right, inasmuch as the stipulation is part and parcel of
the contract of lease making the consideration for the lease
the same as that for the option.
It is a settled principle in civil law that when a lease contract
contains a right of first refusal, the lessor is under a legal duty
to the lessee not to sell to anybody at any price until after he
has made an offer to sell to the latter at a certain price and
the lessee has failed to accept it. The lessee has a right that
the lessors first offer shall be in his favor.
The option in this case was incorporated in the contracts of
lease by NDC for the benefit of FIRESTONE which, in view of
the total amount of its investments in the property, wanted to
be assured that it would be given the first opportunity to buy
the property at a price for which it would be offered.
Consistent with their agreement, it was then implicit for NDC
to have first offered the leased premises of 2.60 hectares to
FIRESTONE prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of first priority could
NDC lawfully sell the property to petitioner PUP.[37]
[EMPHASIS SUPPLIED]
As we further ruled in the afore-cited case, the contractual
grant of a right of first refusal is enforceable, and following an
earlier ruling in Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc.,[38] the execution of such right consists
in directing the grantor to comply with his obligation according
to the terms at which he should have offered the property in
favor of the grantee and at that price when the offer should
have been made. We then determined the proper rate at
which the leased portion should be reconveyed to respondent
by PUP, to whom the lessor NDC sold it in violation of
respondent lessees right of first refusal, as follows:
It now becomes apropos to ask whether the courts a quo
were correct in fixing the proper consideration of the sale at
P1,500.00 per square meter. In contracts of sale, the basis of
the right of first refusal must be the current offer of the seller
to sell or the offer to purchase of the prospective buyer. Only
after the lessee-grantee fails to exercise its right under the
same terms and within the period contemplated can the
owner validly offer to sell the property to a third person, again,
under the same terms as offered to the grantee. It appearing
that the whole NDC compound was sold to PUP for P554.74
per square meter, it would have been more proper for the
courts below to have ordered the sale of the property also at
the same price. However, since FIRESTONE never raised
this as an issue, while on the other hand it admitted that the
value of the property stood at P1,500.00 per square meter,
then we see no compelling reason to modify the holdings of
the courts a quo that the leased premises be sold at that
price.[39] [EMPHASIS SUPPLIED]
In the light of the foregoing, we hold that respondent, which
did not offer any amount to petitioner NDC, and neither
disputed the P1,500.00 per square meter actual value of
NDCs property at that time it was sold to PUP at P554.74 per
square meter, as duly considered by this Court in the
Firestone case, should be bound by such determination.
Accordingly, the price at which the leased premises should be
sold to respondent in the exercise of its right of first refusal
under the lease contract with petitioner NDC, which was
pegged by the RTC at P554.74 per square meter, should be
adjusted to P1,500.00 per square meter, which more
accurately reflects its true value at that time of the sale in
favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot
unilaterally withdraw a right of first refusal that stands upon
valuable consideration.[40] We have categorically ruled that it
is not correct to say that there is no consideration for the
grant of the right of first refusal if such grant is embodied in
the same contract of lease. Since the stipulation forms part of
the entire lease contract, the consideration for the lease
includes the consideration for the grant of the right of first
refusal. In entering into the contract, the lessee is in effect
stating that it consents to lease the premises and to pay the
price agreed upon provided the lessor also consents that,
should it sell the leased property, then, the lessee shall be
given the right to match the offered purchase price and to buy
the property at that price.[41]
49
Sales – Chapter 3-12 Cases
We have further stressed that not even the avowed public
welfare or the constitutional priority accorded to education,
invoked by petitioner PUP in the Firestone case, would serve
as license for us, and any party for that matter, to destroy the
sanctity of binding obligations. While education may be
prioritized for legislative and budgetary purposes, it is
doubtful if such importance can be used to confiscate private
property such as the right of first refusal granted to a lessee
of petitioner NDC.[42] Clearly, no reversible error was
committed by the CA in sustaining respondents contractual
right of first refusal and ordering the reconveyance of the
leased portion of petitioner NDCs property in its favor.
WHEREFORE, the petitions are DENIED. The Decision
dated November 25, 2004 of the Regional Trial Court of
Makati City, Branch 144 in Civil Case No. 88-2238, as
affirmed by the Court of Appeals in its Decision dated June
25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED
with MODIFICATION in that the price to be paid by
respondent Golden Horizon Realty Corporation for the leased
portion of the NDC Compound under Lease Contract Nos. C-
33-77 and C-12-78 is hereby increased to P1,500.00 per
square meter.
No pronouncement as to costs.
SO ORDERED.

50
Sales – Chapter 3-12 Cases
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG,
petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Assailed, in this petition for review, is the decision of the
Court of Appeals, dated 04 December 1991, in CA-G.R. SP
No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-
41058.
The antecedents are recited in good detail by the appellate
court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et
al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and commercial
spaces owned by defendants described as Nos. 630-638
Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the
rental and complying with all the conditions of the lease
contract; that on several occasions before October 9, 1986,
defendants informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same;
that during the negotiations, Bobby Cu Unjieng offered a price
of P6-million while plaintiffs made a counter offer of P5-
million; that plaintiffs thereafter asked the defendants to put
their offer in writing to which request defendants acceded;
that in reply to defendant's letter, plaintiffs wrote them on
October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not
receive any reply, they sent another letter dated January 28,
1987 with the same request; that since defendants failed to
specify the terms and conditions of the offer to sell and
because of information received that defendants were about
to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations
of the complaint and interposing a special defense of lack of
cause of action.
After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court.
The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties 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. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing
the complaint subject to the aforementioned condition that if
the defendants subsequently decide to offer their property for
sale for a purchase price of Eleven Million Pesos or lower,
then the plaintiffs has the option to purchase the property or
of first refusal, otherwise, defendants need not offer the
property to the plaintiffs if the purchase price is higher than
Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on
September 21, 1990 (penned by Justice Segundino G. Chua
and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification
the lower court's judgment, holding:
In resume, there was no meeting of the minds between the
parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground
for its award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is
no genuine issue as to any material fact and the moving party
is entitled to a judgment as a matter of law (Garcia vs. Court
of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject to
the following modification: The court a quo in the aforestated
decision gave the plaintiffs-appellants the right of first refusal
only if the property is sold for a purchase price of Eleven
Million pesos or lower; however, considering the mercurial
and uncertain forces in our market economy today. We find
no reason not to grant the same right of first refusal to herein
appellants in the event that the subject property is sold for a
price in excess of Eleven Million pesos. No pronouncement
as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court
by petition for review on certiorari. The Supreme Court denied
the appeal on May 6, 1991 "for insufficiency in form and
substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of
FIFTEEN MILLION PESOS (P15,000,000.00), receipt of
which in full is hereby acknowledged, the VENDORS hereby
sells, transfers and conveys for and in favor of the VENDEE,
his heirs, executors, administrators or assigns, the above-
described property with all the improvements found therein
including all the rights and interest in the said property free
from all liens and encumbrances of whatever nature, except
the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary
Stamp Tax, registration fees for the transfer of title in his favor
and other expenses incidental to the sale of above-described
property including capital gains tax and accrued real estate
taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of petitioner
on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the
latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner
stating that petitioner brought the property subject to the
notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.
The lessees filed a Motion for Execution dated August 27,
1991 of the Decision in Civil Case No. 87-41058 as modified
by the Court of Appeals in CA-G.R. CV No. 21123.
51
Sales – Chapter 3-12 Cases
On August 30, 1991, respondent Judge issued an order
(Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by
plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were
duly notified in today's consideration of the motion as
evidenced by the rubber stamp and signatures upon the copy
of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in
its decision in CA G.R. CV-21123, and elevated to the
Supreme Court upon the petition for review and that the same
was denied by the highest tribunal in its resolution dated May
6, 1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the aforesaid
modified decision had already become final and executory.
It is the observation of the Court that this property in dispute
was the subject of the Notice of Lis Pendens and that the
modified decision of this Court promulgated by the Court of
Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of
P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right
of first refusal to herein plaintiffs/appellants in the event that
the subject property is sold for a price in excess of Eleven
Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title
be issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in
bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another
order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week
from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of
the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for
the consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and set
aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the
latter and defendants and to register the new title in favor of
the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ
of execution (Annex C, Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by
private respondent, set aside and declared without force and
effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that
Buen Realty can be held bound by the writ of execution by
virtue of the notice of lis pendens, carried over on TCT No.
195816 issued in the name of Buen Realty, at the time of the
latter's purchase of the property on 15 November 1991 from
the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is
the adoption of such arrangements as the right of first refusal,
a purchase option and a contract to sell. For ready reference,
we might point out some fundamental precepts that may find
some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do
(Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a) The
vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the
object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation,
are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157,
Civil Code), which is a meeting of minds between two
persons whereby one binds himself, with respect to the other,
to give something or to render some service (Art. 1305, Civil
Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time
the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected). The
perfection of the contract takes place upon the concurrence
of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery
of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a
solemn contract, compliance with certain formalities
prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form
being thereby an essential element thereof. The stage of
consummation begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation. In
sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain,
to deliver and to transfer ownership of a thing or right to
another, called the buyer, over which the latter agrees. Article
1458 of the Civil Code provides:
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.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force.2 In Dignos vs.
Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is
52
Sales – Chapter 3-12 Cases
still absolute where the contract is devoid of any proviso that
title is reserved or the right to unilaterally rescind is stipulated,
e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery
(e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent
such perfection.3 If the condition is imposed on the obligation
of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as
the object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be
sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what
may properly be termed a perfected contract of option. This
contract is legally binding, and in sales, it conforms with the
second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. ...
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. (1451a)6
Observe, however, that the option is not the contract of sale
itself.7 The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise to
sell and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings.8
Let us elucidate a little. A negotiation is formally initiated by
an offer. An imperfect promise (policitacion) is merely an
offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only
as proposals. These relations, until a contract is perfected,
are not considered binding commitments. Thus, at any time
prior to the perfection of the contract, either negotiating party
may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs. Arias,
43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported
by a consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see
Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua,
102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar vs. Atlantic Gulf,
97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must
not be exercised whimsically or arbitrarily; otherwise, it could
give rise to a damage claim under Article 19 of the Civil Code
which ordains that "every person must, in the exercise of his
rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a
contract of "option" is deemed perfected, and it would be a
breach of that contract to withdraw the offer during the agreed
period. The option, however, is an independent contract by
itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously
yet to be concluded. If, in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages
for breach of the option. In these cases, care should be taken
of the real nature of the consideration given, for if, in fact, it
has been intended to be part of the consideration for the main
contract with a right of withdrawal on the part of the optionee,
the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale
that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an
innovative juridical relation. Needless to point out, it cannot
be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the
purview of an option under the second paragraph of Article
1479, aforequoted, or possibly of an offer under Article 13199
of the same Code. An option or an offer would require,
among other things,10 a clear certainty on both the object
and the cause or consideration of the envisioned contract. In
a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to
enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application,
the pertinent scattered provisions of the Civil Code on human
conduct.
Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach cannot
justify correspondingly an issuance of a writ of execution
under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without
thereby negating the indispensable element of consensuality
in the perfection of contracts.11 It is not to say, however, that
the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article
1912 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be
stressed, has merely accorded a "right of first refusal" in favor
of petitioners. The consequence of such a declaration entails
no more than what has heretofore been said. In fine, if, as it is
here so conveyed to us, petitioners are aggrieved by the
failure of private respondents to honor the right of first refusal,
the remedy is not a writ of execution on the judgment, since
there is none to execute, but an action for damages in a
proper forum for the purpose.
Furthermore, whether private respondent Buen Realty
Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or
not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil
Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from
the ownership and possession of the property, without first
being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of
Appeals has erred in holding that the writ of execution varies
53
Sales – Chapter 3-12 Cases
the terms of the judgment in Civil Case No. 87-41058, later
affirmed in CA-G.R. CV-21123. The Court of Appeals, in this
regard, has observed:

Finally, the questioned writ of execution is in variance with the

decision of the trial court as modified by this Court. As
already stated, there was nothing in said decision 13 that
decreed the execution of a deed of sale between the Cu
Unjiengs and respondent lessees, or the fixing of the price of
the sale, or the cancellation of title in the name of petitioner
(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng
Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137
SCRA 730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case

No. 87-41058 could not have decreed at the time the
execution of any deed of sale between the Cu Unjiengs and
petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in

ultimately setting aside the questioned Orders, dated 30
August 1991 and 27 September 1991, of the court a quo.
Costs against petitioners.

SO ORDERED.

54
Sales – Chapter 3-12 Cases
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED,
petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS,
represented by her attorney-in-fact, LUZ B. PROTACIO,
and DAVID A. RAYMUNDO, respondents.
Do allegations in a complaint showing violation of a
contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action? Is the
grantee of such right entitled to be offered the same terms
and conditions as those given to a third party who eventually
bought such properties? In short, is such right of first refusal
enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court
in resolving this petition for review under Rule 45 of the Rules
of Court challenging the Decision 1 of the Court of Appeals 2
promulgated on March 29, 1993, in CA-G.R. CV No. 34987
entitled "Parañaque Kings Enterprises, Inc. vs. Catalina L.
Santos, et al.," which affirmed the order 3 of September 2,
1991, of the Regional Trial Court of Makati, Branch 57, 4
dismissing Civil Case No. 91-786 for lack of a valid cause of
action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the
Regional Trial Court of Makati a complaint, 5 which is
reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and
existing under and by virtue of the laws of the Philippines,
with principal place of business of (sic) Dr. A. Santos Avenue,
Parañaque, Metro Manila, while defendant Catalina L.
Santos, is of legal age, widow, with residence and postal
address at 444 Plato Street, Ct., Stockton, California, USA,
represented in this action by her attorney-in-fact, Luz B.
Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by
virtue of a general power of attorney. Defendant David A.
Raymundo, is of legal age, single, with residence and postal
address at 1918 Kamias Street, Damariñas Village, Makati,
Metro Manila, where they (sic) may be served with summons
and other court processes. Xerox copy of the general power
of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight
(8) parcels of land located at (sic) Parañaque, Metro Manila
with transfer certificate of title nos. S-19637, S-19638 and S-
19643 to S-19648. Xerox copies of the said title (sic) are
hereto attached as Annexes "B" to "I", respectively.
3. On November 28, 1977, a certain Frederick Chua
leased the above-described property from defendant Catalina
L. Santos, the said lease was registered in the Register of
Deeds. Xerox copy of the lease is hereto attached as Annex
"J".
4. On February 12, 1979, Frederick Chua assigned all
his rights and interest and participation in the leased property
to Lee Ching Bing, by virtue of a deed of assignment and with
the conformity of defendant Santos, the said assignment was
also registered. Xerox copy of the deed of assignment is
hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned
all his rights and interest in the leased property to Parañaque
Kings Enterprises, Incorporated by virtue of a deed of
assignment and with the conformity of defendant Santos, the
same was duly registered, Xerox copy of the deed of
assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract
provides among others that:
"9. That in case the properties subject of the lease
agreement are sold or encumbered, Lessors shall impose as
a condition that the buyer or mortgagee thereof shall
recognize and be bound by all the terms and conditions of
this lease agreement and shall respect this Contract of Lease
as if they are the LESSORS thereof and in case of sale,
LESSEE shall have the first option or priority to buy the
properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the
eight parcels of land subject of the lease to defendant David
Raymundo for a consideration of FIVE MILLION
(P5,000,000.00) PESOS. The said sale was in contravention
of the contract of lease, for the first option or priority to buy
was not offered by defendant Santos to the plaintiff. Xerox
copy of the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter
to the plaintiff informing the same of the sale of the properties
to defendant Raymundo, the said letter was personally
handed by the attorney-in-fact of defendant Santos, Xerox
copy of the letter is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative
wrote a letter to defendant Santos, requesting her to rectify
the error and consequently realizing the error, she had it
reconveyed to her for the same consideration of FIVE
MILLION (P5,000,000.00) PESOS. Xerox copies of the letter
and the deed of reconveyance are hereto attached as
Annexes "O" and "P".
10. Subsequently the property was offered for sale to
plaintiff by the defendant for the sum of FIFTEEN MILLION
(P15,000,000.00) PESOS. Plaintiff was given ten (10) days to
make good of the offer, but therefore (sic) the said period
expired another letter came from the counsel of defendant
Santos, containing the same tenor of (sic) the former letter.
Xerox copies of the letters are hereto attached as Annexes
"Q" and "R".
11. On May 8, 1989, before the period given in the letter
offering the properties for sale expired, plaintiff's counsel
wrote counsel of defendant Santos offering to buy the
properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox
copy of the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the offer to
purchase, another deed of sale was executed by defendant
Santos (in favor of) defendant Raymundo for a consideration
of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the
second deed of sale is hereto attached as Annex "T".
13. Defendant Santos violated again paragraph 9 of the
contract of lease by executing a second deed of sale to
defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos
replied to the letter of the plaintiff's offer to buy or two days
after she sold her properties. In her reply she stated among
others that the period has lapsed and the plaintiff is not a
privy (sic) to the contract. Xerox copy of the letter is hereto
attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed
counsel of defendant Santos of the fact that plaintiff is the
assignee of all rights and interest of the former lessor. Xerox
copy of the letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos
informed the plaintiff that the new owner is defendant
55
Sales – Chapter 3-12 Cases
Raymundo. Xerox copy of the letter is hereto attached as
Annex "W".
17. From the preceding facts it is clear that the sale was
simulated and that there was a collusion between the
defendants in the sales of the leased properties, on the
ground that when plaintiff wrote a letter to defendant Santos
to rectify the error, she immediately have (sic) the property
reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who
represented both of them in their exchange of communication
with plaintiff's counsel, a fact that led to the conclusion that a
collusion exist (sic) between the defendants.
19. When the property was still registered in the name
of defendant Santos, her collector of the rental of the leased
properties was her brother-in-law David Santos and when it
was transferred to defendant Raymundo the collector was still
David Santos up to the month of June, 1990. Xerox copies of
cash vouchers are hereto attached as Annexes "X" to "HH",
respectively.
20. The purpose of this unholy alliance between
defendants Santos and Raymundo is to mislead the plaintiff
and make it appear that the price of the leased property is
much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the
properties at a higher price.
21. Plaintiff has made considerable investments in the
said leased property by erecting a two (2) storey, six (6)
doors commercial building amounting to THREE MILLION
(P3,000,000.00) PESOS. This considerable improvement
was made on the belief that eventually the said premises
shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the
defendants, plaintiff will incurr (sic) total loss of THREE
MILLION (P3,000,000.00) PESOS as the actual cost of the
building and as such defendants should be charged of the
same amount for actual damages.
23. As a consequence of the collusion, evil design and
illegal acts of the defendants, plaintiff in the process suffered
mental anguish, sleepless nights, bismirched (sic) reputation
which entitles plaintiff to moral damages in the amount of
FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, On September 2, 1991, the trial court issued the order
reckless, oppressive or malevolent manner and as a dismissing the complaint for lack of a valid cause of action. It
deterrent to the commission of similar acts, they should be ratiocinated thus:
made to answer for exemplary damages, the amount left to
the discretion of the Court. Upon the very face of the plaintiff's Complaint itself, it
therefore indubitably appears that the defendant Santos had
25. Plaintiff demanded from the defendants to rectify verily complied with paragraph 9 of the Lease Agreement by
their unlawful acts that they committed, but defendants twice offering the properties for sale to the plaintiff for ~1 5 M.
refused and failed to comply with plaintiffs just and valid and The said offers, however, were plainly rejected by the plaintiff
(sic) demands. Xerox copies of the demand letters are hereto which scorned the said offer as "RIDICULOUS". There was
attached as Annexes "KK" to "LL", respectively. therefore a definite refusal on the part of the plaintiff to accept
the offer of defendant Santos. For in acquiring the said
26. Despite repeated demands, defendants failed and properties back to her name, and in so making the offers to
refused without justifiable cause to satisfy plaintiff's claim, sell both by herself (attorney-in-fact) and through her counsel,
and was constrained to engaged (sic) the services of defendant Santos was indeed conscientiously complying with
undersigned counsel to institute this action at a contract fee her obligation under paragraph 9 of the Lease Agreement. . .
of P200,000.00, as and for attorney's fees, exclusive of cost ..
and expenses of litigation.
xxx xxx xxx
PRAYER
This is indeed one instance where a Complaint, after barely
WHEREFORE, it is respectfully prayed, that judgment be commencing to create a cause of action, neutralized itself by
rendered in favor of the plaintiff and against defendants and its subsequent averments which erased or extinguished its
ordering that: earlier allegations of an impending wrong. Consequently,
absent any actionable wrong in the very face of the Complaint
a. The Deed of Sale between defendants dated May itself, the plaintiffs subsequent protestations of collusion is
15, 1989, be annulled and the leased properties be sold to bereft or devoid of any meaning or purpose. . . . .
the plaintiff in the amount of P5,000,000.00;
The inescapable result of the foregoing considerations point
b. Dependants (sic) pay plaintiff the sum of to no other conclusion than that the Complaint actually does
P3,000,000.00 as actual damages; not contain any valid cause of action and should therefore be
as it is hereby ordered DISMISSED. The Court finds no
c. Defendants pay the sum of P5,000,000.00 as moral further need to consider the other grounds of estoppel and
damages; laches inasmuch as this resolution is sufficient to dispose the
matter. 6
d. Defendants pay exemplary damages left to the
discretion of the Court; Petitioners appealed to the Court of Appeals which affirmed
in toto the ruling of the trial court, and further reasoned that:
e. Defendants pay the sum of not less than
P200,000.00 as attorney's fees. . . . . Appellant's protestations that the P15 million price
quoted by appellee Santos was reduced to P9 million when
Plaintiff further prays for other just and equitable reliefs plus she later resold the leased properties to Raymundo has no
cost of suit. valid legal moorings because appellant, as a prospective
buyer, cannot dictate its own price and forcibly ram it against
Instead of filing their respective answers, respondents filed appellee Santos, as owner, to buy off her leased properties
motions to dismiss anchored on the grounds of lack of cause considering the total absence of any stipulation or agreement
of action, estoppel and laches. as to the price or as to how the price should be computed
under paragraph 9 of the lease contract, . . . . 7
56
Sales – Chapter 3-12 Cases
Petitioner moved for reconsideration but was denied in an
order dated August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent
Motion for the Issuance of Restraining Order and/or Writ of
Preliminary Injunction and to Hold Respondent David A.
Raymundo in Contempt of Court." 9 The motion sought to
enjoin respondent Raymundo and his counsel from pursuing
the ejectment complaint filed before the barangay captain of
San Isidro, Parañaque, Metro Manila; to direct the dismissal
of said ejectment complaint or of any similar action that may
have been filed; and to require respondent Raymundo to
explain why he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by respondent
Raymundo against petitioner arose from the expiration of the
lease contract covering the property subject of this case. The
ejectment suit was decided in favor of Raymundo, and the
entry of final judgment in respect thereof renders the said
motion moot and academic.
Issue
The principal legal issue presented before us for resolution is
whether the aforequoted complaint alleging breach of the
contractual right of "first option or priority to buy" states a
valid cause of action.
Petitioner contends that the trial court as well as the appellate
tribunal erred in dismissing the complaint because it in fact
had not just one but at least three (3) valid causes of action,
to wit: (1) breach of contract, (2) its right of first refusal
founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate
comments, aver that the petition should be denied for not
raising a question of law as the issue involved is purely
factual — whether respondent Santos complied with
paragraph 9 of the lease agreement — and for not having
complied with Section 2, Rule 45 of the Rules of Court,
requiring the filing of twelve (12) copies of the petitioner's
brief. Both maintain that the complaint filed by petitioner
before the Regional Trial Court of Makati stated no valid
cause of action and that petitioner failed to substantiate its
claim that the lower courts decided the same "in a way not in
accord with law and applicable decisions of the Supreme
Court"; or that the Court of Appeals has "sanctioned
departure by a trial court from the accepted and usual course
of judicial proceedings" so as to merit the exercise by this
Court of the power of review under Rule 45 of the Rules of
Court. Furthermore, they reiterate estoppel and laches as
grounds for dismissal, claiming that petitioner's payment of
rentals of the leased property to respondent Raymundo from
June 15, 1989, to June 30, 1990, was an acknowledgment of
the latter's status as new owner-lessor of said property, by
virtue of which petitioner is deemed to have waived or
abandoned its first option to purchase.
Private respondents likewise contend that the deed of
assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent
Raymundo further avers that he was not privy to the contract
of lease, being neither the lessor nor lessee adverted to
therein, hence he could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by
respondents, particularly petitioner's failure to file twelve (12)
copies of its brief. We have ruled that when non-compliance
with the Rules was not intended for delay or did not result in
prejudice to the adverse party, dismissal of appeal on mere
technicalities — in cases where appeal is a matter of right —
may be stayed, in the exercise of the court's equity
jurisdiction. 10 It does not appear that respondents were
unduly prejudiced by petitioner's nonfeasance. Neither has it
been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue
involved is purely factual. The principal legal question, as
stated earlier, is whether the complaint filed by herein
petitioner in the lower court states a valid cause of action.
Since such question assumes the facts alleged in the
complaint as true, it follows that the determination thereof is
one of law, and not of facts. There is a question of law in a
given case when the doubt or difference arises as to what the
law is on a certain state of facts, and there is a question of
fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a
motion to dismiss is lack of cause of action, such ground
must appear on the face of the complaint; that to determine
the sufficiency of a cause of action, only the facts alleged in
the complaint and no others should be considered; and that
the test of sufficiency of the facts alleged in a petition or
complaint to constitute a cause of action is whether, admitting
the facts alleged, the court could render a valid judgment
upon the same in accordance with the prayer of the petition
or complaint.
A cause of action exists if the following elements are present:
(1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on
the part of the named defendant to respect or not to violate
such right, and (3) an act or omission on the part of such
defendant violative of the right of plaintiff or constituting a
breach of the obligation of defendant to the plaintiff for which
the latter may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are
sufficient to support a cause of action, it must be borne in
mind that the complaint does not have to establish or allege
facts proving the existence of a cause of action at the outset;
this will have to be done at the trial on the merits of the case.
To sustain a motion to dismiss for lack of cause of action, the
complaint must show that the claim for relief does not exist,
rather than that a claim has been defectively stated, or is
ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint
on the ground of lack of cause of action is regarded as having
hypothetically admitted all the averments thereof. 14
A careful examination of the complaint reveals that it
sufficiently alleges an actionable contractual breach on the
part of private respondents. Under paragraph 9 of the
contract of lease between respondent Santos and petitioner,
the latter was granted the "first option or priority" to purchase
the leased properties in case Santos decided to sell. If Santos
never decided to sell at all, there can never be a breach,
much less an enforcement of such "right." But on September
21, 1988, Santos sold said properties to Respondent
Raymundo without first offering these to petitioner. Santos
indeed realized her error, since she repurchased the
properties after petitioner complained. Thereafter, she offered
to sell the properties to petitioner for P15 million, which
petitioner, however, rejected because of the "ridiculous" price.
But Santos again appeared to have violated the same
provision of the lease contract when she finally resold the
properties to respondent Raymundo for only P9 million
without first offering them to petitioner at such price. Whether
there was actual breach which entitled petitioner to damages
and/or other just or equitable relief, is a question which can
better be resolved after trial on the merits where each party
57
Sales – Chapter 3-12 Cases
can present evidence to prove their respective allegations
and defenses. 15
The trial and appellate courts based their decision to sustain
respondents' motion to dismiss on the allegations of
Parañaque Kings Enterprises that Santos had actually offered
the subject properties for sale to it prior to the final sale in
favor of Raymundo, but that the offer was rejected. According
to said courts, with such offer, Santos had verily complied
with her obligation to grant the right of first refusal to
petitioner.
We hold, however, that in order to have full compliance with
the contractual right granting petitioner the first option to
purchase, the sale of the properties for the amount of P9
million, the price for which they were finally sold to
respondent Raymundo, should have likewise been first
offered to petitioner.
The Court has made an extensive and lengthy discourse on
the concept of, and obligations under, a right of first refusal in
the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that
case, under a contract of lease, the lessees (Raul and
Christopher Bonnevie) were given a "right of first priority" to
purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies was
600,000.00 to be fully paid in cash, less a mortgage lien of
P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00
of which P137,500.00 was to be paid in cash while the
balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy
it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more
favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if
the Bonnevies failed to exercise their right of first priority
could Reynoso thereafter lawfully sell the subject property to
others, and only under the same terms and conditions
previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated
that the Bonnevies could exercise the right of first priority, "all
things and conditions being equal." This Court interpreted this
proviso to mean that there should be identity of terms and
conditions to be offered to the Bonnevies and all other
prospective buyers, with the Bonnevies to enjoy the right of
first priority. We hold that the same rule applies even without
the same proviso if the right of first refusal (or the first option
to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must
be the current offer to sell of the seller or offer to purchase of
any prospective buyer. Only after the optionee fails to
exercise its right of first priority under the same terms and
within the period contemplated, could the owner validly offer
to sell the property to a third person, again, under the same
terms as offered to the optionee.
This principle was reiterated in the very recent case of
Equatorial Realty vs. Mayfair Theater, Inc. 17 which was
decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by
the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject
property, was prejudiced by its sale to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate
within the 30-day stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and
Mayfair provided "that if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially
offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the
property though it invoked the 30-day period. Nothing was
heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased
premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and
Equatorial acted in bad faith: Carmelo for knowingly violating
the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject
property at the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the
Urban Land Reform Law, as another source of its right of first
refusal. It claims to be covered under said law, being the
"rightful occupant of the land and its structures" since it is the
lawful lessee thereof by reason of contract. Under the lease
contract, petitioner would have occupied the property for
fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a
beneficiary under said law, suffice it to say that this Court has
previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the
sale in the exercise of the lessee's right of first refusal to
purchase shall be determined by the Urban Zone
Expropriation and Land Management Committee. Hence, . . .
. certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree." 19
There being no allegation in its complaint that the
prerequisites were complied with, it is clear that the complaint
did fail to state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent
Santos that the assignment of the lease contract to petitioner
did not include the option to purchase. The provisions of the
deeds of assignment with regard to matters assigned were
very clear. Under the first assignment between Frederick
Chua as assignor and Lee Ching Bing as assignee, it was
expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and
ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, . . . . 20
(emphasis supplied)
And under the subsequent assignment executed between
Lee Ching Bing as assignor and the petitioner, represented
by its Vice President Vicenta Lo Chiong, as assignee, it was
likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all
his rights, interest and participation over said leased
premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and,
therefore, in the assignments of rights was the lessee's right
of first option or priority to buy the properties subject of the
lease, as provided in paragraph 9 of the assigned lease
contract. The deed of assignment need not be very specific
as to which rights and obligations were passed on to the
assignee. It is understood in the general provision
aforequoted that all specific rights and obligations contained
in the contract of lease are those referred to as being
assigned. Needless to state, respondent Santos gave her
unqualified conformity to both assignments of rights.
58
Sales – Chapter 3-12 Cases
Respondent Raymundo privy REVERSED and SET ASIDE. The case is REMANDED to
to the Contract of Lease the Regional Trial Court of Makati for further proceedings.

With respect to the contention of respondent Raymundo that SO ORDERED.

he is not privy to the lease contract, not being the lessor nor
the lessee referred to therein, he could thus not have violated
its provisions, but he is nevertheless a proper party. Clearly,
he stepped into the shoes of the owner-lessor of the land as,
by virtue of his purchase, he assumed all the obligations of
the lessor under the lease contract. Moreover, he received
benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of
the sale of the properties to him. Both pleadings also alleged
collusion between him and respondent Santos which
defeated the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner,

respondent Raymundo was a necessary, if not indispensable,
party to the case. 22 A favorable judgment for the petitioner
will necessarily affect the rights of respondent Raymundo as
the buyer of the property over which petitioner would like to
assert its right of first option to buy.

Having come to the conclusion that the complaint states a

valid cause of action for breach of the right of first refusal and
that the trial court should thus not have dismissed the
complaint, we find no more need to pass upon the question of
whether the complaint states a cause of action for damages
or whether the complaint is barred by estoppel or laches. As
these matters require presentation and/or determination of
facts, they can be best resolved after trial on the merits.

While the lower courts erred in dismissing the complaint,

private respondents, however, cannot be denied their day in
court. While, in the resolution of a motion to dismiss, the truth
of the facts alleged in the complaint are theoretically
admitted, such admission is merely hypothetical and only for
the purpose of resolving the motion. In case of denial, the
movant is not to be deprived of the right to submit its own
case and to submit evidence to rebut the allegations in the
complaint. Neither will the grant of the motion by a trial court
and the ultimate reversal thereof by an appellate court have
the effect of stifling such right. 23 So too, the trial court should
be given the opportunity to evaluate the evidence, apply the
law and decree the proper remedy. Hence, we remand the
instant case to the trial court to allow private respondents to
have their day in court.

WHEREFORE, the petition is GRANTED. The assailed

decisions of the trial court and Court of Appeals are hereby
59
Sales – Chapter 3-12 Cases
ROSENCOR DEVELOPMENT CORPORATION and
RENE JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO
BANTUGAN, FERNANDO MAGBANUA and LIZZA
TIANGCO, respondents.
This is a petition for review on certiorari under Rule 45 of
the Rules of Court seeking reversal of the Decision1 of the
Court of Appeals dated June 25, 1999 in CA-G.R. CV No.
53963. The Court of Appeals decision reversed and set
aside the Decision2 dated May 13, 1996 of Branch 217 of
the Regional Trial Court of Quezon City in Civil Case No.
Q-93-18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by
Paterno Inquing, Irene Guillermo and Federico Bantugan,
herein respondents, against Rosencor Development
Corporation (hereinafter "Rosencor"), Rene Joaquin, and
Eufrocina de Leon. Originally, the complaint was one for
annulment of absolute deed of sale but was later
amended to one for rescission of absolute deed of sale. A
complaint-for intervention was thereafter filed by
respondents Fernando Magbanua and Danna Lizza
Tiangco. The complaint-in-intervention was admitted by
the trial court in an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and
adopted by the appellate court, are as follows:
"This action was originally for the annulment of the Deed
of Absolute Sale dated September 4, 1990 between
defendants Rosencor and Eufrocina de Leon but later
amended (sic) praying for the rescission of the deed of
sale.
Plaintiffs and plaintiffs-intervenors averred that they are
the lessees since 1971 of a two-story residential
apartment located at No. 150 Tomas Morato Ave.,
Quezon City covered by TCT No. 96161 and owned by
spouses Faustino and Cresencia Tiangco. The lease was
not covered by any contract. The lessees were renting the
premises then for P150.00 a month and were allegedly
verbally granted by the lessors the pre-emptive right to
purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs
who were represented by Eufrocina de Leon. The lessees
were allegedly promised the same pre-emptive right by
the heirs of Tiangcos since the latter had knowledge that
this right was extended to the former by the late spouses
Tiangcos. The lessees continued to stay in the premises
and allegedly spent their own money amounting from
P50,000.00 to P100,000.00 for its upkeep. These
expenses were never deducted from the rentals which
already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty.
Erlinda Aguila demanding that they vacate the premises
so that the demolition of the building be undertaken. They
refused to leave the premises. In that same month, de
Leon refused to accept the lessees’ rental payment
claiming that they have run out of receipts and that a new
collector has been assigned to receive the payments.
Thereafter, they received a letter from Eufrocina de Leon
offering to sell to them the property they were leasing for
P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for
the amount of P1,000,000.00. De Leon told them that she
will be submitting the offer to the other heirs. Since then,
no answer was given by de Leon as to their offer to buy
the property. However, in November 1990, Rene Joaquin
came to the leased premises introducing himself as its
new owner.
In January 1991, the lessees again received another letter
from Atty. Aguila demanding that they vacate the
premises. A month thereafter, the lessees received a
letter from de Leon advising them that the heirs of the late
spouses Tiangcos have already sold the property to
Rosencor. The following month Atty. Aguila wrote them
another letter demanding the rental payment and
introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had
disregarded the pre-emptive right she and the late
Tiangcos have promised them. They also asked for a
copy of the deed of sale between her and the new owners
thereof but she refused to heed their request. In the same
manner, when they asked Rene Joaquin a copy of the
deed of sale, the latter turned down their request and
instead Atty. Aguila wrote them several letters demanding
that they vacate the premises. The lessees offered to
tender their rental payment to de Leon but she refused to
accept the same.
In April 1992 before the demolition can be undertaken by
the Building Official, the barangay interceded between the
parties herein after which Rosencor raised the issue as to
the rental payment of the premises. It was also at this
instance that the lessees were furnished with a copy of
the Deed of Sale and discovered that they were deceived
by de Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while
de Leon made the offer to them only in October 1990 or
after the sale with Rosencor had been consummated. The
lessees also noted that the property was sold only for
P726,000.00.
The lessees offered to reimburse de Leon the selling price
of P726,000.00 plus an additional P274,000.00 to
complete their P1,000.000.00 earlier offer. When their
offer was refused, they filed the present action praying for
the following: a) rescission of the Deed of Absolute Sale
between de Leon and Rosencor dated September 4,
1990; b) the defendants Rosencor/Rene Joaquin be
ordered to reconvey the property to de Leon; and c) de
Leon be ordered to reimburse the plaintiffs for the repairs
of the property, or apply the said amount as part of the
price for the purchase of the property in the sum of
P100,000.00."4
After trial on the merits, the Regional Trial Court rendered
a Decision5 dated May 13, 1996 dismissing the complaint.
The trial court held that the right of redemption on which
the complaint. The trial court held that the right of
redemption on which the complaint was based was merely
an oral one and as such, is unenforceable under the law.
The dispositive portion of the May 13, 1996 Decision is as
follows:
"WHEREFORE, in view of the foregoing, the Court
DISMISSES the instant action. Plaintiffs and plaintiffs-
intervenors are hereby ordered to pay their respective
monthly rental of P1,000.00 per month reckoned from May
1990 up to the time they leave the premises. No costs.
60
Sales – Chapter 3-12 Cases
SO ORDERED."6
Not satisfied with the decision of the trial court,
respondents herein filed a Notice of Appeal dated June 3,
1996. On the same date, the trial court issued an Order
for the elevation of the records of the case to the Court of
Appeals. On August 8, 1997, respondents filed their
appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its
decision7 reversing the decision of the trial court. The
dispositive portion of the June 25, 1999 decision is as
follows:
"WHEREFORE, premises considered, the appealed
decision (dated May 13, 1996) of the Regional Trial Court
(Branch 217) in Quezon City in Case No. Q-93-18582 is
hereby REVERSED and SET ASIDE. In its stead, a new
one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed
between the appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee
Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru
appellee Eufrocina de Leon, to afford the appellants thirty
days within which to exercise their right of first refusal by
paying the amount of ONE MILLION PESOS
(P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back
rentals from May 1990 up to the time this decision is
promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the
decision of the Court of Appeals but the same was denied
in a Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where
petitioners Rosencor Development Corporation and Rene
Joaquin raise the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE
DEED OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST
ERROR IN MANDATING THAT EUFROCINA DE LEON
AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN
CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS’ RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the
spouses Faustino and Crescencia Tiangco, did not appeal
the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and
the Regional Trial Court relied on Article 1403 of the New
Civil Code, more specifically the provisions on the statute
of frauds, in coming out with their respective decisions.
The trial court, in denying the petition for reconveyance,
held that right of first refusal relied upon by petitioners was
not reduced to writing and as such, is unenforceable by
virtue of the said article. The Court of Appeals, on the
other hand, also held that the statute of frauds governs
the "right of first refusal" claimed by respondents.
However, the appellate court ruled that respondents had
duly proven the same by reason of petitioners’ waiver of
the protection of the statute by reason of their failure to
object to the presentation of oral evidence of the said
right.
Both the appellate court and the trial court failed to
discuss, however, the threshold issue of whether or not a
right of first refusal is indeed covered by the provisions of
the New Civil Code on the statute of frauds. The
resolution of the issue on the applicability of the statute of
frauds is important as it will determine the type of
evidence which may be considered by the trial court as
proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes
which require certain classes of contracts to be in writing.
This statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary
to render it enforceable. Thus, they are included in the
provisions of the New Civil Code regarding unenforceable
contracts, more particularly Art. 1403, paragraph 2. Said
article provides, as follows:
"Art. 1403. The following contracts are unenforceable,
unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
a) An agreement that by its terms is not to be performed
within a year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, of such
things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold,
terms of sale, price, names of purchasers and person on
61
Sales – Chapter 3-12 Cases
whose account the sale is made, it is a sufficient
memorandum;
e) An agreement for the leasing of a longer period than
one year, or for the sale of real property or of an interest
therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury
in the enforcement of obligations depending for their
evidence on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to
be evidenced by a writing signed by the party to be
charged.11 Moreover, the statute of frauds refers to
specific kinds of transactions and cannot apply to any
other transaction that is not enumerated therein.12 The
application of such statute presupposes the existence of a
perfected contract.13
The question now is whether a "right of first refusal" is
among those enumerated in the list of contracts covered
by the Statute of Frauds. More specifically, is a right of
first refusal akin to "an agreement for the leasing of a
longer period than one year, or for the sale of real
property or of an interest therein" as contemplated by
Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting
land" must be put into writing to attain enforceability.14
Thus, we have held that the setting up of boundaries,15
the oral partition of real property16, and an agreement
creating a right of way17 are not covered by the
provisions of the statute of frauds. The reason simply is
that these agreements are not among those enumerated
in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as
unenforceable under the statute of frauds. Furthermore,
the application of Article 1403, par. 2(e) of the New Civil
Code presupposes the existence of a perfected, albeit
unwritten, contract of sale.18 A right of first refusal, such
as the one involved in the instant case, is not by any
means a perfected contract of sale of real property. At
best, it is a contractual grant, not of the sale of the real
property involved, but of the right of first refusal over the
property sought to be sold19.
It is thus evident that the statute of frauds does not
contemplate cases involving a right of first refusal. As
such, a right of first refusal need not be written to be
enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not
respondents have satisfactorily proven their right of first
refusal over the property subject of the Deed of Absolute
Sale dated September 4, 1990 between petitioner
Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the
Court of Appeals that respondents have adequately
proven the existence of their right of first refusal. Federico
Bantugan, Irene Guillermo, and Paterno Inquing uniformly
testified that they were promised by the late spouses
Faustino and Crescencia Tiangco and, later on, by their
heirs a right of first refusal over the property they were
currently leasing should they decide to sell the same.
Moreover, respondents presented a letter20 dated
October 9, 1990 where Eufrocina de Leon, the
representative of the heirs of the spouses Tiangco,
informed them that they had received an offer to buy the
disputed property for P2,000,000.00 and offered to sell
the same to the respondents at the same price if they
were interested. Verily, if Eufrocina de Leon did not
recognize respondents’ right of first refusal over the
property they were leasing, then she would not have
bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence
before the trial court contradicting the existence of the
right of first refusal of respondents over the disputed
property. They only presented petitioner Rene Joaquin,
the vice-president of petitioner Rosencor, who admitted
having no personal knowledge of the details of the sales
transaction between Rosencor and the heirs of the
spouses Tiangco21. They also dispensed with the
testimony of Eufrocina de Leon22 who could have denied
the existence or knowledge of the right of first refusal. As
such, there being no evidence to the contrary, the right of
first refusal claimed by respondents was substantially
proven by respondents before the lower court.
Having ruled upon the question as to the existence of
respondents’ right of first refusal, the next issue to be
answered is whether or not the Court of Appeals erred in
ordering the rescission of the Deed of Absolute Sale dated
September 4, 1990 between Rosencor and Eufrocina de
Leon and in decreeing that the heirs of the spouses
Tiangco should afford respondents the exercise of their
right of first refusal. In other words, may a contract of sale
entered into in violation of a third party’s right of first
refusal be rescinded in order that such third party can
exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the
Court upheld the decision of a lower court ordering the
rescission of a deed of sale which violated a right of first
refusal granted to one of the parties therein. The Court
held:
"xxx Contract of Sale was not voidable but rescissible.
Under Article 1380 to 1381 (3) of the Civil Code, a
contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like
creditors. The status of creditors could be validly accorded
the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by
law to the contracting parties and even to third persons, to
secure reparations for damages caused to them by a
contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior
to the celebration of said contract. It is a relief allowed for
the protection of one of the contracting parties and even
third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right
created by the contract. Rescission implies a contract
which, even if initially valid, produces a lesion or pecuniary
damage to someone that justifies its invalidation for
reasons of equity.
It is true that the acquisition by a third person of the
property subject of the contract is an obstacle to the action
for its rescission where it is shown that such third person
is in lawful possession of the subject of the contract and
that he did not act in bad faith. However, this rule is not
62
Sales – Chapter 3-12 Cases
applicable in the case before us because the petitioner is
not considered a third party in relation to the Contract of
Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the
Contract of Sale. Moreover, the petitioner cannot be
deemed a purchaser in good faith for the record shows
that it categorically admitted that it was aware of the lease
in favor of the Bonnevies, who were actually occupying
the subject property at the time it was sold to it. Although
the occupying the subject property at the time it was sold
to it. Although the Contract of Lease was not annotated on
the transfer certificate of title in the name of the late Jose
Reynoso and Africa Reynoso, the petitioner cannot deny
actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys
the property of another without notice that some other
person has a right to or interest in such property without
and pays a full and fair price for the same at the time of
such purchase or before he has notice of the claim or
interest of some other person in the property. Good faith
connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a
buyer in good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge should
have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its
own interests."
Subsequently24 in Equatorial Realty and Development,
Inc. vs. Mayfair Theater, Inc.25, the Court, en banc, with
three justices dissenting,26 ordered the rescission of a
contract entered into in violation of a right of first refusal.
Using the ruling in Guzman Bocaling & Co., Inc. vs.
Bonnevie as basis, the Court decreed that since
respondent therein had a right of first refusal over the said
property, it could only exercise the said right if the
fraudulent sale is first set aside or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the
two lease contracts, was that Mayfair will have the right of
first refusal in the event Carmelo sells the leased
premises. It is undisputed that Carmelo did recognize this
right of Mayfair, for it informed the latter of its intention to
sell the said property in 1974. There was an exchange of
letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized
Mayfair’s right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair the full
process to ripen to at least an interface of a definite offer
and a possible corresponding acceptance within the "30-
day exclusive option" time granted Mayfair, Carmelo
abandoned negotiations, kept a low profile for some time,
and then sold, without prior notice to Mayfair, the entire
Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding
renders the sale to it of the property in question,
rescissible. We agree with respondent Appellate Court
that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim that to be a purchaser in
good faith, and, therefore, rescission lies.
XX X
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith,
since it was knowingly entered into in violation of the
rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract or lease
prior to the sale. Equatorial’s knowledge of the stipulations
therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that
would prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise
the right only if the fraudulent sale is first set aside or
rescinded. All of these matters are now before us and so
there should be no piecemeal determination of this case
and leave festering sores to deteriorate into endless
litigation. The facts of the case and considerations of
justice and equity require that we order rescission here
and now. Rescission is a relief allowed for the protection
of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the
contract. The sale of the subject real property should now
be rescinded considering that Mayfair, which had
substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of
Appeals,28 the Court held that the allegations in a
complaint showing violation of a contractual right of "first
option or priority to buy the properties subject of the lease"
constitute a valid cause of action enforceable by an action
for specific performance. Summarizing the rulings in the
two previously cited cases, the Court affirmed the nature
of and concomitant rights and obligations of parties under
a right of first refusal. Thus:
"We hold however, that in order to have full compliance
with the contractual right granting petitioner the first option
to purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to
respondent Raymundo, should have likewise been offered
to petitioner.
The Court has made an extensive and lengthy discourse
on the concept of, and obligations under, a right of first
refusal in the case of Guzman, Bocaling & Co. vs.
Bonnevie. In that case, under a contract of lease, the
lessees (Raul and Christopher Bonnevie) were given a
"right of first priority" to purchase the leased property in
case the lessor (Reynoso) decided to sell. The selling
price quoted to the Bonnevies was 600,000.00 to be fully
paid in cash, less a mortgage lien of P100,000.00. On the
other hand, the selling price offered by Reynoso to and
accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance
was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not
buy it at the price quoted (P600,000.00), nonetheless,
Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first
offering said favorable terms and price to the Bonnevies
as well. Only if the Bonnevies failed to exercise their right
of first priority could Reynoso thereafter lawfully sell the
subject property to others, and only under the same terms
and conditions previously offered to the Bonnevies.
63
Sales – Chapter 3-12 Cases
X X X right of first refusal. L&R Corporation is in effect stating
This principle was reiterated in the very recent case of
Equatorial Realty vs. Mayfair Theater, Inc. which was
decided en banc. This Court upheld the right of first
refusal of the lessee Mayfair, and rescinded the sale of
the property by the lessor Carmelo to Equatorial Realty
"considering that Mayfair, which had substantial interest
over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated
period"
In that case, two contracts of lease between Carmelo and
Mayfair provided "that if the LESSOR should desire to sell
the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially
offered to sell the leased property to Mayfair for six to
seven million pesos. Mayfair indicated interest in
purchasing the property though it invoked the 30-day
period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue
property, including the leased premises, to Equatorial for
P11,300,000.00 without priorly informing Mayfair. The
Court held that both Carmelo and Equatorial acted in bad
faith: Carmelo or knowingly violating the right of first
option of Mayfair, and Equatorial for purchasing the
property despite being aware of the contract stipulation. In
addition to rescission of the contract of sale, the Court
ordered Carmelo to allow Mayfair to buy the subject
property at the same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the
Court, also citing the case of Guzman, Bocaling & Co. vs.
Bonnevie, held that the sale made therein in violation of a
right of first refusal embodied in a mortgage contract, was
rescissible. Thus:
"While petitioners question the validity of paragraph 8 of
their mortgage contract, they appear to be silent insofar as
paragraph 9 thereof is concerned. Said paragraph 9
grants upon L&R Corporation the right of first refusal over
the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this
provision. The right of first refusal has long been
recognized as valid in our jurisdiction. The consideration
for the loan mortgage includes the consideration for the
that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property
mortgaged to it, then L&R Corporation shall be given the
right to match the offered purchase price and to buy the
property at that price. Thus, while the spouses Litonjua
had every right to sell their mortgaged property to PWHAS
without securing the prior written consent of L&R
Corporation, they had the obligation under paragraph 9,
which is a perfectly valid provision, to notify the latter of
their intention to sell the property and give it priority over
other buyers. It is only upon the failure of L&R Corporation
to exercise its right of first refusal could the spouses
Litonjua validly sell the subject properties to the others,
under the same terms and conditions offered to L&R
Corporation.
What then is the status of the sale made to PWHAS in
violation of L & R Corporation’s contractual right of first
refusal? On this score, we agree with the Amended
Decision of the Court of Appeals that the sale made to
PWHAS is rescissible. The case of Guzman, Bocaling &
Co. v. Bonnevie is instructive on this point.
X X X things which are the object of the contract are legally in
It was then held that the Contract of Sale there, which
violated the right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the
right of first refusal granted to L & R Corporation over the
subject properties since the Deed of Real Estate
Mortgage containing such a provision was duly registered
with the Register of Deeds. As such, PWHAS is presumed
to have been notified thereof by registration, which
equates to notice to the whole world.
X X X
All things considered, what then are the relative rights and
obligations of the parties? To recapitulate: the sale
between the spouses Litonjua and PWHAS is valid,
notwithstanding the absence of L & R Corporation’s prior
written consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the
redemption price, as successor-in-interest of the spouses
Litonjua, within the one-year period should have been
accepted as valid by the L & R Corporation. However,
while the sale is, indeed, valid, the same is rescissible
because it ignored L & R Corporation’s right of first
refusal."
Thus, the prevailing doctrine, as enunciated in the cited
cases, is that a contract of sale entered into in violation of
a right of first refusal of another person, while valid, is
rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the
cases cited above, the Court ordered the rescission of
sales made in violation of a right of first refusal precisely
because the vendees therein could not have acted in
good faith as they were aware or should have been aware
of the right of first refusal granted to another person by the
vendors therein. The rationale for this is found in the
provisions of the New Civil Code on rescissible contracts.
Under Article 1381 of the New Civil Code, paragraph 3, a
contract validly agreed upon may be rescinded if it is
"undertaken in fraud of creditors when the latter cannot in
any manner collect the claim due them." Moreover, under
Article 1385, rescission shall not take place "when the
the possession of third persons who did not act in bad
faith."30
It must be borne in mind that, unlike the cases cited
above, the right of first refusal involved in the instant case
was an oral one given to respondents by the deceased
spouses Tiangco and subsequently recognized by their
heirs. As such, in order to hold that petitioners were in bad
faith, there must be clear and convincing proof that
petitioners were made aware of the said right of first
refusal either by the respondents or by the heirs of the
spouses Tiangco.
It is axiomatic that good faith is always presumed unless
contrary evidence is adduced.31 A purchaser in good faith
is one who buys the property of another without notice
that some other person has a right or interest in such a
property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of
some other person in the property.32 In this regard, the
rule on constructive notice would be inapplicable as it is
64
Sales – Chapter 3-12 Cases
undisputed that the right of first refusal was an oral one
and that the same was never reduced to writing, much
less registered with the Registry of Deeds. In fact, even
the lease contract by which respondents derive their right
to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to
show that petitioners acted in bad faith in entering into the
deed of sale over the disputed property with the heirs of
the spouses Tiangco. Respondents failed to present any
evidence that prior to the sale of the property on
September 4, 1990, petitioners were aware or had notice
of the oral right of first refusal.
Respondents point to the letter dated June 1, 199033 as
indicative of petitioners’ knowledge of the said right. In this
letter, a certain Atty. Erlinda Aguila demanded that
respondent Irene Guillermo vacate the structure they were
occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on
the part of the petitioner. No mention is made of the right
of first refusal granted to respondents. The name of
petitioner Rosencor or any of it officers did not appear on
the letter and the letter did not state that Atty. Aguila was
writing in behalf of petitioner. In fact, Atty. Aguila stated
during trial that she wrote the letter in behalf of the heirs of
the spouses Tiangco. Moreover, even assuming that Atty.
Aguila was indeed writing in behalf of petitioner Rosencor,
there is no showing that Rosencor was aware at that time
that such a right of first refusal existed.
Neither was there any showing that after receipt of this
June 1, 1990 letter, respondents notified Rosencor or Atty.
Aguila of their right of first refusal over the property.
Respondents did not try to communicate with Atty. Aguila
and inform her about their preferential right over the
disputed property. There is even no showing that they
contacted the heirs of the spouses Tiangco after they
received this letter to remind them of their right over the
property.
Respondents likewise point to the letter dated October 9,
1990 of Eufrocina de Leon, where she recognized the
right of first refusal of respondents, as indicative of the
bad faith of petitioners. We do not agree. Eufrocina de
Leon wrote the letter on her own behalf and not on behalf
of petitioners and, as such, it only shows that Eufrocina de SET ASIDE. The Decision dated May 13, 1996 of the
Leon was aware of the existence of the oral right of first Quezon City Regional Trial Court, Branch 217 is hereby
refusal. It does not show that petitioners were likewise REINSTATED insofar as it dismisses the action for
aware of the existence of the said right. Moreover, the rescission of the Deed of Absolute Sale dated September
letter was made a month after the execution of the Deed 4, 1990 and orders the payment of monthly rentals of
of Absolute Sale on September 4, 1990 between P1,000.00 per month reckoned from May 1990 up to the
petitioner Rosencor and the heirs of the spouses Tiangco. time respondents leave the premises.
There is no showing that prior to the date of the execution
of the said Deed, petitioners were put on notice of the SO ORDERED.
existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents’ evidence, it would only be on the part of
Eufrocina de Leon as she was aware of the right of first
refusal of respondents yet she still sold the disputed
property to Rosencor. However, bad faith on the part of
Eufrocina de Leon does not mean that petitioner
Rosencor likewise acted in bad faith. There is no showing
that prior to the execution of the Deed of Absolute Sale,
petitioners were made aware or put on notice of the
existence of the oral right of first refusal. Thus, absent
clear and convincing evidence to the contrary, petitioner
Rosencor will be presumed to have acted in good faith in
entering into the Deed of Absolute Sale over the disputed
property.
Considering that there is no showing of bad faith on the
part of the petitioners, the Court of Appeals thus erred in
ordering the rescission of the Deed of Absolute Sale dated
September 4, 1990 between petitioner Rosencor and the
heirs of the spouses Tiangco. The acquisition by
Rosencor of the property subject of the right of first refusal
is an obstacle to the action for its rescission where, as in
this case, it was shown that Rosencor is in lawful
possession of the subject of the contract and that it did not
act in bad faith.34
This does not mean however that respondents are left
without any remedy for the unjustified violation of their
right of first refusal. Their remedy however is not an action
for the rescission of the Deed of Absolute Sale but an
action for damages against the heirs of the spouses
Tiangco for the unjustified disregard of their right of first
refusal35.
WHEREFORE, premises considered, the decision of the
Court of Appeals dated June 25, 1999 is REVERSED and
65
Sales – Chapter 3-12 Cases
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ,
petitioners,
vs.
AYALA CORPORATION, respondent.
The rise in value of four lots in one of the country's prime
residential developments, Ayala Alabang Village in
Muntinlupa City, over a period of six (6) years only,
represents big money. The huge price difference lies at the
heart of the present controversy. Petitioners insist that the
lots should be sold to them at 1984 prices while respondent
maintains that the prevailing market price in 1990 should be
the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this
Petition for Review on Certiorari2 dated October 11, 2001
assailing the Decision3 of the Court of Appeals dated
September 6, 2001 which reversed the Decision4 of the
Regional Trial Court (RTC) and dismissed their complaint for
specific performance and damages against Ayala
Corporation.
Despite their disparate rulings, the RTC and the appellate
court agree on the following antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M.
Vasquez (hereafter, Vasquez spouses) entered into a
Memorandum of Agreement (MOA) with Ayala Corporation
(hereafter, AYALA) with AYALA buying from the Vazquez
spouses, all of the latter's shares of stock in Conduit
Development, Inc. (hereafter, Conduit). The main asset of
Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit
under a development plan where the land was divided into
Villages 1, 2 and 3 of the "Don Vicente Village." The
development was then being undertaken for Conduit by G.P.
Construction and Development Corp. (hereafter, GP
Construction).
Under the MOA, Ayala was to develop the entire property,
less what was defined as the "Retained Area" consisting of
18,736 square meters. This "Retained Area" was to be
retained by the Vazquez spouses. The area to be developed
by Ayala was called the "Remaining Area". In this "Remaining
Area" were 4 lots adjacent to the "Retained Area" and Ayala
agreed to offer these lots for sale to the Vazquez spouses at
the prevailing price at the time of purchase. The relevant
provisions of the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the
'Remaining Property' into a first class residential subdivision
of the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended
development plan within three (3) years from the date of this
Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option
to purchase four developed lots next to the "Retained Area"
at the prevailing market price at the time of the purchase."
The parties are agreed that the development plan referred to
in paragraph 5.7 is not Conduit's development plan, but
Ayala's amended development plan which was still to be
formulated as of the time of the MOA. While in the Conduit
plan, the 4 lots to be offered for sale to the Vasquez Spouses
were in the first phase thereof or Village 1, in the Ayala plan
which was formulated a year later, it was in the third phase,
or Phase II-c.
Under the MOA, the Vasquez spouses made several express
warranties, as follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary
and Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the
Company has pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at
Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are
subject to fulfillment prior to or at the Closing, of the following
conditions:
4.1. The representations and warranties by the SELLERS
contained in this Agreement shall be true and correct at the
time of Closing as though such representations and
warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to
the BUYER that at the time of the execution of this
Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or
to the knowledge of the SELLERS, threatened against or
affecting the SELLERS with respect to the Shares or the
Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements
required to be submitted at Closing in accordance with Par.
3.1.5 above, the SELLER jointly and severally warrant to the
BUYER that:
7.1.1 The said Audited Financial Statements shall show that
on the day of Closing, the Company shall own the
"Remaining Property", free from all liens and encumbrances
and that the Company shall have no obligation to any party
except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for
which BUYER shall be responsible in accordance with Par. 2
of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and
those disclosed to BUYER, the Company as of the date
thereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the
Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to
know of any basis for any assertion against the Company as
at closing or any liability of any nature and in any amount not
fully reflected or reserved against such Audited Financial
Statements referred to above, and those disclosed to
BUYER.
xxx xxx xxx
66
Sales – Chapter 3-12 Cases
7.6.3 Except as otherwise disclosed to the BUYER in writing
on or before the Closing, the Company is not engaged in or a
party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before
any court or administrative body, nor do the SELLERS know
or have reasonable grounds to know of any basis for any
such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or
breach exists in the due performance and observance by the
Company of any term, covenant or condition of any
instrument or agreement to which the company is a party or
by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default or
breach."
After the execution of the MOA, Ayala caused the suspension
of work on Village 1 of the Don Vicente Project. Ayala then
received a letter from one Maximo Del Rosario of Lancer
General Builder Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as the subcontractor of
G.P. Construction...
G.P. Construction not being able to reach an amicable
settlement with Lancer, on March 22, 1982, Lancer sued G.P.
Construction, Conduit and Ayala in the then Court of First
Instance of Manila in Civil Case No. 82-8598. G.P.
Construction in turn filed a cross-claim against Ayala. G.P.
Construction and Lancer both tried to enjoin Ayala from
undertaking the development of the property. The suit was
terminated only on February 19, 1987, when it was dismissed
with prejudice after Ayala paid both Lancer and GP
Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots
adjacent to the "Retained Area" within 3 years from the date
of the MOA, the Vasquez spouses sent several "reminder"
letters of the approaching so-called deadline. However, no
demand after April 23, 1984, was ever made by the Vasquez
spouses for Ayala to sell the 4 lots. On the contrary, one of
the letters signed by their authorized agent, Engr. Eduardo
Turla, categorically stated that they expected "development of
Phase 1 to be completed by February 19, 1990, three years
from the settlement of the legal problems with the previous
contractor."
By early 1990 Ayala finished the development of the vicinity
of the 4 lots to be offered for sale. The four lots were then
offered to be sold to the Vasquez spouses at the prevailing
price in 1990. This was rejected by the Vasquez spouses who
wanted to pay at 1984 prices, thereby leading to the suit
below.
After trial, the court a quo rendered its decision, the
dispositive portion of which states:
"THEREFORE, judgment is hereby rendered in favor of
plaintiffs and against defendant, ordering defendant to sell to
plaintiffs the relevant lots described in the Complaint in the
Ayala Alabang Village at the price of P460.00 per square
meter amounting to P1,349,540.00; ordering defendant to
reimburse to plaintiffs attorney's fees in the sum of
P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez
spouses were not obligated to disclose the potential claims of
GP Construction, Lancer and Del Rosario; Ayala's
accountants should have opened the records of Conduit to
find out all claims; the warranty against suit is with respect to
"the shares of the Property" and the Lancer suit does not
affect the shares of stock sold to Ayala; Ayala was obligated
to develop within 3 years; to say that Ayala was under no
obligation to follow a time frame was to put the Vasquezes at
Ayala's mercy; Ayala did not develop because of a slump in
the real estate market; the MOA was drafted and prepared by
the AYALA who should suffer its ambiguities; the option to
purchase the 4 lots is valid because it was supported by
consideration as the option is incorporated in the MOA where
the parties had prestations to each other. [Emphasis
supplied]
Ayala Corporation filed an appeal, alleging that the trial court
erred in holding that petitioners did not breach their
warranties under the MOA6 dated April 23, 1981; that it was
obliged to develop the land where the four (4) lots subject of
the option to purchase are located within three (3) years from
the date of the MOA; that it was in delay; and that the option
to purchase was valid because it was incorporated in the
MOA and the consideration therefor was the commitment by
Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the
RTC Decision. According to the appellate court, Ayala
Corporation was never informed beforehand of the existence
of the Lancer claim. In fact, Ayala Corporation got a copy of
the Lancer subcontract only on May 29, 1981 from G.P.
Construction's lawyers. The Court of Appeals thus held that
petitioners violated their warranties under the MOA when they
failed to disclose Lancer's claims. Hence, even conceding
that Ayala Corporation was obliged to develop and sell the
four (4) lots in question within three (3) years from the date of
the MOA, the obligation was suspended during the pendency
of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the
appellate court held that Ayala Corporation committed to
develop the first phase of its own amended development plan
and not Conduit's development plan. Nowhere does the MOA
provide that Ayala Corporation shall follow Conduit's
development plan nor is Ayala Corporation prohibited from
changing the sequence of the phases of the property it will
develop.
Anent the question of delay, the Court of Appeals ruled that
there was no delay as petitioners never made a demand for
Ayala Corporation to sell the subject lots to them. According
to the appellate court, what petitioners sent were mere
reminder letters the last of which was dated prior to April 23,
1984 when the obligation was not yet demandable. At any
rate, the Court of Appeals found that petitioners in fact waived
the three (3)-year period when they sent a letter through their
agent, Engr. Eduardo Turla, stating that they "expect that the
development of Phase I will be completed by 19 February
1990, three years from the settlement of the legal problems
with the previous contractor."7
The appellate court likewise ruled that paragraph 5.15 above-
quoted is not an option contract but a right of first refusal
there being no separate consideration therefor. Since
petitioners refused Ayala Corporation's offer to sell the
subject lots at the reduced 1990 price of P5,000.00 per
square meter, they have effectively waived their right to buy
the same.
In the instant Petition, petitioners allege that the appellate
court erred in ruling that they violated their warranties under
the MOA; that Ayala Corporation was not obliged to develop
the "Remaining Property" within three (3) years from the
execution of the MOA; that Ayala was not in delay; and that
paragraph 5.15 of the MOA is a mere right of first refusal.
Additionally, petitioners insist that the Court should review the
factual findings of the Court of Appeals as they are in conflict
with those of the trial court.
Ayala Corporation filed a Comment on the Petition8 dated
March 26, 2002, contending that the petition raises questions
of fact and seeks a review of evidence which is within the
domain of the Court of Appeals. Ayala Corporation maintains
67
Sales – Chapter 3-12 Cases
that the subcontract between GP Construction, with whom
Conduit contracted for the development of the property under
a Construction Contract dated October 10, 1980, and Lancer
was not disclosed by petitioners during the negotiations.
Neither was the liability for Lancer's claim included in the
Audited Financial Statements submitted by petitioners after
the signing of the MOA. These justify the conclusion that
petitioners breached their warranties under the afore-quoted
paragraphs of the MOA. Since the Lancer suit ended only in
February 1989, the three (3)-year period within which Ayala
Corporation committed to develop the property should only be
counted thence. Thus, when it offered the subject lots to
petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action
or proceeding against them at the time of the execution of the
MOA on April 23, 1981, Ayala Corporation avers that the
facts and circumstances which gave rise to the Lancer claim
were already extant then. Petitioners warranted that their
representations under the MOA shall be true and correct at
the time of "Closing" which shall take place within four (4)
weeks from the signing of the MOA.9 Since the MOA was
signed on April 23, 1981, "Closing" was approximately the
third week of May 1981. Hence, Lancer's claims, articulated
in a letter which Ayala Corporation received on May 4, 1981,
are among the liabilities warranted against under paragraph
7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties
under the MOA are not just against suits but against all kinds
of liabilities not reflected in the Audited Financial Statements.
It cannot be faulted for relying on the express warranty that
except for billings payable to GP Construction and advances
made by petitioner Daniel Vazquez in the amount of
P38,766.04, Conduit has no other liabilities. Hence,
petitioners cannot claim that Ayala Corporation should have
examined and investigated the Audited Financial Statements
of Conduit and should now assume all its obligations and
liabilities including the Lancer suit and the cross-claim of GP
Construction.
Furthermore, Ayala Corporation did not make a commitment
to complete the development of the first phase of the property
within three (3) years from the execution of the MOA. The
provision refers to a mere declaration of intent to develop the
first phase of its (Ayala Corporation's) own development plan
and not Conduit's. True to its intention, Ayala Corporation did
complete the development of the first phase (Phase II-A) of
its amended development plan within three (3) years from the
execution of the MOA. However, it is not obliged to develop
the third phase (Phase II-C) where the subject lots are
located within the same time frame because there is no
contractual stipulation in the MOA therefor. It is free to decide
on its own the period for the development of Phase II-C. If
petitioners wanted to impose the same three (3)-year
timetable upon the third phase of the amended development
plan, they should have filed a suit to fix the time table in
accordance with Article 119710 of the Civil Code. Having
failed to do so, Ayala Corporation cannot be declared to have
been in delay.
Ayala Corporation further contends that no demand was
made on it for the performance of its alleged obligation. The
letter dated October 4, 1983 sent when petitioners were
already aware of the Lancer suit did not demand the delivery
of the subject lots by April 23, 1984. Instead, it requested
Ayala Corporation to keep petitioners posted on the status of
the case. Likewise, the letter dated March 4, 1984 was
merely an inquiry as to the date when the development of
Phase 1 will be completed. More importantly, their letter
dated June 27, 1988 through Engr. Eduardo Turla expressed
petitioners' expectation that Phase 1 will be completed by
February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of
the MOA is a right of first refusal and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002
reiterating the arguments in their Petition and contending
further that they did not violate their warranties under the
MOA because the case was filed by Lancer only on April 1,
1982, eleven (11) months and eight (8) days after the signing
of the MOA on April 23, 1981. Ayala Corporation admitted
that it received Lancer's claim before the "Closing" date. It
therefore had all the time to rescind the MOA. Not having
done so, it can be concluded that Ayala Corporation itself did
not consider the matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial
Statements of Conduit and allowed an acquisition audit to be
conducted by Ayala Corporation. Thus, the latter bought
Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the
impending case against Conduit at the time of the execution
of the MOA. Further, the MOA makes Ayala Corporation
liable for the payment of all billings of GP Construction. Since
Lancer's claim was actually a claim against GP Construction
being its sub-contractor, it is Ayala Corporation and not
petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation
may change the sequence of its development plan, it is
obliged under the MOA to develop the entire area where the
subject lots are located in three (3) years.
They also assert that demand was made on Ayala
Corporation to comply with their obligation under the MOA.
Apart from their reminder letters dated January 24, February
18 and March 5, 1984, they also sent a letter dated March 4,
1984 which they claim is a categorical demand for Ayala
Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective
memoranda in the Resolution12 dated November 18, 2002.
In compliance with this directive, petitioners submitted their
Memorandum13 dated February 14, 2003 on even date,
while Ayala Corporation filed its Memorandum14 dated
February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the
instant petition.
It is well-settled that the jurisdiction of this Court in cases
brought to it from the Court of Appeals by way of petition for
review under Rule 45 is limited to reviewing or revising errors
of law imputed to it, its findings of fact being conclusive on
this Court as a matter of general principle. However, since in
the instant case there is a conflict between the factual
findings of the trial court and the appellate court, particularly
as regards the issues of breach of warranty, obligation to
develop and incurrence of delay, we have to consider the
evidence on record and resolve such factual issues as an
exception to the general rule.15 In any event, the submitted
issue relating to the categorization of the right to purchase
granted to petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners
breached their warranties under the MOA when they failed to
disclose the Lancer claim. The trial court declared they did
not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which
petitioners allegedly breached when they failed to disclose
the Lancer claim:
a) Clause 7.1.1. – that Conduit shall not be obligated to
anyone except to GP Construction for P38,766.04, and for
advances made by Daniel Vazquez;
68
Sales – Chapter 3-12 Cases
b) Clause 7.1.2. – that except as reflected in the audited
financial statements Conduit had no other liabilities whether
accrued, absolute, contingent or otherwise;
c) Clause 7.2. – that there is no basis for any assertion
against Conduit of any liability of any value not reflected or
reserved in the financial statements, and those disclosed to
Ayala;
d) Clause 7.6.3. – that Conduit is not threatened with any
legal action or other proceedings; and
e) Clause 7.6.4. – that Conduit had not breached any term,
condition, or covenant of any instrument or agreement to
which it is a party or by which it is bound.16
The Court is convinced that petitioners did not violate the
foregoing warranties.
The exchanges of communication between the parties
indicate that petitioners substantially apprised Ayala
Corporation of the Lancer claim or the possibility thereof
during the period of negotiations for the sale of Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez
reminded Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte)
that prior to the completion of the sale of Conduit, Ayala
Corporation asked for and was given information that GP
Construction sub-contracted, presumably to Lancer, a greater
percentage of the project than it was allowed. Petitioners
gave this information to Ayala Corporation because the latter
intimated a desire to "break the contract of Conduit with GP."
Ayala Corporation did not deny this. In fact, Mr. Duarte's
letter18 dated March 6, 1984 indicates that Ayala Corporation
had knowledge of the Lancer subcontract prior to its
acquisition of Conduit. Ayala Corporation even admitted that
it "tried to explore…legal basis to discontinue the contract of
Conduit with GP" but found this "not feasible when
information surfaced about the tacit consent of Conduit to the
sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer
claim before the date of Closing of the MOA. Lancer's letter19
dated April 30, 1981 informing Ayala Corporation of its
unsettled claim with GP Construction was received by Ayala
Corporation on May 4, 1981, well before the "Closing"20
which occurred four (4) weeks after the date of signing of the
MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted
hereunder likewise indicate that certain matters pertaining to
the liabilities of Conduit were disclosed by petitioners to Ayala
Corporation although the specifics thereof were no longer
included in the MOA:
7.1.1 The said Audited Financial Statements shall show that
on the day of Closing, the Company shall own the
"Remaining Property", free from all liens and encumbrances
and that the Company shall have no obligation to any party
except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for
which BUYER shall be responsible in accordance with
Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and
those disclosed to BUYER, the Company as of the date
hereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the
Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to
know of any basis for any assertion against the Company as
at Closing of any liability of any nature and in any amount not
fully reflected or reserved against such Audited Financial
Statements referred to above, and those disclosed to
BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing
on or before the Closing, the Company is not engaged in or a
party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before
any court or administrative body, nor do the SELLERS know
or have reasonable grounds to know of any basis for any
such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or
breach exists in the due performance and observance by the
Company of any term, covenant or condition of any
instrument or agreement to which the Company is a party or
by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default or
breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a
party to, or threatened with any legal action or proceeding is
qualified by Ayala Corporation's actual knowledge of the
Lancer claim which was disclosed to Ayala Corporation
before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings
payable to GP Construction and the advances made by
petitioner Daniel Vazquez. Specifically, under paragraph 2 of
the MOA referred to in paragraph 7.1.1, Ayala Corporation
undertook responsibility "for the payment of all billings of the
contractor GP Construction & Development Corporation after
the first billing and any payments made by the company
and/or SELLERS shall be reimbursed by BUYER on closing
which advances to date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation
necessarily include the Lancer claim for which GP
Construction is liable. Proof of this is Ayala Corporation's
letter23 to GP Construction dated before "Closing" on May 4,
1981, informing the latter of Ayala Corporation's receipt of the
Lancer claim embodied in the letter dated April 30, 1981,
acknowledging that it is taking over the contractual
responsibilities of Conduit, and requesting copies of all sub-
contracts affecting the Conduit property. The pertinent
excerpts of the letter read:
…
In this connection, we wish to inform you that this morning we
received a letter from Mr. Maximo D. Del Rosario, President
of Lancer General Builders Corporation apprising us of the
existence of subcontracts that they have with your
corporation. They have also furnished us with a copy of their
letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of
Conduit Development, Inc., we believe that it is necessary, at
this point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with
Lancer General Builders Corporation, but all subcontracts
with other parties as well…24
Quite tellingly, Ayala Corporation even attached to its Pre-
Trial Brief25 dated July 9, 1992 a copy of the letter26 dated
May 28, 1981 of GP Construction's counsel addressed to
Conduit furnishing the latter with copies of all sub-contract
agreements entered into by GP Construction. Since it was
addressed to Conduit, it can be presumed that it was the
69
Sales – Chapter 3-12 Cases
latter which gave Ayala Corporation a copy of the letter
thereby disclosing to the latter the existence of the Lancer
sub-contract.
The ineluctable conclusion is that petitioners did not violate
their warranties under the MOA. The Lancer sub-contract and
claim were substantially disclosed to Ayala Corporation
before the "Closing" date of the MOA. Ayala Corporation
cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala
Corporation did mention the filing of the Lancer suit as an
obstacle to its development of the property, it never actually
brought up nor sought redress for petitioners' alleged breach
of warranty for failure to disclose the Lancer claim until it filed
its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of
the MOA. Does this paragraph express a commitment or a
mere intent on the part of Ayala Corporation to develop the
property within three (3) years from date thereof? Paragraph
5.7 provides:
5.7. The BUYER hereby commits that it will develop the
'Remaining Property' into a first class residential subdivision
of the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended
development plan within three (3) years from the date of this
Agreement….28
Notably, while the first phrase of the paragraph uses the word
"commits" in reference to the development of the "Remaining
Property" into a first class residential subdivision, the second
phrase uses the word "intends" in relation to the development
of the first phase of the property within three (3) years from
the date of the MOA. The variance in wording is significant.
While "commit"29 connotes a pledge to do something,
"intend"30 merely signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala
Corporation's legal division who assisted in drafting the MOA,
testified:
COURT
You only ask what do you mean by that intent. Just answer
on that point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to
emphasize the tentative character of the period of
development because it will be noted that the sentence refers
to and I quote "to complete the first phase under its amended
development plan within three (3) years from the date of this
agreement, at the time of the execution of this agreement,
your Honor." That amended development plan was not yet in
existence because the buyer had manifested to the seller that
the buyer could amend the subdivision plan originally
belonging to the seller to conform with its own standard of
development and second, your Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses
an intention on Ayala Corporation's part to complete the first
phase under its amended development plan within three (3)
years from the execution of the MOA. Indeed, this paragraph
is so plainly worded that to misunderstand its import is
deplorable.
More focal to the resolution of the instant case is paragraph
5.7's clear reference to the first phase of Ayala Corporation's
amended development plan as the subject of the three (3)-
year intended timeframe for development. Even petitioner
Daniel Vazquez admitted on cross-examination that the
paragraph refers not to Conduit's but to Ayala Corporation's
development plan which was yet to be formulated when the
MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of
Agreement, it is stated as follows: "The Buyer hereby
commits that to develop the remaining property into a first
class residential subdivision of the same class as New
Alabang Subdivision, and that they intend to complete the
first phase under its amended development plan within three
years from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no
dispute that the amended development plan here is the
amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original
plan of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by
GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the
date of the agreement, this amended development plan was
still to be formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is
crucial because while the subject lots to be sold to petitioners
were in the first phase of the Conduit development plan, they
were in the third or last phase of the Ayala Corporation
development plan. Hence, even assuming that paragraph 5.7
expresses a commitment on the part of Ayala Corporation to
develop the first phase of its amended development plan
within three (3) years from the execution of the MOA, there
was no parallel commitment made as to the timeframe for the
development of the third phase where the subject lots are
located.
Lest it be forgotten, the point of this petition is the alleged
failure of Ayala Corporation to offer the subject lots for sale to
petitioners within three (3) years from the execution of the
MOA. It is not that Ayala Corporation committed or intended
to develop the first phase of its amended development plan
within three (3) years. Whether it did or did not is actually
beside the point since the subject lots are not located in the
first phase anyway.
We now come to the issue of default or delay in the fulfillment
of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
70
Sales – Chapter 3-12 Cases
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
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 order that the debtor may be in default it is necessary that
the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the
performance judicially or extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose
fulfillment a day certain has been fixed shall be demandable
only when that day comes. However, no such day certain was
fixed in the MOA. Petitioners, therefore, cannot demand
performance after the three (3) year period fixed by the MOA
for the development of the first phase of the property since
this is not the same period contemplated for the development
of the subject lots. Since the MOA does not specify a period
for the development of the subject lots, petitioners should
have petitioned the court to fix the period in accordance with
Article 119734 of the Civil Code. As no such action was filed
by petitioners, their complaint for specific performance was
premature, the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be said to
have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala
Corporation to develop the subject lots within three (3) years
from date thereof, Ayala Corporation could still not be held to
have been in delay since no demand was made by petitioners
for the performance of its obligation.
As found by the appellate court, petitioners' letters which
dealt with the three (3)-year timetable were all dated prior to
April 23, 1984, the date when the period was supposed to
expire. In other words, the letters were sent before the
obligation could become legally demandable. Moreover, the
letters were mere reminders and not categorical demands to
perform. More importantly, petitioners waived the three (3)-
year period as evidenced by their agent, Engr. Eduardo
Turla's letter to the effect that petitioners agreed that the
three (3)-year period should be counted from the termination
of the case filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23,
1981, it was undertaken by your goodselves to complete the
development of Phase I within three (3) years. Dr. & Mrs.
Vazquez were made to understand that you were unable to
accomplish this because of legal problems with the previous
contractor. These legal problems were resolved as of
February 19, 1987, and Dr. & Mrs. Vazquez therefore expect
that the development of Phase I will be completed by
February 19, 1990, three years from the settlement of the
legal problems with the previous contractor. The reason for
this is, as you know, that security-wise, Dr. & Mrs. Vazquez
have been advised not to construct their residence till the
surrounding area (which is Phase I) is developed and
occupied. They have been anxious to build their residence for
quite some time now, and would like to receive assurance
from your goodselves regarding this, in compliance with the
agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the
intention of Dr. & Mrs. Vazquez to exercise their option to
purchase the two lots on each side (a total of 4 lots) adjacent
to their "Retained Area". They are concerned that although
over a year has elapsed since the settlement of the legal
problems, you have not presented them with the size,
configuration, etc. of these lots. They would appreciate being
provided with these at your earliest convenience.35
Manifestly, this letter expresses not only petitioners'
acknowledgement that the delay in the development of Phase
I was due to the legal problems with GP Construction, but
also their acquiescence to the completion of the development
of Phase I at the much later date of February 19, 1990. More
importantly, by no stretch of semantic interpretation can it be
construed as a categorical demand on Ayala Corporation to
offer the subject lots for sale to petitioners as the letter merely
articulates petitioners' desire to exercise their option to
purchase the subject lots and concern over the fact that they
have not been provided with the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria
Vazquez, dated January 23, 198436 and February 18,
198437 can also not be considered categorical demands on
Ayala Corporation to develop the first phase of the property
within the three (3)-year period much less to offer the subject
lots for sale to petitioners. The letter dated January 23, 1984
reads in part:
You will understand our interest in the completion of the
roads to our property, since we cannot develop it till you have
constructed the same. Allow us to remind you of our
Memorandum of Agreement, as per which you committed to
develop the roads to our property "as per the original plans of
the company", and that
1. The back portion should have been developed before the
front portion – which has not been the case.
2. The whole project – front and back portions be completed
by 1984.38
The letter dated February 18, 1984 is similarly worded. It
states:
In this regard, we would like to remind you of Articles 5.7 and
5.9 of our Memorandum of Agreement which states
respectively:…39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984
does not make out a categorical demand for Ayala
Corporation to offer the subject lots for sale on or before April
23, 1984. The letter reads in part:
…and that we expect from your goodselves compliance with
our Memorandum of Agreement, and a definite date as to
when the road to our property and the development of Phase
I will be completed.41
At best, petitioners' letters can only be construed as mere
reminders which cannot be considered demands for
performance because it must appear that the tolerance or
benevolence of the creditor must have ended.42
The petition finally asks us to determine whether paragraph
5.15 of the MOA can properly be construed as an option
contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to
purchase four developed lots next to the "Retained Area" at
the prevailing market price at the time of the purchase.43
The Court has clearly distinguished between an option
contract and a right of first refusal. An option is a preparatory
contract in which one party grants to another, for a fixed
71
Sales – Chapter 3-12 Cases
period and at a determined price, the privilege to buy or sell,
or to decide whether or not to enter into a principal contract. It
binds the party who has given the option not to enter into the
principal contract with any other person during the period
designated, and within that period, to enter into such contract
with the one to whom the option was granted, if the latter
should decide to use the option. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration.44
In a right of first refusal, on the other hand, while the object
might be made determinate, the exercise of the right would
be dependent not only on the grantor's eventual intention to
enter into a binding juridical relation with another but also on
terms, including the price, that are yet to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a
mere right of first refusal and not an option contract. Although
the paragraph has a definite object, i.e., the sale of subject
lots, the period within which they will be offered for sale to
petitioners and, necessarily, the price for which the subject
lots will be sold are not specified. The phrase "at the
prevailing market price at the time of the purchase" connotes
that there is no definite period within which Ayala Corporation
is bound to reserve the subject lots for petitioners to exercise
their privilege to purchase. Neither is there a fixed or
determinable price at which the subject lots will be offered for
sale. The price is considered certain if it may be determined
with reference to another thing certain or if the determination
thereof is left to the judgment of a specified person or
persons.46
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.
Consequently, the "offer" may be withdrawn anytime by
communicating the withdrawal to the other party.47
In this case, Ayala Corporation offered the subject lots for
sale to petitioners at the price of P6,500.00/square meter, the
prevailing market price for the property when the offer was
made on June 18, 1990.48 Insisting on paying for the lots at
the prevailing market price in 1984 of P460.00/square meter,
petitioners rejected the offer. Ayala Corporation reduced the
price to P5,000.00/square meter but again, petitioners
rejected the offer and instead made a counter-offer in the
amount of P2,000.00/square meter.49 Ayala Corporation
rejected petitioners' counter-offer. With this rejection,
petitioners lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached
petitioners' right of first refusal and should be compelled by
an action for specific performance to sell the subject lots to
petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No
pronouncement as to costs.
SO ORDERED.

Further, paragraph 5.15 was inserted into the MOA to give

petitioners the first crack to buy the subject lots at the price
which Ayala Corporation would be willing to accept when it
offers the subject lots for sale. It is not supported by an
independent consideration. As such it is not governed by
Articles 1324 and 1479 of the Civil Code, viz:

Art. 1324. When the offeror 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.

Art. 1479. A promise to buy and sell a determinate thing for a

price certain is reciprocally demandable.

72
Sales – Chapter 3-12 Cases
TANAY RECREATION CENTER AND DEVELOPMENT
CORP., petitioner, vs. CATALINA MATIENZO
FAUSTO+ and ANUNCIACION FAUSTO PACUNAYEN,
respondents.
Petitioner Tanay Recreation Center and Development
Corp. (TRCDC) is the lessee of a 3,090-square meter
property located in Sitio Gayas, Tanay, Rizal, owned by
Catalina Matienzo Fausto,[1] under a Contract of Lease
executed on August 1, 1971. On this property stands the
Tanay Coliseum Cockpit operated by petitioner. The lease
contract provided for a 20-year term, subject to renewal
within sixty days prior to its expiration. The contract also
provided that should Fausto decide to sell the property,
petitioner shall have the priority right to purchase the
same.[2]
On June 17, 1991, petitioner wrote Fausto informing her
of its intention to renew the lease.[3] However, it was
Faustos daughter, respondent Anunciacion F. Pacunayen,
who replied, asking that petitioner remove the
improvements built thereon, as she is now the absolute
owner of the property.[4] It appears that Fausto had earlier
sold the property to Pacunayen on August 8, 1990, for the
sum of P10,000.00 under a Kasulatan ng Bilihan
Patuluyan ng Lupa,[5] and title has already been
transferred in her name under Transfer Certificate of Title
(TCT) No. M-35468.[6]
Despite efforts, the matter was not resolved. Hence, on
September 4, 1991, petitioner filed an Amended
Complaint for Annulment of Deed of Sale, Specific
Performance with Damages, and Injunction, docketed as
Civil Case No. 372-M.[7]
In her Answer, respondent claimed that petitioner is
estopped from assailing the validity of the deed of sale as
the latter acknowledged her ownership when it merely
asked for a renewal of the lease. According to respondent,
when they met to discuss the matter, petitioner did not
demand for the exercise of its option to purchase the
property, and it even asked for grace period to vacate the
premises.[8]
After trial on the merits, the Regional Trial Court of
Morong, Rizal (Branch 78), rendered judgment extending
the period of the lease for another seven years from
August 1, 1991 at a monthly rental of P10,000.00, and
dismissed petitioners claim for damages.[9]
On appeal, docketed as CA-G.R. CV No. 43770, the Court
of Appeals (CA) affirmed with modifications the trial courts
judgment per its Decision dated June 14, 1999.[10] The
dispositive portion of the decision reads:
WHEREFORE, the appealed decision is AFFIRMED AND
ACCORDINGLY MODIFIED AS DISCUSSED.
Furthermore, we resolved:
1.0. That TRCDC VACATE the leased premises
immediately;
2.0. To GRANT the motion of Pacunayen to allow her to
withdraw the amount of P320,000.00, deposited according
to records, with this court.
3.0. To order TRCDC to MAKE THE NECESSARY
ACCOUNTING regarding the amounts it had already
deposited (for unpaid rentals for the extended period of
seven [7] years of the contract of lease). In case it had not
yet completed its deposit, to immediately pay the
remaining balance to Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00
as monthly rental, with regard to its continued stay in the
leased premises even after the expiration of the extended
period of seven (7) years, computed from August 1, 1998,
until it finally vacates therefrom.
SO ORDERED.[11]
In arriving at the assailed decision, the CA acknowledged
the priority right of TRCDC to purchase the property in
question. However, the CA interpreted such right to mean
that it shall be applicable only in case the property is sold
to strangers and not to Faustos relative. The CA stated
that (T)o interpret it otherwise as to comprehend all sales
including those made to relatives and to the compulsory
heirs of the seller at that would be an absurdity, and her
(Faustos) only motive for such transfer was precisely one
of preserving the property within her bloodline and that
someone administer the property.[12] The CA also ruled
that petitioner already acknowledged the transfer of
ownership and is deemed to have waived its right to
purchase the property.[13] The CA even further went on to
rule that even if the sale is annulled, petitioner could not
achieve anything because the property will be eventually
transferred to Pacunayen after Faustos death.[14]
Petitioner filed a motion for reconsideration but it was
denied per Resolution dated September 14, 1999.[15]
Dissatisfied, petitioner elevated the case to this Court on
petition for review on certiorari, raising the following
grounds:
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS REVERSIBLE ERROR IN HOLDING THAT
THE CONTRACTUAL STIPULATION GIVING
PETITIONER THE PRIORITY RIGHT TO PURCHASE
THE LEASED PREMISES SHALL ONLY APPLY IF THE
LESSOR DECIDES TO SELL THE SAME TO
STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS REVERSIBLE ERROR IN HOLDING THAT
PETITIONERS PRIORITY RIGHT TO PURCHASE THE
LEASED PREMISES IS INCONSEQUENTIAL.[16]
The principal bone of contention in this case refers to
petitioners priority right to purchase, also referred to as
the right of first refusal.
Petitioners right of first refusal in this case is expressly
provided for in the notarized Contract of Lease dated
August 1, 1971, between Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased
premises, the LESSEE shall have the priority right to
purchase the same;[17]
When a lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to
anybody at any price until after he has made an offer to
sell to the latter at a certain price and the lessee has failed
to accept it. The lessee has a right that the lessor's first
offer shall be in his favor.[18] Petitioners right of first
refusal is an integral and indivisible part of the contract of
lease and is inseparable from the whole contract. The
consideration for the lease includes the consideration for
73
Sales – Chapter 3-12 Cases
the right of first refusal[19] and is built into the reciprocal
obligations of the parties.
It was erroneous for the CA to rule that the right of first
refusal does not apply when the property is sold to
Faustos relative.[20] When the terms of an agreement
have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can
be, between the parties and their successors in interest,
no evidence of such terms other than the contents of the
written agreement, except when it fails to express the true
intent and agreement of the parties.[21] In this case, the
wording of the stipulation giving petitioner the right of first
refusal is plain and unambiguous, and leaves no room for
interpretation. It simply means that should Fausto decide
to sell the leased property during the term of the lease,
such sale should first be offered to petitioner. The
stipulation does not provide for the qualification that such
right may be exercised only when the sale is made to
strangers or persons other than Faustos kin. Thus, under
the terms of petitioners right of first refusal, Fausto has the
legal duty to petitioner not to sell the property to anybody,
even her relatives, at any price until after she has made
an offer to sell to petitioner at a certain price and said offer
was rejected by petitioner. Pursuant to their contract, it
was essential that Fausto should have first offered the
property to petitioner before she sold it to respondent. It
was only after petitioner failed to exercise its right of first
priority could Fausto then lawfully sell the property to
respondent.
The rule is that a sale made in violation of a right of first
refusal is valid. However, it may be rescinded, or, as in
this case, may be the subject of an action for specific
performance.[22] In Riviera Filipina, Inc. vs. Court of
Appeals,[23] the Court discussed the concept and
interpretation of the right of first refusal and the
consequences of a breach thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v.
Bonnevie where the Court held that a lease with a proviso
granting the lessee the right of first priority all things and
conditions being equal meant that there should be identity
of the terms and conditions to be offered to the lessee and
all other prospective buyers, with the lessee to enjoy the
right of first priority. A deed of sale executed in favor of a
third party who cannot be deemed a purchaser in good
faith, and which is in violation of a right of first refusal
granted to the lessee is not voidable under the Statute of
Frauds but rescissible under Articles 1380 to 1381 (3) of
the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v.
Court of Appeals, the Court en banc departed from the
doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie
and refused to rescind a contract of sale which violated
the right of first refusal. The Court held that the so-called
right of first refusal cannot be deemed a perfected
contract of sale under Article 1458 of the New Civil Code
and, as such, a breach thereof decreed under a final
judgment does not entitle the aggrieved party to a writ of
execution of the judgment but to an action for damages in
a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc., the Court en banc reverted back to
the doctrine in Guzman Bocaling & Co. v. Bonnevie
stating that rescission is a relief allowed for the protection
of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the
contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v.
Court of Appeals, the Court affirmed the nature of and the
concomitant rights and obligations of parties under a right
of first refusal. The Court, summarizing the rulings in
Guzman, Bocaling & Co. v. Bonnevie and Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc., held
that in order to have full compliance with the contractual
right granting petitioner the first option to purchase, the
sale of the properties for the price for which they were
finally sold to a third person should have likewise been
first offered to the former. Further, there should be identity
of terms and conditions to be offered to the buyer holding
a right of first refusal if such right is not to be rendered
illusory. Lastly, the basis of the right of first refusal must
be the current offer to sell of the seller or offer to purchase
of any prospective buyer.
The prevailing doctrine therefore, is that a right of first
refusal means identity of terms and conditions to be
offered to the lessee and all other prospective buyers and
a contract of sale entered into in violation of a right of first
refusal of another person, while valid, is rescissible.[24]
It was also incorrect for the CA to rule that it would be
useless to annul the sale between Fausto and respondent
because the property would still remain with respondent
after the death of her mother by virtue of succession, as in
fact, Fausto died in March 1996, and the property now
belongs to respondent, being Faustos heir.[25]
For one, Fausto was bound by the terms and conditions of
the lease contract. Under the right of first refusal clause,
she was obligated to offer the property first to petitioner
before selling it to anybody else. When she sold the
property to respondent without offering it to petitioner, the
sale while valid is rescissible so that petitioner may
exercise its option under the contract.
With the death of Fausto, whatever rights and obligations
she had over the property, including her obligation under
the lease contract, were transmitted to her heirs by way of
succession, a mode of acquiring the property, rights and
obligation of the decedent to the extent of the value of the
inheritance of the heirs. Article 1311 of the Civil Code
provides:
ART. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of
the property he received from the decedent.
A lease contract is not essentially personal in
character.[26] Thus, the rights and obligations therein are
transmissible to the heirs. The general rule is that heirs
are bound by contracts entered into by their
predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1)
their nature, (2) stipulation or (3) provision of law.[27]
In this case, the nature of the rights and obligations are,
by their nature, transmissible. There is also neither
contractual stipulation nor provision of law that makes the
rights and obligations under the lease contract
intransmissible. The lease contract between petitioner and
Fausto is a property right, which is a right that passed on
74
Sales – Chapter 3-12 Cases
to respondent and the other heirs, if any, upon the death
of Fausto.
In DKC Holdings Corporation vs. Court of Appeals,[28] the
Court held that the Contract of Lease with Option to Buy
entered into by the late Encarnacion Bartolome with DKC
Holdings Corporation was binding upon her sole heir,
Victor, even after her demise and it subsists even after her
death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of
interest between him and his deceased mother. He only
succeeds to what rights his mother had and what is valid
and binding against her is also valid and binding as
against him. This is clear from Paraaque Kings
Enterprises vs. Court of Appeals, where this Court
rejected a similar defense-
With respect to the contention of respondent Raymundo
that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not
have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he
assumed all the obligations of the lessor under the lease
contract. Moreover, he received benefits in the form of
rental payments. Furthermore, the complaint, as well as
the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion
between him and respondent Santos which defeated the
exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner,
respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for
the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over
which petitioner would like to assert its right of first option
to buy.[29] (Emphasis supplied)
Likewise in this case, the contract of lease, with all its
concomitant provisions, continues even after Faustos
death and her heirs merely stepped into her shoes.[30]
Respondent, as an heir of Fausto, is therefore bound to
fulfill all its terms and conditions.
There is no personal act required from Fausto such that
respondent cannot perform it. Faustos obligation to deliver
possession of the property to petitioner upon the exercise
by the latter of its right of first refusal may be performed by
respondent and the other heirs, if any. Similarly,
nonperformance is not excused by the death of the party
when the other party has a property interest in the subject
matter of the contract.[31]
The CA likewise found that petitioner acknowledged the
legitimacy of the sale to respondent and it is now barred
from exercising its right of first refusal. According to the
appellate court:
Second, when TRCDC, in a letter to Fausto, signified its
intention to renew the lease contract, it was Pacunayen
who answered the letter on June 19, 1991. In that letter
Pacunayen demanded that TRCDC vacate the leased
premises within sixty (60) days and informed it of her
ownership of the leased premises. The pertinent portion of
the letter reads:
Furtherly, please be advised that the land is no longer
under the absolute ownership of my mother and the
undersigned is now the real and absolute owner of the
land.
Instead of raising a howl over the contents of the letter, as
would be its expected and natural reaction under the
circumstances, TRCDC surprisingly kept silent about the
whole thing. As we mentioned in the factual antecedents
of this case, it even invited Pacunayen to its special board
meeting particularly to discuss with her the renewal of the
lease contract. Again, during that meeting, TRCDC did not
mention anything that could be construed as challenging
Pacunayens ownership of the leased premises. Neither
did TRCDC assert its priority right to purchase the same
against Pacunayen.[32]
The essential elements of estoppel are: (1) conduct of a
party amounting to false representation or concealment of
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (2) intent, or at least expectation, that
this conduct shall be acted upon by, or at least influence,
the other party; and (3) knowledge, actual or constructive,
of the real facts.[33]
The records are bereft of any proposition that petitioner
waived its right of first refusal under the contract such that
it is now estopped from exercising the same. In a letter
dated June 17, 1991, petitioner wrote to Fausto asking for
a renewal of the term of lease.[34] Petitioner cannot be
faulted for merely seeking a renewal of the lease contract
because obviously, it was working on the assumption that
title to the property is still in Faustos name and the latter
has the sole authority to decide on the fate of the
property. Instead, it was respondent who replied, advising
petitioner to remove all the improvements on the property,
as the lease is to expire on the 1st of August 1991.
Respondent also informed petitioner that her mother has
already sold the property to her.[35] In order to resolve the
matter, a meeting was called among petitioners
stockholders, including respondent, on July 27, 1991,
where petitioner, again, proposed that the lease be
renewed. Respondent, however, declined. While petitioner
may have sought the renewal of the lease, it cannot be
construed as a relinquishment of its right of first refusal.
Estoppel must be intentional and unequivocal.[36]
Also, in the excerpts from the minutes of the special
meeting, it was further stated that the possibility of a sale
was likewise considered.[37] But respondent also refused
to sell the land, while the improvements, if for sale shall be
subject for appraisal.[38] After respondent refused to sell
the land, it was then that petitioner filed the complaint for
annulment of sale, specific performance and
damages.[39] Petitioners acts of seeking all possible
avenues for the amenable resolution of the conflict do not
amount to an intentional and unequivocal abandonment of
its right of first refusal.
Respondent was well aware of petitioners right to priority
of sale, and that the sale made to her by her mother was
merely for her to be able to take charge of the latters
affairs. As admitted by respondent in her Appellees Brief
filed before the CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to
meeting with the officers of the corporation. . . . In the
same meeting, Pacunayens attention was called to the
75
Sales – Chapter 3-12 Cases
provision of the Contract of Lease had by her mother with
TRCDC, particularly paragraph 7 thereof, which states:
7. That should the lessor decide to sell the leased
premises, the LESSEE shall have the priority right to
purchase the same.
Of course, in the meeting she had with the officers of
TRCDC, Pacunayen explained that the sale made in her
favor by her mother was just a formality so that she may
have the proper representation with TRCDC in the
absence of her parents, more so that her father had
already passed away, and there was no malice in her
mine (sic) and that of her mother, or any intention on their
part to deceive TRCDC. All these notwithstanding, and for
her to show their good faith in dealing with TRCDC,
Pacunayen started the ground work to reconvey
ownership over the whole land, now covered by Transfer
Certificare (sic) of Title No. M-259, to and in the name of
her mother (Fausto), but the latter was becoming sickly,
old and weak, and they found no time to do it as early as
they wanted to.[40] (Emphasis supplied)
Given the foregoing, the Kasulatan ng Bilihan Patuluyan
ng Lupa dated August 8, 1990 between Fausto and
respondent must be rescinded. Considering, however,
that Fausto already died on March 16, 1996, during the
pendency of this case with the CA, her heirs should have
been substituted as respondents in this case. Considering
further that the Court cannot declare respondent
Pacunayen as the sole heir, as it is not the proper forum
for that purpose, the right of petitioner may only be
enforced against the heirs of the deceased Catalina
Matienzo Fausto, represented by respondent Pacunayen.
In Paraaque Kings Enterprises, Inc. vs. Court of
Appeals,[41] it was ruled that the basis of the right of the
first refusal must be the current offer to sell of the seller or
offer to purchase of any prospective buyer. It is only after
the grantee fails to exercise its right of first priority under
the same terms and within the period contemplated, could
the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the
grantee. The circumstances of this case, however, dictate
the application of a different ruling. An offer of the property
to petitioner under identical terms and conditions of the
offer previously given to respondent Pacunayen would be
inequitable. The subject property was sold in 1990 to
respondent Pacunayen for a measly sum of P10,000.00.
Obviously, the value is in a small amount because the
sale was between a mother and daughter. As admitted by
said respondent, the sale made in her favor by her mother
was just a formality so that she may have the proper
representation with TRCDC in the absence of her
parents[42] Consequently, the offer to be made to
petitioner in this case should be under reasonable terms
and conditions, taking into account the fair market value of
the property at the time it was sold to respondent.
In its complaint, petitioner prayed for the cancellation of
TCT No. M-35468 in the name of respondent
Pacunayen,[43] which was issued by the Register of
Deeds of Morong on February 7, 1991.[44] Under ordinary
circumstances, this would be the logical effect of the
rescission of the Kasulatan ng Bilihan Patuluyan ng Lupa
between the deceased Fausto and respondent
Pacunayen. However, the circumstances in this case are
not ordinary. The buyer of the subject property is the
sellers own daughter. If and when the title (TCT No. M-
35468) in respondent Pacunayens name is cancelled and
reinstated in Faustos name, and thereafter negotiations
between petitioner and respondent Pacunayen for the
purchase of the subject property break down, then the
subject property will again revert to respondent
Pacunayen as she appears to be one of Faustos heirs.
This would certainly be a winding route to traverse. Sound
reason therefore dictates that title should remain in the
name of respondent Pacunayen, for and in behalf of the
other heirs, if any, to be cancelled only when petitioner
successfully exercises its right of first refusal and
purchases the subject property.
Petitioner further seeks the award of the following
damages in its favor: (1) P100,000.00 as actual damages;
(2) P1,100,000.00 as compensation for lost goodwill or
reputation; (3) P100,000.00 as moral damages; (4)
P100,000.00 as exemplary damages; (5) P50,000.00 as
attorneys fees; (6) P1,000.00 appearance fee per hearing;
and (7) the costs of suit.[45]
According to petitioner, respondents act in fencing the
property led to the closure of the Tanay Coliseum Cockpit
and petitioner was unable to conduct cockfights and
generate income of not less than P100,000.00 until the
end of September 1991, aside from the expected rentals
from the cockpit space lessees in the amount of
P11,000.00.[46]
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled
to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory
damages. (Emphasis supplied)
The rule is that actual or compensatory damages cannot
be presumed, but must be proved with reasonable degree
of certainty. A court cannot rely on speculations,
conjectures, or guesswork as to the fact and amount of
damages, but must depend upon competent proof that
they have been suffered by the injured party and on the
best obtainable evidence of the actual amount thereof. It
must point out specific facts, which could afford a basis for
measuring whatever compensatory or actual damages are
borne.[47]
In the present case, there is no question that the Tanay
Coliseum Cockpit was closed for two months and TRCDC
did not gain any income during said period. But there is
nothing on record to substantiate petitioners claim that it
was bound to lose some P111,000.00 from such closure.
TRCDCs president, Ambrosio Sacramento, testified that
they suffered income losses with the closure of the cockpit
from August 2, 1991 until it re-opened on October 20,
1991.[48] Mr. Sacramento, however, cannot state with
certainty the amount of such unrealized income.[49]
Meanwhile, TRCDCs accountant, Merle Cruz, stated that
based on the corporations financial statement for the
years 1990 and 1991,[50] they derived the amount of
P120,000.00 as annual income from rent.[51] From said
financial statement, it is safe to presume that TRCDC
generated a monthly income of P10,000.00 a month
(P120,000.00 annual income divided by 12 months). At
best therefore, whatever actual damages that petitioner
suffered from the cockpits closure for a period of two
months can be reasonably summed up only to
P20,000.00.
Such award of damages shall earn interest at the legal
rate of six percent (6%) per annum, which shall be
76
Sales – Chapter 3-12 Cases
computed from the time of the filing of the Complaint on
August 22, 1991, until the finality of this decision. After the
present decision becomes final and executory, the rate of
interest shall increase to twelve percent (12%) per annum
from such finality until its satisfaction, this interim period
being deemed to be equivalent to a forbearance of
credit.[52] This is in accord with the guidelines laid down
by the Court in Eastern Shipping Lines, Inc. vs. Court of
Appeals,[53] regarding the manner of computing legal
interest, viz.:
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly,
where the demand is established with reasonable
certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the
court is made (at which time quantification of damages
may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall,
in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.[54]
Petitioner also claims the amount of P1,100,000.00 as
compensation for lost goodwill or reputation. It alleged that
with the unjust and wrongful conduct of the defendants as
above-described, plaintiff stands to lose its goodwill and
reputation established for the past 20 years.[55]
An award of damages for loss of goodwill or reputation
falls under actual or compensatory damages as provided
in Article 2205 of the Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of
temporary or permanent personal injury;
(2) For injury to the plaintiffs business standing or
commercial credit.
Even if it is not recoverable as compensatory damages, it
may still be awarded in the concept of temperate or
moderate damages.[56] In arriving at a reasonable level of
temperate damages to be awarded, trial courts are guided
by the ruling that:
. . . There are cases where from the nature of the case,
definite proof of pecuniary loss cannot be offered,
although the court is convinced that there has been such
loss. For instance, injury to one's commercial credit or to
the goodwill of a business firm is often hard to show
certainty in terms of money. Should damages be denied
for that reason? The judge should be empowered to
calculate moderate damages in such cases, rather than
that the plaintiff should suffer, without redress from the
defendant's wrongful act. (Araneta v. Bank of America, 40
SCRA 144, 145)[57]
In this case, aside from the nebulous allegation of
petitioner in its amended complaint, there is no evidence
on record, whether testimonial or documentary, to
adequately support such claim. Hence, it must be denied.
Petitioners claim for moral damages must likewise be
denied. The award of moral damages cannot be granted
in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it
has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental
anguish, which can be experienced only by one having a
nervous system.[58] Petitioner being a corporation,[59]
the claim for moral damages must be denied.
With regard to the claim for exemplary damages, it is a
requisite in the grant thereof that the act of the offender
must be accompanied by bad faith or done in wanton,
fraudulent or malevolent manner.[60] Moreover, where a
party is not entitled to actual or moral damages, an award
of exemplary damages is likewise baseless.[61] In this
case, petitioner failed to show that respondent acted in
bad faith, or in wanton, fraudulent or malevolent manner.
Petitioner likewise claims the amount of P50,000.00 as
attorneys fees, the sum of P1,000.00 for every
appearance of its counsel, plus costs of suit. It is well
settled that no premium should be placed on the right to
litigate and not every winning party is entitled to an
automatic grant of attorney's fees. The party must show
that he falls under one of the instances enumerated in
Article 2208 of the Civil Code. In this case, since petitioner
was compelled to engage the services of a lawyer and
incurred expenses to protect its interest and right over the
subject property, the award of attorneys fees is proper.
However there are certain standards in fixing attorney's
fees, to wit: (1) the amount and the character of the
services rendered; (2) labor, time and trouble involved; (3)
the nature and importance of the litigation and business in
which the services were rendered; (4) the responsibility
imposed; (5) the amount of money and the value of the
property affected by the controversy or involved in the
employment; (6) the skill and the experience called for in
the performance of the services; (7) the professional
character and the social standing of the attorney; and (8)
the results secured, it being a recognized rule that an
attorney may properly charge a much larger fee when it is
contingent than when it is not.[62] Considering the
foregoing, the award of P10,000.00 as attorneys fees,
including the costs of suit, is reasonable under the
circumstances.
77
Sales – Chapter 3-12 Cases
WHEREFORE, the instant Petition for Review is
PARTIALLY GRANTED. The Court of Appeals Decision SO ORDERED.
dated June 14, 1999 in CA-G.R. CV No. 43770 is
MODIFIED as follows:

(1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated

August 8, 1990 between Catalina Matienzo Fausto and
respondent Anunciacion Fausto Pacunayen is hereby
deemed rescinded;

(2) The Heirs of the deceased Catalina Matienzo Fausto

who are hereby deemed substituted as respondents,
represented by respondent Anunciacion Fausto
Pacunayen, are ORDERED to recognize the obligation of
Catalina Matienzo Fausto under the Contract of Lease
with respect to the priority right of petitioner Tanay
Recreation Center and Development Corp. to purchase
the subject property under reasonable terms and
conditions;

(3) Transfer Certificate of Title No. M-35468 shall remain

in the name of respondent Anunciacion Fausto
Pacunayen, which shall be cancelled in the event
petitioner successfully purchases the subject property;

(4) Respondent is ORDERED to pay petitioner Tanay

Recreation Center and Development Corporation the
amount of Twenty Thousand Pesos (P20,000.00) as
actual damages, plus interest thereon at the legal rate of
six percent (6%) per annum from the filing of the
Complaint until the finality of this Decision. After this
Decision becomes final and executory, the applicable rate
shall be twelve percent (12%) per annum until its
satisfaction; and,

(5) Respondent is ORDERED to pay petitioner the amount

of Ten Thousand Pesos (P10,000.00) as attorneys fees,
and to pay the costs of suit.

(6) Let the case be remanded to the Regional Trial Court,

Morong, Rizal (Branch 78) for further proceedings on the
determination of the reasonable terms and conditions of
the offer to sell by respondents to petitioner, without
prejudice to possible mediation between the parties.

The rest of the unaffected dispositive portion of the Court

of Appeals Decision is AFFIRMED.
78
Sales – Chapter 3-12 Cases
ROBERTO D. TUAZON, Petitioner,
vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R.
SUAREZ-DE LEON, WILFREDO DE LEON, MIGUEL
LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and
GUILLERMA L. SANDICO-SILVA, as attorney-in-fact of
the defendants, except Lourdes Q. Del Rosario-
Suarez, Respondents.
In a situation where the lessor makes an offer to sell to the
lessee a certain property at a fixed price within a certain
period, and the lessee fails to accept the offer or to
purchase on time, then the lessee loses his right to buy
the property and the owner can validly offer it to another.
This Petition for Review on Certiorari1 assails the
Decision2 dated May 30, 2005 of the Court of Appeals
(CA) in CA-G.R. CV No. 78870, which affirmed the
Decision3 dated November 18, 2002 of the Regional Trial
Court (RTC), Branch 101, Quezon City in Civil Case No.
Q-00-42338.
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes)
was the owner of a parcel of land, containing more or less
an area of 1,211 square meters located along Tandang
Sora Street, Barangay Old Balara, Quezon City and
previously covered by Transfer Certificate of Title (TCT)
No. RT-561184 issued by the Registry of Deeds of
Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto)
and Lourdes executed a Contract of Lease5 over the
abovementioned parcel of land for a period of three years.
The lease commenced in March 1994 and ended in
February 1997. During the effectivity of the lease, Lourdes
sent a letter6 dated January 2, 1995 to Roberto where
she offered to sell to the latter subject parcel of land. She
pegged the price at ₱37,541,000.00 and gave him two
years from January 2, 1995 to decide on the said offer.
On June 19, 1997, or more than four months after the
expiration of the Contract of Lease, Lourdes sold subject
parcel of land to her only child, Catalina Suarez-De Leon,
her son-in-law Wilfredo De Leon, and her two grandsons,
Miguel Luis S. De Leon and Rommel S. De Leon (the De
Leons), for a total consideration of only ₱2,750,000.00 as
evidenced by a Deed of Absolute Sale7 executed by the
parties. TCT No. 1779868 was then issued by the
Registry of Deeds of Quezon City in the name of the De
Leons.
The new owners through their attorney-in-fact, Guillerma
S. Silva, notified Roberto to vacate the premises. Roberto
refused hence, the De Leons filed a complaint for
Unlawful Detainer before the Metropolitan Trial Court
(MeTC) of Quezon City against him. On August 30, 2000,
the MeTC rendered a Decision9 ordering Roberto to
vacate the property for non-payment of rentals and
expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on
appeal, Roberto filed with the RTC of Quezon City a
Complaint10 for Annulment of Deed of Absolute Sale,
Reconveyance, Damages and Application for Preliminary
Injunction against Lourdes and the De Leons. On
November 13, 2000, Roberto filed a Notice of Lis
Pendens11 with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with
Counterclaim12 praying that the Complaint be dismissed
for lack of cause of action. They claimed that the filing of
such case was a mere leverage of Roberto against them
because of the favorable Decision issued by the MeTC in
the ejectment case.
On September 17, 2001, the RTC issued an Order13
declaring Lourdes and the De Leons in default for their
failure to appear before the court for the second time
despite notice. Upon a Motion for Reconsideration,14 the
trial court in an Order15 dated October 19, 2001 set aside
its Order of default.
After trial, the court a quo rendered a Decision declaring
the Deed of Absolute Sale made by Lourdes in favor of
the De Leons as valid and binding. The offer made by
Lourdes to Roberto did not ripen into a contract to sell
because the price offered by the former was not
acceptable to the latter. The offer made by Lourdes is no
longer binding and effective at the time she decided to sell
the subject lot to the De Leons because the same was not
accepted by Roberto. Thus, in a Decision dated
November 18, 2002, the trial court dismissed the
complaint. Its dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the above-entitled Complaint for lack
of merit, and ordering the Plaintiff to pay the Defendants,
the following:
1. the amount of ₱30,000.00 as moral damages;
2. the amount of ₱30,000.00 as exemplary damages;
3. the amount of ₱30,000.00 as attorney’s fees; and
4. cost of the litigation.
SO ORDERED.16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing
Roberto’s appeal and affirming the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by
Roberto advancing the following arguments:
I.
The Trial Court and the Court of Appeals had decided that
the "Right of First Refusal" exists only within the
parameters of an "Option to Buy", and did not exist when
the property was sold later to a third person, under
favorable terms and conditions which the former buyer
can meet.
II.
What is the status or sanctions of an appellee in the Court
of Appeals who has not filed or failed to file an appellee’s
brief?17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right to buy
subject property under
79
Sales – Chapter 3-12 Cases
the principle of "right of first refusal" by not giving him
"notice" and the opportunity to buy the property under the
same terms and conditions or specifically based on the
much lower price paid by the De Leons.
Roberto further contends that he is enforcing his "right of
first refusal" based on Equatorial Realty Development,
Inc. v. Mayfair Theater, Inc.18 which is the leading case
on the "right of first refusal."
Respondents’ Arguments
On the other hand, respondents posit that this case is not
covered by the principle of "right of first refusal" but an
unaccepted unilateral promise to sell or, at best, a
contract of option which was not perfected. The letter of
Lourdes to Roberto clearly embodies an option contract
as it grants the latter only two years to exercise the option
to buy the subject property at a price certain of
₱37,541,000.00. As an option contract, the said letter
would have been binding upon Lourdes without need of
any consideration, had Roberto accepted the offer. But in
this case there was no acceptance made neither was
there a distinct consideration for the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of
a right of first refusal
In Beaumont v. Prieto,19 the nature of an option contract
is explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an
option as a contract, in the following language:
‘A contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege of
buying from, or selling to, B certain securities or properties
within a limited time at a specified price. (Story vs.
Salamon, 71 N. Y., 420.)’
From Vol. 6, page 5001, of the work "Words and
Phrases," citing the case of Ide vs. Leiser (24 Pac., 695;
10 Mont., 5; 24 Am. St. Rep., 17) the following quotation
has been taken:
‘An agreement in writing to give a person the ‘option’ to
purchase lands within a given time at a named price is
neither a sale nor an agreement to sell. It is simply a
contract by which the owner of 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; that is, the right or privilege to buy at the
election or option of the other party. The second party
gets in praesenti, not lands, nor an agreement that he
shall have lands, but he does get something of value; that
is, the right to call for and receive lands if he elects. The
owner parts with his right to sell his lands, except to the
second party, for a limited period. The second party
receives this right, or rather, from his point of view, he
receives the right to elect to buy.
But the two definitions above cited refer to the contract of
option, or, what amounts to the same thing, to the case
where there was cause or consideration for the obligation
x x x. (Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of
Appeals,20 an elucidation on the "right of first refusal" was
made thus:
In the law on sales, the so-called ‘right of first refusal’ is an
innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under
Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be
brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319 of the same Code. An option or
an offer would require, among other things, a clear
certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first
refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not
only on the grantor's eventual intention to enter into a
binding juridical relation with another but also on terms,
including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil
Code on human conduct.
Even on the premise that such right of first refusal has
been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific
performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. It
is not to say, however, that the right of first refusal would
be inconsequential for, such as already intimated above,
an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 of the Civil Code,
can warrant a recovery for damages. (Emphasis
supplied.)
From the foregoing, it is thus clear that an option contract
is entirely different and distinct from a right of first refusal
in that in the former, the option granted to the offeree is for
a fixed period and at a determined price. Lacking these
two essential requisites, what is involved is only a right of
first refusal.
In this case, the controversy is whether the letter of
Lourdes to Roberto dated January 2, 1995 involved an
option contract or a contract of a right of first refusal. In its
entirety, the said letter-offer reads:
206 Valdes Street
Josefa Subd. Balibago
Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of
sweet grapes and ham, fit for a king’s party. Thanks very
much.
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Sales – Chapter 3-12 Cases
I am getting very old (79 going 80 yrs. old) and wish to live
in the U.S.A. with my only family. I need money to buy a
house and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square meter at
₱37,541,000.00 you can pay me in dollars in the name of
my daughter. I never offered it to anyone. Please shoulder
the expenses for the transfer. I wish the Lord God will help
you buy my lot easily and you will be very lucky forever in
this place. You have all the time to decide when you can,
but not for 2 years or more.
I wish you long life, happiness, health, wealth and great
fortune always!
I hope the Lord God will help you be the recipient of multi-
billion projects aid from other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option
contract as it grants Roberto a fixed period of only two
years to buy the subject property at a price certain of
₱37,541,000.00. It being an option contract, the rules
applicable are found in Articles 1324 and 1479 of the Civil
Code which provide:
Art. 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.
Art. 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.
It is clear from the provision of Article 1324 that there is a
great difference between the effect of an option which is
without a consideration from one which is founded upon a
consideration. If the option is without any consideration,
the offeror may withdraw his offer by communicating such
withdrawal to the offeree at anytime before acceptance; if
it is founded upon a consideration, the offeror cannot
withdraw his offer before the lapse of the period agreed
upon.
The second paragraph of Article 1479 declares that "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." Sanchez v. Rigos21 provided an interpretation
of the said second paragraph of Article 1479 in relation to
Article 1324. Thus:
There is no question that under Article 1479 of the new
Civil Code "an option to sell," or "a promise to buy or to
sell," as used in said article, to be valid must be
"supported by a consideration distinct from the price." This
is clearly inferred from the context of said article that a
unilateral promise to buy or to sell, even if accepted, is
only binding if supported by 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. Hence, it is
not disputed that the option is without consideration. It can
therefore be withdrawn notwithstanding the acceptance
made of it by appellee.
It is true that under Article 1324 of the new Civil Code, the
general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before
acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as
modified by the provision of Article 1479 above referred
to, which applies to "a promise to buy and sell"
specifically. As already stated, this rule requires that a
promise to sell to be valid must be supported by a
consideration distinct from the price.
In Diamante v. Court of Appeals,22 this Court further
declared that:
A unilateral promise to buy or sell is a mere offer, which is
not converted into a contract except at the moment it is
accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance,
however, a bilateral contract to sell and to buy is created,
and the offeree ipso facto assumes the obligations of a
purchaser; the offeror, on the other hand, would be liable
for damages if he fails to deliver the thing he had offered
for sale.
xxxx
Even if the promise was accepted, private respondent was
not bound thereby in the absence of a distinct
consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept
the terms stated in the letter of Lourdes as he negotiated
for a much lower price. Roberto’s act of negotiating for a
much lower price was a counter-offer and is therefore not
an acceptance of the offer of Lourdes. Article 1319 of the
Civil Code provides:
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer. (Emphasis supplied.)
The counter-offer of Roberto for a much lower price was
not accepted by Lourdes. There is therefore no contract
that was perfected between them with regard to the sale
of subject property. Roberto, thus, does not have any right
to demand that the property be sold to him at the price for
which it was sold to the De Leons neither does he have
the right to demand that said sale to the De Leons be
annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc. is not applicable here
It is the position of Roberto that the facts of this case and
that of Equatorial are similar in nearly all aspects. Roberto
is a lessee of the property like Mayfair Theater in
Equatorial. There was an offer made to Roberto by
Lourdes during the effectivity of the contract of lease
which was also the case in Equatorial. There were
negotiations as to the price which did not bear fruit
because Lourdes sold the property to the De Leons which
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Sales – Chapter 3-12 Cases
was also the case in Equatorial wherein Carmelo and
Bauermann sold the property to Equatorial. The existence
of the lease of the property is known to the De Leons as
they are related to Lourdes while in Equatorial, the
lawyers of Equatorial studied the lease contract of Mayfair
over the property. The property in this case was sold by
Lourdes to the De Leons at a much lower price which is
also the case in Equatorial where Carmelo and Bauerman
sold to Equatorial at a lesser price. It is Roberto’s
conclusion that as in the case of Equatorial, there was a
violation of his right of first refusal and hence annulment
or rescission of the Deed of Absolute Sale is the proper
remedy.
Roberto’s reliance in Equatorial is misplaced. Despite his
claims, the facts in Equatorial radically differ from the facts
of this case. Roberto overlooked the fact that in
Equatorial, there was an express provision in the Contract
of Lease that –
(i)f the LESSOR should desire to sell the leased
properties, the LESSEE shall be given 30-days exclusive
option to purchase the same.
There is no such similar provision in the Contract of Lease
between Roberto and Lourdes. What is involved here is a
separate and distinct offer made by Lourdes through a
letter dated January 2, 1995 wherein she is selling the
leased property to Roberto for a definite price and which
gave the latter a definite period for acceptance. Roberto
was not given a right of first refusal. The letter-offer of
Lourdes did not form part of the Lease Contract because it
was made more than six months after the commencement
of the lease.
It is also very clear that in Equatorial, the property was
sold within the lease period. In this case, the subject
property was sold not only after the expiration of the
period provided in the letter-offer of Lourdes but also after
the effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by
Roberto, still the former is not bound thereby because of
the absence of a consideration distinct and separate from
the price. The argument of Roberto that the separate
consideration was the liberality on the part of Lourdes
cannot stand. A perusal of the letter-offer of Lourdes
would show that what drove her to offer the property to
Roberto was her immediate need for funds as she was
already very old. Offering the property to Roberto was not
an act of liberality on the part of Lourdes but was a simple
matter of convenience and practicality as he was the one
most likely to buy the property at that time as he was then
leasing the same.
All told, the facts of the case, as found by the RTC and the
CA, do not support Roberto’s claims that the letter of
Lourdes gave him a right of first refusal which is similar to
the one given to Mayfair Theater in the case of Equatorial.
Therefore, there is no justification to annul the deed of
sale validly entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file her
appellee’s brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned
for her failure to file her appellee’s brief before the CA.
Certainly, the appellee’s failure to file her brief would not
mean that the case would be automatically decided
against her. Under the circumstances, the prudent action
on the part of the CA would be to deem Lourdes to have
waived her right to file her appellee’s brief. De Leon v.
Court of Appeals,23 is instructive when this Court
decreed:
On the second issue, we hold that the Court of Appeals
did not commit grave abuse of discretion in considering
the appeal submitted for decision. The proper remedy in
case of denial of the motion to dismiss is to file the
appellee’s brief and proceed with the appeal. Instead,
petitioner opted to file a motion for reconsideration which,
unfortunately, was pro forma. All the grounds raised
therein have been discussed in the first resolution of the
respondent Court of Appeals. There is no new ground
raised that might warrant reversal of the resolution. A
cursory perusal of the motion would readily show that it
was a near verbatim repetition of the grounds stated in the
motion to dismiss; hence, the filing of the motion for
reconsideration did not suspend the period for filing the
appellee’s brief. Petitioner was therefore properly deemed
to have waived his right to file appellee’s brief. (Emphasis
supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a
Complaint for a sum of money in the RTC. He obtained a
favorable judgment and so defendant went to the CA. The
appeal of defendant-appellant was taken cognizance of by
the CA but De Leon filed a Motion to Dismiss the Appeal
with Motion to Suspend Period to file Appellee’s Brief. The
CA denied the Motion to Dismiss. De Leon filed a Motion
for Reconsideration which actually did not suspend the
period to file the appellee’s brief. De Leon therefore failed
to file his brief within the period specified by the rules and
hence he was deemed by the CA to have waived his right
to file appellee’s brief.
The failure of the appellee to file his brief would not result
to the rendition of a decision favorable to the appellant.
The former is considered only to have waived his right to
file the Appellee’s Brief. The CA has the jurisdiction to
resolve the case based on the Appellant’s Brief and the
records of the case forwarded by the RTC. The appeal is
therefore considered submitted for decision and the CA
properly acted on it.
WHEREFORE, the instant petition for review on certiorari
is DENIED. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 78870, which affirmed the Decision
dated November 18, 2002 of the Regional Trial Court,
Branch 101, Quezon City in Civil Case No. Q-00-42338 is
AFFIRMED.
SO ORDERED.
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Sales – Chapter 3-12 Cases
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D.
IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND
FAUSTINO D. IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY,
SPOUSES PHILLIP AND THELMA RODRIGUEZ,
CATHERINE, REYNOLD & JEANETTE, all surnamed
ZUNIGA, Respondents.
Before the Court is a Petition for Review on Certiorari
under Rule 45 assailing the Decision1 dated July 18, 2006
and Resolution2 dated May 2, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed
the Decision3 dated June 15, 1999 of the Regional Trial
Court (RTC) of Pasig City, Branch 151 in Civil Case No.
58980.
The factual antecedents:
In August 1981, petitioner Fausto C. Ignacio mortgaged
two parcels of land to Home Savings Bank and Trust
Company, the predecessor of respondent Home Bankers
Savings and Trust Company, as security for the
₱500,000.00 loan extended to him by said bank. These
properties which are located in Cabuyao, Laguna are
covered by Transfer Certificate of Title Nos. (T-40380) T-
8595 and (T-45804) T-8350 containing an area of 83,303
square meters and 120,110 square meters, respectively.4
When petitioner defaulted in the payment of his loan
obligation, respondent bank proceeded to foreclose the
real estate mortgage. At the foreclosure sale held on
January 26, 1983, respondent bank was the highest
bidder for the sum of ₱764,984.67. On February 8, 1983,
the Certificate of Sale issued to respondent bank was
registered with the Registry of Deeds of Calamba,
Laguna. With the failure of petitioner to redeem the
foreclosed properties within one year from such
registration, title to the properties were consolidated in
favor of respondent bank. Consequently, TCT Nos. T-
8595 and T-8350 were cancelled and TCT Nos. 111058
and 111059 were issued in the name of respondent
bank.5
Despite the lapse of the redemption period and
consolidation of title in respondent bank, petitioner offered
to repurchase the properties. While the respondent bank
considered petitioner's offer to repurchase, there was no
repurchase contract executed. The present controversy
was fuelled by petitioner's stance that a verbal
repurchase/compromise agreement was actually reached
and implemented by the parties.
In the meantime, respondent bank made the following
dispositions of the foreclosed properties already titled in
its name:
TCT No. 111059 (Subdivided into six lots with individual
titles - TCT Nos. 117771, 117772, 117773, 117774,
117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin
Salvador and Bella Salvador under Deed of Absolute Sale
dated May 23, 1984 for the price of ₱150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2
portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla
and Natividad Pagtakhan, Dr. Edilberto Torres and Dra.
Rebecca Amores under Deed of Absolute Sale dated April
17, 1985 for the price of ₱150,000.00
2) Lot 3-B-2 covered by separate title TCT No. 124660
(Subdivided into 3 portions -
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del
Carmen Reyes under Deed of Absolute Sale dated March
23, 1987 for the price of ₱150,000.00
Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren
under Deed of Absolute Sale dated March 23, 1987 for
the price of ₱150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-
154568 -
C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina
Pedrosa under Deed of Absolute Sale dated June 4, 1984
for the price of ₱150,000.00
The expenses for the subdivision of lots covered by TCT
No. 111059 and TCT No. 117772 were shouldered by
petitioner who likewise negotiated the above-mentioned
sale transactions. The properties covered by TCT Nos. T-
117774 to 117776 are still registered in the name of
respondent bank.6
In a letter addressed to respondent bank dated July 25,
1989, petitioner expressed his willingness to pay the
amount of ₱600,000.00 in full, as balance of the
repurchase price, and requested respondent bank to
release to him the remaining parcels of land covered by
TCT Nos. 111058 and T-154658 ("subject properties").7
Respondent bank however, turned down his request. This
prompted petitioner to cause the annotation of an adverse
claim on the said titles on September 18, 1989.8
Prior to the annotation of the adverse claim, on August 24,
1989, the property covered by TCT No. 154658 was sold
by respondent bank to respondent spouses Phillip and
Thelma Rodriguez, without informing the petitioner. On
October 6, 1989, again without petitioner's knowledge,
respondent bank sold the property covered by TCT No T-
111058 to respondents Phillip and Thelma Rodriguez,
Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette
M. Zuñiga.9
On December 27, 1989, petitioner filed an action for
specific performance and damages in the RTC against the
respondent bank. As principal relief, petitioner sought in
his original complaint the reconveyance of the subject
properties after his payment of ₱600,000.00.10
Respondent bank filed its Answer denying the allegations
of petitioner and asserting that it was merely exercising its
right as owner of the subject properties when the same
were sold to third parties.
For failure of respondent bank to appear during the pre-
trial conference, it was declared as in default and
petitioner was allowed to present his evidence ex parte on
the same date (September 3, 1990). Petitioner
simultaneously filed an "Ex-Parte Consignation" tendering
the amount of ₱235,000.00 as balance of the repurchase
price.11 On September 7, 1990, the trial court rendered
judgment in favor of petitioner. Said decision, as well as
the order of default, were subsequently set aside by the
trial court upon the filing of a motion for reconsideration by
the respondent bank.12
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Sales – Chapter 3-12 Cases
In its Order dated November 19, 1990, the trial court
granted the motion for intervention filed by respondents
Phillip and Thelma Rodriguez, Catherine Zuñiga, Reynold
Zuñiga and Jeannette Zuñiga. Said intervenors asserted
their status as innocent purchasers for value who had no
notice or knowledge of the claim or interest of petitioner
when they bought the properties already registered in the
name of respondent bank. Aside from a counterclaim for
damages against the petitioner, intervenors also prayed
that in the event respondent bank is ordered to reconvey
the properties, respondent bank should be adjudged liable
to the intervenors and return all amounts paid to it.13
On July 8, 1991, petitioner amended his complaint to
include as alternative relief under the prayer for
reconveyance the payment by respondent bank of the
prevailing market value of the subject properties "less
whatever remaining obligation due the bank by reason of
the mortgage under the terms of the compromise
agreement.14
On June 15, 1999, the trial court rendered its Decision,
the dispositive portion of which reads:
WHEREFORE, findings [sic] the facts aver[r]ed in the
complaint supported by preponderance of evidences
adduced, judgment is hereby rendered in favor of the
plaintiff and against the defendant and intervenors by:
1. Declaring the two Deeds of Sale executed by the
defendant in favor of the intervenors as null and void and
the Register of Deeds in Calamba, Laguna is ordered to
cancel and/or annul the two Transfer Certificate of Titles
No. T-154658 and TCT No. T-111058 issued to the
intervenors.
2. Ordering the defendant to refund the amount of
₱1,004,250.00 to the intervenors as the consideration of
the sale of the two properties.
3. Ordering the defendant to execute the appropriate
Deed of Reconveyance of the two (2) properties in favor
of the plaintiff after the plaintiff pays in full the amount of
₱600,000.00 as balance of the repurchase price.
4. Ordering the defendant bank to pay plaintiff the sum of
₱50,000.00 as attorney's fees.
5. Dismissing the counterclaim of the defendant and
intervenors against the plaintiff.
Costs against the defendant.
SO ORDERED.15
The trial court found that respondent bank deliberately
disregarded petitioner's substantial payments on the total
repurchase consideration. Reference was made to the
letter dated March 22, 1984 (Exhibit "I")16 as the authority
for petitioner in making the installment payments directly
to the Universal Properties, Inc. (UPI), respondent bank's
collecting agent. Said court concluded that the
compromise agreement amounts to a valid contract of
sale between petitioner, as Buyer, and respondent bank,
as Seller. Hence, in entertaining other buyers for the same
properties already sold to petitioner with intention to
increase its revenues, respondent bank acted in bad faith
and is thus liable for damages to the petitioner.
Intervenors were likewise found liable for damages as
they failed to exercise due diligence before buying the
subject properties.
Respondent bank appealed to the CA which reversed the
trial court's ruling, as follows:
WHEREFORE, the foregoing premises considered, the
instant appeal is hereby GRANTED. Accordingly, the
assailed decision is hereby REVERSED and SET ASIDE.
SO ORDERED.17
The CA held that by modifying the terms of the offer
contained in the March 22, 1984 letter of respondent
bank, petitioner effectively rejected the original offer with
his counter-offer. There was also no written conformity by
respondent bank's officers to the amended conditions for
repurchase which were unilaterally inserted by petitioner.
Consequently, no contract of repurchase was perfected
and respondent bank acted well within its rights when it
sold the subject properties to herein respondents-
intervenors.
As to the receipts presented by petitioner allegedly
proving the installment payments he had completed, the
CA said that these were not payments of the repurchase
price but were actually remittances of the payments made
by petitioner's buyers for the purchase of the foreclosed
properties already titled in the name of respondent bank. It
was noted that two of these receipts (Exhibits "K" and "K-
1")18 were issued to Fermin Salvador and Rizalina
Pedrosa, the vendees of two subdivided lots under
separate Deeds of Absolute Sale executed in their favor
by the respondent bank. In view of the attendant
circumstances, the CA concluded that petitioner acted
merely as a broker or middleman in the sales transactions
involving the foreclosed properties. Lastly, the
respondents-intervenors were found to be purchasers who
bought the properties in good faith without notice of
petitioner's interest or claim. Nonetheless, since there was
no repurchase contract perfected, the sale of the subject
properties to respondents-intervenors remains valid and
binding, and the issue of whether the latter were innocent
purchasers for value would be of no consequence.
Petitioner's motion for reconsideration was likewise
denied by the appellate court.
Hence, this petition alleging that:
A.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A
PERFECTED CONTRACT TO REPURCHASE
BETWEEN PETITIONER AND RESPONDENT-BANK.
B.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT PETITIONER
DID NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO
CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT
ARE DULY NOTED FOR HIS ACCOUNT.
C.
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Sales – Chapter 3-12 Cases
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENT-
BANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.
D.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT
RESPONDENTS-INTERVENORS ARE NOT INNOCENT
PURCHASERS FOR VALUE IN GOOD FAITH.19
It is to be noted that the above issues raised by petitioner
alleged grave abuse of discretion committed by the CA,
which is proper in a petition for certiorari under Rule 65 of
the 1997 Rules of Civil Procedure, as amended, but not in
the present petition for review on certiorari under Rule 45.
The core issue for resolution is whether a contract for the
repurchase of the foreclosed properties was perfected
between petitioner and respondent bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is
manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the
contract.20 The requisite acceptance of the offer is
expressed in Article 1319 of the Civil Code which states:
ART. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
In Palattao v. Court of Appeals,21 this Court held that if
the acceptance of the offer was not absolute, such
acceptance is insufficient to generate consent that would
perfect a contract. Thus:
Contracts that are consensual in nature, like a contract of
sale, are perfected upon mere meeting of the minds. Once
there is concurrence between the offer and the
acceptance upon the subject matter, consideration, and
terms of payment, a contract is produced. The offer must
be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a
new proposal, constitutes a counter-offer and is a
rejection of the original offer. Consequently, when
something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation
from the terms of the offer annuls the offer.22
The acceptance must be identical in all respects with that
of the offer so as to produce consent or meeting of the
minds.23 Where a party sets a different purchase price
than the amount of the offer, such acceptance was
qualified which can be at most considered as a counter-
offer; a perfected contract would have arisen only if the
other party had accepted this counter-offer.24 In
Villanueva v. Philippine National Bank25 this Court further
elucidated on the meaning of unqualified acceptance, as
follows:
…While it is impossible to expect the acceptance to echo
every nuance of the offer, it is imperative that it assents to
those points in the offer which, under the operative facts
of each contract, are not only material but motivating as
well. Anything short of that level of mutuality produces not
a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the
contract, the offer and its acceptance must be unanimous
both on the rate of the payment and on its term. An
acceptance of an offer which agrees to the rate but varies
the term is ineffective.26 (Emphasis supplied)
Petitioner submitted as evidence of a perfected contract of
repurchase the March 22, 1984 letter (Exhibit "I")27 from
Rita B. Manuel, then President of UPI, a corporation
formed by respondent bank to dispose of its acquired
assets, with notations handwritten by petitioner himself.
Said letter reads:
March 22, 1984
Honorable Judge Fausto Ignacio
412 Bagumbayan Street, Pateros
Metro Manila
Dear Judge Ignacio:
Your proposal to repurchase your foreclosed properties
located at Cabuyao, Laguna consisting of a total area of
203,413 square meters has been favorably considered
subject to the following terms and conditions:
1) Total Selling Price shall be ₱950,000.00
2) Downpayment of ₱150,00000 with the balance
Payable in Three (3) equal installments
as follows:
1st Installment - P 266,667 - on or before May 31, '84
2nd Installment - P 266,667 - on or before Sept. 31, '84
3rd Installment - P 266,666 - on or before Jan. 30, '85
TOTAL - P 800,000.00
3) All expenses pertinent to the subdivision of the parcel
of land consisting of 120,110 square meters shall be for
your account.
Thank you,
Very truly yours,
RITA B. MANUEL
President
According to petitioner, he wrote the notations in the
presence of a certain Mr. Lazaro, the representative of
Mrs. Manuel (President), and a certain Mr. Fajardo, which
notations supposedly represent their "compromise
agreement."28 These notations indicate that the
repurchase price would be ₱900,000.00 which shall be
paid as follows: ₱150,000 - end of May '84; ₱150,000 -
end of June '84; Balance - "Depending on financial
position". Petitioner further alleged the following
conditions of the verbal agreement: (1) respondent bank
shall release the equivalent land area for payments made
by petitioner who shall shoulder the expenses for
subdivision of the land; (2) in case any portion of the
85
Sales – Chapter 3-12 Cases
subdivided land is sold by petitioner, a separate document
of sale would be executed directly to the buyer; (3) the
remaining portion of the properties shall not be subject of
respondent bank's transaction without the consent and
authority of petitioner; (4) the petitioner shall continue in
possession of the properties and whatever portion still
remaining, and attending to the needs of its tenants; and
(5) payments shall be made directly to UPI.29
The foregoing clearly shows that petitioner's acceptance
of the respondent bank's terms and conditions for the
repurchase of the foreclosed properties was not absolute.
Petitioner set a different repurchase price and also
modified the terms of payment, which even contained a
unilateral condition for payment of the balance
(₱600,000), that is, depending on petitioner's "financial
position." The CA thus considered the qualified
acceptance by petitioner as a counter-proposal which
must be accepted by respondent bank. However, there
was no evidence of any document or writing showing the
conformity of respondent bank's officers to this counter-
proposal.
Petitioner contends that the receipts issued by UPI on his
installment payments are concrete proof -- despite denials
to the contrary by respondent bank -- that there was an
implied acceptance of his counter-proposal and that he
did not merely act as a broker for the sale of the
subdivided portions of the foreclosed properties to third
parties. Since all these receipts, except for two receipts
issued in the name of Fermin Salvador and Rizalina
Pedrosa, were issued in the name of petitioner instead of
the buyers themselves, petitioner emphasizes that the
payments were made for his account. Moreover, petitioner
asserts that the execution of the separate deeds of sale
directly to the buyers was in pursuance of the perfected
repurchase agreement with respondent bank, such an
arrangement being "an accepted practice to save on taxes
and shortcut paper works."
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 the Court ruled that:
x x x The rule is that except where a formal acceptance is
so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by
some acts or conduct communicated to the offeror, it may
be made either in a formal or an informal manner, and
may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus,
acceptance may be shown by the acts, conduct, or words
of a party recognizing the existence of the contract of
sale.31
Even assuming that the bank officer or employee whom
petitioner claimed he had talked to regarding the March
22, 1984 letter had acceded to his own modified terms for
the repurchase, their supposed verbal exchange did not
bind respondent bank in view of its corporate nature.
There was no evidence that said Mr. Lazaro or Mr.
Fajardo was authorized by respondent bank's Board of
Directors to accept petitioner's counter-proposal to
repurchase the foreclosed properties at the price and
terms other than those communicated in the March 22,
1984 letter. As this Court ruled in AF Realty &
Development, Inc. v. Dieselman Freight Services, Co.32
Section 23 of the Corporation Code expressly provides
that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation
validly
delegate some of its functions to individual officers or
agents appointed by it.1âwphi1 Thus, contracts or acts of
a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of
such director, are held not binding on the corporation.33
Thus, 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.34
In the absence of conformity or acceptance by properly
authorized bank officers of petitioner's counter-proposal,
no perfected repurchase contract was born out of the talks
or negotiations between petitioner and Mr. Lazaro and Mr.
Fajardo. Petitioner therefore had no legal right to compel
respondent bank to accept the ₱600,000 being tendered
by him as payment for the supposed balance of
repurchase price.
A contract of sale is consensual in nature and is perfected
upon mere meeting of the minds. When there is merely an
offer by one party without acceptance of the other, there is
no contract.35 When the contract of sale is not perfected,
it cannot, as an independent source of obligation, serve
as a binding juridical relation between the parties.36
In sum, we find the ruling of the CA more in accord with
the established facts and applicable law and
jurisprudence. Petitioner's claim of utmost accommodation
by respondent bank of his own terms for the repurchase of
his foreclosed properties are simply contrary to normal
business practice. As aptly observed by the appellate
court:
The submission of the plaintiff-appellee is unimpressive.
First, if the counter-proposal was mutually agreed upon by
both the plaintiff-appellee and defendant-appellant, how
come not a single signature of the representative of the
defendant-appellant was affixed thereto. Second, it is
inconceivable that an agreement of such great
importance, involving two personalities who are both
aware and familiar of the practical and legal necessity of
reducing agreements into writing, the plaintiff-appellee,
being a lawyer and the defendant-appellant, a banking
institution, not to formalize their repurchase agreement.
Third, it is quite absurd and unusual that the defendant-
appellant could have acceded to the condition that the
balance of the payment of the repurchase price would
depend upon the financial position of the plaintiff-appellee.
Such open[-]ended and indefinite period for payment is
hardly acceptable to a banking institution like the
defendant-appellant whose core existence fundamentally
depends upon its financial arrangements and transactions
which, most, if not all the times are intended to bear
favorable outcome to its business. Last, had there been a
repurchase agreement, then, there should have been
titles or deeds of conveyance issued in favor of the
plaintiff-appellee. But as it turned out, the plaintiff-appellee
never had any land deeded or titled in his name as a
86
Sales – Chapter 3-12 Cases
result of the alleged repurchase agreement. All these,
reinforce the conclusion that the counter-proposal was
unilaterally made and inserted by the plaintiff-appellee in
Exhibit "I" and could not have been accepted by the
defendant-appellant, and that a different agreement other
than a repurchase agreement was perfected between
them.37

Petitioner Fausto C. Ignacio passed away on November

11, 2008 and was substituted by his heirs, namely: Marfel
D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino
D. Ignacio.

WHEREFORE, the petition for review on certiorari is

DENIED. The Decision dated July 18, 2006 and
Resolution dated May 2, 2007 of the Court of Appeals in
CA-G.R. CV No. 73551 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.

87
Sales – Chapter 3-12 Cases
VILLONCO REALTY COMPANY, plaintiff-appellee and
EDITH PEREZ DE TAGLE, intervenor-appellee,
vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and
ROSARIO N. CERVANTES, defendants-appellants.
Meer, Meer & Meer for plaintiff-appellee.
This action was instituted by Villonco Realty Company
against Bormaheco, Inc. and the spouses Francisco N.
Cervantes and Rosario N. Cervantes for the specific
performance of a supposed contract for the sale of land
and the improvements thereon for one million four
hundred thousand pesos. Edith Perez de Tagle, as agent,
intervened in order to recover her commission. The lower
court enforced the sale. Bormaheco, Inc. and the
Cervantes spouses, as supposed vendors, appealed.
This Court took cognizance of the appeal because the
amount involved is more than P200,000 and the appeal
was perfected before Republic Act No. 5440 took effect on
September 9, 1968. The facts are as follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-
Cervantes, are the owners of lots 3, 15 and 16 located at
245 Buendia Avenue, Makati, Rizal with a total area of
three thousand five hundred square meters (TCT Nos.
43530, 43531 and 43532, Exh. A, A-1 and A-2). The lots
were mortgaged to the Development Bank of the Phil
(DBP) on April 21, 1959 as security for a loan of
P441,000. The mortgage debt was fully paid on July 10,
1969.
Cervantes is the president of Bormaheco, Inc., a dealer
and importer of industrial and agricultural machinery. The
entire lots are occupied by the building, machinery and
equipment of Bormaheco, Inc. and are adjacent to the
property of Villonco Realty Company situated at 219
Buendia Avenue.
In the early part of February, 1964 there were negotiations
for the sale of the said lots and the improvements thereon
between Romeo Villonco of Villonco Realty Company
"and Bormaheco, Inc., represented by its president,
Francisco N. Cervantes, through the intervention of Edith
Perez de Tagle, a real estate broker".
In the course of the negotiations, the brothers Romeo
Villonco and Teofilo Villonco conferred with Cervantes in
his office to discuss the price and terms of the sale. Later,
Cervantes "went to see Villonco for the same reason until
some agreement" was arrived at. On a subsequent
occasion, Cervantes, accompanied by Edith Perez de
Tagle, discussed again the terms of the sale with Villonco.
During the negotiations, Villonco Realty Company
assumed that the lots belonged to Bormaheco, Inc. and
that Cervantes was duly authorized to sell the same.
Cervantes did not disclose to the broker and to Villonco
Realty Company that the lots were conjugal properties of
himself and his wife and that they were mortgaged to the
DBP.
Bormaheco, Inc., through Cervantes, made a written offer
dated February 12, 1964, to Romeo Villonco for the sale
of the property. The offer reads (Exh. B):
BORMAHECO, INC.
February 12,1964
Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.
Dear Mr. Villonco:
This is with reference to our telephone conversation this
noon on the matter of the sale of our property located at
Buendia Avenue, with a total area of 3,500 sq. m., under
the following conditions:
(1) That we are offering to sell to you the above
property at the price of P400.00 per square meter;
(2) That a deposit of P100,000.00 must be placed as
earnest money on the purchase of the above property
which will become part payment of the property in the
event that the sale is consummated;
(3) That this sale is to be consummated only after I
shall have also consummated my purchase of another
property located at Sta. Ana, Manila;
(4) That if my negotiations with said property will not
be consummated by reason beyond my control, I will
return to you your deposit of P100,000 and the sale of my
property to you will not also be consummated; and
(5) That final negotiations on both properties can be
definitely known after 45 days.
If the above terms is (are) acceptable to your Board,
please issue out the said earnest money in favor of
Bormaheco, Inc., and deliver the same thru the bearer,
Miss Edith Perez de Tagle.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the
land of the National Shipyards & Steel Corporation
(Nassco), with an area of twenty thousand square meters,
located at Punta, Sta. Ana, Manila. At the bidding held on
January 17, 1964 that land was awarded to Bormaheco,
Inc., the highest bidder, for the price of P552,000. The
Nassco Board of Directors in its resolution of February 18,
1964 authorized the General Manager to sign the
necessary contract (Exh. H).
On February 28, 1964, the Nassco Acting General
Manager wrote a letter to the Economic Coordinator,
requesting approval of that resolution. The Acting
Economic Coordinator approved the resolution on March
24, 1964 (Exh. 1).
In the meanwhile, Bormaheco, Inc. and Villonco Realty
Company continued their negotiations for the sale of the
Buendia Avenue property. Cervantes and Teofilo Villonco
had a final conference on February 27, 1964. As a result
of that conference Villonco Realty Company, through
Teofilo Villonco, in its letter of March 4, 1964 made a
revised counter- offer (Romeo Villonco's first counter-offer
was dated February 24, 1964, Exh. C) for the purchase of
the property. The counter-offer was accepted by
Cervantes as shown in Exhibit D, which is quoted below:
VILLONCO REALTY COMPANY
88
Sales – Chapter 3-12 Cases
V. R. C. Building As regards to the other conditions which we have Punta lot had been awarded to Bormaheco, Inc. (25-26
219 Buendia Avenue, Makati, discussed during our last conference on February 27, tsn).
Rizal, Philippines 1964, the same shall be finalized upon preparation of the
contract to sell.* Edith Perez de Tagle, the broker, in a letter to Cervantes
March 4, 1964 dated March 31, 1964 articulated her shock and surprise
If the above terms and conditions are acceptable to you, at Bormaheco's turnabout. She reviewed the history of the
Mr. Francisco Cervantes. kindly sign your conformity hereunder. Enclosed is our deal and explained why Romeo Villonco could not agree
Bormaheco, Inc. check for ONE HUNDRED THOUSAND (P100,000.00) to the rescission of the sale (Exh. G).**
245 Buendia Avenue PESOS, MBTC Check No. 448314, as earnest money.
Makati, Rizal Cervantes in his letter of April 6, 1964, a reply to Miss
Very truly yours, Tagle's letter, alleged that the forty-five day period had
Dear Mr. Cervantes: already expired and the sale to Bormaheco, Inc. of the
VILLONCO REALTY COMPANY Punta property had not been consummated. Cervantes
In reference to the letter of Miss E. Perez de Tagle dated (Sgd.) TEOFILO VILLONCO said that his letter was a "manifestation that we are no
February 12th and 26, 1964 in respect to the terms and longer interested to sell" the Buendia Avenue property to
conditions on the purchase of your property located at CONFORME: Villonco Realty Company (Annex I of Stipulation of Facts).
Buendia Ave., Makati, Rizal, with a total area of 3,500 sq. The latter was furnished with a copy of that letter.
meters., we hereby revise our offer, as follows: BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES In a letter dated April 7, 1964 Villonco Realty Company
1. That the price of the property shall be P400.00 returned the two checks to Bormaheco, Inc., stating that
per sq. m., including the improvements thereon; That this sale shall be subject to favorable consummation the condition for the cancellation of the contract had not
of a property in Sta. Ana we are negotiating. arisen and at the same time announcing that an action for
2. That a deposit of P100,000.00 shall be given to breach of contract would be filed against Bormaheco, Inc.
you as earnest money which will become as part payment (Sgd.) FRANCISCO CERVANTES (Annex G of Stipulation of Facts).1äwphï1.ñët
in the event the sale is consummated;
The check for P100,000 (Exh. E) mentioned in the On that same date, April 7, 1964 Villonco Realty Company
3. This sale shall be cancelled, only if your deal with foregoing letter-contract was delivered by Edith Perez de filed the complaint (dated April 6) for specific performance
another property in Sta. Ana shall not be consummated Tagle to Bormaheco, Inc. on March 4, 1964 and was against Bormaheco, Inc. Also on that same date, April 7,
and in such case, the P100,000-00 earnest money will be received by Cervantes. In the voucher-receipt evidencing at eight-forty-five in the morning, a notice of lis pendens
returned to us with a 10% interest p.a. However, if our the delivery the broker indicated in her handwriting that was annotated on the titles of the said lots.
deal with you is finalized, said P100,000.00 will become the earnest money was "subject to the terms and
as part payment for the purchase of your property without conditions embodied in Bormaheco's letter" of February Bormaheco, Inc. in its answers dated May 5 and 25, 1964
interest: 12 and Villonco Realty Company's letter of March 4, 1964 pleaded the defense that the perfection of the contract of
(Exh. E-1; 14 tsn). sale was subject to the conditions (a) "that final
4. The manner of payment shall be as follows: acceptance or not shall be made after 45 days" (sic) and
Then, unexpectedly, in a letter dated March 30, 1964, or (b) that Bormaheco, Inc. "acquires the Sta. Ana property".
a. P100,000.00 earnest money and twenty-six days after the signing of the contract of sale,
650,000.00 as part of the down payment, or Exhibit D, Cervantes returned the earnest money, with On June 2, 1964 or during the pendency of this case, the
P750,000.00 as total down payment interest amounting to P694.24 (at ten percent per annum). Nassco Acting General Manager wrote to Bormaheco,
Cervantes cited as an excuse the circumstance that Inc., advising it that the Board of Directors and the
b. The balance is payable as follows: "despite the lapse of 45 days from February 12, 1964 Economic Coordinator had approved the sale of the Punta
P100,000.00 after 3 months there is no certainty yet" for the acquisition of the Punta lot to Bormaheco, Inc. and requesting the latter to send its
125,000.00 -do- property (Exh. F; F-I and F-2). Villonco Realty Company duly authorized representative to the Nassco for the
212,500.00 -do- refused to accept the letter and the checks of Bormaheco, signing of the deed of sale (Exh. 1).
P650,000.00 Total Inc. Cervantes sent them by registered mail. When he
rescinded the contract, he was already aware that the The deed of sale for the Punta land was executed on
June 26, 1964. Bormaheco, Inc. was represented by
89
Sales – Chapter 3-12 Cases
Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-
28087, July 31, 1973, 52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer
that the three lots were registered in the names of the
Cervantes spouses and not in the name of Bormaheco,
Inc., Villonco Realty Company on July 21, 1964 filed an
amended complaint impleading the said spouses as
defendants. Bormaheco, Inc. and the Cervantes spouses
filed separate answers.
As of January 15, 1965 Villonco Realty Company had paid
to the Manufacturers' Bank & Trust Company the sum of
P8,712.25 as interests on the overdraft line of P100,000
and the sum of P27.39 as interests daily on the same loan
since January 16, 1965. (That overdraft line was later
settled by Villonco Realty Company on a date not
mentioned in its manifestation of February 19, 1975).
Villonco Realty Company had obligated itself to pay the
sum of P20,000 as attorney's fees to its lawyers. It
claimed that it was damaged in the sum of P10,000 a
month from March 24, 1964 when the award of the Punta
lot to Bormaheco, Inc. was approved. On the other hand,
Bormaheco, Inc. claimed that it had sustained damages of
P200,000 annually due to the notice of lis pendens which
had prevented it from constructing a multi-story building
on the three lots. (Pars. 18 and 19, Stipulation of
Facts).1äwphï1.ñët
Miss Tagle testified that for her services Bormaheco, Inc.,
through Cervantes, obligated itself to pay her a three
percent commission on the price of P1,400,000 or the
amount of forty-two thousand pesos (14 tsn).
After trial, the lower court rendered a decision ordering the
Cervantes spouses to execute in favor of Bormaheco, Inc.
a deed of conveyance for the three lots in question and
directing Bormaheco, Inc. (a) to convey the same lots to
Villonco Realty Company, (b) to pay the latter, as
consequential damages, the sum of P10,000 monthly from
March 24, 1964 up to the consummation of the sale, (c) to
pay Edith Perez de Tagle the sum of P42,000 as broker's
commission and (d) pay P20,000 as to attorney's fees
(Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed.
Their principal contentions are (a) that no contract of sale
was perfected because Cervantes made a supposedly
qualified acceptance of the revised offer contained in
Exhibit D, which acceptance amounted to a counter-offer,
and because the condition that Bormaheco, inc. would
acquire the Punta land within the forty-five-day period was
not fulfilled; (2) that Bormaheco, Inc. cannot be compelled
to sell the land which belongs to the Cervantes spouses
and (3) that Francisco N. Cervantes did not bind the
conjugal partnership and his wife when, as president of
Bormaheco, Inc., he entered into negotiations with
Villonco Realty Company regarding the said land.
We hold that the appeal, except as to the issue of
damages, is devoid of merit.
"By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to
deliver a determining thing, and the other to pay therefor a
price certain in money or its equivalent. A contract of sale
may be absolute or conditional" (Art. 1458, Civil Code).
"The 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. From that moment, the
parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts"
(Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law" (Art. 1315, Civil
Code).
"Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer" (Art. 1319, Civil Code). "An acceptance may
be express or implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's
offer to purchase the Buendia Avenue property, as shown
in Teofilo Villonco's letter dated March 4, 1964 (Exh. D),
indubitably proves that there was a meeting of minds upon
the subject matter and consideration of the sale.
Therefore, on that date the sale was perfected. (Compare
with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs.
Tambunting, 1 Phil. 490). Not only that Bormaheco's
acceptance of the part payment of one hundred ,thousand
pesos shows that the sale was conditionally
consummated or partly executed subject to the purchase
by Bormaheco, Inc. of the Punta property. The
nonconsummation of that purchase would be a negative
resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil.
873).
On February 18, 1964 Bormaheco's bid for the Punta
property was already accepted by the Nassco which had
authorized its General Manager to sign the corresponding
deed of sale. What was necessary only was the approval
of the sale by the Economic Coordinator and a request for
that approval was already pending in the office of that
functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that
the sale was not perfected because Cervantes allegedly
qualified his acceptance of Villonco's revised offer and,
therefore, his acceptance amounted to a counter-offer
which Villonco Realty Company should accept but no
such acceptance was ever transmitted to Bormaheco, Inc.
which, therefore, could withdraw its offer.
That contention is not well-taken. It should be stressed
that there is no evidence as to what changes were made
by Cervantes in Villonco's revised offer. And there is no
evidence that Villonco Realty Company did not assent to
the supposed changes and that such assent was never
made known to Cervantes.
What the record reveals is that the broker, Miss Tagle,
acted as intermediary between the parties. It is safe to
assume that the alleged changes or qualifications made
by Cervantes were approved by Villonco Realty Company
and that such approval was duly communicated to
Cervantes or Bormaheco, Inc. by the broker as shown by
the fact that Villonco Realty Company paid, and
Bormaheco, Inc. accepted, the sum of P100,000 as
earnest money or down payment. That crucial fact implies
that Cervantes was aware that Villonco Realty Company
had accepted the modifications which he had made in
90
Sales – Chapter 3-12 Cases
Villonco's counter-offer. Had Villonco Realty Company not
assented to those insertions and annotations, then it
would have stopped payment on its check for P100,000.
The fact that Villonco Realty Company allowed its check
to be cashed by Bormaheco, Inc. signifies that the
company was in conformity with the changes made by
Cervantes and that Bormaheco, Inc. was aware of that
conformity. Had those insertions not been binding, then
Bormaheco, Inc. would not have paid interest at the rate
of ten percent per annum, on the earnest money of
P100,000.
The truth is that the alleged changes or qualifications in
the revised counter — offer (Exh. D) are not material or
are mere clarifications of what the parties had previously
agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of
the figure and the words "12th and" in Villonco's counter-
offer is the same as the statement found in the voucher-
receipt for the earnest money, which reads: "subject to the
terms and conditions embodied in Bormaheco's letter of
Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-
1).
Cervantes allegedly crossed out the word "Nassco" in
paragraph 3 of Villonco's revised counter-offer and
substituted for it the word "another" so that the original
phrase, "Nassco's property in Sta. Ana", was made to
read as "another property in Sta. Ana". That change is
trivial. What Cervantes did was merely to adhere to the
wording of paragraph 3 of Bormaheco's original offer
(Exh. B) which mentions "another property located at Sta.
Ana." His obvious purpose was to avoid jeopardizing his
negotiation with the Nassco for the purchase of its Sta.
Ana property by unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker
dated April 6, 1964 (Annex 1) or after the Nassco property
had been awarded to Bormaheco, Inc., alluded to the
"Nassco property". At that time, there was no more need
of concealing from the public that Bormaheco, Inc. was
interested in the Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" (
per annum) after the word "interest" in that same
paragraph 3 of the revised counter-offer (Exh. D) could
not be categorized as a major alteration of that counter-
offer that prevented a meeting of the minds of the parties.
It was understood that the parties had contemplated a rate
of ten percent per annum since ten percent a month or
semi-annually would be usurious.
Appellants Bormaheco, Inc. and Cervantes further
contend that Cervantes, in clarifying in the voucher for the
earnest money of P100,000 that Bormaheco's acceptance
thereof was subject to the terms and conditions embodied
in Bormaheco's letter of February 12, 1964 and your
(Villonco's) letter of March 4, 1964" made Bormaheco's
acceptance "qualified and conditional".
That contention is not correct. There is no incompatibility
between Bormaheco's offer of February 12, 1964 (Exh. B)
and Villonco's counter-offer of March 4, 1964 (Exh. D).
The revised counter-offer merely amplified Bormaheco's
original offer.
The controlling fact is that there was agreement between
the parties on the subject matter, the price and the mode
of payment and that part of the price was paid. "Whenever
earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the
perfection of the contract" (Art. 1482, Civil Code).
"It is true that an acceptance may contain a request for
certain changes in the terms of the offer and yet be a
binding acceptance. 'So long as it is clear that the
meaning of the acceptance is positively and unequivocally
to accept the offer, whether such request is granted or
not, a contract is formed.' " (Stuart vs. Franklin Life Ins.
Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on
Contracts).
Thus, it was held that the vendor's change in a phrase of
the offer to purchase, which change does not essentially
change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer
(Stuart vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down
in Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770,
and Zayco vs. Serra, 44 Phil. 326. In those two cases the
acceptance radically altered the offer and, consequently,
there was no meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to
Lorenzo Zayco his sugar central for P1,000,000 on
condition that the price be paid in cash, or, if not paid in
cash, the price would be payable within three years
provided security is given for the payment of the balance
within three years with interest. Zayco, instead of
unconditionally accepting those terms, countered that he
was going to make a down payment of P100,000, that
Serra's mortgage obligation to the Philippine National
Bank of P600,000 could be transferred to Zayco's account
and that he (plaintiff) would give a bond to secure the
payment of the balance of the price. It was held that the
acceptance was conditional or was a counter-offer which
had to be accepted by Serra. There was no such
acceptance. Serra revoked his offer. Hence, there was no
perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W
Borck the Nagtahan Hacienda owned by Benito Legarda,
who had empowered Valdes to sell it. Borck was given
three months from December 4, 1911 to buy the hacienda
for P307,000. On January 17, 1912 Borck wrote to
Valdes, offering to purchase the hacienda for P307,000
payable on May 1, 1912. No reply was made to that letter.
Borck wrote other letters modifying his proposal. Legarda
refused to convey the property.
It was held that Borck's January 17th letter plainly
departed from the terms of the offer as to the time of
payment and was a counter-offer which amounted to a
rejection of Valdes' original offer. A subsequent
unconditional acceptance could not revive that offer.
The instant case is different from Laudico and Harden vs.
Arias Rodriguez, 43 Phil. 270 where the written offer to
sell was revoked by the offer or before the offeree's
acceptance came to the offeror's knowledge.
Appellants' next contention is that the contract was not
perfected because the condition that Bormaheco, Inc.
would acquire the Nassco land within forty-five days from
February 12, 1964 or on or before March 28, 1964 was
not fulfilled. This contention is tied up with the following
letter of Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
91
Sales – Chapter 3-12 Cases
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
We are returning herewith your earnest money together
with interest thereon at 10% per annum. Please be
informed that despite the lapse of the 45 days from
February 12, 1964 there is no certainty yet for us to
acquire a substitute property, hence the return of the
earnest money as agreed upon.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous
assumption that Bormaheco, Inc. was to acquire the
Nassco land within forty-five days or on or before March
28, 1964.
The trial court ruled that the forty-five-day period was
merely an estimate or a forecast of how long it would take
Bormaheco, Inc. to acquire the Nassco property and it
was not "a condition or a deadline set for the defendant
corporation to decide whether or not to go through with
the sale of its Buendia property".
The record does not support the theory of Bormaheco,
Inc. and the Cervantes spouses that the forty-five-day
period was the time within which (a) the Nassco property
and two Pasong Tamo lots should be acquired, (b) when
Cervantes would secure his wife's consent to the sale of
the three lots and (c) when Bormaheco, Inc. had to decide
what to do with the DBP encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964
stated that the sale of the Buendia lots would be
consummated after he had consummated the purchase of
the Nassco property. Then, in paragraph 5 of the same
offer he stated "that final negotiations on both properties
can be definitely known after forty-five days" (See Exh. B).
It is deducible from the tenor of those statements that the
consummation of the sale of the Buendia lots to Villonco
Realty Company was conditioned on Bormaheco's
acquisition of the Nassco land. But it was not spelled out
that such acquisition should be effected within forty-five
days from February 12, 1964. Had it been Cervantes'
intention that the forty-five days would be the period within
which the Nassco land should be acquired by Bormaheco,
then he would have specified that period in paragraph 3 of
his offer so that paragraph would read in this wise: "That
this sale is to be consummated only after I shall have
consummated my purchase of another property located at
Sta. Ana, Manila within forty-five days from the date
hereof ." He could have also specified that period in his
"conforme" to Villonco's counter-offer of March 4, 1964
(Exh. D) so that instead of merely stating "that this sale
shall be subject to favorable consummation of a property
in Sta. Ana we are negotiating" he could have said: "That
this sale shall be subject to favorable consummation
within forty-five days from February 12, 1964 of a property
in Sta. Ana we are negotiating".
No such specification was made. The term of forty-five
days was not a part of the condition that the Nassco
property should be acquired. It is clear that the statement
"that final negotiations on both property can be definitely
known after 45 days" does not and cannot mean that
Bormaheco, Inc. should acquire the Nassco property
within forty-five days from February 12, 1964 as
pretended by Cervantes. It is simply a surmise that after
forty-five days (in fact when the forty-five day period
should be computed is not clear) it would be known
whether Bormaheco, Inc. would be able to acquire the
Nassco property and whether it would be able to sell the
Buendia property. That aforementioned paragraph 5 does
not even specify how long after the forty-five days the
outcome of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's
answer to the amended complaint, which answer was
verified by Cervantes, it was alleged that Cervantes
accepted Villonco's revised counter-offer of March 4, 1964
subject to the condition that "the final negotiations
(acceptance) will have to be made by defendant within 45
days from said acceptance" (31 Record on Appeal). If that
were so, then the consummation of Bormaheco's
purchase of the Nassco property would be made within
forty-five days from March 4, 1964.
What makes Bormaheco's stand more confusing and
untenable is that in its three answers it invariably
articulated the incoherent and vague affirmative defense
that its acceptance of Villonco's revised counter-offer was
conditioned on the circumstance "that final acceptance or
not shall be made after 45 days" whatever that means.
That affirmative defense is inconsistent with the other
aforequoted incoherent statement in its third answer that
"the final negotiations (acceptance) will have to be made
by defendant within 45 days from said acceptance" (31
Record on Appeal).1äwphï1.ñët
Thus, Bormaheco's three answers and paragraph 5 of his
offer of February 12, 1964 do not sustain at all its theory
that the Nassco property should be acquired on or before
March 28, 1964. Its rescission or revocation of its
acceptance cannot be anchored on that theory which, as
articulated in its pleadings, is quite equivocal and unclear.
It should be underscored that the condition that
Bormaheco, Inc. should acquire the Nassco property was
fulfilled. As admitted by the appellants, the Nassco
property was conveyed to Bormaheco, Inc. on June 26,
1964. As early as January 17, 1964 the property was
awarded to Bormaheco, Inc. as the highest bidder. On
February 18, 1964 the Nassco Board authorized its
General Manager to sell the property to Bormaheco, Inc.
(Exh. H). The Economic Coordinator approved the award
on March 24, 1964. It is reasonable to assume that had
Cervantes been more assiduous in following up the
transaction, the Nassco property could have been
transferred to Bormaheco, Inc. on or before March 28,
1964, the supposed last day of the forty-five-day period.
The appellants, in their fifth assignment of error, argue
that Bormaheco, Inc. cannot be required to sell the three
lots in question because they are conjugal properties of
the Cervantes spouses. They aver that Cervantes in
dealing with the Villonco brothers acted as president of
Bormaheco, Inc. and not in his individual capacity and,
92
Sales – Chapter 3-12 Cases
therefore, he did not bind the conjugal partnership nor
Mrs. Cervantes who was allegedly opposed to the sale.
Those arguments are not sustainable. It should be
remembered that Cervantes, in rescinding the contract of
sale and in returning the earnest money, cited as an
excuse the circumstance that there was no certainty in
Bormaheco's acquisition of the Nassco property (Exh. F
and Annex 1). He did not say that Mrs. Cervantes was
opposed to the sale of the three lots. He did not tell
Villonco Realty Company that he could not bind the
conjugal partnership. In truth, he concealed the fact that
the three lots were registered "in the name of
FRANCISCO CERVANTES, Filipino, of legal age, married
to Rosario P. Navarro, as owner thereof in fee simple". He
certainly led the Villonco brothers to believe that as
president of Bormaheco, Inc. he could dispose of the said
lots. He inveigled the Villoncos into believing that he had
untrammelled control of Bormaheco, Inc., that
Bormaheco, Inc. owned the lots and that he was invested
with adequate authority to sell the same.
Thus, in Bormaheco's offer of February 12, 1964,
Cervantes first identified the three lots as "our property"
which "we are offering to sell ..." (Opening paragraph and
par. 1 of Exh. B). Whether the prounoun "we" refers to
himself and his wife or to Bormaheco, Inc. is not clear.
Then, in paragraphs 3 and 4 of the offer, he used the first
person and said: "I shall have consummated my
purchase" of the Nassco property; "... my negotiations
with said property" and "I will return to you your deposit".
Those expressions conveyed the impression and
generated the belief that the Villoncos did not have to deal
with Mrs. Cervantes nor with any other official of
Bormaheco, Inc.
The pleadings disclose that Bormaheco, Inc. and
Cervantes deliberately and studiously avoided making the
allegation that Cervantes was not authorized by his wife to
sell the three lots or that he acted merely as president of
Bormaheco, Inc. That defense was not interposed so as
not to place Cervantes in the ridiculous position of having
acted under false pretenses when he negotiated with the
Villoncos for the sale of the three lots.
Villonco Realty Company, in paragraph 2 of its original
complaint, alleged that "on February 12, 1964, after some
prior negotiations, the defendant (Bormaheco, Inc.) made
a formal offer to sell to the plaintiff the property of the said
defendant situated at the abovenamed address along
Buendia Avenue, Makati, Rizal, under the terms of the
letter-offer, a copy of which is hereto attached as Annex A
hereof", now Exhibit B (2 Record on Appeal).
That paragraph 2 was not, repeat, was not denied by
Bormaheco, Inc. in its answer dated May 5, 1964. It did
not traverse that paragraph 2. Hence, it was deemed
admitted. However, it filed an amended answer dated May
25, 1964 wherein it denied that it was the owner of the
three lots. It revealed that the three lots "belong and are
registered in the names of the spouses Francisco N.
Cervantes and Rosario N. Cervantes."
The three answers of Bormaheco, Inc. contain the
following affirmative defense:
13. That defendant's insistence to finally decide on
the proposed sale of the land in question after 45 days
had not only for its purpose the determination of its
acquisition of the said Sta. Ana (Nassco) property during
the said period, but also to negotiate with the actual and
registered owner of the parcels of land covered by T.C.T.
Nos. 43530, 43531 and 43532 in question which plaintiff
was fully aware that the same were not in the name of the
defendant (sic; Par. 18 of Answer to Amended Complaint,
10, 18 and 34, Record on Appeal).
In that affirmative defense, Bormaheco, Inc. pretended
that it needed forty- five days within which to acquire the
Nassco property and "to negotiate" with the registered
owner of the three lots. The absurdity of that pretension
stands out in bold relief when it is borne in mind that the
answers of Bormaheco, Inc. were verified by Cervantes
and that the registered owner of the three lots is
Cervantes himself. That affirmative defense means that
Cervantes as president of Bormaheco, Inc. needed forty-
five days in order to "negotiate" with himself (Cervantes).
The incongruous stance of the Cervantes spouses is also
patent in their answer to the amended complaint. In that
answer they disclaimed knowledge or information of
certain allegations which were well-known to Cervantes as
president of Bormaheco, Inc. and which were admitted in
Bormaheco's three answers that were verified by
Cervantes.
It is significant to note that Bormaheco, Inc. in its three
answers, which were verified by Cervantes, never pleaded
as an affirmative defense that Mrs. Cervantes opposed
the sale of the three lots or that she did not authorize her
husband to sell those lots. Likewise, it should be noted
that in their separate answer the Cervantes spouses
never pleaded as a defense that Mrs. Cervantes was
opposed to the sale of three lots or that Cervantes could
not bind the conjugal partnership. The appellants were at
first hesitant to make it appear that Cervantes had
committed the skullduggery of trying to sell property which
he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes
declared on the witness stand that his wife was opposed
to the sale of the three lots, a defense which, as already
stated, was never interposed in the three answers of
Bormaheco, Inc. and in the separate answer of the
Cervantes spouses. That same viewpoint was adopted in
defendants' motion for reconsideration dated November
20, 1965.
But that defense must have been an afterthought or was
evolved post litem motam since it was never disclosed in
Cervantes' letter of rescission and in his letter to Miss
Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes
did not testify at the trial to fortify that defense which had
already been waived for not having been pleaded (See
sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis
Bormaheco, Inc. and his wife and the fact that the three
lots were entirely occupied by Bormaheco's building,
machinery and equipment and were mortgaged to the
DBP as security for its obligation, and considering that
appellants' vague affirmative defenses do not include Mrs.
Cervantes' alleged opposition to the sale, the plea that
Cervantes had no authority to sell the lots strains the
rivets of credibility (Cf. Papa and Delgado vs. Montenegro,
54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith" (Art. 1159, Civil Code). Inasmuch as
93
Sales – Chapter 3-12 Cases
the sale was perfected and even partly executed,
Bormaheco, Inc., and the Cervantes spouses, as a matter
of justice and good faith, are bound to comply with their
contractual commitments.
Parenthetically, it may be observed that much
misunderstanding could have been avoided had the
broker and the buyer taken the trouble of making some
research in the Registry of Deeds and availing themselves
of the services of a competent lawyer in drafting the
contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth
assignment of error assail the trial court's award to
Villonco Realty Company of consequential damage
amounting to ten thousand pesos monthly from March 24,
1964 (when the Economic Coordinator approved the
award of the Nassco property to Bormaheco, Inc.) up to
the consummation of the sale. The award was based on
paragraph 18 of the stipulation of facts wherein Villonco
Realty Company "submits that the delay in the
consummation of the sale" has caused it to suffer the
aforementioned damages.
The appellants contend that statement in the stipulation of
facts simply means that Villonco Realty Company
speculates that it has suffered damages but it does not
mean that the parties have agreed that Villonco Realty
Company is entitled to those damages.
Appellants' contention is correct. As rightly observed by
their counsel, the damages in question were not
specifically pleaded and proven and were "clearly
conjectural and speculative".
However, appellants' view in their seventh assignment of
error that the trial court erred in ordering Bormaheco, Inc.
to pay Villonco Realty Company the sum of twenty
thousand pesos as attorney's fees is not tenable. Under
the facts of the case, it is evident that Bormaheco, Inc.
acted in gross and evident bad faith in refusing to satisfy
the valid and just demand of Villonco Realty Company for
specific performance. It compelled Villonco Realty
Company to incure expenses to protect its interest.
Moreover, this is a case where it is just and equitable that
the plaintiff should recover attorney's fees (Art. 2208, Civil
Code).
4. Bormaheco, Inc. is ordered (a) to pay Villonco
The appellants in their eighth assignment of error impugn Realty Company twenty thousand pesos (P20,000) as
the trial court's adjudication of forty-two thousand pesos attorney's fees and (b) to pay Edith Perez de Tagle the
as three percent broker's commission to Miss Tagle. They sum of forty-two thousand pesos (P42,000) as
allege that there is no evidence that Bormaheco, Inc. commission. Costs against the defendants-appellants.
engaged her services as a broker in the projected sale of
the three lots and the improvements thereon. That SO ORDERED.
allegation is refuted by paragraph 3 of the stipulation of
facts and by the documentary evidence. It was stipulated
that Miss Tagle intervened in the negotiations for the sale
of the three lots. Cervantes in his original offer of February
12, 1964 apprised Villonco Realty Company that the
earnest money should be delivered to Miss Tagle, the
bearer of the letter-offer. See also Exhibit G and Annex I
of the stipulation of facts.
We hold that the trial court did not err in adjudging that
Bormaheco, Inc. should pay Miss Tagle her three percent
commission.
WHEREFORE, the trial court's decision is modified as
follows:
1. Within ten (10) days from the date the
defendants-appellants receive notice from the clerk of the
lower court that the records of this case have been
received from this Court, the spouses Francisco N.
Cervantes and Rosario P. Navarra-Cervantes should
execute a deed conveying to Bormaheco, Inc. their three
lots covered by Transfer Certificate of Title Nos. 43530,
43531 and 43532 of the Registry of Deeds of Rizal.
2. Within five (5) days from the execution of such
deed of conveyance, Bormaheco, Inc. should execute in
favor of Villonco Realty Company, V. R. C. Building, 219
Buendia Avenue, Makati, Rizal a registerable deed of sale
for the said three lots and all the improvements thereon,
free from all lien and encumbrances, at the price of four
hundred pesos per square meter, deducting from the total
purchase price the sum of P100,000 previously paid by
Villonco Realty Company to Bormaheco, Inc.
3. Upon the execution of such deed of sale,
Villonco Realty Company is obligated to pay Bormaheco,
Inc. the balance of the price in the sum of one million
three hundred thousand pesos (P1,300,000).
94
Sales – Chapter 3-12 Cases
MANILA METAL CONTAINER CORPORATION,
Petitioner,
- versus -
PHILIPPINE NATIONAL BANK,
Respondent,
DMCI-PROJECT DEVELOPERS, INC.,
Intervenor.
Before us is a petition for review on certiorari of the
Decision[1] of the Court of Appeals (CA) in CA-G.R. No.
46153 which affirmed the decision[2] of the Regional Trial
Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551,
and its Resolution[3] denying the motion for reconsideration
filed by petitioner Manila Metal Container Corporation
(MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of
land located in Mandaluyong (now a City), Metro Manila. The
property was covered by Transfer Certificate of Title (TCT)
No. 332098 of the Registry of Deeds of Rizal. To secure a
P900,000.00 loan it had obtained from respondent Philippine
National Bank (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[4] 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.[5]
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,[6] 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. The
Certificate of Sale[7] issued in its favor was registered with
the Office of the Register of Deeds of Rizal, and was
annotated at the dorsal portion of the title on February 17,
1983. Thus, the period to redeem the property was to expire
on February 17, 1984.
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.[8] 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.[9]
In a letter[10] dated February 10, 1984, petitioner reiterated
its request for a one year extension from February 17, 1984
within which to redeem/repurchase the property on
installment basis. It reiterated its request to repurchase the
property on installment.[11] Meanwhile, some PNB Pasay
City Branch personnel informed petitioner that as a matter of
policy, the bank does not accept partial redemption.[12]
Since petitioner failed to redeem the property, the Register of
Deeds cancelled TCT No. 32098 on June 1, 1984, and issued
a new title in favor of respondent PNB.[13] Petitioners offers
had not yet been acted upon by respondent PNB.
Meanwhile, the Special Assets Management Department
(SAMD) had prepared a statement of account, and as of June
25, 1984 petitioners obligation amounted to P1,574,560.47.
This included the bid price of P1,056,924.50, interest,
advances of insurance premiums, advances on realty taxes,
registration expenses, miscellaneous expenses and
publication cost.[14] When apprised of the statement of
account, petitioner remitted P725,000.00 to respondent PNB
as deposit to repurchase, and Official Receipt No. 978191
was issued to it.[15]
In the meantime, the 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.[16]
Petitioner, however, did not agree to respondent PNBs
proposal. Instead, it wrote another letter dated December 12,
1984 requesting for a reconsideration. Respondent PNB
replied in a letter dated December 28, 1984, wherein it
reiterated its proposal that petitioner purchase the property
for P2,660,000.00. PNB again informed petitioner that it
would return the deposit should petitioner desire to withdraw
its offer to purchase the property.[17] On February 25, 1985,
petitioner, through counsel, requested that PNB reconsider its
letter dated December 28, 1984. Petitioner declared that it
had already agreed to the SAMDs offer to purchase the
property for P1,574,560.47, and that was why it had paid
P725,000.00. Petitioner warned respondent PNB that it would
seek judicial recourse should PNB insist on the position.[18]
On June 4, 1985, respondent PNB informed petitioner that
the PNB Board of Directors had accepted petitioners offer to
purchase the property, but for P1,931,389.53 in cash less the
P725,000.00 already deposited with it.[19] On page two of the
letter was a space above the typewritten name of petitioners
President, Pablo Gabriel, where he was to affix his signature.
However, Pablo Gabriel did not conform to the letter but
merely indicated therein that he had received it.[20] Petitioner
did not respond, so PNB requested petitioner in a letter dated
June 30, 1988 to submit an amended offer to repurchase.
Petitioner rejected respondents proposal in a letter dated July
14, 1988. It maintained that respondent PNB had agreed to
sell the property for P1,574,560.47, and that since its
P725,000.00 downpayment had been accepted, respondent
PNB was proscribed from increasing the purchase price of
the property.[21] Petitioner averred that it had a net balance
payable in the amount of P643,452.34. Respondent PNB,
however, rejected petitioners offer to pay the balance of
P643,452.34 in a letter dated August 1, 1989.[22]
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
Damages. To support its cause of action for specific
performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down
payment from Manila Metal in the substantial amount of
P725,000.00 for the redemption/repurchase price of
P1,574,560.47 as approved by its SMAD and considering the
reliance made by Manila Metal and the long time that has
elapsed, the approval of the higher management of the Bank
to confirm the agreement of its SMAD is clearly a potestative
condition which cannot legally prejudice Manila Metal which
has acted and relied on the approval of SMAD. The Bank
cannot take advantage of a condition which is entirely
dependent upon its own will after accepting and benefiting
from the substantial payment made by Manila Metal.
95
Sales – Chapter 3-12 Cases
35. PNB approved the repurchase price of P1,574,560.47 for
which it accepted P725,000.00 from Manila Metal. PNB
cannot take advantage of its own delay and long inaction in
demanding a higher amount based on unilateral computation
of interest rate without the consent of Manila Metal.
Petitioner later filed an amended complaint and supported its
claim for damages with the following arguments:
36. That in order to protect itself against the wrongful and
malicious acts of the defendant Bank, plaintiff is constrained
to engage the services of counsel at an agreed fee of
P50,000.00 and to incur litigation expenses of at least
P30,000.00, which the defendant PNB should be condemned
to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations
of defendant PNB, plaintiff Manila Metal suffered besmirched
reputation for which defendant PNB is liable for moral
damages of at least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB
which are highly reprehensible, exemplary damages should
be awarded in favor of the plaintiff by way of example or
correction for the public good of at least P30,000.00.[23]
Petitioner prayed that, after due proceedings, judgment be
rendered in its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex A)
null and void and without any legal force and effect.
b) Declaring defendants acts of extra-judicially foreclosing
the mortgage over plaintiffs property and setting it for auction
sale null and void.
c) Ordering the defendant Register of Deeds to cancel the
new title issued in the name of PNB (TCT NO. 43792)
covering the property described in paragraph 4 of the
Complaint, to reinstate TCT No. 37025 in the name of Manila
Metal and to cancel the annotation of the mortgage in
question at the back of the TCT No. 37025 described in
paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver
physical possession of the TCT No. 37025 described in
paragraph 4 of this Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila
Metals actual damages, moral and exemplary damages in the
aggregate amount of not less than P80,000.00 as may be
warranted by the evidence and fixed by this Honorable Court
in the exercise of its sound discretion, and attorneys fees of
P50,000.00 and litigation expenses of at least P30,000.00 as
may be proved during the trial, and costs of suit.
Plaintiff likewise prays for such further reliefs which may be
deemed just and equitable in the premises.[24]
In its Answer to the complaint, respondent PNB averred, as a
special and affirmative defense, that it had acquired
ownership over the property after the period to redeem had
elapsed. It claimed that no contract of sale was perfected
between it and petitioner after the period to redeem the
property had expired.
During pre-trial, the parties agreed to submit the case for
decision, based on their stipulation of facts.[25] The parties
agreed to limit the issues to the following:
1. Whether or not the June 4, 1985 letter of the defendant
approving/accepting plaintiffs offer to purchase the property is
still valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase
the property when it failed to conform with the conditions set
forth by the defendant in its letter dated June 4, 1985.
3. Whether or not there is a perfected contract of sale
between the parties.[26]
While the case was pending, respondent PNB demanded, on
September 20, 1989, that petitioner vacate the property within
15 days from notice,[27] but petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the
property for P3,500,000.00.[28] The offer was however
rejected by respondent PNB, in a letter dated April 13, 1993.
According to it, the prevailing market value of the property
was approximately P30,000,000.00, and as a matter of policy,
it could not sell the property for less than its market value.[29]
On June 21, 1993, petitioner offered to purchase the property
for P4,250,000.00 in cash.[30] The offer was again rejected
by respondent PNB on September 13, 1993.[31]
On May 31, 1994, the trial court rendered judgment
dismissing the amended complaint and respondent PNBs
counterclaim. It ordered respondent PNB to refund the
P725,000.00 deposit petitioner had made.[32] The trial court
ruled that there was no perfected contract of sale between
the parties; hence, petitioner had no cause of action for
specific performance against respondent. The trial court
declared that respondent had rejected petitioners offer to
repurchase the property. Petitioner, in turn, rejected the terms
and conditions contained in the June 4, 1985 letter of the
SAMD. While petitioner had offered to repurchase the
property per its letter of
July 14, 1988, the amount of P643,422.34 was way below the
P1,206,389.53 which respondent PNB had demanded. It
further declared that the P725,000.00 remitted by petitioner to
respondent PNB on June 4, 1985 was a deposit, and not a
downpayment or earnest money.
On appeal to the CA, petitioner made the following
allegations:
I
THE LOWER COURT ERRED IN RULING THAT
DEFENDANT-APPELLEES LETTER DATED 4 JUNE 1985
APPROVING/ACCEPTING PLAINTIFF-APPELLANTS
OFFER TO PURCHASE THE SUBJECT PROPERTY IS
NOT VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE
WAS NO PERFECTED CONTRACT OF SALE BETWEEN
PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT
PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO
PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED
TO CONFORM WITH CONDITIONS SET FORTH BY
DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE
1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE
FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH
RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR
PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE
OF THEIR PURCHASE PRICE.
V
THE LOWER COURT ERRED IN DISREGARDING THE
FACT THAT THERE WAS NO VALID RESCISSION OR
96
Sales – Chapter 3-12 Cases
CANCELLATION OF SUBJECT CONTRACT OF
REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT
PLAINTIFF FAILED AND REFUSED TO SUBMIT THE
AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE
AMENDED COMPLAINT OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING
PLAINTIFF-APPELLANT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, ATTOTRNEYS FEES AND
LITIGATION EXPENSES.[33]
Meanwhile, on June 17, 1993, petitioners Board of Directors
approved Resolution No. 3-004, where it waived, assigned
and transferred its rights over the property covered by TCT
No. 33099 and TCT No. 37025 in favor of Bayani Gabriel,
one of its Directors.[34] Thereafter, Bayani Gabriel executed
a Deed of Assignment over 51% of the ownership and
management of the property in favor of Reynaldo Tolentino,
who later moved for leave to intervene as plaintiff-appellant.
On July 14, 1993, the CA issued a resolution granting the
motion,[35] and likewise granted the motion of Reynaldo
Tolentino substituting petitioner MMCC, as plaintiff-appellant,
and his motion to withdraw as intervenor.[36]
The CA rendered judgment on May 11, 2000 affirming the
decision of the RTC.[37] It declared that petitioner obviously
never agreed to the selling price proposed by respondent
PNB (P1,931,389.53) since petitioner had kept on insisting
that the selling price should be lowered to P1,574,560.47.
Clearly therefore, there was no meeting of the minds between
the parties as to the price or consideration of the sale.
The CA ratiocinated that petitioners original offer to purchase
the subject property had not been accepted by respondent
PNB. In fact, it made a counter-offer through its June 4, 1985
letter specifically on the selling price; petitioner did not agree
to the counter-offer; and the negotiations did not prosper.
Moreover, petitioner did not pay the balance of the purchase
price within the sixty-day period set in the June 4, 1985 letter
of respondent PNB. Consequently, there was no perfected
contract of sale, and as such, there was no contract to
rescind.
According to the appellate court, the claim for damages and
the counterclaim were correctly dismissed by the court a quo
for no evidence was presented to support it. Respondent
PNBs letter dated June 30, 1988 cannot revive the failed
negotiations between the parties. Respondent PNB merely
asked petitioner to submit an amended offer to repurchase.
While petitioner reiterated its request for a lower selling price
and that the balance of the repurchase be reduced, however,
respondent rejected the proposal in a letter dated August 1,
1989.
Petitioner filed a motion for reconsideration, which the CA
likewise denied.
Thus, petitioner filed the instant petition for review on
certiorari, alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW WHEN IT RULED THAT THERE IS NO PERFECTED
CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW WHEN IT RULED THAT THE AMOUNT OF
PHP725,000.00 PAID BY THE PETITIONER IS NOT AN
EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION
OF LAW WHEN IT RULED THAT THE FAILURE OF THE
PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY
TO THE TERMS CONTAINED IN PNBS JUNE 4, 1985
LETTER MEANS THAT THERE WAS NO VALID AND
LEGALLY ENFORCEABLE CONTRACT OF SALE
BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION
OF LAW THAT NON-PAYMENT OF THE PETITIONER-
APPELLANT OF THE BALANCE OF THE OFFERED PRICE
IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN
SIXTY (60) DAYS FROM NOTICE OF APPROVAL
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE
CONTRACT OF SALE BETWEEN THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN
IT HELD THAT THE LETTERS OF PETITIONER-
APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993,
OFFERING TO BUY THE SUBJECT PROPERTY AT
DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO
PERFECTED CONTRACT OF SALE.[38]
The threshold issue is whether or not petitioner and
respondent PNB had entered into a perfected contract for
petitioner to repurchase the property from respondent.
Petitioner maintains that it had accepted respondents offer
made through the SAMD, to sell the property for
P1,574,560.00. When the acceptance was made in its letter
dated June 25, 1984; it then deposited P725,000.00 with the
SAMD as partial payment, evidenced by Receipt No. 978194
which respondent had issued. Petitioner avers that the
SAMDs acceptance of the deposit amounted to an
acceptance of its offer to repurchase. Moreover, as gleaned
from the letter of SAMD dated June 4, 1985, the PNB Board
of Directors had approved petitioners offer to purchase the
property. It claims that this was the suspensive condition, the
fulfillment of which gave rise to the contract. Respondent
could no longer unilaterally withdraw its offer to sell the
property for P1,574,560.47, since the acceptance of the offer
resulted in a perfected contract of sale; it was obliged to remit
to respondent the balance of the original purchase price of
P1,574,560.47, while respondent was obliged to transfer
ownership and deliver the property to petitioner, conformably
with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from
increasing the interest rate after it had accepted respondents
offer to sell the property for P1,574,560.00. Consequently,
respondent could no longer validly make a counter-offer of
P1,931,789.88 for the purchase of the property. It likewise
maintains that, although the P725,000.00 was considered as
deposit for the repurchase of the property in the receipt
issued by the SAMD, the amount constitutes earnest money
as contemplated in Article 1482 of the New Civil Code.
Petitioner cites the rulings of this Court in Villonco v.
Bormaheco[39] and Topacio v. Court of Appeals.[40]
Petitioner avers that its failure to append its conformity to the
June 4, 1984 letter of respondent and its failure to pay the
balance of the price as fixed by respondent within the 60-day
period from notice was to protest respondents breach of its
obligation to petitioner. It did not amount to a rejection of
respondents offer to sell the property since respondent was
merely seeking to enforce its right to pay the balance of
P1,570,564.47. In any event, respondent had the option
either to accept the balance of the offered price or to cause
the rescission of the contract.
Petitioners letters dated March 18, 1993 and June 21, 1993
to respondent during the pendency of the case in the RTC
97
Sales – Chapter 3-12 Cases
were merely to compromise the pending lawsuit, they did not
constitute separate offers to repurchase the property. Such
offer to compromise should not be taken against it, in
accordance with Section 27, Rule 130 of the Revised Rules
of Court.
For its part, respondent contends that the parties never
graduated from the negotiation stage as they could not agree
on the amount of the repurchase price of the property. All that
transpired was an exchange of proposals and counter-
proposals, nothing more. It insists that a definite agreement
on the amount and manner of payment of the price are
essential elements in the formation of a binding and
enforceable contract of sale. There was no such agreement
in this case. Primarily, the concept of suspensive condition
signifies a future and uncertain event upon the fulfillment of
which the obligation becomes effective. It clearly
presupposes the existence of a valid and binding agreement,
the effectivity of which is subordinated to its fulfillment. Since
there is no perfected contract in the first place, there is no
basis for the application of the principles governing
suspensive conditions.
According to respondent, the Statement of Account prepared
by SAMD as of June 25, 1984 cannot be classified as a
counter-offer; it is simply a recital of its total monetary claims
against petitioner. Moreover, the amount stated therein could
not likewise be considered as the counter-offer since as
admitted by petitioner, it was only recommendation which
was subject to approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be
regarded as evidence of a perfected sale contract. As
gleaned from the parties Stipulation of Facts during the
proceedings in the court a quo, the amount is merely an
acknowledgment of the receipt of P725,000.00 as deposit to
repurchase the property. The deposit of P725,000.00 was
accepted by respondent on the condition that the purchase
price would still be approved by its Board of Directors.
Respondent maintains that its acceptance of the amount was
qualified by that condition, thus not absolute. Pending such
approval, it cannot be legally claimed that respondent is
already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has
no capacity to bind respondent and that its authority is limited
to administering, managing and preserving the properties and
other special assets of PNB. The SAMD does not have the
power to sell, encumber, dispose of, or otherwise alienate the
assets, since the power to do so must emanate from its
Board of Directors. The SAMD was not authorized by
respondents Board to enter into contracts of sale with third
persons involving corporate assets. There is absolutely
nothing on record that respondent authorized the SAMD, or
made it appear to petitioner that it represented itself as
having such authority.
Respondent reiterates that SAMD had informed petitioner
that its offer to repurchase had been approved by the Board
subject to the condition, among others, that the selling price
shall be the total banks claim as of documentation date x x x
payable in cash (P725,000.00 already deposited)
within 60 days from notice of approval. A new Statement of
Account was attached therein indicating the total banks claim
to be P1,931,389.53 less deposit of P725,000.00, or
P1,206,389.00. Furthermore, while respondents Board of
Directors accepted petitioners offer to repurchase the
property, the acceptance was qualified, in that it required a
higher sale price and subject to specified terms and
conditions enumerated therein. This qualified acceptance was
in effect a counter-offer, necessitating petitioners acceptance
in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected
contract of sale between the parties on June 4, 1985 is
correct.
A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service.[41] Under Article 1318
of the New Civil Code, there is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested
by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.[42] Once
perfected, they bind other contracting parties and the
obligations arising therefrom have the form of law between
the parties and should be complied with in good faith. The
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith,
usage and law.[43]
By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and deliver a
determinate thing, and the other to pay therefor a price
certain in money or its equivalent.[44] The absence of any of
the essential elements will negate the existence of a
perfected contract of sale. As the Court ruled in Boston Bank
of the Philippines v. Manalo:[45]
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.[46]
A contract of sale is consensual in nature and is perfected
upon mere meeting of the minds. When there is merely an
offer by one party without acceptance of the other, there is no
contract.[47] When the contract of sale is not perfected, it
cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.[48]
In San Miguel Properties Philippines, Inc. v. Huang,[49] the
Court ruled that the stages of a contract of sale are as
follows: (1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the
contract to the time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of
the parties as to the object of the contract and upon the price;
and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of
sale, culminating in the extinguishment thereof.
A negotiation is formally initiated by an offer, which, however,
must be certain.[50] At any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. At
this stage, the offer may be withdrawn; the withdrawal is
effective immediately after its manifestation. To convert the
offer into a contract, the acceptance must be absolute and
must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort
from the proposal. In Adelfa Properties, Inc. v. Court of
Appeals,[51] the Court ruled that:
98
Sales – Chapter 3-12 Cases
x x x The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and
clearly made and must be evidenced by some acts or
conduct communicated to the offeror, it may be shown by
acts, conduct, or words of the accepting party that clearly
manifest a present intention or determination to accept the
offer to buy or sell. Thus, acceptance may be shown by the
acts, conduct, or words of a party recognizing the existence
of the contract of sale.[52]
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.[53] Consequently, when
something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms
of the offer annuls the offer.[54] The acceptance must be
identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
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.[55] The request, which was made through a letter
dated August 25, 1983, was referred to the respondents main
branch for appropriate action.[56] Before respondent could
act on the request, petitioner again wrote respondent as
follows:
1. Upon approval of our request, we will pay your goodselves
ONE HUNDRED & FIFTY THOUSAND PESOS
(P150,000.00);
2. Within six months from date of approval of our request, we
will pay another FOUR HUNDRED FIFTY THOUSAND
PESOS (P450,000.00); and
3. The remaining balance together with the interest and other
expenses that will be incurred will be paid within the last six
months of the one year grave period requested for.[57]
When the petitioner was told that respondent did not allow
partial redemption,[58] it sent a letter to respondents
President reiterating its offer to purchase the property.[59]
There was no response to petitioners letters dated February
10 and 15, 1984.
The statement of account prepared by the SAMD stating that
the net claim of respondent as of June 25, 1984 was
P1,574,560.47 cannot be considered an unqualified
acceptance to petitioners offer to purchase the property. 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.
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. Any acceptance by the
SAMD of petitioners offer would not bind respondent. As this
Court ruled in AF Realty Development, Inc. vs. Diesehuan
Freight Services, Inc.:[60]
Section 23 of the Corporation Code expressly provides that
the corporate powers of all corporations shall be exercised by
the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by
the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or
connected with the performance of authorized duties of such
director, are held not binding on the corporation.
Thus, 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.[61]
It appears that the SAMD had prepared a recommendation
for respondent to accept petitioners offer to repurchase the
property even beyond the one-year period; it recommended
that petitioner be allowed to redeem the property and pay
P1,574,560.00 as the purchase price. Respondent later
approved the recommendation that the property be sold to
petitioner. But instead of the P1,574,560.47 recommended by
the SAMD and to which petitioner had previously conformed,
respondent set the purchase price at P2,660,000.00. In fine,
respondents acceptance of petitioners offer was qualified,
hence can be at most considered as a counter-offer. If
petitioner had accepted this counter-offer, a perfected
contract of sale would have arisen; as it turns out, however,
petitioner merely sought to have the counter-offer
reconsidered. This request for reconsideration would later be
rejected by respondent.
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 provision reads:
ART. 1482. Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of
the perfection of the contract.
This contention is likewise negated by the stipulation of facts
which the parties entered into in the trial court:
8. On June 8, 1984, the Special Assets Management
Department (SAMD) of PNB prepared an updated Statement
of Account showing MMCCs total liability to PNB as of June
25, 1984 to be P1,574,560.47 and recommended this amount
as the repurchase price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as
deposit to repurchase the property. The deposit of P725,000
was accepted by PNB on the condition that the purchase
price is still subject to the approval of the PNB Board.[62]
Thus, 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. Unless and until the respondent
accepted the offer on these terms, no perfected contract of
sale would arise. Absent proof of the concurrence of all the
essential elements of a contract of sale, the giving of earnest
money cannot establish the existence of a perfected contract
of sale.[63]
It appears that, per its letter to petitioner dated June 4, 1985,
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 the following terms and conditions:
99
Sales – Chapter 3-12 Cases

SO ORDERED.

1. That the selling price shall be the total Banks claim

as of documentation date (pls. see attached statement of
account as of 5-31-85), payable in cash (P725,000.00 already
deposited) within sixty (60) days from notice of approval;

2. The Bank sells only whatever rights, interests and

participation it may have in the property and you are charged
with full knowledge of the nature and extent of said rights,
interests and participation and waive your right to warranty
against eviction.

3. All taxes and other government imposts due or to

become due on the property, as well as expenses including
costs of documents and science stamps, transfer fees, etc.,
to be incurred in connection with the execution and
registration of all covering documents shall be borne by you;

4. That you shall undertake at your own expense and

account the ejectment of the occupants of the property
subject of the sale, if there are any;

5. That upon your failure to pay the balance of the

purchase price within sixty (60) days from receipt of advice
accepting your offer, your deposit shall be forfeited and the
Bank is thenceforth authorized to sell the property to other
interested parties.

6. That the sale shall be subject to such other terms

and conditions that the Legal Department may impose to
protect the interest of the Bank.[64]

It appears that although respondent requested petitioner to

conform to its amended counter-offer, petitioner refused and
instead requested respondent to reconsider its amended
counter-offer. Petitioners request was ultimately rejected and
respondent offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between

petitioner and respondent over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is

DENIED.
The assailed decision is AFFIRMED. Costs against petitioner
Manila Metal Container Corporation.
100
Sales – Chapter 3-12 Cases
FIRST OPTIMA REALTY CORPORATION, Petitioner,
vs.
SECURITRON SECURITY SERVICES, INC., Respondent.
In a potential sale transaction, the prior payment of earnest
money even before the property owner can agree to sell his
property is irregular, and cannot be used to bind the owner to
the obligations of a seller under an otherwise perfected
contract of sale; to cite a well-worn cliche, the carriage cannot
be placed before the horse. The property owner-prospective
seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter's employment of
questionable practices which prevent the owner from freely
giving his consent to the transaction; this constitutes a
palpable transgression of the prospective seller's rights of
ownership over his property, an anomaly which the Court will
certainly not condone.
This Petition for Review on Certiorari1 seeks to set aside: 1)
the September 30, 2011 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 93715 affirming the February 16,
2009 Decision' of the Regional Trial Court (RTC) of Pasay
City, Branch 115 in Civil Case No. 06-0492 CFM; and 2) the
CA’s December 9, 2011 Resolution4 denying the herein
petitioner’s Motion for Reconsideration5 of the assailed
judgment.
Factual Antecedents
Petitioner First Optima Realty Corporation is a domestic
corporation engaged in the real estate business. It is the
registered owner of a 256-square meter parcel of land with
improvements located in Pasay City, covered by Transfer
Certificate of Title No. 125318 (the subject property).6
Respondent Securitron Security Services, Inc., on the other
hand, is a domestic corporation with offices located beside
the subject property.
Looking to expand its business and add toits existing offices,
respondent – through its General Manager, Antonio Eleazar
(Eleazar) – sent a December 9, 2004 Letter7 addressed to
petitioner – through its Executive Vice-President, Carolina T.
Young (Young) – offering to purchase the subject property at
₱6,000.00 per square meter. A series of telephone calls
ensued, but only between Eleazar and Young’s secretary;8
Eleazar likewise personally negotiated with a certain Maria
Remoso (Remoso), who was an employee of petitioner.9 At
this point, Eleazar was unable to personally negotiate with
Young or the petitioner’s board of directors.
Sometime thereafter, Eleazar personally went to petitioner’s
office offering to pay for the subject property in cash, which
he already brought with him. However, Young declined to
accept payment, saying that she still needed to secure her
sister’s advice on the matter.10 She likewise informed
Eleazar that prior approval of petitioner’s Board of Directors
was required for the transaction, to which remark Eleazar
replied that respondent shall instead await such approval.11
On February 4, 2005, respondent sent a Letter12 of even
date to petitioner. It was accompanied by Philippine National
Bank Check No. 24677 (the subject check), issued for
₱100,000.00 and made payable to petitioner. The letter
states thus:
Gentlemen:
As agreed upon, we are making a deposit of ONE HUNDRED
THOUSAND PESOS (Php 100,000.00) as earnest money for
your property at the corner of Layug St., & Lim-An St., Pasay
City as per TCT No. 125318 with an area of 256 sq. m. at
6,000.00/ sq. m. for a total of ONE MILLION FIVE HUNDRED
THIRTY SIX THOUSAND PESOS (Php 1,536,000.00).
Full payment upon clearing of the tenants at said property
and signing of the Deed of Sale.
(signed)
ANTONIO S. ELEAZAR13
Despite the delicate nature of the matter and large amount
involved, respondent did not deliver the letter and check
directly to Young or her office; instead, they were coursed
through an ordinary receiving clerk/receptionist of the
petitioner, who thus received the same and therefor issued
and signed Provisional Receipt No. 33430.14 The said
receipt reads:
Received from x x x Antonio Eleazar x x x the sum of Pesos
One Hundred Thousand x x x
IN PAYMENT OF THE FOLLOWING x x x
Earnest money or Partial payment of
Pasay Property Layug & Lim-an St. x x x.
Note: This is issued to transactions not
yet cleared but subsequently an OfficialReceipt will be issued.
x x x15
The check was eventually deposited with and credited to
petitioner’s bank account.
Thereafter, respondent through counsel demanded in writing
that petitioner proceed with the sale of the property.16 In a
March 3, 2006 Letter17 addressed to respondent’s counsel,
petitioner wrote back:
Dear Atty. De Jesus:
Anent your letter dated January 16, 2006 received on
February 20, 2006, please be informed of the following:
1. It was your client SECURITRON SECURITY SERVICES,
INC. represented by Mr. Antonio Eleazar who offered to buy
our property located at corner Layug and Lim-An St., Pasay
City;
2. It tendered an earnest money despite the fact that we are
still undecided to sell the said property;
3. Our Board of Directors failed to pass a resolution to date
whether it agrees to sell the property;
4. We have no Contract for the earnest money nor Contract
to Sell the said property with your client;
Considering therefore the above as well as due to haste and
demands which we feel [are forms] of intimidation and
harassment, we regret to inform you that we are now incline
(sic) not to accept your offer to buy our property. Please
inform your client to coordinate with us for the refund of this
(sic) money.
Very truly yours,
(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18
Ruling of the Regional Trial Court of Pasay City
On April 18, 2006, respondent filed with the Pasay RTC a civil
case against petitioner for specific performance with
damages to compel the latter to consummate the supposed
sale of the subject property. Docketed as Civil Case No. 06-
0492 CFM and assigned to Branch 115 of the Pasay RTC,
the Complaint19 is predicated on the claim that since a
perfected contract of sale arose between the parties after
101
Sales – Chapter 3-12 Cases
negotiations were conducted and respondent paid the
₱100,000.00 supposed earnest money – which petitioner
accepted, the latter should be compelled to sell the subject
property to the former. Thus, respondent prayed that
petitioner be ordered to comply with its obligation as seller,
accept the balance of the purchase price, and execute the
corresponding deed of sale in respondent’s favor; and that
petitioner be made to pay ₱200,000.00 damages for its
breach and delay in the performance of its obligations,
₱200,000.00 by way of attorney's fees, and costs of suit.
In its Answer with Compulsory Counterclaim,20 petitioner
argued that it never agreed to sell the subject property; that
its board of directors did not authorize the sale thereof to
respondent, as no corresponding board resolution to such
effect was issued; that the respondent’s ₱100,000.00 check
payment cannot be considered as earnest money for the
subject property, since said payment was merely coursed
through petitioner’s receiving clerk, who was forced to accept
the same; and that respondent was simply motivated by a
desire to acquire the subject property at any cost. Thus,
petitioner prayed for the dismissal of the case and, by way of
counterclaim, it sought the payment of moral damages in the
amount of ₱200,000.00; exemplary damages in the amount
of ₱100,000.00; and attorney’s fees and costs of suit.
In a Reply,21 respondent countered that authorization by
petitioner’s Board of Directors was not necessary since it is a
real estate corporation principally engaged in the buying and
selling of real property; that respondent did not force nor
intimidate petitioner’s receiving clerk into accepting the
February 4, 2005 letter and check for ₱100,000.00; that
petitioner’s acceptance of the check and its failure – for more
than a year – to return respondent’s payment amounts to
estoppel and a ratification of the sale; and that petitioner is
not entitled to its counterclaim.
After due proceedings were taken, the Pasay RTC issued its
Decision dated February 16, 2009, decreeing as follows:
WHEREFORE, defendant First Optima Realty Corporation is
directed to comply with its obligation by accepting the
remaining balance of One Million Five Hundred Thirty-Six
Thousand Pesos and Ninety-Nine Centavos (₱1,536,000.99),
and executing the corresponding deed of sale in favor of the
plaintiff Securitron Security Services, Inc. over the subject
parcel of land.
No costs.
SO ORDERED.22
In ruling for the respondent, the trial court held that
petitioner’s acceptance of ₱100,000.00 earnest money
indicated the existence of a perfected contract of sale
between the parties; that there is no showing that when
respondent gave the February 4, 2005 letter and check to
petitioner’s receiving clerk, the latter was harassed or forced
to accept the same; and that for the sale of the subject
property, no resolution of petitioner’s board of directors was
required since Young was "free to represent" the corporation
in negotiating with respondent for the sale thereof. Ruling of
the Court of Appeals
Petitioner filed an appeal with the CA. Docketed as CA-G.R.
CV No. 93715, the appeal made out a case that no earnest
money can be considered to have been paid to petitioner as
the supposed payment was received by a mere receiving
clerk, who was not authorized to accept the same; that the
required board of directors resolution authorizing the sale of
corporate assets cannot be dispensed with in the case of
petitioner; that whatever negotiations were held between the
parties only concerned the possible sale, not the sale itself, of
the subject property; that without the written authority of
petitioner’s board of directors, Young cannot enter into a sale
of its corporate property; and finally, that there was no
meeting of the minds between the parties in the first place.
On September 30, 2011, the CA issued the assailed Decision
affirming the trial court’s February 16, 2009Decision,
pronouncing thus:
Article 1318 of the Civil Code declares that no contract exists
unless the following requisites concur: (1) consent of the
contracting parties; (2) object certain which is the subject
matter of the contract; and (3) cause of the obligation
established.
A careful perusal of the records of the case show[s] that there
was indeed a negotiation between the parties as regards the
sale of the subject property, their disagreement lies on
whether they have arrived on an agreement regarding said
sale. Plaintiff-appellee avers that the parties have already
agreed on the sale and the price for it and the payment of
earnest money and the remaining balance upon clearing of
the property of unwanted tenants. Defendant-appellant on the
other hand disputes the same and insists that there was no
concrete agreement between the parties.
Upon a careful consideration of the arguments of the parties
and the records of the case, we are more inclined to sustain
the arguments of the plaintiff-appellee and affirm the findings
of the trial court that there was indeed a perfected contract of
sale between the parties. The following instances militate
against the claim of the defendant-appellant: First. The letter
of the plaintiff-appellee dated February 4, 2005 reiterating
their agreement as to the sale of the realty for the
consideration of Php 1,536,000.00 was not disputed nor
replied to by the defendant-appellant, the said letter also
provides for the payment of the earnest money of Php
100,000.00 and the full payment upon the clearing of the
property of unwanted tenants, if the defendant-appellant did
not really agree on the sale of the property it could have
easily replied to the said letter informing the plaintiff-appellee
that it is not selling the property or that the matter will be
decided first by the board of directors, defendant-appellant’s
silence or inaction on said letter shows its conformity or
consent thereto; Second. In addition to the aforementioned
letter, defendant-appellant’s acceptance of the earnest
money and the issuance of a provisional receipt clearly
shows that there was indeed an agreement between the
parties and we do not subscribe to the argument of the
defendant-appellant that the check was merely forced upon
its employee and the contents of the receipt was just dictated
by the plaintiff-appellee’s employee because common sense
dictates that a person would not issue a receipt for a check
with a huge amount if she does not know what that is for and
similarly would not issue [a] receipt which would bind her
employer if she does not have prior instructions to do [so]
from her superiors; Third. The said check for earnest money
was deposited in the bank by defendant-appellant and not
until after one year did it offer to return the same. Defendant-
appellant cannot claim lack of knowledge of the payment of
the check since there was a letter for it, and it is just
incredible that a big amount of money was deposited in [its]
account [without knowing] about it [or] investigat[ing] what [it
was] for. We are more inclined to believe that their inaction
for more than one year on the earnest money paid was due to
the fact that after the payment of earnest money the place
should be cleared of unwanted tenants before the full amount
of the purchase price will be paid as agreed upon as shown in
the letter sent by the plaintiff-appellee.
As stated above the presence of defendant-appellant’s
consent and, corollarily, the existence of a perfected contract
between the parties are evidenced by the payment and
receipt of Php 100,000.00 as earnest money by the
contracting parties’ x x x. Under the law on sales, specifically
Article 1482 of the Civil Code, it provides that whenever
102
Sales – Chapter 3-12 Cases
earnest money is given in a contract of sale, it shall be
considered as part of the price and proof of the perfection of
the contract. Although the presumption is not conclusive, as
the parties may treat the earnest money differently, there is
nothing alleged in the present case that would give rise to a
contrary presumption.
We also do not find merit in the contention of the defendant-
appellant that there is a need for a board resolution for them
to sell the subject property since it is a corporation, a juridical
entity which acts only thru the board of directors. While we
agree that said rule is correct, we must also point out that
said rule is the general rule for all corporations [but] a
corporation [whose main business is buying and selling real
estate] like herein defendant-appellant, is not required to
have a board resolution for the sale of the realty in the
ordinary course of business, thus defendant-appellant’s claim
deserves scant consideration.
Furthermore, the High Court has held that "a corporate officer
or agent may represent and bind the corporation in
transactions with third persons to the extent that the authority
to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that it was
conferred."
In the case at bench, it is not disputed and in fact was
admitted by the defendant-appellant that Ms. Young, the
Executive Vice-President was authorized to negotiate for the
possible sale of the subject parcel of land. Therefore, Ms.
Young can represent and bind defendant-appellant in the
transaction.
Moreover, plaintiff-appellee can assume that Ms. Young, by
virtue of her position, was authorized to sell the property of
the corporation. Selling of realty is not foreign to [an]
executive vice[-]president’s function, and the real estate sale
was shown to be a normal business activity of defendant-
appellant since its primary business is the buy and sell of real
estate. Unmistakably, its Executive Vice-President is cloaked
with actual or apparent authority to buy or sell real property,
an activity which falls within the scope of her general
authority.
Furthermore, assuming arguendo that a board resolution was
indeed needed for the sale of the subject property, the
defendant-appellant is estopped from raising it now since, [it]
did not inform the plaintiff-appellee of the same, and the latter
deal (sic) with them in good faith. Also it must be stressed
that the plaintiff-appellee negotiated with one of the top officer
(sic) of the company thus, any requirement on the said sale
must have been known to Ms. Young and she should have
informed the plaintiff-appellee of the same.
In view of the foregoing we do not find any reason to deviate
from the findings of the trial court, the parties entered into the
contract freely, thus they must perform their obligation
faithfully. Defendant-appellant’s unjustified refusal to perform
its part of the agreement constitutes bad faith and the court
will not tolerate the same.
WHEREFORE, premises considered, the Decision of the
Regional Trial Court of Pasay City Branch 115, in Civil Case
No. 06-0492 CFM is hereby AFFIRMED.
SO ORDERED.23
Petitioner moved for reconsideration,24 but in a December 9,
2011 Resolution, the CA held its ground. Hence, the present
Petition.
Issues
In an October 9,2013 Resolution,25 this Court resolved to
give due course to the Petition, which raises the following
issues:
I letter and check in the manner that it did in order to bind
THE HONORABLE COURT OF APPEALS ERRED ON A
QUESTION OF LAW WHEN IT RULED THAT THE MONEY
RESPONDENT DELIVERED TO PETITIONER WAS
EARNEST MONEY THEREBY PROVIDING A PERFECTED
CONTRACT OF SALE.
II
THE HONORABLE COURT OF APPEALS ERRED ON A
QUESTION OF LAW WHEN IT RULED THAT THE TIME
THAT LAPSED IN RETURNING THE MONEY AND IN
REPLYING TO THE LETTER IS PROOF OF ACCEPTANCE
OF EARNEST MONEY.
III
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND GRAVE ERROR WHEN IT IGNOREDTHE
RESERVATION IN THE PROVISIONAL RECEIPT – "Note:
This is issued to transactions not yet cleared but
subsequently an Official Receipt will be issued."26
Petitioner’s Arguments
In its Petition and Reply27 seeking to reverse and set aside
the assailed CA dispositions and in effect to dismiss Civil
Case No. 06-0492 CFM, petitioner argues that respondent
failed to prove its case that a contract of sale was perfected
between the parties. It particularly notes that, contrary to the
CA’s ruling, respondent’s delivery of the February 4, 2005
letter and check; petitioner’s failure to respond to said letter;
petitioner’s supposed acceptance of the check by depositing
the same in its account; and its failure to return the same
after more than one year from its tender – these
circumstances do not at all prove that a contract of sale was
perfected between the parties. It claims that there was never
an agreement in the first place between them concerning the
sale of the subject property, much less the payment of
earnest money therefor; that during trial, Eleazar himself
admitted that the check was merely a "deposit";28 that the
February 4, 2005 letter and check were delivered not to
Young, but to a mere receiving clerk of petitioner who knew
nothing about the supposed transaction and was simply
obliged to accept the same without the prerogative to reject
them; that the acceptance of respondent’s supposed payment
was not cleared and was subject to approval and issuance of
the corresponding official receipt as noted in Provisional
Receipt No. 33430; that respondent intentionally delivered the
petitioner to the supposed sale with or without the latter’s
consent; that petitioner could not be faulted for receiving the
check and for depositing the same as a matter of operational
procedure with respect to checks received in the course of its
day-to-day business.
Petitioner argues that ultimately, it cannot be said that it gave
its consent to any transaction with respondent or to the
payment made by the latter. Respondent’s letter and check
constitute merely an offer which required petitioner’s
acceptance in order to give rise to a perfected sale;
"[o]therwise, a buyer can easily bind any unsuspecting seller
to a contract of sale by merely devising a way that prevents
the latter from acting on the communicated offer."29
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Sales – Chapter 3-12 Cases
Petitioner thus theorizes that since it had no perfected
agreement with the respondent, the latter’s check should be
treated not as earnest money, but as mere guarantee,
deposit or option money to prevent the prospective seller
from backing out from the sale,30 since the payment of any
consideration acquires the character of earnest money only
after a perfected sale between the parties has been arrived
at.31
Respondent’s Arguments
In its Comment,32 respondent counters that petitioner’s case
typifies a situation where the seller has had an undue change
of mind and desires to escape the legal consequences
attendant to a perfected contract of sale. It reiterates the
appellate court’s pronouncements that petitioner’s failure to
reply to respondent’s February 4, 2005 letter indicates its
consent to the sale; that its acceptance of the check as
earnest money and the issuance of the provisional receipt
prove that there is a prior agreement between the parties;
that the deposit of the check in petitioner’s account and
failure to timely return the money to respondent militates
against petitioner’s claim of lack of knowledge and consent.
Rather they indicate petitioner’s decision to sell subject
property as agreed. Respondent adds that contrary to
petitioner’s claim, negotiations were in fact held between the
parties after it sent its December 9, 2004 letter-offer, which
negotiations precisely culminated in the preparation and
issuance of the February4, 2005 letter; that petitioner’s failure
to reply to its February 4, 2005 letter meant that it was
amenable to respondent’s terms; that the issuance of a
provisional receipt does not prevent the perfection of the
agreement between the parties, since earnest money was
already paid; and that petitioner cannot pretend to be ignorant
of respondent’s check payment, as it involved a large sum of
money that was deposited in the former’s bank account.
Our Ruling
The Court grants the Petition. The trial and appellate courts
erred materially in deciding the case; they overlooked
important facts that should change the complexion and
outcome of the case.
It cannot be denied that there were negotiations between the
parties conducted after the respondent’s December 9, 2004
letter-offer and prior to the February 4, 2005 letter. These
negotiations culminated in a meeting between Eleazar and
Young whereby the latter declined to enter into an agreement
and accept cash payment then being tendered by the former.
Instead, Young informed Eleazar during said meeting that
she still had to confer with her sister and petitioner’s board of
directors; in turn, Eleazar told Young that respondent shall
await the necessary approval.
Thus, the trial and appellate courts failed to appreciate that
respondent’s offer to purchase the subject property was
never accepted by the petitioner at any instance, even after
negotiations were held between them. Thus, as between
them, there is no sale to speak of. "When there is merely an
offer by one party without acceptance of the other, there is no
contract."33 To borrow a pronouncement in a previously
decided case,
The stages of a contract of sale are: (1) negotiation, starting
from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected;
(2) perfection, which takes place upon the concurrence of the
essential elements of the sale; and (3) consummation, which
commences when the parties perform their respective
undertakings under the contract of sale, culminating in the
extinguishment of the contract.
In the present case, the parties never got past the negotiation
stage. Nothing shows that the parties had agreed on any final
arrangement containing the essential elements of a contract
of sale, namely, (1) consent or the meeting of the minds of
the parties; (2) object or subject matter of the contract; and
(3) price or consideration of the sale.34
Respondent’s subsequent sending of the February 4, 2005
letter and check to petitioner – without awaiting the approval
of petitioner’s board of directors and Young’s decision, or
without making a new offer – constitutes a mere reiteration of
its original offer which was already rejected previously; thus,
petitioner was under no obligation to reply to the February 4,
2005 letter. It would be absurd to require a party to reject the
very same offer each and every time it is made; otherwise, a
perfected contract of sale could simply arise from the failure
to reject the same offer made for the hundredth time.1âwphi1
Thus, said letter cannot be considered as evidence of a
perfected sale, which does not exist in the first place; no
binding obligation on the part of the petitioner to sell its
property arose as a consequence. The letter made no new
offer replacing the first which was rejected.
Since there is no perfected sale between the parties,
respondent had no obligation to make payment through the
check; nor did it possess the right to deliver earnest money to
petitioner in order to bind the latter to a sale. As contemplated
under Art. 1482 of the Civil Code, "there must first be a
perfected contract of sale before we can speak of earnest
money."35 "Where the parties merely exchanged offers and
counter-offers, no contract is perfected since they did not yet
give their consent to such offers. Earnest money applies to a
perfected sale."36
This Court is inclined to accept petitioner’s explanation that
since the check was mixed up with all other checks and
correspondence sent to and received by the corporation
during the course of its daily operations, Young could not
have timely discovered respondent’s check payment;
petitioner’s failure to return the purported earnest money
cannot mean that it agreed to respondent’s offer.
Besides, respondent’s payment of supposed earnest money
was made under dubious circumstances and in disregard of
sound business practice and common sense. Indeed,
respondent must be faulted for taking such a course of action
that is irregular and extraordinary: common sense and logic
dictate that if any payment is made under the supposed sale
transaction, it should have been made directly to Young or
coursed directly through her office, since she is the officer
directly responsible for negotiating the sale, as far as
respondent is concerned and considering the amount of
money involved; no other ranking officer of petitioner can be
expected to know of the ongoing talks covering the subject
property. Respondent already knew, from Eleazar’s previous
meeting with Young, that it could only effectively deal with
her; more than that, it should know that corporations work
only through the proper channels. By acting the way it did –
coursing the February 4, 2005 letter and check through
petitioner’s mere receiving clerk or receptionist instead of
directly with Young’s office, respondent placed itself under
grave suspicion of putting into effect a premeditated plan to
unduly bind petitioner to its rejected offer, in a manner which
it could not achieve through negotiation and employing
normal business practices. It impresses the Court that
respondent attempted to secure the consent needed for the
sale by depositing part of the purchase price and under the
false pretense that an agreement was already arrived at,
even though there was none. Respondent achieved the
desired effect up to this point, but the Court will not be fooled.
Thus, as between respondent’s irregular and improper
actions and petitioner’s failure to timely return the
₱100,000.00 purported earnest money, this Court sides with
petitioner. In a manner of speaking, respondent cannot fault
petitioner for not making a refund since it is equally to blame
for making such payment under false pretenses and irregular
104
Sales – Chapter 3-12 Cases
circumstances, and with improper motives. Parties must ordered to REFUND the amount of ₱100,000.00 to
come to court with clean hands, as it were. respondent Securitron Security Services, Inc. without interest,
unless petitioner has done so during the course of the
In a potential sale transaction, the prior payment of earnest proceedings.
money even before the property owner can agree to sell his
property is irregular, and cannot be used to bind the owner to SO ORDERED.
the obligations of a seller under an otherwise perfected
contract of sale; to cite a well-worn cliché, the carriage cannot
be placed before the horse. The property owner-prospective
seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter’s employment of
questionable practices which prevent the owner from freely
giving his consent to the transaction; this constitutes a
palpable transgression of the prospective seller’s rights of
ownership over his property, an anomaly which the Court will
certainly not condone. An agreement where the prior free
consent of one party thereto is withheld or suppressed will be
struck down, and the Court shall always endeavor to protect a
property owner’s rights against devious practices that put his
property in danger of being lost or unduly disposed without
his prior knowledge or consent. As this ponente has held
before, "[t]his Court cannot presume the existence of a sale of
land, absent any direct proof of it."37

Nor will respondent's supposed payment be 'treated as a

deposit or guarantee; its actions will not be dignified and must
be called for what they are: they were done irregularly and
with a view to acquiring the subject property against
petitioner's consent.

Finally, since there is nothing in legal contemplation which

petitioner must perform particularly for the respondent, it
should follow that Civil Case No. 06-0492 CFM for specific
performance with damages is left with no leg. to stand on; it
must be dismissed.

With the foregoing view, there is no need to resolve the other

specific issues and arguments raised by the petitioner, as
they do not materially affect the rights and obligations of the
parties - the Court having declared that no agreement exists
between them; nor do they have the effect of altering the
outcome of the case.

WHEREFORE, the Petition is GRANTED. The September 30,

2011 Decision and December 9, 2011 Resolution of the Court
of Appeals in CA-G.R. CV No. 93715, as well as the February
16, 2009 Decision of the Regional Trial Court of Pasay City,
Branch 115 in Civil Case No. 06-0492 CFM are REVERSED
and SET ASIDE. Civil Case No. 06-0492 CFM is ordered
DISMISSED. , Petitioner First Optima Realty Corporation is
105
Sales – Chapter 3-12 Cases
RIZALINO, substituted by his heirs, JOSEFINA,
ROLANDO and FERNANDO, ERNESTO, LEONORA,
BIBIANO, JR., LIBRADO and ENRIQUETA, all
surnamed OESMER,
Petitioners,
- versus -
PARAISO DEVELOPMENT CORPORATION,
Respondent.
Before this Court is a Petition for Review on Certiorari
under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to reverse and set aside the Court of
Appeals Decision[1] dated 26 April 2002 in CA-G.R. CV
No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano,
Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed
Oesmer vs. Paraiso Development Corporation, as
modified by its Resolution[2] dated 4 March 2003,
declaring the Contract to Sell valid and binding with
respect to the undivided proportionate shares of the six
signatories of the said document, herein petitioners,
namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano,
Jr., and Leonora (all surnamed Oesmer); and ordering
them to execute the Deed of Absolute Sale concerning
their 6/8 share over the subject parcels of land in favor of
herein respondent Paraiso Development Corporation, and
to pay the latter the attorneys fees plus costs of the suit.
The assailed Decision, as modified, likewise ordered the
respondent to tender payment to the petitioners in the
amount of P3,216,560.00 representing the balance of the
purchase price of the subject parcels of land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr.,
Librado, and Enriqueta, all surnamed Oesmer, together
with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus),
are brothers and sisters, and the co-owners of undivided
shares of two parcels of agricultural and tenanted land
situated in Barangay Ulong Tubig, Carmona, Cavite,
identified as Lot 720 with an area of 40,507 square meters
(sq. m.) and Lot 834 containing an area of 14,769 sq. m.,
or a total land area of 55,276 sq. m. Both lots are
unregistered and originally owned by their parents,
Bibiano Oesmer and Encarnacion Durumpili, who
declared the lots for taxation purposes under Tax
Declaration No. 3438[3] (cancelled by I.D. No. 6064-A) for
Lot 720 and Tax Declaration No. 3437[4] (cancelled by
I.D. No. 5629) for Lot 834. When the spouses Oesmer
died, petitioners, together with Adolfo and Jesus, acquired
the lots as heirs of the former by right of succession.
Respondent Paraiso Development Corporation is known
to be engaged in the real estate business.
Sometime in March 1989, Rogelio Paular, a resident and
former Municipal Secretary of Carmona, Cavite, brought
along petitioner Ernesto to meet with a certain Sotero Lee,
President of respondent Paraiso Development
Corporation, at Otani Hotel in Manila. The said meeting
was for the purpose of brokering the sale of petitioners
properties to respondent corporation.
Pursuant to the said meeting, a Contract to Sell[5] was
drafted by the Executive Assistant of Sotero Lee,
Inocencia Almo. On 1 April 1989, petitioners Ernesto and
Enriqueta signed the aforesaid Contract to Sell. A check in
the amount of P100,000.00, payable to Ernesto, was
given as option money. Sometime thereafter, Rizalino,
Leonora, Bibiano, Jr., and Librado also signed the said
Contract to Sell. However, two of the brothers, Adolfo and
Jesus, did not sign the document.
On 5 April 1989, a duplicate copy of the instrument was
returned to respondent corporation. On 21 April 1989,
respondent brought the same to a notary public for
notarization.
In a letter[6] dated 1 November 1989, addressed to
respondent corporation, petitioners informed the former of
their intention to rescind the Contract to Sell and to return
the amount of P100,000.00 given by respondent as option
money.
Respondent did not respond to the aforesaid letter. On 30
May 1991, herein petitioners, together with Adolfo and
Jesus, filed a Complaint[7] for Declaration of Nullity or for
Annulment of Option Agreement or Contract to Sell with
Damages before the Regional Trial Court (RTC) of
Bacoor, Cavite. The said case was docketed as Civil Case
No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of
petitioners, the trial court issued an Order,[8] dated 16
September 1992, to the effect that the deceased petitioner
be substituted by his surviving spouse, Josefina O.
Oesmer, and his children, Rolando O. Oesmer and
Fernando O. Oesmer. However, the name of Rizalino was
retained in the title of the case both in the RTC and the
Court of Appeals.
After trial on the merits, the lower court rendered a
Decision[9] dated 27 March 1996 in favor of the
respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of herein [respondent] Paraiso
Development Corporation. The assailed Contract to Sell is
valid and binding only to the undivided proportionate
share of the signatory of this document and recipient of
the check, [herein petitioner] co-owner Ernesto Durumpili
Oesmer. The latter is hereby ordered to execute the
Contract of Absolute Sale concerning his 1/8 share over
the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter the
attorneys fees in the sum of Ten Thousand (P10,000.00)
Pesos plus costs of suit.
The counterclaim of [respondent] corporation is hereby
Dismissed for lack of merit.[10]
Unsatisfied, respondent appealed the said Decision
before the Court of Appeals. On 26 April 2002, the
appellate court rendered a Decision modifying the
Decision of the court a quo by declaring that the Contract
to Sell is valid and binding with respect to the undivided
proportionate shares of the six signatories of the said
document, herein petitioners, namely: Ernesto, Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer). The decretal portion of the said Decision states
that:
WHEREFORE, premises considered, the Decision of the
court a quo is hereby MODIFIED. Judgment is hereby
rendered in favor of herein [respondent] Paraiso
Development Corporation. The assailed Contract to Sell is
valid and binding with respect to the undivided
proportionate share of the six (6) signatories of this
document, [herein petitioners], namely, Ernesto,
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby
ordered to execute the Deed of Absolute Sale concerning
106
Sales – Chapter 3-12 Cases
their 6/8 share over the subject two parcels of land and in
favor of herein [respondent] corporation, and to pay the
latter the attorneys fees in the sum of Ten Thousand
Pesos (P10,000.00) plus costs of suit.[11]
Aggrieved by the above-mentioned Decision, petitioners
filed a Motion for Reconsideration of the same on 2 July
2002. Acting on petitioners Motion for Reconsideration,
the Court of Appeals issued a Resolution dated 4 March
2003, maintaining its Decision dated 26 April 2002, with
the modification that respondent tender payment to
petitioners in the amount of P3,216,560.00, representing
the balance of the purchase price of the subject parcels of
land. The dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, the assailed
Decision is hereby modified. Judgment is hereby rendered
in favor of herein [respondent] Paraiso Development
Corporation. The assailed Contract to Sell is valid and
binding with respect to the undivided proportionate shares
of the six (6) signatories of this document, [herein
petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The
said [petitioners] are hereby ordered to execute the Deed
of Absolute Sale concerning their 6/8 share over the
subject two parcels of land in favor of herein [respondent]
corporation, and to pay the latter attorneys fees in the sum
of Ten Thousand Pesos (P10,000.00) plus costs of suit.
Respondent is likewise ordered to tender payment to the
above-named [petitioners] in the amount of Three Million
Two Hundred Sixteen Thousand Five Hundred Sixty
Pesos (P3,216,560.00) representing the balance of the
purchase price of the subject two parcels of land. [12]
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court
of Appeals erred:
I. On a question of law in not
holding that, the supposed Contract to Sell (Exhibit D) is
not binding upon petitioner Ernesto Oesmers co-owners
(herein petitioners Enriqueta, Librado, Rizalino, Bibiano,
Jr., and Leonora).
II. On a question of law in not
holding that, the supposed Contract to Sell (Exhibit D) is
void altogether considering that respondent itself did not
sign it as to indicate its consent to be bound by its terms.
Moreover, Exhibit D is really a unilateral promise to sell
without consideration distinct from the price, and hence,
void.
Petitioners assert that the signatures of five of them
namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora, on the margins of the supposed Contract to Sell
did not confer authority on petitioner Ernesto as agent to
sell their respective shares in the questioned properties,
and hence, for lack of written authority from the above-
named petitioners to sell their respective shares in the
subject parcels of land, the supposed Contract to Sell is
void as to them. Neither do their signatures signify their
consent to directly sell their shares in the questioned
properties. Assuming that the signatures indicate consent,
such consent was merely conditional. The effectivity of the
alleged Contract to Sell was subject to a suspensive
condition, which is the approval of the sale by all the co-
owners.
Petitioners also assert that the supposed Contract to Sell
(Exhibit D), contrary to the findings of the Court of
Appeals, is not couched in simple language.
They further claim that the supposed Contract to Sell does
not bind the respondent because the latter did not sign the
said contract as to indicate its consent to be bound by its
terms. Furthermore, they maintain that the supposed
Contract to Sell is really a unilateral promise to sell and
the option money does not bind petitioners for lack of
cause or consideration distinct from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely:
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on
the Contract to Sell did not confer authority on petitioner
Ernesto as agent authorized to sell their respective shares
in the questioned properties because of Article 1874 of
the Civil Code, which expressly provides that:
Art. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.
The law itself explicitly requires a written authority before
an agent can sell an immovable. The conferment of such
an authority should be in writing, in as clear and precise
terms as possible. It is worth noting that petitioners
signatures are found in the Contract to Sell. The Contract
is absolutely silent on the establishment of any principal-
agent relationship between the five petitioners and their
brother and co-petitioner Ernesto as to the sale of the
subject parcels of land. Thus, the Contract to Sell,
although signed on the margin by the five petitioners, is
not sufficient to confer authority on petitioner Ernesto to
act as their agent in selling their shares in the properties in
question.
However, despite petitioner Ernestos lack of written
authority from the five petitioners to sell their shares in the
subject parcels of land, the supposed Contract to Sell
remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not
only petitioner Ernesto who signed the said Contract to
Sell; the other five petitioners also personally affixed their
signatures thereon. Therefore, a written authority is no
longer necessary in order to sell their shares in the subject
parcels of land because, by affixing their signatures on the
Contract to Sell, they were not selling their shares through
an agent but, rather, they were selling the same directly
and in their own right.
The Court also finds untenable the following arguments
raised by petitioners to the effect that the Contract to Sell
is not binding upon them, except to Ernesto, because: (1)
the signatures of five of the petitioners do not signify their
consent to sell their shares in the questioned properties
since petitioner Enriqueta merely signed as a witness to
the said Contract to Sell, and that the other petitioners,
namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did
not understand the importance and consequences of their
action because of their low degree of education and the
contents of the aforesaid contract were not read nor
explained to them; and (2) assuming that the signatures
indicate consent, such consent was merely conditional,
107
Sales – Chapter 3-12 Cases
thus, the effectivity of the alleged Contract to Sell was
subject to a suspensive condition, which is the approval
by all the co-owners of the sale.
It is well-settled that contracts are perfected by mere
consent, upon the acceptance by the offeree of the offer
made by the offeror. From that moment, the parties are
bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with
good faith, usage and law. To produce a contract, the
acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. For
a contract to arise, the acceptance must be made known
to the offeror. Accordingly, the acceptance can be
withdrawn or revoked before it is made known to the
offeror.[13]
In the case at bar, the Contract to Sell was perfected
when the petitioners consented to the sale to the
respondent of their shares in the subject parcels of land
by affixing their signatures on the said contract. Such
signatures show their acceptance of what has been
stipulated in the Contract to Sell and such acceptance
was made known to respondent corporation when the
duplicate copy of the Contract to Sell was returned to the
latter bearing petitioners signatures.
As to petitioner Enriquetas claim that she merely signed
as a witness to the said contract, the contract itself does
not say so. There was no single indication in the said
contract that she signed the same merely as a witness.
The fact that her signature appears on the right-hand
margin of the Contract to Sell is insignificant. The contract
indisputably referred to the Heirs of Bibiano and
Encarnacion Oesmer, and since there is no showing that
Enriqueta signed the document in some other capacity, it
can be safely assumed that she did so as one of the
parties to the sale.
Emphasis should also be given to the fact that petitioners
Ernesto and Enriqueta concurrently signed the Contract to
Sell. As the Court of Appeals mentioned in its
Decision,[14] the records of the case speak of the fact that
petitioner Ernesto, together with petitioner Enriqueta, met
with the representatives of the respondent in order to
finalize the terms and conditions of the Contract to Sell.
Enriqueta affixed her signature on the said contract when
the same was drafted. She even admitted that she
understood the undertaking that she and petitioner
Ernesto made in connection with the contract. She
likewise disclosed that pursuant to the terms embodied in
the Contract to Sell, she updated the payment of the real
property taxes and transferred the Tax Declarations of the
questioned properties in her name.[15] Hence, it cannot
be gainsaid that she merely signed the Contract to Sell as
a witness because she did not only actively participate in
the negotiation and execution of the same, but her
subsequent actions also reveal an attempt to comply with
the conditions in the said contract.
With respect to the other petitioners assertion that they did
not understand the importance and consequences of their
action because of their low degree of education and
because the contents of the aforesaid contract were not
read nor explained to them, the same cannot be
sustained.
We only have to quote the pertinent portions of the Court
of Appeals Decision, clear and concise, to dispose of this
issue. Thus,
First, the Contract to Sell is couched in such a simple
language which is undoubtedly easy to read and
understand. The terms of the Contract, specifically the
amount of P100,000.00 representing the option money
paid by [respondent] corporation, the purchase price of
P60.00 per square meter or the total amount of
P3,316,560.00 and a brief description of the subject
properties are well-indicated thereon that any prudent and
mature man would have known the nature and extent of
the transaction encapsulated in the document that he was
signing.
Second, the following circumstances, as testified by the
witnesses and as can be gleaned from the records of the
case clearly indicate the [petitioners] intention to be bound
by the stipulations chronicled in the said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his
intention to effect the alienation of the subject property as
he in fact was the one who initiated the negotiation
process and culminated the same by affixing his signature
on the Contract to Sell and by taking receipt of the amount
of P100,000.00 which formed part of the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it
preposterous that he willingly affixed his signature on a
document written in a language (English) that he
purportedly does not understand. He testified that the
document was just brought to him by an 18 year old niece
named Baby and he was told that the document was for a
check to be paid to him. He readily signed the Contract to
Sell without consulting his other siblings. Thereafter, he
exerted no effort in communicating with his brothers and
sisters regarding the document which he had signed, did
not inquire what the check was for and did not thereafter
ask for the check which is purportedly due to him as a
result of his signing the said Contract to Sell. (TSN, 28
September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old
family man (TSN, 28 September 1993, p. 19). As such, he
is expected to act with that ordinary degree of care and
prudence expected of a good father of a family. His
unwitting testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.)
are likewise bound by the said Contract to Sell. The theory
adopted by the [petitioners] that because of their low
degree of education, they did not understand the contents
of the said Contract to Sell is devoid of merit. The
[appellate court] also notes that Adolfo (one of the co-
heirs who did not sign) also possess the same degree of
education as that of the signing co-heirs (TSN, 15 October
1991, p. 19). He, however, is employed at the Provincial
Treasury Office at Trece Martirez, Cavite and has even
accompanied Rogelio Paular to the Assessors Office to
locate certain missing documents which were needed to
transfer the titles of the subject properties. (TSN, 28
January 1994, pp. 26 & 35) Similarly, the other co-heirs
[petitioners], like Adolfo, are far from ignorant, more so,
illiterate that they can be extricated from their obligations
under the Contract to Sell which they voluntarily and
knowingly entered into with the [respondent] corporation.
The Supreme Court in the case of Cecilia Mata v. Court of
Appeals (207 SCRA 753 [1992]), citing the case of Tan
108
Sales – Chapter 3-12 Cases
Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively
ruled as follows:
The Court does not accept the petitioners claim that she
did not understand the terms and conditions of the
transactions because she only reached Grade Three and
was already 63 years of age when she signed the
documents. She was literate, to begin with, and her age
did not make her senile or incompetent. x x x.
At any rate, Metrobank had no obligation to explain the
documents to the petitioner as nowhere has it been
proven that she is unable to read or that the contracts
were written in a language not known to her. It was her
responsibility to inform herself of the meaning and
consequence of the contracts she was signing and, if she
found them difficult to comprehend, to consult other
persons, preferably lawyers, to explain them to her. After
all, the transactions involved not only a few hundred or
thousand pesos but, indeed, hundreds of thousands of
pesos.
As the Court has held:
x x x The rule that one who signs a contract is presumed
to know its contents has been applied even to contracts of
illiterate persons on the ground that if such persons are
unable to read, they are negligent if they fail to have the
contract read to them. If a person cannot read the
instrument, it is as much his duty to procure some reliable
persons to read and explain it to him, before he signs it,
as it would be to read it before he signed it if he were able
to do and his failure to obtain a reading and explanation of
it is such gross negligence as will estop from avoiding it
on the ground that he was ignorant of its contents.[16]
That the petitioners really had the intention to dispose of
their shares in the subject parcels of land, irrespective of
whether or not all of the heirs consented to the said
Contract to Sell, was unveiled by Adolfos testimony as
follows:
ATTY. GAMO: This alleged agreement between you and
your other brothers and sisters that unless everybody will
agree, the properties would not be sold, was that
agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your
brothers and sisters except Jesus and you did not sign
that agreement which had been marked as [Exhibit] D,
your brothers and sisters were grossly violating your
agreement.
WITNESS: Yes, sir, they violated what we have agreed
upon.[17]
We also cannot sustain the allegation of the petitioners
that assuming the signatures indicate consent, such
consent was merely conditional, and that, the effectivity of
the alleged Contract to Sell was subject to the suspensive
condition that the sale be approved by all the co-owners.
The Contract to Sell is clear enough. It is a cardinal rule in
the interpretation of contracts that if the terms of a
contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its
stipulation shall control.[18] The terms of the Contract to
Sell made no mention of the condition that before it can
become valid and binding, a unanimous consent of all the
heirs is necessary. Thus, when the language of the
contract is explicit, as in the present case, leaving no
doubt as to the intention of the parties thereto, the literal
meaning of its stipulation is controlling.
In addition, the petitioners, being owners of their
respective undivided shares in the subject properties, can
dispose of their shares even without the consent of all the
co-heirs. Article 493 of the Civil Code expressly provides:
Article 493. Each co-owner shall have the full ownership
of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and
even substitute another person in its enjoyment, except
when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners,
shall be limited to the portion which may be allotted to him
in the division upon the termination of the co-ownership.
[Emphases supplied.]
Consequently, even without the consent of the two co-
heirs, Adolfo and Jesus, the Contract to Sell is still valid
and binding with respect to the 6/8 proportionate shares of
the petitioners, as properly held by the appellate court.
Therefore, this Court finds no error in the findings of the
Court of Appeals that all the petitioners who were
signatories in the Contract to Sell are bound thereby.
The final arguments of petitioners state that the Contract
to Sell is void altogether considering that respondent itself
did not sign it as to indicate its consent to be bound by its
terms; and moreover, the Contract to Sell is really a
unilateral promise to sell without consideration distinct
from the price, and hence, again, void. Said arguments
must necessarily fail.
The Contract to Sell is not void merely because it does not
bear the signature of the respondent corporation.
Respondent corporations consent to be bound by the
terms of the contract is shown in the uncontroverted facts
which established that there was partial performance by
respondent of its obligation in the said Contract to Sell
when it tendered the amount of P100,000.00 to form part
of the purchase price, which was accepted and
acknowledged expressly by petitioners. Therefore, by
force of law, respondent is required to complete the
payment to enforce the terms of the contract. Accordingly,
despite the absence of respondents signature in the
Contract to Sell, the former cannot evade its obligation to
pay the balance of the purchase price.
As a final point, the Contract to Sell entered into by the
parties is not a unilateral promise to sell merely because it
used the word option money when it referred to the
amount of P100,000.00, which also form part of the
purchase price.
Settled is the rule that in the interpretation of contracts,
the ascertainment of the intention of the contracting
parties is to be discharged by looking to the words they
used to project that intention in their contract, all the
words, not just a particular word or two, and words in
context, not words standing alone.[19]
In the instant case, the consideration of P100,000.00 paid
by respondent to petitioners was referred to as option
money. However, a careful examination of the words used
in the contract indicates that the money is not option
money but earnest money. Earnest money and option
money are not the same but distinguished thus: (a)
109
Sales – Chapter 3-12 Cases
earnest money is part of the purchase price, while option
money is the money given as a distinct consideration for
an option contract; (b) earnest money is given only where
there is already a sale, while option money applies to a
sale not yet perfected; and, (c) when earnest money is
given, the buyer is bound to pay the balance, while when
the would-be buyer gives option money, he is not required
to buy, but may even forfeit it depending on the terms of
the option.[20]

The sum of P100,000.00 was part of the purchase price.

Although the same was denominated as option money, it
is actually in the nature of earnest money or down
payment when considered with the other terms of the
contract. Doubtless, the agreement is not a mere
unilateral promise to sell, but, indeed, it is a Contract to
Sell as both the trial court and the appellate court declared
in their Decisions.
WHEREFORE, premises considered, the Petition is
DENIED, and the Decision and Resolution of the Court of
Appeals dated 26 April 2002 and 4 March 2003,
respectively, are AFFIRMED, thus, (a) the Contract to Sell
is DECLARED valid and binding with respect to the
undivided proportionate shares in the subject parcels of
land of the six signatories of the said document, herein
petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano,
Jr., and Leonora (all surnamed Oesmer); (b) respondent is
ORDERED to tender payment to petitioners in the amount
of P3,216,560.00 representing the balance of the
purchase price for the latters shares in the subject parcels
of land; and (c) petitioners are further ORDERED to
execute in favor of respondent the Deed of Absolute Sale
covering their shares in the subject parcels of land after
receipt of the balance of the purchase price, and to pay
respondent attorneys fees plus costs of the suit. Costs
against petitioners.

SO ORDERED.

110
Sales – Chapter 3-12 Cases
SERAFIN, RAUL, NENITA, NAZARETO, NEOLANDA,
all surnamed NARANJA, AMELIA NARANJA-
RUBINOS, NILDA NARANJA-LIMANA, and NAIDA
NARANJA-GICANO,
Petitioners,
- versus -
COURT OF APPEALS, LUCILIA P. BELARDO,
represented by her Attorney-in-Fact, REBECCA
CORDERO, and THE LOCAL REGISTER OF DEEDS,
BACOLOD CITY,
Respondents.
This petition seeks a review of the Court of Appeals (CA)
Decision[1] dated September 13, 2002 and Resolution[2]
dated September 24, 2003 which upheld the contract of
sale executed by petitioners predecessor, Roque Naranja,
during his lifetime, over two real properties.
Roque Naranja was the registered owner of a parcel of
land, denominated as Lot No. 4 in Consolidation-
Subdivision Plan (LRC) Pcs-886, Bacolod Cadastre, with
an area of 136 square meters and covered by Transfer
Certificate of Title (TCT) No. T-18764. Roque was also a
co-owner of an adjacent lot, Lot No. 2, of the same
subdivision plan, which he co-owned with his brothers,
Gabino and Placido Naranja. When Placido died, his one-
third share was inherited by his children, Nenita,
Nazareto, Nilda, Naida and Neolanda, all surnamed
Naranja, herein petitioners. Lot No. 2 is covered by TCT
No. T-18762 in the names of Roque, Gabino and the said
children of Placido. TCT No. T-18762 remained even after
Gabino died. The other petitioners Serafin Naranja, Raul
Naranja, and Amelia Naranja-Rubinos are the children of
Gabino.[3]
The two lots were being leased by Esso Standard
Eastern, Inc. for 30 years from 1962-1992. For his
properties, Roque was being paid P200.00 per month by
the company.[4]
In 1976, Roque, who was single and had no children,
lived with his half sister, Lucilia P. Belardo (Belardo), in
Pontevedra, Negros Occidental. At that time, a catheter
was attached to Roques body to help him urinate. But the
catheter was subsequently removed when Roque was
already able to urinate normally. Other than this and the
influenza prior to his death, Roque had been physically
sound.[5]
Roque had no other source of income except for the
P200.00 monthly rental of his two properties. To show his
gratitude to Belardo, Roque sold Lot No. 4 and his one-
third share in Lot No. 2 to Belardo on August 21, 1981,
through a Deed of Sale of Real Property which was duly
notarized by Atty. Eugenio Sanicas. The Deed of Sale
reads:
I, ROQUE NARANJA, of legal age, single, Filipino and a
resident of Bacolod City, do hereby declare that I am the
registered owner of Lot No. 4 of the Cadastral Survey of
the City of Bacolod, consisting of 136 square meters,
more or less, covered by Transfer Certificate of Title No.
T-18764 and a co-owner of Lot No. 2, situated at the City
of Bacolod, consisting of 151 square meters, more or less,
covered by Transfer Certificate of Title No. T-18762 and
my share in the aforesaid Lot No. 2 is one-third share.
That for and in consideration of the sum of TEN
THOUSAND PESOS (P10,000.00), Philippine Currency,
and other valuable consideration, receipt of which in full I
hereby acknowledge to my entire satisfaction, by these
presents, I hereby transfer and convey by way of absolute
sale the above-mentioned Lot No. 4 consisting of 136
square meters covered by Transfer Certificate of Title No.
T-18764 and my one-third share in Lot No. 2, covered by
Transfer Certificate of Title No. T-18762, in favor of my
sister LUCILIA P. BELARDO, of legal age, Filipino citizen,
married to Alfonso D. Belardo, and a resident of
Pontevedra, Negros Occidental, her heirs, successors and
assigns.
IN WITNESS WHEREOF, I have hereunto set my hand
this 21st day of August, 1981 at Bacolod City, Philippines.
(SGD.)
ROQUE NARANJA[6]
Roques copies of TCT No. T-18764 and TCT No. T-18762
were entrusted to Atty. Sanicas for registration of the deed
of sale and transfer of the titles to Belardo. But the deed of
sale could not be registered because Belardo did not have
the money to pay for the registration fees.[7]
Belardos only source of income was her store and coffee
shop. Sometimes, her children would give her money to
help with the household expenses, including the expenses
incurred for Roques support. At times, she would also
borrow money from Margarita Dema-ala, a neighbor.[8]
When the amount of her loan reached P15,000.00, Dema-
ala required a security. On November 19, 1983, Roque
executed a deed of sale in favor of Dema-ala, covering his
two properties in consideration of the P15,000.00
outstanding loan and an additional P15,000.00, for a total
of P30,000.00. Dema-ala explained that she wanted
Roque to execute the deed of sale himself since the
properties were still in his name. Belardo merely acted as
a witness. The titles to the properties were given to Dema-
ala for safekeeping.[9]
Three days later, or on December 2, 1983, Roque died of
influenza. The proceeds of the loan were used for his
treatment while the rest was spent for his burial.[10]
In 1985, Belardo fully paid the loan secured by the second
deed of sale. Dema-ala returned the certificates of title to
Belardo, who, in turn, gave them back to Atty.
Sanicas.[11]
Unknown to Belardo, petitioners, the children of Placido
and Gabino Naranja, executed an Extrajudicial Settlement
Among Heirs[12] on October 11, 1985, adjudicating
among themselves Lot No. 4. On February 19, 1986,
petitioner Amelia Naranja-Rubinos, accompanied by
Belardo, borrowed the two TCTs, together with the lease
agreement with Esso Standard Eastern, Inc., from Atty.
Sanicas on account of the loan being proposed by
Belardo to her. Thereafter, petitioners had the
Extrajudicial Settlement Among Heirs notarized on
February 25, 1986. With Roques copy of TCT No. T-
18764 in their possession, they succeeded in having it
cancelled and a new certificate of title, TCT No. T-140184,
issued in their names.[13]
In 1987, Belardo decided to register the Deed of Sale
dated August 21, 1981. With no title in hand, she was
compelled to file a petition with the RTC to direct the
Register of Deeds to annotate the deed of sale even
without a copy of the TCTs. In an Order dated June 18,
1987, the RTC granted the petition. But she only
111
Sales – Chapter 3-12 Cases
succeeded in registering the deed of sale in TCT No. T-
18762 because TCT No. T-18764 had already been
cancelled.[14]
On December 11, 1989, Atty. Sanicas prepared a
certificate of authorization, giving Belardos daughter,
Jennelyn P. Vargas, the authority to collect the payments
from Esso Standard Eastern, Inc. But it appeared from the
companys Advice of Fixed Payment that payment of the
lease rental had already been transferred from Belardo to
Amelia Naranja-Rubinos because of the Extrajudicial
Settlement Among Heirs.
On June 23, 1992, Belardo,[15] through her daughter and
attorney-in-fact, Rebecca Cordero, instituted a suit for
reconveyance with damages. The complaint prayed that
judgment be rendered declaring Belardo as the sole legal
owner of Lot No. 4, declaring null and void the
Extrajudicial Settlement Among Heirs, and TCT No. T-
140184, and ordering petitioners to reconvey to her the
subject property and to pay damages. The case was
docketed as Civil Case No. 7144.
Subsequently, petitioners also filed a case against
respondent for annulment of sale and quieting of title with
damages, praying, among others, that judgment be
rendered nullifying the Deed of Sale, and ordering the
Register of Deeds of Bacolod City to cancel the
annotation of the Deed of Sale on TCT No. T-18762. This
case was docketed as Civil Case No. 7214.
On March 5, 1997, the RTC rendered a Decision in the
consolidated cases in favor of petitioners. The trial court
noted that the Deed of Sale was defective in form since it
did not contain a technical description of the subject
properties but merely indicated that they were Lot No. 4,
covered by TCT No. T-18764 consisting of 136 square
meters, and one-third portion of Lot No. 2 covered by TCT
No. T-18762. The trial court held that, being defective in
form, the Deed of Sale did not vest title in private
respondent. Full and absolute ownership did not pass to
private respondent because she failed to register the
Deed of Sale. She was not a purchaser in good faith since
she acted as a witness to the second sale of the property
knowing that she had already purchased the property from
Roque. Whatever rights private respondent had over the
properties could not be superior to the rights of petitioners,
who are now the registered owners of the parcels of land.
The RTC disposed, thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered:
1. Dismissing Civil Case No. 7144.
2. Civil Case No. 7214.
a) Declaring the Deed of Sale dated August 21,
1981, executed by Roque Naranja, covering his one-third
(1/3) share of Lot 2 of the consolidation-subdivision plan
(LRC) Pcs-886, being a portion of the consolidation of
Lots 240-A, 240-B, 240-C and 240-D, described on plan,
Psd-33443 (LRC) GLRO Cad. Rec. No. 55 in favor of
Lucilia Belardo, and entered as Doc. No. 80, Page 17,
Book No. XXXVI, Series of 1981 of Notary Public Eugenio
Sanicas of Bacolod City, as null and void and of no force
and effect;
b) Ordering the Register of Deeds of Bacolod
City to cancel Entry No. 148123 annotate at the back of
Transfer Certificate of Title No. T-18762;
c) Ordering Lucilia Belardo or her successors-
in-interest to pay plaintiffs the sum of P20,000.00 as
attorneys fees, the amount of P500.00 as appearance
fees.
Counterclaims in both Civil Cases Nos. 7144 and 7214
are hereby DISMISSED.
SO ORDERED.[16]
On September 13, 2002, the CA reversed the RTC
Decision. The CA held that the unregisterability of a deed
of sale will not undermine its validity and efficacy in
transferring ownership of the properties to private
respondent. The CA noted that the records were devoid of
any proof evidencing the alleged vitiation of Roques
consent to the sale; hence, there is no reason to
invalidate the sale. Registration is only necessary to bind
third parties, which petitioners, being the heirs of Roque
Naranja, are not. The trial court erred in applying Article
1544 of the Civil Code to the case at bar since petitioners
are not purchasers of the said properties. Hence, it is not
significant that private respondent failed to register the
deed of sale before the extrajudicial settlement among the
heirs. The dispositive portion of the CA Decision reads:
WHEREFORE, the decision dated March 5, 1997 in Civil
Cases Nos. 7144 and 7214 is hereby REVERSED and
SET ASIDE. In lieu thereof, judgment is hereby rendered
as follows:
1. Civil Case No. 7214 is hereby ordered DISMISSED for
lack of cause of action.
2. In Civil Case No. 7144, the extrajudicial settlement
executed by the heirs of Roque Naranja adjudicating
among themselves Lot No. 4 of the consolidation-
subdivision plan (LRC) Pcs 886 of the Bacolod Cadastre
is hereby declared null and void for want of factual and
legal basis. The certificate of title issued to the heirs of
Roque Naranja (Transfer Certificate of [T]i[t]le No. T-
140184) as a consequence of the void extra-judicial
settlement is hereby ordered cancelled and the previous
title to Lot No. 4, Transfer Certificate of Title No. T-18764,
is hereby ordered reinstated. Lucilia Belardo is hereby
declared the sole and legal owner of said Lot No. 4, and
one-third of Lot No. 2 of the same consolidation-
subdivision plan, Bacolod Cadastre, by virtue of the deed
of sale thereof in her favor dated August 21, 1981.
SO ORDERED.[17]
The CA denied petitioners motion for reconsideration on
September 24, 2003.[18] Petitioners filed this petition for
review, raising the following issues:
1. WHETHER OR NOT THE HONORABLE
RESPONDENT COURT OF APPEALS IS CORRECT IN
IGNORING THE POINT RAISED BY [PETITIONERS]
THAT THE DEED OF SALE WHICH DOES NOT
COMPL[Y] WITH THE PROVISIONS OF ACT NO. 496 IS
[NOT] VALID.
2. WHETHER OR NOT THE ALLEGED DEED OF SALE
[OF REAL PROPERTIES] IS VALID CONSIDERING
THAT THE CONSENT OF THE LATE ROQUE NARANJA
HAD BEEN VITIATED; x x x THERE [IS] NO
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Sales – Chapter 3-12 Cases
CONCLUSIVE SHOWING THAT THERE WAS
CONSIDERATION AND THERE [ARE] SERIOUS
IRREGULARITIES IN THE NOTARIZATION OF THE
SAID DOCUMENTS.[19]
In her Comment, private respondent questioned the
Verification and Certification of Non-Forum Shopping
attached to the Petition for Review, which was signed by a
certain Ernesto Villadelgado without a special power of
attorney. In their reply, petitioners remedied the defect by
attaching a Special Power of Attorney signed by them.
Pursuant to its policy to encourage full adjudication of the
merits of an appeal, the Court had previously excused the
late submission of a special power of attorney to sign a
certification against forum-shopping.[20] But even if we
excuse this defect, the petition nonetheless fails on the
merits.
The Court does not agree with petitioners contention that
a deed of sale must contain a technical description of the
subject property in order to be valid. Petitioners anchor
their theory on Section 127 of Act No. 496,[21] which
provides a sample form of a deed of sale that includes, in
particular, a technical description of the subject property.
To be valid, a contract of sale need not contain a technical
description of the subject property. Contracts of sale of
real property have no prescribed form for their validity;
they follow the general rule on contracts that they may be
entered into in whatever form, provided all the essential
requisites for their validity are present.[22] The requisites
of a valid contract of sale under Article 1458 of the Civil
Code are: (1) consent or meeting of the minds; (2)
determinate subject matter; and (3) price certain in money
or its equivalent.
The failure of the parties to specify with absolute clarity
the object of a contract by including its technical
description is of no moment. What is important is that
there is, in fact, an object that is determinate or at least
determinable, as subject of the contract of sale. The form
of a deed of sale provided in Section 127 of Act No. 496 is
only a suggested form. It is not a mandatory form that
must be strictly followed by the parties to a contract.
In the instant case, the deed of sale clearly identifies the
subject properties by indicating their respective lot
numbers, lot areas, and the certificate of title covering
them. Resort can always be made to the technical
description as stated in the certificates of title covering the
two properties.
On the alleged nullity of the deed of sale, we hold that
petitioners failed to submit sufficient proof to show that
Roque executed the deed of sale under the undue
influence of Belardo or that the deed of sale was
simulated or without consideration.
A notarized document carries the evidentiary weight
conferred upon it with respect to its due execution, and
documents acknowledged before a notary public have in
their favor the presumption of regularity. It must be
sustained in full force and effect so long as he who
impugns it does not present strong, complete, and
conclusive proof of its falsity or nullity on account of some
flaws or defects provided by law.[23]
Petitioners allege that Belardo unduly influenced Roque,
who was already physically weak and senile at that time,
into executing the deed of sale. Belardo allegedly took
advantage of the fact that Roque was living in her house
and was dependent on her for support.
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving
the latter of a reasonable freedom of choice.[24] One who
alleges any defect, or the lack of consent to a contract by
reason of fraud or undue influence, must establish by full,
clear and convincing evidence, such specific acts that
vitiated the partys consent; otherwise, the latters
presumed consent to the contract prevails.[25] For undue
influence to be present, the influence exerted must have
so overpowered or subjugated the mind of a contracting
party as to destroy his free agency, making him express
the will of another rather than his own.[26]
Petitioners adduced no proof that Roque had lost control
of his mental faculties at the time of the sale. Undue
influence is not to be inferred from age, sickness, or
debility of body, if sufficient intelligence remains.[27] The
evidence presented pertained more to Roques physical
condition rather than his mental condition. On the
contrary, Atty. Sanicas, the notary public, attested that
Roque was very healthy and mentally sound and sharp at
the time of the execution of the deed of sale. Atty. Sanicas
said that Roque also told him that he was a Law
graduate.[28]
Neither was the contract simulated. The late registration of
the Deed of Sale and Roques execution of the second
deed of sale in favor of Dema-ala did not mean that the
contract was simulated. We are convinced with the
explanation given by respondents witnesses that the deed
of sale was not immediately registered because Belardo
did not have the money to pay for the fees. This
explanation is, in fact, plausible considering that Belardo
could barely support herself and her brother, Roque. As
for the second deed of sale, Dema-ala, herself, attested
before the trial court that she let Roque sign the second
deed of sale because the title to the properties were still in
his name.
Finally, petitioners argue that the Deed of Sale was not
supported by a consideration since no receipt was shown,
and it is incredulous that Roque, who was already weak,
would travel to Bacolod City just to be able to execute the
Deed of Sale.
The Deed of Sale which states receipt of which in full I
hereby acknowledge to my entire satisfaction is an
acknowledgment receipt in itself. Moreover, the
presumption that a contract has sufficient consideration
cannot be overthrown by a mere assertion that it has no
consideration.[29]
Heirs are bound by contracts entered into by their
predecessors-in-interest.[30] As heirs of Roque,
petitioners are bound by the contract of sale that Roque
executed in favor of Belardo. Having been sold already to
Belardo, the two properties no longer formed part of
Roques estate which petitioners could have inherited. The
deed of extrajudicial settlement that petitioners executed
over Lot No. 4 is, therefore, void, since the property
subject thereof did not become part of Roques estate.
WHEREFORE, premises considered, the petition is
DENIED. The Court of Appeals Decision dated September
13, 2002 and Resolution dated September 24, 2003 are
AFFIRMED.
113
Sales – Chapter 3-12 Cases

SO ORDERED.

114
Sales – Chapter 3-12 Cases
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-
DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND
RUPERTO SABESAJE, JR., respondents.
This is a petition to annul and set aside the decision of the
Court of Appeals rendered on May 26, 1987, upholding
the validity of the sale of a parcel of land by petitioner
Segundo Dalion (hereafter, "Dalion") in favor of private
respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"),
described thus:
A parcel of land located at Panyawan, Sogod, Southern
Leyte, declared in the name of Segundo Dalion, under
Tax Declaration No. 11148, with an area of 8947
hectares, assessed at P 180.00, and bounded on the
North, by Sergio Destriza and Titon Veloso, East, by
Feliciano Destriza, by Barbara Bonesa (sic); and West, by
Catalino Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1
issued on January 17, 1984, the dispositive portion of
which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the
Court hereby renders judgment.
(a) Ordering the defendants to deliver to the plaintiff
the parcel of land subject of this case, declared in the
name of Segundo Dalion previously under Tax
Declaration No. 11148 and lately under Tax Declaration
No. 2297 (1974) and to execute the corresponding formal
deed of conveyance in a public document in favor of the
plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to do so,
the deed shall be executed in their behalf by the
Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the
amount of P2,000.00 as attorney's fees and P 500.00 as
litigation expenses, and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of
a parcel of land, based on a private document of absolute
sale, dated July 1, 1965 (Exhibit "A"), allegedly executed
by Dalion, who, however denied the fact of sale,
contending that the document sued upon is fictitious, his
signature thereon, a forgery, and that subject land is
conjugal property, which he and his wife acquired in 1960
from Saturnina Sabesaje as evidenced by the "Escritura
de Venta Absoluta" (Exhibit "B"). The spouses denied
claims of Sabesaje that after executing a deed of sale
over the parcel of land, they had pleaded with Sabesaje,
their relative, to be allowed to administer the land because
Dalion did not have any means of livelihood. They
admitted, however, administering since 1958, five (5)
parcels of land in Sogod, Southern Leyte, which belonged
to Leonardo Sabesaje, grandfather of Sabesaje, who died
in 1956. They never received their agreed 10% and 15%
commission on the sales of copra and abaca,
respectively. Sabesaje's suit, they countered, was
intended merely to harass, preempt and forestall Dalion's
threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion
appealed, assigning errors some of which, however, were
disregarded by the appellate court, not having been raised
in the court below. While the Court of Appeals duly
recognizes Our authority to review matters even if not
assigned as errors in the appeal, We are not inclined to do
so since a review of the case at bar reveals that the lower
court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land,
We have no reason to dispute the Court of Appeals'
findings as follows:
To be sure, the parcel of land described in Exhibit "A" is
the same property deeded out in Exhibit "B". The
boundaries delineating it from adjacent lots are identical.
Both documents detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon
Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the
validity of the contract of sale of a parcel of land and b)
the necessity of a public document for transfer of
ownership thereto.
The appellate court upheld the validity of the sale on the
basis of Secs. 21 and 23 of Rule 132 of the Revised Rules
of Court.
SEC. 21. Private writing, its execution and
authenticity, how proved.-Before any private writing may
be received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the
handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. — The
handwriting of a person may be proved by any witness
who believes it to be the handwriting of such person, and
has seen the person write, or has seen writing purporting
to be his upon which the witness has acted or been
charged, and has thus acquired knowledge of the
handwriting of such person. Evidence respecting the
handwriting may also be given by a comparison, made by
the witness or the court, with writings admitted or treated
as genuine by the party against whom the evidence is
offered, or proved to be genuine to the satisfaction of the
judge. (Rule 132, Revised Rules of Court)
And on the basis of the findings of fact of the trial court as
follows:
Here, people who witnessed the execution of subject
deed positively testified on the authenticity thereof. They
categorically stated that it had been executed and signed
by the signatories thereto. In fact, one of such witnesses,
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Sales – Chapter 3-12 Cases
Gerardo M. Ogsoc, declared on the witness stand that he
was the one who prepared said deed of sale and had
copied parts thereof from the "Escritura De Venta
Absoluta" (Exhibit B) by which one Saturnina Sabesaje
sold the same parcel of land to appellant Segundo Dalion.
Ogsoc copied the bounderies thereof and the name of
appellant Segundo Dalion's wife, erroneously written as
"Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p.
41, Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the
document, the positive testimonies of the instrumental
Witnesses Ogsoc and Espina, aside from the testimony of
the plaintiff, must prevail. Defendant has affirmatively
alleged forgery, but he never presented any witness or
evidence to prove his claim of forgery. Each party must
prove his own affirmative allegations (Section 1, Rule 131,
Rules of Court). Furthermore, it is presumed that a person
is innocent of a crime or wrong (Section 5 (a), Idem), and
defense should have come forward with clear and
convincing evidence to show that plaintiff committed
forgery or caused said forgery to be committed, to
overcome the presumption of innocence. Mere denial of
having signed, does not suffice to show forgery.
In addition, a comparison of the questioned signatories or
specimens (Exhs. A-2 and A-3) with the admitted
signatures or specimens (Exhs. X and Y or 3-C)
convinces the court that Exhs. A-2 or Z and A-3 were
written by defendant Segundo Dalion who admitted that
Exhs. X and Y or 3-C are his signatures. The questioned
signatures and the specimens are very similar to each
other and appear to be written by one person.
Further comparison of the questioned signatures and the
specimens with the signatures Segundo D. Dalion
appeared at the back of the summons (p. 9, Record); on
the return card (p. 25, Ibid.); back of the Court Orders
dated December 17, 1973 and July 30, 1974 and for
October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on
the open court notice of April 13, 1983 (p. 235, Ibid.)
readily reveal that the questioned signatures are the
signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion
appear on the face of the questioned document (Exh. A),
one at the right corner bottom of the document (Exh. A-2)
and the other at the left hand margin thereof (Exh. A-3).
The second signature is already a surplusage. A forger
would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing
error or an erroneous stroke. (Decision, p. 10) (pp. 42-43,
Rollo)
We see no reason for deviating from the appellate court's
ruling (p. 44, Rollo) as we reiterate that
Appellate courts have consistently subscribed to the
principle that conclusions and findings of fact by the trial
courts are entitled to great weight on appeal and should
not be disturbed unless for strong and cogent reasons,
since it is undeniable that the trial court is in a more
advantageous position to examine real evidence, as well
as to observe the demeanor of the witnesses while
testifying in the case (Chase v. Buencamino, Sr., G.R. No.
L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of
Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA
185)
Assuming authenticity of his signature and the
genuineness of the document, Dalion nonetheless still
impugns the validity of the sale on the ground that the
same is embodied in a private document, and did not thus
convey title or right to the lot in question since "acts and
contracts which have for their object the creation,
transmission, modification or extinction of real rights over
immovable property must appear in a public instrument"
(Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on
the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a
requirement for the validity of a contract of sale of a parcel
of land that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means
that the sale is perfected by mere consent. No particular
form is required for its validity. Upon perfection of the
contract, the parties may reciprocally demand
performance (Art. 1475, NCC), i.e., the vendee may
compel transfer of ownership of the object of the sale, and
the vendor may require the vendee to pay the thing sold
(Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to
deliver to Sabesaje the parcel of land and to execute
corresponding formal deed of conveyance in a public
document. Under Art. 1498, NCC, when the sale is made
through a public instrument, the execution thereof is
equivalent to the delivery of the thing. Delivery may either
be actual (real) or constructive. Thus delivery of a parcel
of land may be done by placing the vendee in control and
possession of the land (real) or by embodying the sale in
a public instrument (constructive).
As regards petitioners' contention that the proper action
should have been one for specific performance, We
believe that the suit for recovery of ownership is proper.
As earlier stated, Art. 1475 of the Civil Code gives the
parties to a perfected contract of sale the right to
reciprocally demand performance, and to observe a
particular form, if warranted, (Art. 1357). The trial court,
aptly observed that Sabesaje's complaint sufficiently
alleged a cause of action to compel Dalion to execute a
formal deed of sale, and the suit for recovery of
ownership, which is premised on the binding effect and
validity inter partes of the contract of sale, merely seeks
consummation of said contract.
... . A sale of a real property may be in a private
instrument but that contract is valid and binding between
the parties upon its perfection. And a party may compel
the other party to execute a public instrument embodying
their contract affecting real rights once the contract
appearing in a private instrument hag been perfected
(See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision
of the Court of Appeals upholding the ruling of the trial
court is hereby AFFIRMED. No costs.
SO ORDERED.
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Sales – Chapter 3-12 Cases
HEIRS OF ERNESTO BIONA, NAMELY: EDITHA B.
BLANCAFLOR, MARIANITA D. DE JESUS, VILMA B.
BLANCAFLOR, ELSIE B. RAMOS and PERLITA B.
CARMEN, petitioners, vs. THE COURT OF APPEALS
and LEOPOLDO HILAJOS, respondents.
Before us is a petition for review on certiorari under Rule
45 of the Decision of the Court of Appeals dated March
31, 1992, reversing the decision of the Regional Trial
Court, 11th Judicial region, Branch 26, Surallah, South
Cotabato and the Resolution dated May 26, 1992,
denying the subsequent motion for reconsideration.
Quoting from the decision of the Court of Appeals, the
antecedent facts are as follows:
On October 23, 1953, the late Ernesto Biona, married to
plaintiff-appellee Soledad Biona, was awarded
Homestead Patent No. V-840 over the property subject of
this suit, a parcel of agricultural land denominated as lot
177 of PLS-285-D, located in Bo. 3, Banga, Cotabato,
containing an area of ten (10) hectares, forty-three (43)
acres and sixty-eight (68) centares, Original Certificate of
Title No. (V-2323) P-3831 was issued in his name by the
Register of Deeds of Cotabato (Exh. C). On June 3, 1954,
Ernesto and Soledad Biona obtained a loan from the then
Rehabilitation Finance Corporation (now the Development
Bank of the Philippines) and put up as collateral the
subject property (Exh. 4). On June 12, 1956, Ernesto
Biona died (Exh. B) leaving as his heirs herein plaintiffs-
appellees, namely, his wife, Soledad Estrobillo Vda. De
Biona, and five daughters, Editha B. Blancaflor, Marianita
B. de Jesus, Vilma B. Blancaflor, Elsie B. Ramos and
Perlita B. Carmen.
On March 1, 1960, plaintiff-appellee Soledad Biona
obtained a loan from defendant-appellant in the amount of
P1,000 and as security therefore, the subject property was
mortgaged. It was further agreed upon by the contracting
parties that for a period of two years until the debt is paid,
defendant-appellant shall occupy the land in dispute and
enjoy the usufruct thereof.
The two-year period elapsed but Soledad Biona was not
able to pay her indebtedness. Defendant-appellant
continued occupying and cultivating the subject property
without protest from plaintiffs-appellees.
On July 3, 1962, defendant-appellant paid the sum of
P1,400.00 to the Development Bank of the Philippines to
cancel the mortgage previously constituted by the Biona
spouses on June 3, 1953 (Exhs. 4 and 6).
Thereafter, and for a period of not less than twenty-five
years, defendant-appellant continued his peaceful and
public occupation of the property, declaring it in his name
for taxation purposes (Exhs. 10 and 11), paying real
estate property taxes thereon (Exhs. 12, 13, 13-a to 13-e,
F, G, H and I), and causing the same to be tenanted
(Exhs. 7, 8, 9).
On June 19, 1985, plaintiffs-appellees, filed a complaint
for recovery of ownership, possession, accounting and
damages, with a prayer for a writ of preliminary mandatory
injunction and/ or restraining order against defendant-
appellant alleging, among others, that the latter had
unlawfully been depriving them of the use, possession
and enjoyment of the subject property; that the entire
parcel of land, which was devoted and highly suited to
palay and corn, was yielding three harvests annually, with
an average of one hundred twenty (120) sacks of corn
and eighty cavans of rice per hectare; that plaintiffs-
appellees were deprived of its total produce amounting to
P150,000.00. Plaintiffs-appellees prayed for the award of
moral damages in the sum of P50,000.00, exemplary
damages in the amount of P20,000,00 and litigation
expenses in the amount of P2,000.00.
On September 19, 1986, defendant-appellant filed his
answer with counterclaim traversing the material
allegations in the complaint and alleging, by way of
affirmative and special defenses, that: on September 11,
1961, Soledad Biona, after obtaining the loan of
P1,000.00 from defendant-appellant, approached and
begged the latter to buy the whole of Lot No. 177 since it
was then at the brink of foreclosure by the Development
Bank of the Philippines and she had no money to redeem
the same nor the resources to support herself and her five
small children; that defendant-appellant agreed to buy the
property for the amount of P4,300.00, which consideration
was to include the redemption price to be paid to the
Development Bank of the Philippines; that the purchase
price paid by defendant far exceeded the then current
market value of the property and defendant had to sell his
own eight-hectare parcel of land in Surallah to help
Soledad Biona; that to evidence the transaction, a deed of
sale was handwritten by Soledad Biona and signed by her
and the defendant; that at the time of the sale, half of the
portion of the property was already submerged in water
and from the years 1969 to 1984, two and one-half
hectares thereof were eroded by the Allah River; that by
virtue of his continuous and peaceful occupation of the
property from the time of its sale and for more than
twenty- five years thereafter, defendant possesses a
better right thereto subject only to the rights of the tenants
whom he had allowed to cultivate the land under the Land
Reform Program of the government; that the complaint
states no cause of action; that plaintiffs alleged right, if
any, is barred by the statutes of fraud. As counterclaim,
defendant-appellant prayed that plaintiffs-appellees be
ordered to execute a formal deed of sale over the subject
property and to pay him actual, moral and exemplary
damages as the trial court may deem proper. He likewise
prayed for the award of attorney's fees in the sum of
P10,000.00.
During the hearing of the case, plaintiffs-appellees
presented in evidence the testimonies of Editha Biona
Blancaflor and Vilma Biona Blancaflor, and documentary
exhibits A to G and their submarkings.
Defendant-appellant, for his part, presented the
testimonies of himself and Mamerto Famular, including
documentary exhibits 1 to 13, F, G, H, I, and their
submarkings.[1]
On January 31, 1990, the RTC rendered a decision with
the following dispositive portion:
I (SIC) VIEW OF THE FOREGOING, decision is hereby
rendered:
1. ordering the defendant to vacate possession of the lot
in question to the extent of six-tenths (6/10) of the total
area thereof and to deliver the same to the plaintiff
Soledad Estrobillo Biona upon the latter's payment of the
sum of P1,000.00 TO THE FORMER IN REDEMPTION
OF ITS MORTGAGE CONSTITUTED UNDER exh. "1" of
defendant;
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Sales – Chapter 3-12 Cases
2. ordering the defendant to vacate the possession of the
remaining four-tenths (4/10) of the area of the lot in
question, representing the shares of the children of the
late Ernesto Biona and deliver the same to said plaintiffs;
the defendant shall render an accounting of the net
produce of the area ordered returned to the co-plaintiffs of
Soledad Biona commencing from the date of the filing of
the complaint until possession thereto has been delivered
to said co-plaintiffs and to deliver or pay 25% of said net
produce to said co-plaintiffs;
3. ordering the defendant to pay the costs of this suit.
The defendant's counter-claim are dismissed for lack of
merit.
SO ORDERED.[2]
Dissatisfied, herein private respondent appealed to the
Court of Appeals which reversed the trial court's ruling.
The dispositive portion reads as follows:
WHEREFORE, premises considered, the judgment
appealed from is set aside and a new one entered
dismissing the complaint, and the plaintiffs-appellees are
ordered to execute a registrable deed of conveyance of
the subject property in favor of the defendant-appellant
within ten (10) days from the finality of this decision. With
costs against plaintiffs-appellees.[3]
Hence, the instant petition where the following assignment
of errors were made:
I.- RESPONDENT COURT OF APPEALS ERRED IN
CONCLUDING THAT THE SIGNATURE OF SOLEDAD
ESTROBILLO IN THE DEED OF SALE (EXHIBIT "2"), A
PRIVATE DOCUMENT, IS GENUINE.
II - RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE DEED OF SALE (EXHIBIT 2) IS
VALID AND COULD LEGALLY CONVEY TO PRIVATE
RESPONDENT OWNERSHIP AND TITLE OVER THE
SUBJECT PROPERTY.
III - RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT HEREIN PETITIONERS HAD LOST
THEIR RIGHT TO RECOVER THE SUBJECT
PROPERTY BY VIRTUE OF THE EQUITABLE
PRINCIPLE OF LACHES.
IV- RESPONDENT COURT OF APPEALS ERRED IN
NOT HOLDING THAT PRIVATE RESPONDENT'S
RIGHT OF ACTION UNDER THE DEED OF SALE
(EXHIBIT "2") HAD PRESCRIBED.[4]
As correctly pointed out by the Court of Appeals, the
pivotal issue in the instant case is whether or not the deed
of sale is valid and if it effectively conveyed to the private
respondents the subject property.
In ruling in favor of the petitioners, the trial court refused to
give weight to the evidence of private respondent which
consisted of (1) the handwritten and unnotarized deed of
sale executed by Soledad Biona in favor of the private
respondent; and (2) the corresponding acknowledgment
receipt of the amount of P3,500.00 as partial payment for
the land in dispute. To the mind of the trial court, the
signature of Soledad Biona on the deed of sale was not
genuine. There was no direct evidence to prove that
Soledad Biona herself signed the document. Moreover,
the deed of sale was not notarized and therefore, did not
convey any rights to the vendee. The trial court also ruled
that petitioners' rights over the land have not allegedly
prescribed.
On the other hand, the respondent Court of Appeals
accepted as genuine the deed of sale (Exh. 2) which "sets
forth in unmistakable terms that Soledad Biona agreed for
the consideration of P4,500.00, to transfer to defendant-
appellant Lot 177. The fact that payment was made is
evidenced by the acknowledgment receipt for P3,500.00
(Exh. 3) signed by Soledad Biona, and private respondent
previous delivery of P1,000.00 to her pursuant to the
Mutual Agreement (Exh. 1).
The contract of sale between the contracting parties was
consummated by the delivery of the subject land to private
respondent who since then had occupied and cultivated
the same continuously and peacefully until the institution
of this suit."[5]
Given the contrary findings of the trial court and the
respondent court, there is a need to re-examine the
evidence altogether. After a careful study, we are inclined
to agree with the findings and conclusions of the
respondent court as they are more in accord with the law
and evidence on record.
As to the authenticity of the deed of sale, we subscribe to
the Court of Appeals' appreciation of evidence that private
respondent has substantially proven that Soledad Biona
indeed signed the deed of sale of the subject property in
his favor. His categorical statement in the trial court that
he himself saw Soledad Estrobillo affix her signature on
the deed of sale lends credence. This was corroborated
by another witness, Mamerto Famular. Although the
petitioners consider such testimony as self-serving and
biased,[6] it can not, however, be denied that private
respondent has shown by competent proof that a contract
of sale where all the essential elements are present for its
validity was executed between the parties.[7] The burden
is on the petitioners to prove the contrary which they have
dismally failed to do. As aptly stated by the Court of
Appeals:
Having established the due execution of the subject deed
of sale and the receipt evidencing payment of the
consideration, the burden now shifted to plaintiffs-
appellees to prove by contrary evidence that the property
was not so transferred. They were not able to do this
since the very person who could deny the due execution
of the document, Soledad Biona, did not testify. She
similarly failed to take the witness stand in order to deny
her signatures on Exhs. 2 and 3. Admitting as true that
she was under medication in Manila while the hearing of
the case was underway, it was easy enough to get her
deposition. Her non-presentation gives rise to the
presumption that if her testimony was taken, the same
would be adverse to the claim by plaintiffs-appellees.
It must also be noted that under Sec. 22 Rule 132 of our
procedural law, evidence respecting handwriting may also
be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the
party against whom the evidence is offered. Our own
close scrutiny of the signature of Soledad Biona
appearing on Exh. 1, the document admitted by the
contending parties, reveals that it is the same as the
signatures appearing on Exhs. 2 and 3, the documents in
dispute. Admittedly, as was pointed out by the trial court,
the "S" in Exhs. 2 and 3 were written in printed type while
118
Sales – Chapter 3-12 Cases
that in Exh. 1 is in handwriting type. But a careful look at
the text of Exh. 2 would reveal that Soledad Biona
alternately wrote the letter "S" in longhand and printed
form. Thus, the words "Sum" and "Sept.," found in the
penultimate and last paragraphs of the document,
respectively, were both written in longhand, while her
name appearing on first part of the document, as well as
the erased word "Sept." in the last paragraph thereof were
written in printed form. Moreover, all doubts about the
genuineness of Soledad Biona's signatures on Exhs. 2
and 3 are removed upon their comparison to her signature
appearing on the special power of attorney (Exh. A)
presented in evidence by plaintiffs-appellees during trial.
In said document, Soledad Biona signed her name using
the same fact that Soledad Estrobillo Biona wrote her
entire name on Exh. 2 while she merely affixed her
maiden name on the other two documents may have been
due to the lesser options left to her when the lawyers who
drafted the two documents (Exhs. 2 and 3) already had
typewritten the names "SOLEDAD ESTROBILLO" thereon
whereas in Exh. 2, it was Soledad Biona herself who
printed and signed her own name. Thus, in the special
power of attorney (Exh. A), Soledad Biona signed her
name in the same manner it was typewritten on the
document.[8]
We agree with the private respondent that all the
requisites for a valid contract of sale are present in the
instant case. For a valuable consideration of P4,500.00,
Soledad Biona agreed to sell and actually conveyed the
subject property to private respondent. The fact that the
deed of sale was not notarized does not render the
agreement null and void and without any effect. The
provision of Article 1358 of the Civil Code[9] on the
necessity of a public document is only for convenience,
and not for validity or enforceability.[10] The observance
of which is only necessary to insure its efficacy, so that
after the existence of said contract had been admitted, the
party bound may be compelled to execute the proper
document.[11] Undeniably, a contract has been entered
into by Soledad Biona and the private respondent.
Regardless of its form, it was valid, binding and
enforceable between the parties. We quote with favor the
respondent court's ratiocination on the matter:
xxx The trial court cannot dictate the manner in which the
parties may execute their agreement, unless the law
otherwise provides for a prescribed form, which is not so
in this case. The deed of sale so executed, although a
private document, is effective as between the parties
themselves and also as the third persons having no better
title, and should be admitted in evidence for the purpose
of showing the rights and relations of the contracting
parties (Carbonell v. Court of Appeals, 69 SCRA 99;
Elumbaring v. Elumbaring, 12 Phil. 384). Under Art. 1356
of the Civil Code, contracts shall be obligatory in whatever
form they may have been entered into provided all the
essential requisites for their necessary elements for a
valid contract of sale were met when Soledad Biona
agreed to sell and actually conveyed Lot 177 to
defendant-appellant who paid the amount of P4,500.00
therefore. The deed of sale (Exh. 2) is not made
ineffective merely because it is not notarized or does not
appear in a public document. The contract is binding upon
the contracting parties, defendant-appellant and Soledad
Biona, including her successors-in-interest. Pursuant to
Art. 1357, plaintiffs-appellees may be compelled by
defendant-appellant to execute a public document to
embody their valid and enforceable contract and for the
purpose of registering the property in the latter's name
(Clarin v. Rulona, 127 SCRA 512; Heirs of Amparo v.
Santos, 108 SCRA 43; Araneta v. Montelibano, 14 Phil.
117).[12]
Finally, we find no merit in petitioners' contention that their
right over the land has not prescribed. The principle of
laches was properly applied against petitioner. Laches
has been defined as the failure or neglect, for an
unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have
been done earlier, it is negligence or omission to assert a
right within a reasonable time, warranting a presumption
that the party entitled to assert it has either abandoned it
or declined to assert it.[13] In the instant case, the Court
of Appeals point to the circumstances that warrant the
principle to come into play:
Laches had been defined to be such neglect or omission
to assert a right taken in conjunction with the lapse of time
and other circumstances causing prejudice to an adverse
party, as will bar him in equity (Heirs of Batiog Lacamen v.
Heirs of Laruan, 65 SCRA 605, 609-610). In the instant
suit, Soledad Biona, at the time of the execution of the
deed of sale (Exh. 2) on September 11, 1961, could only
alienate that portion of Lot 177 belonging to her, which is
seven-twelfths of the entire property. She had no power or
authority to dispose of the shares of her co-owners, the
five daughters of the deceased Ernesto Biona, who were
entitled to an indivisible five-twelfths portion of the whole
property. It is not disputed, however, that as early as
1960, when Soledad Biona borrowed money from
defendant-appellant (Exh. L), the latter entered,
possessed and started occupying the same in the concept
of an owner. He caused its cultivation through various
tenants under Certificates of Land Transfer (Exhs. 7-9),
declared the property in his name, religiously paid taxes
thereon, reaped benefits therefrom, and executed other
acts of dominion without any protest or interference from
plaintiffs-appellees for more than twenty-five years. Even
when the five daughters of the deceased Ernesto Biona
were way past the age of majority, when they could have
already asserted their right to their share, no sale in
defendant-appellant's favor was ever brought or any other
action was taken by them to recover their share. Instead,
they allowed defendant-appellant to peacefully occupy the
property without protest. Although it is true that no title to
registered land in derogation of that of the registered
owner shall be acquired by prescription or adverse
possession as the right to recover possession of
registered land is imprescriptible, jurisprudence has laid
down the rule that a person and his heirs may lose their
right to recover back the possession of such property and
title thereto by reason of laches. (Victoriano v. Court of
Appeals, 194 SCRA 19; Lola v. CA, 145 SCRA 439, 449).
Indeed, it has been ruled in the case of Miguel v. Catalino,
26 SCRA 234, 239, that:
'Courts can not look with favor at parties who, by their
silence, delay and inaction, knowingly induce another to
spend time, effort and expense in cultivating the land,
paying taxes and making improvements thereof for 30
long years, only to spring from ambush and claim title
when the possessor's efforts and the rise of land values
offer an opportunity to make easy profit at his expense.'
Thus, notwithstanding the invalidity of the sale with
respect to the share of plaintiffs-appellees, the daughters
of the late Ernesto Biona, they [allowed] the vendee,
defendant-appellant herein, to enter, occupy and possess
the property in the concept of an owner without demurrer
and molestation for a long period of time, never claiming
119
Sales – Chapter 3-12 Cases
the land as their own until 1985 when the property has
greatly appreciated in value. Vigilantibus non dormientibus
sequitas subvenit.[14]

WHEREFORE, the Petition is DENIED and the assailed

Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

120
Sales – Chapter 3-12 Cases
HEIRS OF CECILIO (also known as BASILIO)
CLAUDEL, namely, MODESTA CLAUDEL, LORETA
HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL,
PACITA CLAUDEL, CARMELITA CLAUDEL, MARIO
CLAUDEL, ROBERTO CLAUDEL, LEONARDO
CLAUDEL, ARSENIA VILLALON, PERPETUA
CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO,
ESPERIDIONA, RAYMUNDA and CELESTINA, all
surnamed CLAUDEL, respondents.
This petition for review on certiorari seeks the reversal of
the decision rendered by the Court of Appeals in CA-G.R.
CV No. 044291 and the reinstatement of the decision of
the then Court of First Instance (CFI) of Rizal, Branch CXI,
in Civil Case No. M-5276-P, entitled. "Heirs of Macario
Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which
dismissed the complaint of the private respondents
against the petitioners for cancellation of titles and
reconveyance with damages.2
As early as December 28, 1922, Basilio also known as
"Cecilio" Claudel, acquired from the Bureau of Lands, Lot
No. 1230 of the Muntinlupa Estate Subdivision, located in
the poblacion of Muntinlupa, Rizal, with an area of 10,107
square meters; he secured Transfer Certificate of Title
(TCT) No. 7471 issued by the Registry of Deeds for the
Province of Rizal in 1923; he also declared the lot in his
name, the latest Tax Declaration being No. 5795. He
dutifully paid the real estate taxes thereon until his death
in 1937.3 Thereafter, his widow "Basilia" and later, her
son Jose, one of the herein petitioners, paid the taxes.
The same piece of land purchased by Cecilio would,
however, become the subject of protracted litigation thirty-
nine years after his death.
Two branches of Cecilio's family contested the ownership
over the land-on one hand the children of Cecilio, namely,
Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita,
Roberto, Mario, Leonardo, Nenita, Arsenia Villalon, and
Felisa Claudel, and their children and descendants, now
the herein petitioners (hereinafter referred to as HEIRS
OF CECILIO), and on the other, the brother and sisters of
Cecilio, namely, Macario, Esperidiona, Raymunda, and
Celestina and their children and descendants, now the
herein private respondents (hereinafter referred to as
SIBLINGS OF CECILIO). In 1972, the HEIRS OF
CECILIO partitioned this lot among themselves and
obtained the corresponding Transfer Certificates of Title
on their shares, as follows:
TCT No. 395391 1,997 sq. m. –– Jose Claudel
TCT No. 395392 1,997 sq. m. –– Modesta
Claudel and children
TCT No. 395393 1,997 sq. m. –– Armenia C.
Villalon
TCT No. 395394 1,997 sq. m. –– Felisa
Claudel4
Four years later, on December 7, 1976, private
respondents SIBLINGS OF CECILIO, filed Civil Case No.
5276-P as already adverted to at the outset, with the then
Court of First Instance of Rizal, a "Complaint for
Cancellation of Titles and Reconveyance with Damages,"
alleging that 46 years earlier, or sometime in 1930, their
parents had purchased from the late Cecilio Claudel
several portions of Lot No. 1230 for the sum of P30.00.
They admitted that the transaction was verbal. However,
as proof of the sale, the SIBLINGS OF CECILIO
presented a subdivision plan of the said land, dated
March 25, 1930, indicating the portions allegedly sold to
the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of
Rizal, Branch CXI, dismissed the complaint, disregarding
the above sole evidence (subdivision plan) presented by
the SIBLINGS OF CECILIO, thus:
Examining the pleadings as well as the evidence
presented in this case by the parties, the Court can not
but notice that the present complaint was filed in the name
of the Heirs of Macario, Espiridiona, Raymunda and
Celestina, all surnamed Claudel, without naming the
different heirs particularly involved, and who wish to
recover the lots from the defendants. The Court tried to
find this out from the evidence presented by the plaintiffs
but to no avail. On this point alone, the Court would not be
able to apportion the property to the real party in interest if
ever they are entitled to it as the persons indicated therein
is in generic term (Section 2, Rule 3). The Court has
noticed also that with the exception of plaintiff Lampitoc
and (sic) the heirs of Raymunda Claudel are no longer
residing in the property as they have (sic) left the same in
1967. But most important of all the plaintiffs failed to
present any document evidencing the alleged sale of the
property to their predecessors in interest by the father of
the defendants. Considering that the subject matter of the
supposed sale is a real property the absence of any
document evidencing the sale would preclude the
admission of oral testimony (Statute of Frauds). Moreover,
considering also that the alleged sale took place in 1930,
the action filed by the plaintiffs herein for the recovery of
the same more than thirty years after the cause of action
has accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the
complaint, without pronouncement as to costs.
SO ORDERED.5
On appeal, the following errors6 were assigned by the
SIBLINGS OF CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING
PLAINTIFFS' COMPLAINT DESPITE CONCLUSIVE
EVIDENCE SHOWING THE PORTION SOLD TO EACH
OF PLAINTIFFS' PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT
PLAINTIFFS FAILED TO PROVE ANY DOCUMENT
EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING
CREDIT TO THE PLAN, EXHIBIT A, SHOWING THE
PORTIONS SOLD TO EACH OF THE PLAINTIFFS'
PREDECESSORS-IN-INTEREST.
4. THE TRIAL COURT ERRED IN NOT
DECLARING PLAINTIFFS AS OWNERS OF THE
PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT
DECLARING TRANSFER CERTIFICATES OF TITLE
NOS. 395391, 395392, 395393 AND 395394 OF THE
REGISTER OF DEEDS OF RIZAL AS NULL AND VOID.
121
Sales – Chapter 3-12 Cases
The Court of Appeals reversed the decision of the trial
court on the following grounds:
1. The failure to bring and prosecute the action in
the name of the real party in interest, namely the parties
themselves, was not a fatal omission since the court a quo
could have adjudicated the lots to the SIBLINGS OF
CECILIO, the parents of the herein respondents, leaving it
to them to adjudicate the property among themselves.
2. The fact of residence in the disputed properties
by the herein respondents had been made possible by the
toleration of the deceased Cecilio.
3. The Statute of Frauds applies only to executory
contracts and not to consummated sales as in the case at
bar where oral evidence may be admitted as cited in Iñigo
v. Estate of Magtoto7 and Diana, et al. v. Macalibo.8
In addition,
. . . Given the nature of their relationship with one another
it is not unusual that no document to evidence the sale
was executed, . . ., in their blind faith in friends and
relatives, in their lack of experience and foresight, and in
their ignorance, men, in spite of laws, will make and
continue to make verbal contracts. . . .9
4. The defense of prescription cannot be set up
against the herein petitioners despite the lapse of over
forty years from the time of the alleged sale in 1930 up to
the filing of the "Complaint for Cancellation of Titles and
Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for
the recovery of possession of real property but for the
cancellation of titles issued to the HEIRS OF CECILIO in
1973. Since the SIBLINGS OF CECILIO commenced their
complaint for cancellation of titles and reconveyance with
damages on December 7, 1976, only four years after the
HEIRS OF CECILIO partitioned this lot among themselves
and obtained the corresponding Transfer Certificates of
Titles, then there is no prescription of action yet.
Thus the respondent court ordered the cancellation of the
Transfer Certificates of Title Nos. 395391, 395392,
395393, and 395394 of the Register of Deeds of Rizal
issued in the names of the HEIRS OF CECILIO and
corollarily ordered the execution of the following deeds of
reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq.
m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq.
m.
To Esperidiona Claudel, Lot 1230-C with an area of 597
sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq.
m.10
The respondent court also enjoined that this disposition is
without prejudice to the private respondents, as heirs of
their deceased parents, the SIBLINGS OF CECILIO,
partitioning among themselves in accordance with law the
respective portions sold to and herein adjudicated to their
parents.
The rest of the land, lots 1230-E and 1230-F, with an area
of 598 and 6,927 square meters, respectively would go to
Cecilio or his heirs, the herein petitioners. Beyond these
apportionments, the HEIRS OF CECILIO would not
receive anything else.
The crux of the entire litigation is whether or not the Court
of Appeals committed a reversible error in disposing the
question of the true ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be
proven orally:
2. Whether or not the prescriptive period for filing
an action for cancellation of titles and reconveyance with
damages (the action filed by the SIBLINGS OF CECILIO)
should be counted from the alleged sale upon which they
claim their ownership (1930) or from the date of the
issuance of the titles sought to be cancelled in favor of the
HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once
consummated, is valid regardless of the form it may have
been entered into.11 For nowhere does law or
jurisprudence prescribe that the contract of sale be put in
writing before such contract can validly cede or transmit
rights over a certain real property between the parties
themselves.
However, in the event that a third party, as in this case,
disputes the ownership of the property, the person against
whom that claim is brought can not present any proof of
such sale and hence has no means to enforce the
contract. Thus the Statute of Frauds was precisely
devised to protect the parties in a contract of sale of real
property so that no such contract is enforceable unless
certain requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the
present controversy, state:
Art. 1403 (Civil Code). The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following cases,
an agreement hereafter made shall be unenforceable by
action unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period
than one year, or for the sale of real property or of an
interest therein;
xxx xxx xxx
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud
and perjury in the enforcement of obligations depending
for their evidence upon the unassisted memory of
122
Sales – Chapter 3-12 Cases
witnesses by requiring certain enumerated contracts and
transactions to be evidenced in Writing.12
The provisions of the Statute of Frauds originally
appeared under the old Rules of Evidence. However when
the Civil Code was re-written in 1949 (to take effect in
1950), the provisions of the Statute of Frauds were taken
out of the Rules of Evidence in order to be included under
the title on Unenforceable Contracts in the Civil Code. The
transfer was not only a matter of style but to show that the
Statute of Frauds is also a substantive law.
Therefore, except under the conditions provided by the
Statute of Frauds, the existence of the contract of sale
made by Cecilio with his siblings13 can not be proved.
On the second issue, the belated claim of the SIBLINGS
OF CECILIO who filed a complaint in court only in 1976 to
enforce a light acquired allegedly as early as 1930, is
difficult to comprehend.
The Civil Code states:
Art. 1145. The following actions must be
commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly
derived their right of action from the oral purchase made
by their parents in 1930, then the action filed in 1976
would have clearly prescribed. More than six years had
lapsed.
We do not agree with the parties SIBLINGS OF CECILIO
when they reason that an implied trust in favor of the
SIBLINGS OF CECILIO was established in 1972, when
the HEIRS OF CECILIO executed a contract of partition
over the said properties.
But as we had pointed out, the law recognizes the
superiority of the torrens title.
Above all, the torrens title in the possession of the HEIRS
OF CECILIO carries more weight as proof of ownership
than the survey or subdivision plan of a parcel of land in
the name of SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the
torrens title. No possession by any person of any portion
of the land could defeat the title of the registered owners
thereof.14
A torrens title, once registered, cannot be defeated, even
by adverse, open and notorious possession. A registered
title under the torrens system cannot be defeated by
prescription.1âwphi1 The title, once registered, is notice to
the world. All persons must take notice. No one can plead
ignorance of the registration.15
xxx xxx xxx
Furthermore, a private individual may not bring an action
for reversion or any action which would have the effect of
cancelling a free patent and the corresponding certificate
of title issued on the basis thereof, with the result that the
land covered thereby will again form part of the public
domain, as only the Solicitor General or the officer acting
in his stead may do so.16
It is true that in some instances, the Court did away with
the irrevocability of the torrens title, but the circumstances
in the case at bar varied significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a
certificate of title was disregarded when the transferee
who took it had notice of the flaws in the transferor's title.
No right passed to a transferee from a vendor who did not
have any in the first place. The transferees bought the
land registered under the torrens system from vendors
who procured title thereto by means of fraud. With this
knowledge, they can not invoke the indefeasibility of a
certificate of title against the private respondent to the
extent of her interest. This is because the torrens system
of land registration, though indefeasible, should not be
used as a means to perpetrate fraud against the rightful
owner of real property.
Mere registration of the sale is not good enough, good
faith must concur with registration. Otherwise registration
becomes an exercise in futility.18
In Amerol v. Bagumbaran,19 we reversed the decision of
the trial court. In this case, the title was wrongfully
registered in another person's name. An implied trust was
therefore created. This trustee was compelled by law to
reconvey property fraudulently acquired notwithstanding
the irrevocability of the torrens title.20
In the present case, however, the facts belie the claim of
ownership.
For several years, when the SIBLINGS OF CECILIO,
namely, Macario, Esperidiona Raymunda, and Celestina
were living on the contested premises, they regularly paid
a sum of money, designated as "taxes" at first, to the
widow of Cecilio, and later, to his heirs.21 Why their
payments were never directly made to the Municipal
Government of Muntinlupa when they were intended as
payments for "taxes" is difficult to square with their claim
of ownership. We are rather inclined to consider this fact
as an admission of non-ownership. And when we consider
also that the petitioners HEIRS OF CECILIO had
individually paid to the municipal treasury the taxes
corresponding to the particular portions they were
occupying,22 we can readily see the superiority of the
petitioners' position.
Renato Solema and Decimina Calvez, two of the
respondents who derive their right from the SIBLINGS OF
CLAUDEL, bought a portion of the lot from Felisa Claudel,
one of the HEIRS OF CLAUDEL.23 The Calvezes should
not be paying for a lot that they already owned and if they
did not acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO
could stay on any of the portions of the property, they had
to ask first the permission of Jose Claudel again, one of
the HEIRS OF CECILIO.24 In fact the only reason why
any of the heirs of SIBLINGS OF CECILIO could stay on
the lot was because they were allowed to do so by the
HEIRS OF CECILIO.25
In view of the foregoing, we find that the appellate court
committed a reversible error in denigrating the transfer
certificates of title of the petitioners to the survey or
subdivision plan proffered by the private respondents. The
Court generally recognizes the profundity of conclusions
and findings of facts reached by the trial court and hence
sustains them on appeal except for strong and cogent
reasons inasmuch as the trial court is in a better position
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Sales – Chapter 3-12 Cases
to examine real evidence and observe the demeanor of
witnesses in a case.

No clear specific contrary evidence was cited by the

respondent appellate court to justify the reversal of the
lower court's findings. Thus, in this case, between the
factual findings of the trial court and the appellate court,
those of the trial court must prevail over that of the
latter.26

WHEREFORE, the petition is GRANTED We REVERSE

and SET ASIDE the decision rendered in CA-G.R. CV No.
04429, and we hereby REINSTATE the decision of the
then Court of First Instance of Rizal (Branch 28, Pasay
City) in Civil Case No. M-5276-P which ruled for the
dismissal of the Complaint for Cancellation of Titles and
Reconveyance with Damages filed by the Heirs of
Macario, Esperidiona Raymunda, and Celestina, all
surnamed CLAUDEL. Costs against the private
respondents.

SO ORDERED.

124
Sales – Chapter 3-12 Cases
SPOUSES GODOFREDO ALFREDO and CARMEN
LIMON ALFREDO, SPOUSES ARNULFO SAVELLANO
and EDITHA B. SAVELLANO, DANTON D.
MATAWARAN, SPOUSES DELFIN F. ESPIRITU, JR.
and ESTELA S. ESPIRITU and ELIZABETH TUAZON,
petitioners, vs. SPOUSES ARMANDO BORRAS and
ADELIA LOBATON BORRAS, respondents.
The Case
Before us is a petition for review assailing the Decision[1]
of the Court of Appeals dated 26 November 1999
affirming the decision[2] of the Regional Trial Court of
Bataan, Branch 4, in Civil Case No. DH-256-94.
Petitioners also question the Resolution of the Court of
Appeals dated 26 July 2000 denying petitioners motion for
reconsideration.
The Antecedent Facts
A parcel of land measuring 81,524 square meters (Subject
Land) in Barrio Culis, Mabiga, Hermosa, Bataan is the
subject of controversy in this case. The registered owners
of the Subject Land were petitioner spouses, Godofredo
Alfredo (Godofredo) and Carmen Limon Alfredo (Carmen).
The Subject Land is covered by Original Certificate of Title
No. 284 (OCT No. 284) issued to Godofredo and Carmen
under Homestead Patent No. V-69196.
On 7 March 1994, the private respondents, spouses
Armando Borras (Armando) and Adelia Lobaton Borras
(Adelia), filed a complaint for specific performance against
Godofredo and Carmen before the Regional Trial Court of
Bataan, Branch 4. The case was docketed as Civil Case
No. DH-256-94.
Armando and Adelia alleged in their complaint that
Godofredo and Carmen mortgaged the Subject Land for
P7,000.00 with the Development Bank of the Philippines
(DBP). To pay the debt, Carmen and Godofredo sold the
Subject Land to Armando and Adelia for P15,000.00, the
buyers to pay the DBP loan and its accumulated interest,
and the balance to be paid in cash to the sellers.
Armando and Adelia gave Godofredo and Carmen the
money to pay the loan to DBP which signed the release of
mortgage and returned the owners duplicate copy of OCT
No. 284 to Godofredo and Carmen. Armando and Adelia
subsequently paid the balance of the purchase price of
the Subject Land for which Carmen issued a receipt dated
11 March 1970. Godofredo and Carmen then delivered to
Adelia the owners duplicate copy of OCT No. 284, with
the document of cancellation of mortgage, official receipts
of realty tax payments, and tax declaration in the name of
Godofredo. Godofredo and Carmen introduced Armando
and Adelia, as the new owners of the Subject Land, to the
Natanawans, the old tenants of the Subject Land.
Armando and Adelia then took possession of the Subject
Land.
In January 1994, Armando and Adelia learned that hired
persons had entered the Subject Land and were cutting
trees under instructions of allegedly new owners of the
Subject Land. Subsequently, Armando and Adelia
discovered that Godofredo and Carmen had re-sold
portions of the Subject Land to several persons.
On 8 February 1994, Armando and Adelia filed an
adverse claim with the Register of Deeds of Bataan.
Armando and Adelia discovered that Godofredo and
Carmen had secured an owners duplicate copy of OCT
No. 284 after filing a petition in court for the issuance of a
new copy. Godofredo and Carmen claimed in their petition
that they lost their owners duplicate copy. Armando and
Adelia wrote Godofredo and Carmen complaining about
their acts, but the latter did not reply. Thus, Armando and
Adelia filed a complaint for specific performance.
On 28 March 1994, Armando and Adelia amended their
complaint to include the following persons as additional
defendants: the spouses Arnulfo Savellano and Editha B.
Savellano, Danton D. Matawaran, the spouses Delfin F.
Espiritu, Jr. and Estela S. Espiritu, and Elizabeth Tuazon
(Subsequent Buyers). The Subsequent Buyers, who are
also petitioners in this case, purchased from Godofredo
and Carmen the subdivided portions of the Subject Land.
The Register of Deeds of Bataan issued to the
Subsequent Buyers transfer certificates of title to the lots
they purchased.
In their answer, Godofredo and Carmen and the
Subsequent Buyers (collectively petitioners) argued that
the action is unenforceable under the Statute of Frauds.
Petitioners pointed out that there is no written instrument
evidencing the alleged contract of sale over the Subject
Land in favor of Armando and Adelia. Petitioners objected
to whatever parole evidence Armando and Adelia
introduced or offered on the alleged sale unless the same
was in writing and subscribed by Godofredo. Petitioners
asserted that the Subsequent Buyers were buyers in good
faith and for value. As counterclaim, petitioners sought
payment of attorneys fees and incidental expenses.
Trial then followed. Armando and Adelia presented the
following witnesses: Adelia, Jesus Lobaton, Roberto
Lopez, Apolinario Natanawan, Rolando Natanawan,
Tomas Natanawan, and Mildred Lobaton. Petitioners
presented two witnesses, Godofredo and Constancia
Calonso.
On 7 June 1996, the trial court rendered its decision in
favor of Armando and Adelia. The dispositive portion of
the decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiffs, the spouses Adelia Lobaton
Borras and Armando F. Borras, and against the
defendant-spouses Godofredo Alfredo and Carmen Limon
Alfredo, spouses Arnulfo Sabellano and Editha B.
Sabellano, spouses Delfin F. Espiritu, Jr. and Estela S.
Espiritu, Danton D. Matawaran and Elizabeth Tuazon, as
follows:
1. Declaring the Deeds of Absolute Sale of the disputed
parcel of land (covered by OCT No. 284) executed by the
spouses Godofredo Alfredo and Camen Limon Alfredo in
favor of spouses Arnulfo Sabellano and Editha B.
Sabellano, spouses Delfin F. Espiritu, Danton D.
Matawaran and Elizabeth Tuazon, as null and void;
2. Declaring the Transfer Certificates of Title Nos. T-
163266 and T-163267 in the names of spouses Arnulfo
Sabellano and Editha B. Sabellano; Transfer Certificates
of Title Nos. T-163268 and 163272 in the names of
spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu;
Transfer Certificates of Title Nos. T-163269 and T-163271
in the name of Danton D. Matawaran; and Transfer
Certificate of Title No. T-163270 in the name of Elizabeth
Tuazon, as null and void and that the Register of Deeds of
Bataan is hereby ordered to cancel said titles;
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Sales – Chapter 3-12 Cases
3. Ordering the defendant-spouses Godofredo Alfredo
and Carmen Limon Alfredo to execute and deliver a good
and valid Deed of Absolute Sale of the disputed parcel of
land (covered by OCT No. 284) in favor of the spouses
Adelia Lobaton Borras and Armando F. Borras within a
period of ten (10) days from the finality of this decision;
4. Ordering defendant-spouses Godofredo Alfredo and
Carmen Limon Alfredo to surrender their owners duplicate
copy of OCT No. 284 issued to them by virtue of the Order
dated May 20, 1992 of the Regional Trial Court of Bataan,
Dinalupihan Branch, to the Registry of Deeds of Bataan
within ten (10) days from the finality of this decision, who,
in turn, is directed to cancel the same as there exists in
the possession of herein plaintiffs of the owners duplicate
copy of said OCT No. 284 and, to restore and/or reinstate
OCT No. 284 of the Register of Deeds of Bataan to its full
force and effect;
5. Ordering the defendant-spouses Godofredo Alfredo
and Carmen Limon Alfredo to restitute and/or return the
amount of the respective purchase prices and/or
consideration of sale of the disputed parcels of land they
sold to their co-defendants within ten (10) days from the
finality of this decision with legal interest thereon from
date of the sale;
6. Ordering the defendants, jointly and severally, to pay
plaintiff-spouses the sum of P20,000.00 as and for
attorneys fees and litigation expenses; and
7. Ordering defendants to pay the costs of suit.
Defendants counterclaims are hereby dismissed for lack
of merit.
SO ORDERED.[3]
Petitioners appealed to the Court of Appeals.
On 26 November 1999, the Court of Appeals issued its
Decision affirming the decision of the trial court, thus:
WHEREFORE, premises considered, the appealed
decision in Civil Case No. DH-256-94 is hereby
AFFIRMED in its entirety. Treble costs against the
defendants-appellants.
SO ORDERED.[4]
On 26 July 2000, the Court of Appeals denied petitioners
motion for reconsideration.
The Ruling of the Trial Court
The trial court ruled that there was a perfected contract of
sale between the spouses Godofredo and Carmen and
the spouses Armando and Adelia. The trial court found
that all the elements of a contract of sale were present in
this case. The object of the sale was specifically identified
as the 81,524-square meter lot in Barrio Culis, Mabigas,
Hermosa, Bataan, covered by OCT No. 284 issued by the
Registry of Deeds of Bataan. The purchase price was
fixed at P15,000.00, with the buyers assuming to pay the
sellers P7,000.00 DBP mortgage loan including its
accumulated interest. The balance of the purchase price
was to be paid in cash to the sellers. The last payment of
P2,524.00 constituted the full settlement of the purchase
price and this was paid on 11 March 1970 as evidenced
by the receipt issued by Carmen.
The trial court found the following facts as proof of a
perfected contract of sale: (1) Godofredo and Carmen
delivered to Armando and Adelia the Subject Land; (2)
Armando and Adelia treated as their own tenants the
tenants of Godofredo and Carmen; (3) Godofredo and
Carmen turned over to Armando and Adelia documents
such as the owners duplicate copy of the title of the
Subject Land, tax declaration, and the receipts of realty
tax payments in the name of Godofredo; and (4) the DBP
cancelled the mortgage on the Subject Property upon
payment of the loan of Godofredo and Carmen. Moreover,
the receipt of payment issued by Carmen served as an
acknowledgment, if not a ratification, of the verbal sale
between the sellers and the buyers. The trial court ruled
that the Statute of Frauds is not applicable because in this
case the sale was perfected.
The trial court concluded that the Subsequent Buyers
were not innocent purchasers. Not one of the Subsequent
Buyers testified in court on how they purchased their
respective lots. The Subsequent Buyers totally depended
on the testimony of Constancia Calonso (Calonso) to
explain the subsequent sale. Calonso, a broker,
negotiated with Godofredo and Carmen the sale of the
Subject Land which Godofredo and Carmen subdivided so
they could sell anew portions to the Subsequent Buyers.
Calonso admitted that the Subject Land was adjacent to
her own lot. The trial court pointed out that Calonso did
not inquire on the nature of the tenancy of the
Natanawans and on who owned the Subject Land.
Instead, she bought out the tenants for P150,000.00. The
buy out was embodied in a Kasunduan. Apolinario
Natanawan (Apolinario) testified that he and his wife
accepted the money and signed the Kasunduan because
Calonso and the Subsequent Buyers threatened them
with forcible ejectment. Calonso brought Apolinario to the
Agrarian Reform Office where he was asked to produce
the documents showing that Adelia is the owner of the
Subject Land. Since Apolinario could not produce the
documents, the agrarian officer told him that he would
lose the case. Thus, Apolinario was constrained to sign
the Kasunduan and accept the P150,000.00.
Another indication of Calonsos bad faith was her own
admission that she saw an adverse claim on the title of
the Subject Land when she registered the deeds of sale in
the names of the Subsequent Buyers. Calonso ignored
the adverse claim and proceeded with the registration of
the deeds of sale.
The trial court awarded P20,000.00 as attorneys fees to
Armando and Adelia. In justifying the award of attorneys
fees, the trial court invoked Article 2208 (2) of the Civil
Code which allows a court to award attorneys fees,
including litigation expenses, when it is just and equitable
to award the same. The trial court ruled that Armando and
Adelia are entitled to attorneys fees since they were
compelled to file this case due to petitioners refusal to
heed their just and valid demand.
The Ruling of the Court of Appeals
The Court of Appeals found the factual findings of the trial
court well supported by the evidence. Based on these
findings, the Court of Appeals also concluded that there
was a perfected contract of sale and the Subsequent
Buyers were not innocent purchasers.
126
Sales – Chapter 3-12 Cases
The Court of Appeals ruled that the handwritten receipt
dated 11 March 1970 is sufficient proof that Godofredo
and Carmen sold the Subject Land to Armando and
Adelia upon payment of the balance of the purchase
price. The Court of Appeals found the recitals in the
receipt as sufficient to serve as the memorandum or note
as a writing under the Statute of Frauds.[5] The Court of
Appeals then reiterated the ruling of the trial court that the
Statute of Frauds does not apply in this case.
The Court of Appeals gave credence to the testimony of a
witness of Armando and Adelia, Mildred Lobaton, who
explained why the title to the Subject Land was not in the
name of Armando and Adelia. Lobaton testified that
Godofredo was then busy preparing to leave for Davao.
Godofredo promised that he would sign all the papers
once they were ready. Since Armando and Adelia were
close to the family of Carmen, they trusted Godofredo and
Carmen to honor their commitment. Armando and Adelia
had no reason to believe that their contract of sale was
not perfected or validly executed considering that they had
received the duplicate copy of OCT No. 284 and other
relevant documents. Moreover, they had taken physical
possession of the Subject Land.
The Court of Appeals held that the contract of sale is not
void even if only Carmen signed the receipt dated 11
March 1970. Citing Felipe v. Heirs of Maximo Aldon,[6] the
appellate court ruled that a contract of sale made by the
wife without the husbands consent is not void but merely
voidable. The Court of Appeals further declared that the
sale in this case binds the conjugal partnership even if
only the wife signed the receipt because the proceeds of
the sale were used for the benefit of the conjugal
partnership. The appellate court based this conclusion on
Article 161[7] of the Civil Code.
The Subsequent Buyers of the Subject Land cannot claim
that they are buyers in good faith because they had
constructive notice of the adverse claim of Armando and
Adelia. Calonso, who brokered the subsequent sale,
testified that when she registered the subsequent deeds
of sale, the adverse claim of Armando and Adelia was
already annotated on the title of the Subject Land. The
Court of Appeals believed that the act of Calonso and the
Subsequent Buyers in forcibly ejecting the Natanawans
from the Subject Land buttresses the conclusion that the
second sale was tainted with bad faith from the very
beginning.
Finally, the Court of Appeals noted that the issue of
prescription was not raised in the Answer. Nonetheless,
the appellate court explained that since this action is
actually based on fraud, the prescriptive period is four
years, with the period starting to run only from the date of
the discovery of the fraud. Armando and Adelia
discovered the fraudulent sale of the Subject Land only in
January 1994. Armando and Adelia lost no time in writing
a letter to Godofredo and Carmen on 2 February 1994
and filed this case on 7 March 1994. Plainly, Armando and
Adelia did not sleep on their rights or lose their rights by
prescription.
The Court of Appeals sustained the award of attorneys
fees and imposed treble costs on petitioners.
The Issues
Petitioners raise the following issues:
I Court reviews only errors of law and not errors of facts.[9]
Whether the alleged sale of the Subject Land in favor of
Armando and Adelia is valid and enforceable, where (1) it
was orally entered into and not in writing; (2) Carmen did
not obtain the consent and authority of her husband,
Godofredo, who was the sole owner of the Subject Land
in whose name the title thereto (OCT No. 284) was
issued; and (3) it was entered into during the 25-year
prohibitive period for alienating the Subject Land without
the approval of the Secretary of Agriculture and Natural
Resources.
II
Whether the action to enforce the alleged oral contract of
sale brought after 24 years from its alleged perfection had
been barred by prescription and by laches.
III
Whether the deeds of absolute sale and the transfer
certificates of title over the portions of the Subject Land
issued to the Subsequent Buyers, innocent purchasers in
good faith and for value whose individual titles to their
respective lots are absolute and indefeasible, are valid.
IV
Whether petitioners are liable to pay Armando and Adelia
P20,0000.00 as attorneys fees and litigation expenses
and the treble costs, where the claim of Armando and
Adelia is clearly unfounded and baseless.
V
Whether petitioners are entitled to the counterclaim for
attorneys fees and litigation expenses, where they have
sustained such expenses by reason of institution of a
clearly malicious and unfounded action by Armando and
Adelia.[8]
The Courts Ruling
The petition is without merit.
In a petition for review on certiorari under Rule 45, this
The factual findings of the appellate court are generally
binding on this Court.[10] This applies with greater force
when both the trial court and the Court of Appeals are in
complete agreement on their factual findings.[11] In this
case, there is no reason to deviate from the findings of the
lower courts. The facts relied upon by the trial and
appellate courts are borne out by the record. We agree
with the conclusions drawn by the lower courts from these
facts.
Validity and Enforceability of the Sale
The contract of sale between the spouses Godofredo and
Carmen and the spouses Armando and Adelia was a
perfected contract. A contract is perfected once there is
consent of the contracting parties on the object certain
and on the cause of the obligation.[12] In the instant case,
the object of the sale is the Subject Land, and the price
certain is P15,000.00. The trial and appellate courts found
that there was a meeting of the minds on the sale of the
Subject Land and on the purchase price of P15,000.00.
This is a finding of fact that is binding on this Court. We
127
Sales – Chapter 3-12 Cases
find no reason to disturb this finding since it is supported
by substantial evidence.
The contract of sale of the Subject Land has also been
consummated because the sellers and buyers have
performed their respective obligations under the contract.
In a contract of sale, the seller obligates himself to transfer
the ownership of the determinate thing sold, and to deliver
the same, to the buyer who obligates himself to pay a
price certain to the seller.[13] In the instant case,
Godofredo and Carmen delivered the Subject Land to
Armando and Adelia, placing the latter in actual physical
possession of the Subject Land. This physical delivery of
the Subject Land also constituted a transfer of ownership
of the Subject Land to Armando and Adelia.[14]
Ownership of the thing sold is transferred to the vendee
upon its actual or constructive delivery.[15] Godofredo and
Carmen also turned over to Armando and Adelia the
documents of ownership to the Subject Land, namely the
owners duplicate copy of OCT No. 284, the tax
declaration and the receipts of realty tax payments.
On the other hand, Armando and Adelia paid the full
purchase price as evidenced by the receipt dated 11
March 1970 issued by Carmen. Armando and Adelia
fulfilled their obligation to provide the P7,000.00 to pay the
DBP loan of Godofredo and Carmen, and to pay the latter
the balance of P8,000.00 in cash. The P2,524.00 paid
under the receipt dated 11 March 1970 was the last
installment to settle fully the purchase price. Indeed, upon
payment to DBP of the P7,000.00 and the accumulated
interests, the DBP cancelled the mortgage on the Subject
Land and returned the owners duplicate copy of OCT No.
284 to Godofredo and Carmen.
The trial and appellate courts correctly refused to apply
the Statute of Frauds to this case. The Statute of
Frauds[16] provides that a contract for the sale of real
property shall be unenforceable unless the contract or
some note or memorandum of the sale is in writing and
subscribed by the party charged or his agent. The
existence of the receipt dated 11 March 1970, which is a
memorandum of the sale, removes the transaction from
the provisions of the Statute of Frauds.
The Statute of Frauds applies only to executory contracts
and not to contracts either partially or totally
performed.[17] Thus, where one party has performed
ones obligation, oral evidence will be admitted to prove
the agreement.[18] In the instant case, the parties have
consummated the sale of the Subject Land, with both
sellers and buyers performing their respective obligations
under the contract of sale. In addition, a contract that
violates the Statute of Frauds is ratified by the acceptance
of benefits under the contract.[19] Godofredo and Carmen
benefited from the contract because they paid their DBP
loan and secured the cancellation of their mortgage using
the money given by Armando and Adelia. Godofredo and
Carmen also accepted payment of the balance of the
purchase price.
Godofredo and Carmen cannot invoke the Statute of
Frauds to deny the existence of the verbal contract of sale
because they have performed their obligations, and have
accepted benefits, under the verbal contract. [20]
Armando and Adelia have also performed their obligations
under the verbal contract. Clearly, both the sellers and the
buyers have consummated the verbal contract of sale of
the Subject Land. The Statute of Frauds was enacted to
prevent fraud.[21] This law cannot be used to advance the
very evil the law seeks to prevent.
Godofredo and Carmen also claim that the sale of the
Subject Land to Armando and Adelia is void on two
grounds. First, Carmen sold the Subject Land without the
marital consent of Godofredo. Second, the sale was made
during the 25-year period that the law prohibits the
alienation of land grants without the approval of the
Secretary of Agriculture and Natural Resources.
These arguments are without basis.
The Family Code, which took effect on 3 August 1988,
provides that any alienation or encumbrance made by the
husband of the conjugal partnership property without the
consent of the wife is void. However, when the sale is
made before the effectivity of the Family Code, the
applicable law is the Civil Code.[22]
Article 173 of the Civil Code provides that the disposition
of conjugal property without the wifes consent is not void
but merely voidable. Article 173 reads:
The wife may, during the marriage, and within ten years
from the transaction questioned, ask the courts for the
annulment of any contract of the husband entered into
without her consent, when such consent is required, or
any act or contract of the husband which tends to defraud
her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or
her heirs, after the dissolution of the marriage, may
demand the value of property fraudulently alienated by the
husband.
In Felipe v. Aldon,[23] we applied Article 173 in a case
where the wife sold some parcels of land belonging to the
conjugal partnership without the consent of the husband.
We ruled that the contract of sale was voidable subject to
annulment by the husband. Following petitioners
argument that Carmen sold the land to Armando and
Adelia without the consent of Carmens husband, the sale
would only be voidable and not void.
However, Godofredo can no longer question the sale.
Voidable contracts are susceptible of ratification.[24]
Godofredo ratified the sale when he introduced Armando
and Adelia to his tenants as the new owners of the
Subject Land. The trial court noted that Godofredo failed
to deny categorically on the witness stand the claim of the
complainants witnesses that Godofredo introduced
Armando and Adelia as the new landlords of the
tenants.[25] That Godofredo and Carmen allowed
Armando and Adelia to enjoy possession of the Subject
Land for 24 years is formidable proof of Godofredos
acquiescence to the sale. If the sale was truly
unauthorized, then Godofredo should have filed an action
to annul the sale. He did not. The prescriptive period to
annul the sale has long lapsed. Godofredos conduct
belies his claim that his wife sold the Subject Land without
his consent.
Moreover, Godofredo and Carmen used most of the
proceeds of the sale to pay their debt with the DBP. We
agree with the Court of Appeals that the sale redounded
to the benefit of the conjugal partnership. Article 161 of
the Civil Code provides that the conjugal partnership shall
be liable for debts and obligations contracted by the wife
for the benefit of the conjugal partnership. Hence, even if
Carmen sold the land without the consent of her husband,
the sale still binds the conjugal partnership.
128
Sales – Chapter 3-12 Cases
Petitioners contend that Godofredo and Carmen did not
deliver the title of the Subject Land to Armando and Adelia
as shown by this portion of Adelias testimony on cross-
examination:
Q -- No title was delivered to you by Godofredo Alfredo?
A -- I got the title from Julie Limon because my sister told
me.[26]
Petitioners raise this factual issue for the first time. The
Court of Appeals could have passed upon this issue had
petitioners raised this earlier. At any rate, the cited
testimony of Adelia does not convincingly prove that
Godofredo and Carmen did not deliver the Subject Land
to Armando and Adelia. Adelias cited testimony must be
examined in context not only with her entire testimony but
also with the other circumstances.
Adelia stated during cross-examination that she obtained
the title of the Subject Land from Julie Limon (Julie), her
classmate in college and the sister of Carmen. Earlier,
Adelias own sister had secured the title from the father of
Carmen. However, Adelias sister, who was about to leave
for the United States, gave the title to Julie because of the
absence of the other documents. Adelias sister told Adelia
to secure the title from Julie, and this was how Adelia
obtained the title from Julie.
It is not necessary that the seller himself deliver the title of
the property to the buyer because the thing sold is
understood as delivered when it is placed in the control
and possession of the vendee.[27] To repeat, Godofredo
and Carmen themselves introduced the Natanawans, their
tenants, to Armando and Adelia as the new owners of the
Subject Land. From then on, Armando and Adelia acted
as the landlords of the Natanawans. Obviously,
Godofredo and Carmen themselves placed control and
possession of the Subject Land in the hands of Armando
and Adelia.
Petitioners invoke the absence of approval of the sale by
the Secretary of Agriculture and Natural Resources to
nullify the sale. Petitioners never raised this issue before
the trial court or the Court of Appeals. Litigants cannot
raise an issue for the first time on appeal, as this would
contravene the basic rules of fair play, justice and due
process.[28] However, we will address this new issue to
finally put an end to this case.
The sale of the Subject Land cannot be annulled on the
ground that the Secretary did not approve the sale, which
was made within 25 years from the issuance of the
homestead title. Section 118 of the Public Land Act
(Commonwealth Act No. 141) reads as follows:
SEC. 118. Except in favor of the Government or any of its
branches, units, or institutions or legally constituted
banking corporation, lands acquired under free patent or
homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval
of the application and for a term of five years from and
after the date of the issuance of the patent or grant.
xxx
No alienation, transfer, or conveyance of any homestead
after 5 years and before twenty-five years after the
issuance of title shall be valid without the approval of the
Secretary of Agriculture and Commerce, which approval
shall not be denied except on constitutional and legal
grounds.
A grantee or homesteader is prohibited from alienating to
a private individual a land grant within five years from the
time that the patent or grant is issued.[29] A violation of
this prohibition renders a sale void.[30] This prohibition,
however, expires on the fifth year. From then on until the
next 20 years[31] the land grant may be alienated
provided the Secretary of Agriculture and Natural
Resources approves the alienation. The Secretary is
required to approve the alienation unless there are
constitutional and legal grounds to deny the approval. In
this case, there are no apparent constitutional or legal
grounds for the Secretary to disapprove the sale of the
Subject Land.
The failure to secure the approval of the Secretary does
not ipso facto make a sale void.[32] The absence of
approval by the Secretary does not nullify a sale made
after the expiration of the 5-year period, for in such event
the requirement of Section 118 of the Public Land Act
becomes merely directory[33] or a formality.[34] The
approval may be secured later, producing the effect of
ratifying and adopting the transaction as if the sale had
been previously authorized.[35] As held in Evangelista v.
Montano:[36]
Section 118 of Commonwealth Act No. 141, as amended,
specifically enjoins that the approval by the Department
Secretary "shall not be denied except on constitutional
and legal grounds." There being no allegation that there
were constitutional or legal impediments to the sales, and
no pretense that if the sales had been submitted to the
Secretary concerned they would have been disapproved,
approval was a ministerial duty, to be had as a matter of
course and demandable if refused. For this reason, and if
necessary, approval may now be applied for and its effect
will be to ratify and adopt the transactions as if they had
been previously authorized. (Emphasis supplied)
Action Not Barred by Prescription and Laches
Petitioners insist that prescription and laches have set in.
We disagree.
The Amended Complaint filed by Armando and Adelia
with the trial court is captioned as one for Specific
Performance. In reality, the ultimate relief sought by
Armando and Adelia is the reconveyance to them of the
Subject Land. An action for reconveyance is one that
seeks to transfer property, wrongfully registered by
another, to its rightful and legal owner.[37] The body of the
pleading or complaint determines the nature of an action,
not its title or heading.[38] Thus, the present action should
be treated as one for reconveyance.[39]
Article 1456 of the Civil Code provides that a person
acquiring property through fraud becomes by operation of
law a trustee of an implied trust for the benefit of the real
owner of the property. The presence of fraud in this case
created an implied trust in favor of Armando and Adelia.
This gives Armando and Adelia the right to seek
reconveyance of the property from the Subsequent
Buyers.[40]
To determine when the prescriptive period commenced in
an action for reconveyance, plaintiffs possession of the
disputed property is material. An action for reconveyance
based on an implied trust prescribes in ten years.[41] The
129
Sales – Chapter 3-12 Cases
ten-year prescriptive period applies only if there is an
actual need to reconvey the property as when the plaintiff
is not in possession of the property.[42] However, if the
plaintiff, as the real owner of the property also remains in
possession of the property, the prescriptive period to
recover title and possession of the property does not run
against him.[43] In such a case, an action for
reconveyance, if nonetheless filed, would be in the nature
of a suit for quieting of title, an action that is
imprescriptible.[44]
In this case, the appellate court resolved the issue of
prescription by ruling that the action should prescribe four
years from discovery of the fraud. We must correct this
erroneous application of the four-year prescriptive period.
In Caro v. Court of Appeals,[45] we explained why an
action for reconveyance based on an implied trust should
prescribe in ten years. In that case, the appellate court
also erroneously applied the four-year prescriptive period.
We declared in Caro:
We disagree. The case of Liwalug Amerol, et al. v. Molok
Bagumbaran, G.R. No. L-33261, September 30, 1987,154
SCRA 396 illuminated what used to be a gray area on the
prescriptive period for an action to reconvey the title to
real property and, corollarily, its point of reference:
xxx It must be remembered that before August 30, 1950,
the date of the effectivity of the new Civil Code, the old
Code of Civil Procedure (Act No. 190) governed
prescription. It provided:
SEC. 43. Other civil actions; how limited.- Civil actions
other than for the recovery of real property can only be
brought within the following periods after the right of action
accrues:
xxx xxx xxx
3. Within four years: xxx An action for relief on the ground
of fraud, but the right of action in such case shall not be
deemed to have accrued until the discovery of the fraud;
xxx xxx xxx
In contrast, under the present Civil Code, we find that just
as an implied or constructive trust is an offspring of the
law (Art. 1456, Civil Code), so is the corresponding
obligation to reconvey the property and the title thereto in
favor of the true owner. In this context, and vis-a-vis
prescription, Article 1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within
ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxxxxxxxx
(Emphasis supplied).
An action for reconveyance based on an implied or
constructive trust must perforce prescribe in ten years and
not otherwise. A long line of decisions of this Court, and of
very recent vintage at that, illustrates this rule.
Undoubtedly, it is now well-settled that an action for
reconveyance based on an implied or constructive trust
prescribes in ten years from the issuance of the Torrens
title over the property. The only discordant note, it seems,
is Balbin vs. Medalla which states that the prescriptive
period for a reconveyance action is four years. However,
this variance can be explained by the erroneous reliance
on Gerona vs. de Guzman. But in Gerona, the fraud was
discovered on June 25,1948, hence Section 43(3) of Act
No. 190, was applied, the new Civil Code not coming into
effect until August 30, 1950 as mentioned earlier. It must
be stressed, at this juncture, that article 1144 and article
1456, are new provisions. They have no counterparts in
the old Civil Code or in the old Code of Civil Procedure,
the latter being then resorted to as legal basis of the four-
year prescriptive period for an action for reconveyance of
title of real property acquired under false pretenses.
An action for reconveyance has its basis in Section 53,
paragraph 3 of Presidential Decree No. 1529, which
provides:
In all cases of registration procured by fraud, the owner
may pursue all his legal and equitable remedies against
the parties to such fraud without prejudice, however, to
the rights of any innocent holder of the decree of
registration on the original petition or application, xxx
This provision should be read in conjunction with Article
1456 of the Civil Code, which provides:
Article 1456. If property is acquired through mistake or
fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of
the person from whom the property comes.
The law thereby creates the obligation of the trustee to
reconvey the property and the title thereto in favor of the
true owner. Correlating Section 53, paragraph 3 of
Presidential Decree No. 1529 and Article 1456 of the Civil
Code with Article 1144(2) of the Civil Code, supra, the
prescriptive period for the reconveyance of fraudulently
registered real property is ten (10) years reckoned from
the date of the issuance of the certificate of title xxx
(Emphasis supplied)[46]
Following Caro, we have consistently held that an action
for reconveyance based on an implied trust prescribes in
ten years.[47] We went further by specifying the reference
point of the ten-year prescriptive period as the date of the
registration of the deed or the issuance of the title.[48]
Had Armando and Adelia remained in possession of the
Subject Land, their action for reconveyance, in effect an
action to quiet title to property, would not be subject to
prescription. Prescription does not run against the plaintiff
in actual possession of the disputed land because such
plaintiff has a right to wait until his possession is disturbed
or his title is questioned before initiating an action to
vindicate his right.[49] His undisturbed possession gives
him the continuing right to seek the aid of a court of equity
to determine the nature of the adverse claim of a third
party and its effect on his title.[50]
Armando and Adelia lost possession of the Subject Land
when the Subsequent Buyers forcibly drove away from the
Subject Land the Natanawans, the tenants of Armando
and Adelia.[51] This created an actual need for Armando
and Adelia to seek reconveyance of the Subject Land.
The statute of limitation becomes relevant in this case.
The ten-year prescriptive period started to run from the
130
Sales – Chapter 3-12 Cases
date the Subsequent Buyers registered their deeds of sale
with the Register of Deeds.
The Subsequent Buyers bought the subdivided portions of
the Subject Land on 22 February 1994, the date of
execution of their deeds of sale. The Register of Deeds
issued the transfer certificates of title to the Subsequent
Buyers on 24 February 1994. Armando and Adelia filed
the Complaint on 7 March 1994. Clearly, prescription
could not have set in since the case was filed at the early
stage of the ten-year prescriptive period.
Neither is the action barred by laches. We have defined
laches as the failure or neglect, for an unreasonable time,
to do that which, by the exercise of due diligence, could or
should have been done earlier.[52] It is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it.[53]
Armando and Adelia discovered in January 1994 the
subsequent sale of the Subject Land and they filed this
case on 7 March 1994. Plainly, Armando and Adelia did
not sleep on their rights.
Validity of Subsequent Sale of Portions of the Subject
Land
Petitioners maintain that the subsequent sale must be
upheld because the Subsequent Buyers, the co-
petitioners of Godofredo and Carmen, purchased and
registered the Subject Land in good faith. Petitioners
argue that the testimony of Calonso, the person who
brokered the second sale, should not prejudice the
Subsequent Buyers. There is no evidence that Calonso
was the agent of the Subsequent Buyers and that she
communicated to them what she knew about the adverse
claim and the prior sale. Petitioners assert that the
adverse claim registered by Armando and Adelia has no
legal basis to render defective the transfer of title to the
Subsequent Buyers.
We are not persuaded. Godofredo and Carmen had
already sold the Subject Land to Armando and Adelia.
The settled rule is when ownership or title passes to the
buyer, the seller ceases to have any title to transfer to any
third person.[54] If the seller sells the same land to
another, the second buyer who has actual or constructive
knowledge of the prior sale cannot be a registrant in good We sustain the award of attorneys fees. The decision of
faith.[55] Such second buyer cannot defeat the first buyers the court must state the grounds for the award of
title.[56] In case a title is issued to the second buyer, the attorneys fees. The trial court complied with this
first buyer may seek reconveyance of the property subject requirement.[65] We agree with the trial court that if it
of the sale.[57] were not for petitioners unjustified refusal to heed the just
and valid demands of Armando and Adelia, the latter
Thus, to merit protection under the second paragraph of would not have been compelled to file this action.
Article 1544[58] of the Civil Code, the second buyer must
act in good faith in registering the deed.[59] In this case, The Court of Appeals echoed the trial courts
the Subsequent Buyers good faith hinges on whether they condemnation of petitioners fraudulent maneuverings in
had knowledge of the previous sale. Petitioners do not securing the second sale of the Subject Land to the
dispute that Armando and Adelia registered their adverse Subsequent Buyers. We will also not turn a blind eye on
claim with the Registry of Deeds of Bataan on 8 February petitioners brazen tactics. Thus, we uphold the treble
1994. The Subsequent Buyers purchased their respective costs imposed by the Court of Appeals on petitioners.
lots only on 22 February 1994 as shown by the date of
their deeds of sale. Consequently, the adverse claim WHEREFORE, the petition is DENIED and the appealed
registered prior to the second sale charged the decision is AFFIRMED. Treble costs against petitioners.
Subsequent Buyers with constructive notice of the defect
in the title of the sellers,[60] Godofredo and Carmen. SO ORDERED.
It is immaterial whether Calonso, the broker of the second
sale, communicated to the Subsequent Buyers the
existence of the adverse claim. The registration of the
adverse claim on 8 February 1994 constituted, by
operation of law, notice to the whole world.[61] From that
date onwards, the Subsequent Buyers were deemed to
have constructive notice of the adverse claim of Armando
and Adelia. When the Subsequent Buyers purchased
portions of the Subject Land on 22 February 1994, they
already had constructive notice of the adverse claim
registered earlier.[62] Thus, the Subsequent Buyers were
not buyers in good faith when they purchased their lots on
22 February 1994. They were also not registrants in good
faith when they registered their deeds of sale with the
Registry of Deeds on 24 February 1994.
The Subsequent Buyers individual titles to their respective
lots are not absolutely indefeasible. The defense of
indefeasibility of the Torrens Title does not extend to a
transferee who takes the certificate of title with notice of a
flaw in his title.[63] The principle of indefeasibility of title
does not apply where fraud attended the issuance of the
titles as in this case.[64]
Attorneys Fees and Costs
131
Sales – Chapter 3-12 Cases
SPS. FORTUNATO SANTOS and ROSALINDA R
SANTOS, petitioners,
vs.
COURT OF APPEALS, SPS. MARIANO R. CASEDA
and CARMEN CASEDA, respondents.
For review on certiorari is the decision of the Court of
Appeals, dated March 28, 1995, in CA-G.R. CV No.
30955, which reversed and set aside the judgment of the
Regional Trial Court of Makati, Branch 133, in Civil Case
No. 89-4759. Petitioners (the Santoses) were the owners
of a house and lot informally sold, with conditions, to
herein private respondents (the Casedas). In the trial
court, the Casedas had complained that the Santoses
refused to deliver said house and lot despite repeated
demands. The trial court dismissed the complaint for
specific performance and damages, but in the Court of
Appeals, the dismissal was reversed, as follows:
"WHEREFORE, in view of the foregoing, the decision
appealed from is hereby REVERSED and SET ASIDE
and a new one entered:
"1. GRANTING plaintiffs-appellants a period of
NINETY (90) DAYS from the date of the finality of
judgment within which to pay the balance of the obligation
in accordance with their agreement;
"2. Ordering appellees to restore possession of the
subject house and lot to the appellants upon receipt of the
full amount of the balance due on the purchase price; and
"3. No pronouncement as to costs.
"SO ORDERED."1
The undisputed facts of this case are as follows:
The spouses Fortunato and Rosalinda Santos owned the
house and lot consisting of 350 square meters located at
Lot 7, Block 8, Better Living Subdivision, Parañaque,
Metro Manila, as evidenced by TCT (S-11029) 28005 of
the Register of Deeds of Parañaque. The land together
with the house, was mortgaged with the Rural Bank of
Salinas, Inc., to secure a loan of P150,000.00 maturing on
June 16, 1987.
Sometime in 1984, Rosalinda Santos met Carmen
Caseda, a fellow market vendor of hers in Pasay City and
soon became very good friends with her. The duo even
became kumadres when Carmen stood as a wedding
sponsor of Rosalinda's nephew.
On June 16, 1984, the bank sent Rosalinda Santos a
letter demanding payment of P16,915.84 in unpaid
interest and other charges. Since the Santos couple had
no funds, Rosalinda offered to sell the house and lot to
Carmen. After inspecting the real property, Carmen and
her husband agreed.
Sometime that month of June, Carmen and Rosalinda
signed a document, which reads:
"Received the amount of P54,100.00 as a partial payment
of Mrs. Carmen Caseda to the (total) amount of
350,000.00 (house and lot) that is own (sic) by Mrs.
Rosalinda R. Santos.
(Sgd.) Carmen H. Caseda
direct buyer
Mrs. Carmen Caseda
"(Sgd.) Rosalinda Del R. Santos
Owner
Mrs. Rosalinda R. Santos
House and Lot
Better Living Subd. Parañaque, Metro Manila
Section V Don Bosco St."2
The other terms and conditions that the parties agreed
upon were for the Caseda spouses to pay: (1) the balance
of the mortgage loan with the Rural bank amounting to
P135,385.18; (2) the real estate taxes; (3) the electric and
water bills; and (4) the balance of the cash price to be
paid not later than June 16, 1987, which was the maturity
date of the loan.3
The Casedas gave an initial payment of P54,100.00 and
immediately took possession of the property, which they
then leased out. They also paid in installments,
P81,696.84 of the mortgage loan. The Casedas, however,
failed to pay the remaining balance of the loan because
they suffered bankruptcy in 1987. Notwithstanding the
state of their finances, Carmen nonetheless paid in March
1990, the real estate taxes on the property for 1981-1984.
She also settled the electric bills from December 12, 1988
to July 12, 1989. All these payments were made in the
name of Rosalinda Santos.
In January 1989, the Santoses, seeing that the Casedas
lacked the means to pay the remaining installments and/or
amortization of the loan, repossessed the property. The
Santoses then collected the rentals from the tenants.
In February 1989, Carmen Caseda sold her fishpond in
Batangas. She then approached petitioners and offered to
pay the balance of the purchase price for the house and
lot. The parties, however, could not agree, and the deal
could not push through because the Santoses wanted a
higher price. For understandably, the real estate boom in
Metro Manila at this time, had considerably jacked up
realty values. On August 11, 1989, the Casedas filed Civil
Case No. 89-4759, with the RTC of Makati, to have the
Santoses execute the final deed of conveyance over the
property, or in default thereof, to reimburse the amount of
P180,000.00 paid in cash and P249,900.00 paid to the
rural bank, plus interest, as well as rentals for eight
months amounting to P32,000.00, plus damages and
costs of suit.1âwphi1.nêt
After trial on the merits, the lower court disposed of the
case as follows:
"WHEREFORE, judgment is hereby ordered:
(a) dismissing plaintiff's (Casedas') complaint; and
(b) declaring the agreement; marked as Annex "C"
of the complaint rescinded. Costs against plaintiffs.
"SO ORDERED."4
Said judgment of dismissal is mainly based on the trial
court's finding that:
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Sales – Chapter 3-12 Cases
"Admittedly, the purchase price of the house and lot was
P485,385.18, i.e. P350,000.00 as cash payment and
P135,385.18, assumption of mortgage. Of it plaintiffs
[Casedas] paid the following: (1) P54,100.00 down
payment; and (2) P81,694.64 installment payments to the
bank on the loan (Exhs. E to E-19) or a total of
P135,794.64. Thus, plaintiffs were short of the purchase
price. They cannot, therefore, demand specific
performance."5
The trial court further held that the Casedas were not
entitled to reimbursement of payments already made,
reasoning that:
"As earlier mentioned, plaintiffs made a total payment of
P135,794.64 out of the purchase price of P485,385.18.
The property was in plaintiffs' possession from June 1984
to January 1989 or a period of fifty-five months. During
that time, plaintiffs leased the property. Carmen said the
property was rented for P25.00 a day or P750.00 a month
at the start and in 1987 it was increased to P2,000.00 and
P4,000 a month. But the evidence is not precise when the
different amounts of rental took place. Be that as it may,
fairness demands that plaintiffs must pay defendants for
the exercise of dominical rights over the property by
renting it to others. The amount of P2,000.00 a month
would be reasonable based on the average of P750.00,
P2,000.00, P4,000.00 lease-rentals charged. Multiply
P2,000 by 55 months, the plaintiffs must pay defendants
P110,000 for the use of the property. Deducting this
amount from the P135,794.64 payment of the plaintiffs on
the property the difference is P25,794.64. Should the
plaintiffs be entitled to a reimbursement of this amount?
The answer is in the negative. Because of failure of
plaintiffs to liquidated the mortgage loan on time, it had
ballooned from its original figure of P135,384.18 as of
June 1984 to P337,280.78 as of December 31, 1988.
Defendants [Santoses] had to pay the last amount to the
bank to save the property from foreclosure. Logically,
plaintiffs must share in the burden arising from their failure
to liquidate the loan per their contractual commitment.
Hence, the amount of P25,794.64 as their share in the
defendants' damages in the form of increased loan-
amount, is reasonable."6
On appeal, the appellate court, as earlier noted, reversed
the lower court. The appellate court held that rescission
was not justified under the circumstances and allowed the
Caseda spouses a period of ninety days within which to
pay the balance of the agreed purchase price.
Hence, this instant petition for review on certiorari filed by
the Santoses.
Petitioners now submit the following issues for our
consideration:
WHETHER OR NOT THE COURT OF APPEALS, HAS
JURISDICTION TO DECIDE PRIVATE RESPONDENT'S
APPEAL INTERPOSING PURELY QUESTIONS OF
LAW.
WHETHER THE SUBJECT TRANSACTION IS NOT A
CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL
CONTRACT TO SELL IN WHICH CASE JUDICIAL
DEMAND FOR RESCISSION (ART. 1592,7 CIVIL CODE)
IS NOT APPLICABLE.
ASSUMING ARGUENDO THAT A JUDICIAL DEMAND
FOR RESCISSION IS REQUIRED, WHETHER
PETITIONERS' DEMAND AND PRAYER FOR
RESCISSION CONTAINED IN THEIR ANSWER FILED
BEFORE THE TRIAL SATISFIED THE SAID
REQUIREMENT.
WHETHER OR NOT THE NON-PAYMENT OF MORE
THAN HALF OF THE ENTIRE PURCHASE PRICE
INCLUDING THE NON-COMPLIANCE WITH THE
STIPULATION TO LIQUIDATE THE MORTGAGE LOAN
ON TIME WHICH CAUSED GRAVE DAMAGE AND
PREJUDICE TO PETITIONERS, CONSTITUTE
SUBSTANTIAL BREACH TO JUSTIFY RESCISSION OF
A CONTRACT TO SELL UNDER ARTICLE 1191 8 (CIVIL
CODE).
On the first issue, petitioners argue that, since both the
parties and the apellate court adopted the findings of trial
court,9 no questions of fact were raised before the Court
of Appeals. According to petitioners, CA-G.R. CV No.
30955, involved only pure questions of law. They aver that
the court a quo had no jurisdiction to hear, much less
decide, CA-G.R. CV No. 30955, without running afoul of
Supreme Court Circular No. 290 (4) [c].10
There is a question of law in a given case when the doubt
or difference arises as to how the law is on a certain set of
facts, and there is a question of fact when the doubt or
difference arises as to the truth or falsehood of the alleged
facts.11 But we note that the first assignment of error
submitted by respondents for consideration by the
appellate court dealt with the trial court's finding that
herein petitioners got back the property in question
because respondents did not have the means to pay the
installments and/or amortization of the loan.12 The
resolution of this question involved an evaluation of proof,
and not only a consideration of the applicable statutory
and case laws. Clearly, C.A.-G.R. CV No. 30955 did not
involve pure questions of law, hence the Court of Appeals
had jurisdiction and there was no violation of our Circular
No. 2-90.
Moreover, we find that petitioners took an active part in
the proceedings before the Court of Appeals, yet they did
not raise there the issue of jurisdiction. They should have
raised this issue at the earliest opportunity before the
Court of Appeals. A party taking part in the proceedings
before the appellate court and submitting his case for its
decision ought not to later on attack the court's decision
for want of jurisdiction because the decision turns out to
be adverse to him.13
The second and third issues deal with the question: Did
the Court of Appeals err in holding that a judicial
rescission of the agreement was necessary? In resolving
both issues, we must first make a preliminary
determination of the nature of the contract in question:
Was it a contract of sale, as insisted by the respondents
or a mere contract to sell, as contended by petitioners?
Petitioners argue that the transaction between them and
respondents was a mere contract to sell, and not a
contract of sale, since the sole documentary evidence
(Exh. D, receipt) referring to their agreement clearly
showed that they did not transfer ownership of the
property in question simultaneous with its delivery and
hence remained its owners, pending fulfillment of the
other suspensive conditions, i.e. full payment of the
balance of the purchase price and the loan amortizations.
133
Sales – Chapter 3-12 Cases
Petitioners point to Manuel v. Rodriguez, 109 Phil. 1
(1960) and Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc., 43 SCRA 93 (1972), where he held that article
1592 of the Civil Code is inapplicable to a contract to sell.
They charge the court a quo with reversible error in
holding that petitioners should have judicially rescinded
the agreement with respondents when the latter failed to
pay the amortizations on the bank loan.
Respondents insist that there was a perfected contract of
sale, since upon their partial payment of the purchase
price, they immediately took possession of the property as
vendees, and subsequently leased it, thus exercising all
the rights of ownership over the property. This showed
that transfer of ownership was simultaneous with the
delivery of the realty sold, according to respondents.
It must be emphasized from the outset that a contract is
what the law defines it to be, taking into consideration its
essential elements, and not what the contracting parties
call it.14 Article 145815 of the Civil Code defines a
contract of sale. Note that the said article expressly
obliges the vendor to transfer the ownership of the thing
sold as an essential element of a contract of sale.16 We
have carefully examined the contents of the unofficial
receipt, Exh. D, with the terms and conditions informally
agreed upon by the parties, as well as the proofs
submitted to support their respective contentions. We are
far from persuaded that there was a transfer of ownership
simultaneously with the delivery of the property
purportedly sold. The records clearly show that,
notwithstanding the fact that the Casedas first took then
lost possession of the disputed house and lot, the title to
the property, TCT No. 28005 (S-11029) issued by the
Register of Deeds of Parañaque, has remained always in
the name of Rosalinda Santos.17 Note further that
although the parties agreed that the Casedas would
assume the mortgage, all amortization payments made by
Carmen Caseda to the bank were in the name of
Rosalinda Santos.18 We likewise find that the bank's
cancellation and discharge of mortgage dated January 20,
1990, was made in favor of Rosalinda Santos.19 The
foregoing circumstances categorically and clearly show
that no valid transfer of ownership was made by the
Santoses to the Casedas. Absent this essential element,
their agreement cannot be deemed a contract of sale. We
agree with petitioner's averment that the agreement
between Rosalinda Santos and Carmen Caseda is a As to the last issue, we need not tarry to make a
contract to sell. In contracts to sell, ownership is reserved determination of whether the breach of contract by private
the by the vendor and is not to pass until full payment of respondents is so substantial as to defeat the purpose of
the purchase price. This we find fully applicable and the parties in entering into the agreement and thus entitle
understandable in this case, given that the property petitioners to rescission. Having ruled that there is no
involved is a titled realty under mortgage to a bank and rescission to speak of in this case, the question is moot.
would require notarial and other formalities of law before
transfer thereof could be validly effected. WHEREFORE, the instant petition is GRANTED and the
assailed decision of the Court of Appeals in CA-G.R. CV
In view of our finding in the present case that the No. 30955 is REVERSED and SET ASIDE. The judgment
agreement between the parties is a contract to sell, it of the Regional Trial Court of Makati, Branch 133, with
follows that the appellate court erred when it decreed that respect to the DISMISSAL of the complaint in Civil Case
a judicial rescission of said agreement was necessary. No. 89-4759, is hereby REINSTATED. No pronouncement
This is because there was no rescission to speak of in the as to costs.1âwphi1.nêt
first place. As we earlier pointed, in a contract to sell, title
remains with the vendor and does not pass on to the SO ORDERED.
vendee until the purchase price is paid in full, Thus, in
contract to sell, the payment of the purchase price is a
positive suspensive condition. Failure to pay the price
agreed upon is not a mere breach, casual or serious, but
a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force.20 This is
entirely different from the situation in a contract of sale,
where non-payment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract
of sale, the vendor has lost ownership of the thing sold
and cannot recover it, unless the contract of sale is
rescinded and set aside.21 In a contract to sell, however,
the vendor remains the owner for as long as the vendee
has not complied fully with the condition of paying the
purchase. If the vendor should eject the vendee for failure
to meet the condition precedent, he is enforcing the
contract and not rescinding it. When the petitioners in the
instant case repossessed the disputed house and lot for
failure of private respondents to pay the purchase price in
full, they were merely enforcing the contract and not
rescinding it. As petitioners correctly point out the Court of
Appeals erred when it ruled that petitioners should have
judicially rescinded the contract pursuant to Articles 1592
and 1191 of the Civil Code. Article 1592 speaks of non-
payment of the purchase price as a resolutory condition. It
does not apply to a contract to sell.22 As to Article 1191, it
is subordinated to the provisions of Article 1592 when
applied to sales of immovable property.23 Neither
provision is applicable in the present case.
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Sales – Chapter 3-12 Cases
ZENAIDA M. SANTOS, petitioner, vs. CALIXTO SANTOS,
ALBERTO SANTOS, ROSA SANTOS-CARREON and
ANTONIO SANTOS, respondents.
This petition for review[1] seeks to annul and set aside the
decision dated March 10, 1998 of the Court of Appeals that
affirmed the decision of the Regional Trial Court of Manila,
Branch 48, dated March 17, 1993. Petitioner also seeks to
annul the resolution that denied her motion for
reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador
Santos, a brother of private respondents Calixto, Alberto,
Antonio, all surnamed Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of
land registered under TCT No. 27571 with an area of 154
square meters, located at Sta. Cruz Manila. On it was a four-
door apartment administered by Rosalia who rented them
out. The spouses had five children, Salvador, Calixto, Alberto,
Antonio and Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of
sale of the properties in favor of their children Salvador and
Rosa. TCT No. 27571 became TCT No. 60819. Rosa in turn
sold her share to Salvador on November 20, 1973 which
resulted in the issuance of a new TCT No. 113221. Despite
the transfer of the property to Salvador, Rosalia continued to
lease and receive rentals from the apartment units.
On November 1, 1979, Jesus died. Six years after or on
January 9, 1985, Salvador died, followed by Rosalia who died
the following month. Shortly after, petitioner Zenaida, claiming
to be Salvadors heir, demanded the rent from Antonio
Hombrebueno,[2] a tenant of Rosalia. When the latter refused
to pay, Zenaida filed an ejectment suit against him with the
Metropolitan Trial Court of Manila, Branch 24, which
eventually decided in Zenaidas favor.
On January 5, 1989, private respondents instituted an action
for reconveyance of property with preliminary injunction
against petitioner in the Regional Trial Court of Manila, where
they alleged that the two deeds of sale executed on January
19, 1959 and November 20, 1973 were simulated for lack of
consideration. They were executed to accommodate
Salvador in generating funds for his business ventures and
providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the
complaint and as special and affirmative defenses, argued
that Salvador was the registered owner of the property, which
could only be subjected to encumbrances or liens annotated
on the title; that the respondents right to reconveyance was
already barred by prescription and laches; and that the
complaint stated no cause of action.
On March 17, 1993, the trial court decided in private
respondents favor, thus:
WHEREFORE, viewed from all the foregoing considerations,
judgment is hereby made in favor of the plaintiffs and against
the defendants:
a) Declaring Exh. B, the deed of sale executed by Rosalia
Santos and Jesus Santos on January 19, 1959, as entirely
null and void for being fictitious or simulated and inexistent
and without any legal force and effect;
b) Declaring Exh. D, the deed of sale executed by Rosa
Santos in favor of Salvador Santos on November 20, 1973,
also as entirely null and void for being likewise fictitious or
simulated and inexistent and without any legal force and
effect;
c) Directing the Register of Deeds of Manila to cancel
Transfer Certificate of Title No. T-113221 registered in the
name of Salvador Santos, as well as, Transfer Certificate of
Title No. 60819 in the names of Salvador Santos, Rosa
Santos, and consequently thereafter, reinstating with the
same legal force and effect as if the same was not cancelled,
and which shall in all respects be entitled to like faith and
credit; Transfer Certificate of Title No. T-27571 registered in
the name of Rosalia A. Santos, married to Jesus Santos, the
same to be partitioned by the heirs of the said registered
owners in accordance with law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO ORDERED.[3]
The trial court reasoned that notwithstanding the deeds of
sale transferring the property to Salvador, the spouses
Rosalia and Jesus continued to possess the property and to
exercise rights of ownership not only by receiving the monthly
rentals, but also by paying the realty taxes. Also, Rosalia kept
the owners duplicate copy of the title even after it was already
in the name of Salvador. Further, the spouses had no
compelling reason in 1959 to sell the property and Salvador
was not financially capable to purchase it. The deeds of sale
were therefore fictitious. Hence, the action to assail the same
does not prescribe.[4]
Upon appeal, the Court of Appeals affirmed the trial courts
decision dated March 10, 1998. It held that in order for the
execution of a public instrument to effect tradition, as
provided in Article 1498 of the Civil Code,[5] the vendor shall
have had control over the thing sold, at the moment of sale. It
was not enough to confer upon the purchaser the ownership
and the right of possession. The thing sold must be placed in
his control. The subject deeds of sale did not confer upon
Salvador the ownership over the subject property, because
even after the sale, the original vendors remained in
dominion, control, and possession thereof. The appellate
court further said that if the reason for Salvadors failure to
control and possess the property was due to his
acquiescence to his mother, in deference to Filipino custom,
petitioner, at least, should have shown evidence to prove that
her husband declared the property for tax purposes in his
name or paid the land taxes, acts which strongly indicate
control and possession. The appellate court disposed:
WHEREFORE, finding no reversible error in the decision
appealed from, the same is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.[6]
Hence, this petition where petitioner avers that the Court of
Appeals erred in:
I.
...HOLDING THAT THE OWNERSHIP OVER THE
LITIGATED PROPERTY BY THE LATE HUSBAND OF
DEFENDANT-APPELLANT WAS AFFECTED BY HIS
FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.
II
...HOLDING THAT DUE EXECUTION OF A PUBLIC
INSTRUMENT IS NOT EQUIVALENT TO DELIVERY OF
THE LAND IN DISPUTE.
III
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Sales – Chapter 3-12 Cases
...NOT FINDING THAT THE CAUSE OF ACTION OF
ROSALIA SANTOS HAD PRESCRIBED AND/OR BARRED
BY LACHES.
IV
...IGNORING PETITIONERS ALLEGATION TO THE
EFFECT THAT PLAINTIFF DR. ROSA [S.] CARREON IS
NOT DISQUALIFIED TO TESTIFY AS TO THE
QUESTIONED DEEDS OF SALE CONSIDERING THAT
SALVADOR SANTOS HAS LONG BEEN DEAD.[7]
In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession
indications of continued ownership by the original owners?
2. Is a sale through a public instrument tantamount to delivery
of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs
prescribe?
4. Can petitioner invoke the Dead Mans Statute?[8]
On the first issue, petitioner contends that the Court of
Appeals erred in holding that despite the deeds of sale in
Salvadors favor, Jesus and Rosalia still owned the property
because the spouses continued to pay the realty taxes and
possess the property. She argues that tax declarations are
not conclusive evidence of ownership when not supported by
evidence. She avers that Salvador allowed his mother to
possess the property out of respect to her in accordance with
Filipino values.
It is true that neither tax receipts nor declarations of
ownership for taxation purposes constitute sufficient proof of
ownership. They must be supported by other effective
proofs.[9] These requisite proofs we find present in this case.
As admitted by petitioner, despite the sale, Jesus and Rosalia
continued to possess and administer the property and enjoy
its fruits by leasing it to third persons.[10] Both Rosa and
Salvador did not exercise any right of ownership over it.[11]
Before the second deed of sale to transfer her 1/2 share over
the property was executed by Rosa, Salvador still sought the
permission of his mother.[12] Further, after Salvador
registered the property in his name, he surrendered the title
to his mother.[13] These are clear indications that ownership
still remained with the original owners. In Serrano vs. CA, 139
SCRA 179, 189 (1985), we held that the continued collection
of rentals from the tenants by the seller of realty after
execution of alleged deed of sale is contrary to the notion of
ownership.
Petitioner argues that Salvador, in allowing her mother to use
the property even after the sale, did so out of respect for her
and out of generosity, a factual matter beyond the province of
this Court.[14] Significantly, in Alcos vs. IAC, 162 SCRA 823,
837 (1988), we noted that the buyers immediate possession
and occupation of the property corroborated the truthfulness
and authenticity of the deed of sale. Conversely, the vendors
continued possession of the property makes dubious the
contract of sale between the parties.
On the second issue, is a sale through a public instrument
tantamount to delivery of the thing sold? Petitioner in her
memorandum invokes Article 1477[15] of the Civil Code
which provides that ownership of the thing sold is transferred
to the vendee upon its actual or constructive delivery. Article
1498, in turn, provides that when the sale is made through a
public instrument, its execution is equivalent to the delivery of
the thing subject of the contract. Petitioner avers that applying
said provisions to the case, Salvador became the owner of
the subject property by virtue of the two deeds of sale
executed in his favor.
Nowhere in the Civil Code, however, does it provide that
execution of a deed of sale is a conclusive presumption of
delivery of possession. The Code merely said that the
execution shall be equivalent to delivery. The presumption
can be rebutted by clear and convincing evidence.[16]
Presumptive delivery can be negated by the failure of the
vendee to take actual possession of the land sold.[17]
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that
for the execution of a public instrument to effect tradition, the
purchaser must be placed in control of the thing sold. When
there is no impediment to prevent the thing sold from
converting to tenancy of the purchaser by the sole will of the
vendor, symbolic delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the execution
of the instrument, the purchaser cannot have the enjoyment
and material tenancy nor make use of it himself or through
another in his name, then delivery has not been effected.
As found by both the trial and appellate courts and amply
supported by the evidence on record, Salvador was never
placed in control of the property. The original sellers retained
their control and possession. Therefore, there was no real
transfer of ownership.
Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694,
698-699 (1991), citing the land case of Abuan vs. Garcia, 14
SCRA 759 (1965), we held that the critical factor in the
different modes of effecting delivery, which gives legal effect
to the act is the actual intention of the vendor to deliver, and
its acceptance by the vendee. Without that intention, there is
no tradition. In the instant case, although the spouses Jesus
and Rosalia executed a deed of sale, they did not deliver the
possession and ownership of the property to Salvador and
Rosa. They agreed to execute a deed of sale merely to
accommodate Salvador to enable him to generate funds for
his business venture.
On the third issue, petitioner argues that from the date of the
sale from Rosa to Salvador on November 20, 1973, up to his
death on January 9, 1985, more or less twelve years had
lapsed, and from his death up to the filing of the case for
reconveyance in the court a quo on January 5, 1989, four
years had lapsed. In other words, it took respondents about
sixteen years to file the case below. Petitioner argues that an
action to annul a contract for lack of consideration prescribes
in ten years and even assuming that the cause of action has
not prescribed, respondents are guilty of laches for their
inaction for a long period of time.
Has respondents cause of action prescribed? In Lacsamana
vs. CA, 288 SCRA 287, 292 (1998), we held that the right to
file an action for reconveyance on the ground that the
certificate of title was obtained by means of a fictitious deed
of sale is virtually an action for the declaration of its nullity,
which does not prescribe. This applies squarely to the
present case. The complaint filed by respondents in the court
a quo was for the reconveyance of the subject property to the
estate of Rosalia since the deeds of sale were simulated and
fictitious. The complaint amounts to a declaration of nullity of
a void contract, which is imprescriptible. Hence, respondents
cause of action has not prescribed.
Neither is their action barred by laches. The elements of
laches are: 1) conduct on the part of the defendant, or of one
under whom he claims, giving rise to the situation of which
the complaint seeks a remedy; 2) delay in asserting the
complainants rights, the complainant having had knowledge
or notice of the defendants conduct as having been afforded
an opportunity to institute a suit; 3) lack of knowledge or
notice on the part of the defendant that the complainant
would assert the right in which he bases his suit; and 4) injury
or prejudice to the defendant in the event relief is accorded to
the complainant, or the suit is not held barred.[18] These
136
Sales – Chapter 3-12 Cases
elements must all be proved positively. The conduct which
caused the complaint in the court a quo was petitioners
assertion of right of ownership as heir of Salvador. This
started in December 1985 when petitioner demanded
payment of the lease rentals from Antonio Hombrebueno, the
tenant of the apartment units. From December 1985 up to the
filing of the complaint for reconveyance on January 5, 1989,
only less than four years had lapsed which we do not think is
unreasonable delay sufficient to bar respondents cause of
action. We likewise find the fourth element lacking. Neither
petitioner nor her husband made considerable investments
on the property from the time it was allegedly transferred to
the latter. They also did not enter into transactions involving
the property since they did not claim ownership of it until
December 1985. Petitioner stood to lose nothing. As we held
in the same case of Lacsamana vs. CA, cited above, the
concept of laches is not concerned with the lapse of time but
only with the effect of unreasonable lapse. In this case, the
alleged 16 years of respondents inaction has no adverse
effect on the petitioner to make respondents guilty of laches.

Lastly, petitioner in her memorandum seeks to expunge the

testimony of Rosa Santos-Carreon before the trial court in
view of Sec. 23, Rule 130 of the Revised Rules of Court,
otherwise known as the Dead Mans Statute.[19] It is too late
for petitioner, however, to invoke said rule. The trial court in
its order dated February 5, 1990, denied petitioners motion to
disqualify respondent Rosa as a witness. Petitioner did not
appeal therefrom. Trial ensued and Rosa testified as a
witness for respondents and was cross-examined by
petitioners counsel. By her failure to appeal from the order
allowing Rosa to testify, she waived her right to invoke the
dead mans statute. Further, her counsel cross-examined
Rosa on matters that occurred during Salvadors lifetime. In
Goi vs. CA, 144 SCRA 222, 231 (1986), we held that
protection under the dead mans statute is effectively waived
when a counsel for a petitioner cross-examines a private
respondent on matters occurring during the deceaseds
lifetime. The Court of Appeals cannot be faulted in ignoring
petitioner on Rosas disqualification.

WHEREFORE, the instant petition is DENIED. The assailed

decision dated March 10, 1998 of the Court of Appeals, which
sustained the judgment of the Regional Trial Court dated
March 17, 1993, in favor of herein private respondents, is
AFFIRMED. Costs against petitioner.
SO ORDERED.

137
Sales – Chapter 3-12 Cases
FRANCISCO N. DY, JR., Substituted by his Estate
Rep. by ROSARIO PEREZ-DY, Administratrix,
petitioner,
vs.
COURT OF APPEALS and FERTILIZER MARKETING
COMPANY OF THE PHILIPPINES, respondents.
This is a petition for review of the Court of Appeals'
decision dated December 11, 1990, which affirmed in toto
the decision of the Regional Trial Court of Makati dated
July 18, 1988, which ordered the petitioner to pay the
private respondent the sum of P337,120.00 plus interest
of 12% per annum, attorney's fees and costs.
Private respondent Fertilizer Marketing Company of the
Philippines filed an action to collect from Francisco Dy, Jr.
(now deceased) and the Francisco Dy, Jr. Trading
Corporation the sum of P337,120.00 as unpaid balance
on their purchase of fertilizers on credit from the private
respondent.
The defendants were declared in default on August 15,
1983 for failure to answer the complaint within the
reglementary period. Private respondent was thereafter
allowed to present its evidence ex parte before the Branch
Clerk of Court.
Subsequently, the defendants filed a motion to admit their
answer, but it was denied by the court. They filed a motion
for reconsideration; it was granted; the order of default
was set aside; their answer was admitted; and they were
allowed to present their evidence without retaking the
plaintiff s evidence.
On the date set for the reception of their evidence, the
defendants failed to appear despite due notice, so,
judgment was rendered by the trial court against them on
January 4, 1984.
On appeal to the Court of Appeals, the judgment by
default was set aside and the case was remanded to the
lower court for pre-trial and trial on the merits (AC-G.R.
CV No. 03747, p. 46, Rollo).
At the pre-trial conference on November 12, 1987, the
plaintiff and defendant Francisco Dy, Jr. appeared, but
there was no appearance for the defendant trading
corporation, so it was declared in default again and the
plaintiff was allowed to present its evidence ex parte
before the Branch Clerk of Court. However, in that same
pre-trial conference the parties agreed that the evidence
previously presented by the plaintiff shall remain on record
for purposes of the continuation of the trial, subject to
cross-examination in open court, and, that the
presentation of the affidavits in question and answer form
will constitute the direct testimony of the defendant's
witnesses likewise subject to cross-examination of the
adverse counsel.
On motion for reconsideration, the order of default against
the corporation was lifted. A second motion for
reconsideration was filed by the defendants on January
22, 1988 to set aside the agreement for trial by affidavits
but it was denied by the court.
On the date of the hearing set on April 25, 1988, the
defendants failed to appear to present their evidence
despite due notice, hence, they were deemed to have
waived the presentation of their evidence. The case was
submitted for decision upon the plaintiffs evidence.
On July 18, 1988, the trial court rendered a decision
(mentioned earlier) for the plaintiff and against the
defendants. The latter appealed to the Court of Appeals
(CA-G.R. CV No. 23540) alleging that the court a quo
erred (1) in reinstating the nullified proceedings on August
19, 1983 before the Branch Clerk of Court; (2) in denying
her procedural due process; and (3) in awarding damages
against her.
During the pendency of the appeal, Francisco Dy, Jr.
passed away on June 20, 1989. His wife, Rosario Perez-
Dy, as judicial administratrix of his estate, prosecuted the
appeal (Azarraga vs. Cortes, 9 Phil. 698).
On December 11, 1990, the Court of Appeals dismissed
the appeal (CA-G.R. CV No. 23540) for lack of merit.
In this petition for review of that decision, the petitioner
reiterates the same issues that she raised in the Court of
Appeals.
With regard to the validity of the proceedings before the
Branch Clerk of Court, we agree with the observations of
the Court of Appeals that:
Appellant is now estopped from questioning the retention
of the proceedings held on August 19, 1983 before the
Branch Clerk of Court since her husband agreed to the
same during the pre-trial conference held on November
12, 1987. Agreements reached at the pre-trial conference
and embodied in the pre-trial order shall control the
subsequent course of the trial and should not be disturbed
unless there could be manifest injustice.
The agreement is not unjust to appellant. Aside from
appellant having the right to adduce evidence on her
behalf, the parties agreed that the evidence presented by
appellee before the Branch Clerk of Court would be
retained, with appellant having the right to cross-examine
appellee's witnesses.
xxx xxx xxx
The agreement of the parties as contained in the pre-trial
order is not invalid. The parties are authorized by the
Rules of Court to consider "[s]uch other matters as may
aid in the prompt disposition of the action." An authority
believes this includes "agreement on certain matters so
that witnesses need not and will not be called."
Undoubtedly, the procedure agreed upon by the parties in
this case would have greatly accelerated the trial and the
decision therein, which, at the, time of the pre-trial
conference, had been pending for three years and had
already gone up on appeal to this Court. (pp. 27-28,
Rollo.)
The presentation of the plaintiff's evidence before the
Branch Clerk of Court was not void. The Supreme Court,
in the case of Continental Bank vs. Tiangco, et al. (94
SCRA 715) departing from its contrary statement in the
Lim Tan Hu case (66 SCRA 425), declared that a decision
based on evidence heard by a deputy clerk of court as
commissioner is valid and enforceable because it was
rendered by a court of competent jurisdiction, was not
impaired by extrinsic fraud, nor by lack of due process,
and there was no showing that the private respondents
were prejudiced by such a procedure, or that the
commissioner committed any mistake or abuse of
138
Sales – Chapter 3-12 Cases
discretion, or that the proceedings were vitiated by
collusion and collateral fraud. That ruling applies four
square to this case.

The practice of designating the clerk of court as a

commissioner to receive evidence in the event of the non-
appearance of the defendant and its counsel, is not
irregular and is sanctioned by Rule 33 of the Rules of
Court on trial by commissioner (J.M. Tuazon, Inc. vs. Dela
Rosa, 18 SCRA 591; Wassmer vs. Velez, 12 SCRA 648).

The petitioner was not denied due process. As pointed out

by the appellate court:

. . . Appellant retained her right to present evidence on her

behalf and the opportunity to cross-examine the witnesses
already presented by appellee. At any rate, if appellant
believes that her right to procedural due process had
been curtailed, the same was due to a voluntary waiver by
her husband. (p. 28, Rollo)

WHEREFORE, the petition for review is denied for lack of

merit. Costs against the petitioners.
SO ORDERED.

139
Sales – Chapter 3-12 Cases
SPOUSES EROSTO SANTIAGO and NELSIE
SANTIAGO, Petitioners,
vs.
MANCER VILLAMOR, CARLOS VILLAMOR, JOHN
VILLAMOR and DOMINGO VILLAMOR, JR.,
Respondents.
We resolve the petition for review on certiorari1 tiled by
spouses Eros to Santiago and Nelsie Santiago
(petitioners) to challenge the August 10, 2004 decision2
and the June 8, 2005 resolution3 of the Court of Appeals
(CA) in CA-G.R. CV No. 59112. The CA decision set
aside the May 28, 1997 decision4 of the Regional Trial
Court (RTC) of San Jacinto, Masbate, Branch 50, in Civil
Case No. 201. The CA resolution denied the petitioners'
subsequent motion for reconsideration.
THE FACTUAL ANTECEDENTS
In January 1982,5 the spouses Domingo Villamor, Sr. and
Trinidad Gutierrez Villamor (spouses Villamor, Sr.), the
parents of Mancer Villamor, Carlos Villamor and Domingo
Villamor, Jr. (respondents) and the grandparents of
respondent John Villamor, mortgaged their 4.5-hectare
coconut land in Sta. Rosa, San Jacinto, Masbate, known
as Lot No. 1814, to the Rural Bank of San Jacinto
(Masbate), Inc. (San Jacinto Bank) as security for a
P10,000.00 loan.
For non-payment of the loan, the San Jacinto Bank
extrajudicially foreclosed the mortgage, and, as the
highest bidder at the public auction, bought the land.
When the spouses Villamor, Sr. failed to redeem the
property within the prescribed period, the San Jacinto
Bank obtained a final deed of sale in its favor sometime in
1991. The San Jacinto Bank then offered the land for sale
to any interested buyer.6
a. The Specific Performance Case
Since the respondents had been in possession and
cultivation of the land, they decided, together with their
sister Catalina Villamor Ranchez, to acquire the land from
the San Jacinto Bank. The San Jacinto Bank agreed with
the respondents and Catalina to a P65,000.00 sale,
payable in installments. The respondents and Catalina
made four (4) installment payments of P28,000.00,
P5,500.00, P7,000.00 and P24,500.00 on November 4,
1991, November 23, 1992, April 26, 1993 and June 8,
1994, respectively.7
When the San Jacinto Bank refused to issue a deed of
conveyance in their favor despite full payment, the
respondents and Catalina filed a complaint against the
San Jacinto Bank (docketed as Civil Case No. 200) with
the RTC on October 11, 1994. The complaint was for
specific performance with damages.
The San Jacinto Bank claimed that it already issued a
deed of repurchase in favor of the spouses Villamor, Sr.;
the payments made by the respondents and Catalina
were credited to the account of Domingo, Sr. since the
real buyers of the land were the spouses Villamor, Sr.8
In a February 10, 2004 decision, the RTC dismissed the
specific performance case. It found that the San Jacinto
Bank acted in good faith when it executed a deed of
"repurchase" in the spouses Villamor, Sr.’s names since
Domingo, Sr., along with the respondents and Catalina,
was the one who transacted with the San Jacinto Bank to
redeem the land.9
The CA, on appeal, set aside the RTC’s decision.10 The
CA found that the respondents and Catalina made the
installment payments on their own behalf and not as
representatives of the spouses Villamor, Sr. The San
Jacinto Bank mistakenly referred to the transaction as a
"repurchase" when the redemption period had already
lapsed and the title had been transferred to its name; the
transaction of the respondents and Catalina was
altogether alien to the spouses Villamor, Sr.’s loan with
mortgage. Thus, it ordered the San Jacinto Bank to
execute the necessary deed of sale in favor of the
respondents and Catalina, and to pay P30,000.00 as
attorney’s fees.11 No appeal appears to have been taken
from this decision.
b. The Present Quieting of Title Case
On July 19, 1994 (or prior to the filing of the respondents
and Catalina’s complaint for specific performance, as
narrated above), the San Jacinto Bank issued a deed of
sale in favor of Domingo, Sr.12 On July 21, 1994, the
spouses Villamor, Sr. sold the land to the petitioners for
P150,000.00.13
After the respondents and Catalina refused the petitioners’
demand to vacate the land, the petitioners filed on
October 20, 1994 a complaint for quieting of title and
recovery of possession against the respondents.14 This is
the case that is now before us.
The respondents and Catalina assailed the San Jacinto
Bank’s execution of the deed of sale in favor of Domingo,
Sr., claiming that the respondents and Catalina made the
installment payments on their own behalf.15
In its May 28, 1997 decision,16 the RTC declared the
petitioners as the legal and absolute owners of the land,
finding that the petitioners were purchasers in good faith;
the spouses Villamor, Sr.’s execution of the July 21, 1994
notarized deed of sale in favor of the petitioners resulted
in the constructive delivery of the land. Thus, it ordered
the respondents to vacate and to transfer possession of
the land to the petitioners, and to pay P10,000.00 as
moral damages.17
On appeal, the CA, in its August 10, 2004 decision, found
that the petitioners’ action to quiet title could not prosper
because the petitioners failed to prove their legal or
equitable title to the land. It noted that there was no real
transfer of ownership since neither the spouses Villamor,
Sr. nor the petitioners were placed in actual possession
and control of the land after the execution of the deeds of
sale. It also found that the petitioners failed to show that
the respondents and Catalina’s title or claim to the land
was invalid or inoperative, noting the pendency of the
specific performance case, at that time on appeal with the
CA. Thus, it set aside the RTC decision and ordered the
dismissal of the complaint, without prejudice to the
outcome of the specific performance case.18
When the CA denied19 the motion for reconsideration20
that followed, the petitioners filed the present Rule 45
petition.
THE PETITION
The petitioners argue that the spouses Villamor, Sr.’s
execution of the July 21, 1994 deed of sale in the
140
Sales – Chapter 3-12 Cases
petitioners’ favor was equivalent to delivery of the land
under Article 1498 of the Civil Code; the petitioners are
purchasers in good faith since they had no knowledge of
the supposed transaction between the San Jacinto Bank
and the respondents and Catalina; and the respondents
and Catalina’s possession of the land should not be
construed against them (petitioners) since, by tradition
and practice in San Jacinto, Masbate, the children use
their parents’ property.
THE CASE FOR THE RESPONDENTS
The respondents and respondent John submit that they
hold legal title to the land since they perfected the sale
with the San Jacinto Bank as early as November 4, 1991,
the first installment payment, and are in actual possession
of the land; the petitioners are not purchasers in good
faith since they failed to ascertain why the respondents
were in possession of the land.
THE ISSUE
The case presents to us the issue of whether the CA
committed a reversible error when it set aside the RTC
decision and dismissed the petitioners’ complaint for
quieting of title and recovery of possession.
OUR RULING
The petition lacks merit.
Quieting of title is a common law remedy for the removal
of any cloud, doubt or uncertainty affecting title to real
property. The plaintiffs must show not only that there is a
cloud or contrary interest over the subject real property,21
but that they have a valid title to it.22 Worth stressing, in
civil cases, the plaintiff must establish his cause of action
by preponderance of evidence; otherwise, his suit will not
prosper.23
The petitioners anchor their claim over the disputed land
on the July 21, 1994 notarized deed of sale executed in
their favor by the spouses Villamor, Sr. who in turn
obtained a July 19, 1994 notarized deed of sale from the
San Jacinto Bank. On the other hand, the respondents
and respondent John claim title by virtue of their
installment payments to the San Jacinto Bank from
November 4, 1991 to June 8, 1994 and their actual
possession of the disputed land.
After considering the parties’ evidence and arguments, we
agree with the CA that the petitioners failed to prove that
they have any legal or equitable title over the disputed
land.
Execution of the deed of sale only a
prima facie presumption of delivery.
Article 1477 of the Civil Code recognizes that the
"ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof."
Related to this article is Article 1497 which provides that
"the thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee."
With respect to incorporeal property, Article 1498 of the
Civil Code lays down the general rule: the execution of a
public instrument "shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed
the contrary does not appear or cannot clearly be
inferred." However, the execution of a public instrument
gives rise only to a prima facie presumption of delivery,
which is negated by the failure of the vendee to take
actual possession of the land sold.24 "A person who does
not have actual possession of the thing sold cannot
transfer constructive possession by the execution and
delivery of a public instrument."25
In this case, no constructive delivery of the land transpired
upon the execution of the deed of sale since it was not the
spouses Villamor, Sr. but the respondents who had actual
possession of the land. The presumption of constructive
delivery is inapplicable and must yield to the reality that
the petitioners were not placed in possession and control
of the land.
The petitioners are not purchasers in
good faith.
The petitioners can hardly claim to be purchasers in good
faith.
"A purchaser in good faith is one who buys property
without notice that some other person has a right to or
interest in such property and pays its fair price before he
has notice of the adverse claims and interest of another
person in the same property."26 However, where the land
sold is in the possession of a person other than the
vendor, the purchaser must be wary and must investigate
the rights of the actual possessor; without such inquiry,
the buyer cannot be said to be in good faith and cannot
have any right over the property.27
In this case, the spouses Villamor, Sr. were not in
possession of the land.1âwphi1 The petitioners, as
prospective vendees, carried the burden of investigating
the rights of the respondents and respondent John who
were then in actual possession of the land. The petitioners
cannot take refuge behind the allegation that, by custom
and tradition in San Jacinto, Masbate, the children use
their parents' property, since they offered no proof
supporting their bare allegation. The burden of proving the
status of a purchaser in good faith lies upon the party
asserting that status and cannot be discharged by reliance
on the legal presumption of good faith.28 The petitioners
failed to discharge this burden.
Lastly, since the specific performance case already settled
the respondents and respondent John's claim over the
disputed land, the dispositive portion of the CA decision
(dismissing the complaint without prejudice to the
outcome of the specific performance case29 ) is modified
to reflect this fact; we thus dismiss for lack of merit the
complaint for quieting of title and recovery of possession.
WHEREFORE, we hereby DENY the petition and ORDER
the DISMISSAL of Civil Case No. 201 before the Regional
Trial Court of San Jacinto, Masbate, Branch 50.
Costs against the petitioners.
SO ORDERED.
141
Sales – Chapter 3-12 Cases
LA FUERZA, INC., petitioner,
vs.
THE HON. COURT OF APPEALS and ASSOCIATED
ENGINEERING CO., INC., respondents.
Ordinary action for the recovery of a sum of money. In due
course, the Court of First Instance of Manila rendered
judgment for defendant, La Fuerza, Inc. — hereinafter
referred to as La Fuerza — which was at first affirmed by
the Court of Appeals. On motion for reconsideration, the
latter, however, set aside its original decision and
sentenced La Fuerza to pay to the plaintiff, Associated
Engineering Co., — hereinafter referred to as the Plaintiff
— the sum of P8,250.00, with interest at the rate of 1%
per month, from July, 1960 until fully paid, plus P500 as
attorney's fees and the costs. Hence, this Petition for
review on certiorari.
The facts, as found by the Court of First Instance and
adopted by the Court of Appeals, are:
The plaintiff (Associated Engineering, Co., Inc.) is a
corporation engaged in the manufacture and installation of
flat belt conveyors. The defendant (La Fuerza, Inc.) is also
a corporation engaged in the manufacture of wines.
Sometime in the month of January, 1960, Antonio Co, the
manager of the plaintiff corporation, who is an engineer,
called the office of the defendant located at 399 Muelle de
Binondo, Manila and told Mariano Lim, the President and
general manager of the defendant that he had just visited
the defendant's plant at Pasong Tamo, Makati, Rizal and
was impressed by its size and beauty but he believed it
needed a conveyor system to convey empty bottles from
the storage room in the plant to the bottle washers in the
production room thereof. He therefore offered his services
to manufacture and install a conveyor system which,
according to him, would increase production and
efficiency of his business. The president of the defendant
corporation did not make up his mind then but suggested
to Antonio Co to put down his offer in writing. Effectively,
on February 4, 1960, marked as Exhibit A in this case.
Mariano Lim did not act on the said offer until February
11, 1960, when Antonio Co returned to inquire about the
action of the defendant on his said offer. The defendants
president and general manager then expressed his
conformity to the offer made in Exhibit A by writing at the
foot thereof under the word "confirmation" his signature.
He caused, however, to be added to this offer at the foot a
note which reads: "All specifications shall be in strict
accordance with the approved plan made part of this
agreement hereof." A few days later, Antonio Co made
the demand for the down payment of P5,000.00 which
was readily delivered by the defendant in the form of a
check for the said amount. After that agreement, the
plaintiff started to prepare the premises for the
installations of the conveyor system by digging holes in
the cement floor of the plant and on April 18, 1960, they
delivered one unit of 110' 26" wide flat belt conveyor,
valued at P3,750.00, and another unit measuring 190' and
4" wide flat conveyor, valued at P4,500.00, or a total of
P13,250.00. Deducting the down payment of P5,000.00
from this value, there is a balance, of P8,250.00 to be paid
by the defendant upon the completion of the installation,
Exhibit B.
The work went under way during the months of March and
April, during which time the president and general
manager of the defendant corporation was duly apprised
of the progress of the same because his plant mechanic,
one Mr. Santos, had kept him informed of the installation
for which he gave the go signal. It seems that the work
was completed during the month of May, 1960. Trial runs
were made in the presence of the president and general
manager of the defendant corporation, Antonio Co, the
technical manager of the plaintiff, and some other people.
Several trial runs were made then totalling about five.
These runs were continued during the month of June
where about three trial runs were made and, lastly, during
the month of July, 1960.
As a result of this trial or experimental runs, it was
discovered, according to the defendant's general
manager, that the conveyor system did not function to
their satisfaction as represented by the technical manager
of the plaintiff Antonio Co for the reason that, when
operated several bottles collided with each other, some
jumping off the conveyor belt and were broken, causing
considerable damage. It was further observed that the
flow of the system was so sluggish that in the opinion of
the said general manager of the defendant their old
system of carrying the bottles from the storage room to
the washers by hand carrying them was even more
efficient and faster.
After the last trial run made in the month of July and after
the plaintiff's technical manager had been advised several
times to make the necessary and proper adjustments or
corrections in order to improve the efficiency of the
conveyor system, it seems that the defects indicated by
the said president and general manager of the defendant
had not been remedied so that they came to the parting of
the ways with the result that when the plaintiff billed the
defendant for the balance of the contract price, the latter
refused to pay for the reason that according to the
defendant the conveyor system installed by the plaintiff
did not serve the purpose for which the same was
manufactured and installed at such a heavy expense. The
flat belt conveyors installed in the factory of the defendant
are still there....
xxx xxx xxx
On March 22, 1961, the contractor commenced the
present action to recover the sums of P8,250, balance of
the stipulated price of the aforementioned conveyors, and
P2,000, as attorney's fees, in addition to the costs.
In its answer to the complaint, La Fuerza alleged that the
"conveyors furnished and installed by the plaintiff do not
meet the conditions and warrantings" (warranties?) of the
latter, and set up a counterclaim for the P5,000 advanced
by La Fuerza, which prayed that the complaint be
dismissed; that its contract with the plaintiff be rescinded;
and that plaintiff be sentenced to refund said sum of
P5,000 to La Fuerza, as well as to pay thereto P1,000 as
attorney's fees, apart from the costs.
After appropriate proceedings, the Court of First Instance
of Manila rendered a decision the dispositive part of which
reads:
WHEREFORE, judgment is hereby rendered rescinding
the contract entered into by the parties in this case,
marked as Exhibit A, and ordering the plaintiff to refund or
return to the defendant the amount of P5,000.00 which
they had received as down payment, and the costs of this
action. On the other hand, defendant is ordered to permit
the plaintiff to remove the flat belt conveyors installed in
their premises.
142
Sales – Chapter 3-12 Cases
As above indicated, this decision was affirmed by the
Court of Appeals, which, on motion for reconsideration of
the plaintiff, later set aside its original decision and
rendered another in plaintiff's favor, as stated in the
opening paragraph hereof.
The appealed resolution of the Court of Appeals was, in
effect, based upon the theory of prescription of La
Fuerza's right of action for rescission of its contract with
the plaintiff, for — in the language of said resolution —
"Article 1571 of the Civil Code provides that an action to
rescind 'shall be barred after six months from delivery of
the thing sold'", and, in the case at bar, La Fuerza did not
avail of the right to demand rescission until the filing of its
answer in the Court of First Instance, on April 17, 1961, or
over ten (10) months after the installation of the conveyors
in question had been completed on May 30, 1960.
La Fuerza assails the view taken by the Court of Appeals,
upon the ground: 1) that there has been, in contemplation
of law, no delivery of the conveyors by the plaintiff; and 2)
that, assuming that there has been such delivery, the
period of six (6) months prescribed in said Art. 1571 refers
to the "period within which" La Fuerza may "bring an
action to demand compliance of the warranty against
hidden defects", not the action for rescission of the
contract. Both grounds are untenable.
With respect to the first point, La Fuerza maintains that
plaintiff is deemed not to have delivered the conveyors,
within the purview of Art. 1571, until it shall have complied
with the conditions or requirements of the contract
between them — that is to say, until the conveyors shall
meet La Fuerza's "need of a conveyor system that would
mechanically transport empty bottles from the storage
room to the bottle workers in the production room thus
increasing the production and efficiency" of its business-
and La Fuerza had accepted said conveyors.
On this point, the Court of Appeals had the following to
say:
Article 1571 of the Civil Code provides that an action to
rescind 'shall be barred after six months, from delivery of
the thing sold". This article is made applicable to the case
at bar by Article 1714 which provides that "the pertinent
provisions on warranty of title against hidden defect in a
contract of sale" shall be applicable to a contract for a
piece of work. Considering that Article 1571 is a provision
on sales, the delivery mentioned therein should be
construed in the light of the provisions on sales. Article
1497 provides that the thing sold shall be understood as
delivered when it is placed in the control and possession
of the vendee. Therefore, when the thing subject of the
sale is placed in the control and possession of the
vendee, delivery is complete. Delivery is an act of the
vendor. Thus, one of the obligations of the vendor is the
delivery of the thing sold (Art. 1495). The vendee has
nothing to do with the act of delivery by the vendor. On the
other hand, acceptance is an obligation on the part of the
vendee (Art. 1582). Delivery and acceptance are two
distinct and separate acts of different parties.
Consequently, acceptance cannot be regarded as a
condition to complete delivery.
xxx xxx xxx
We find no plausible reason to disagree with this view.
Upon the completion of the installation of the conveyors,
in May, 1960, particularly after the last trial run, in July
1960, La Fuerza was in a position to decide whether or
not it was satisfied with said conveyors, and, hence, to
state whether the same were a accepted or rejected. The
failure of La Fuerza to express categorically whether they
accepted or rejected the conveyors does not detract from
the fact that the same were actually in its possession and
control; that, accordingly, the conveyors had already been
delivered by the plaintiff; and that, the period prescribed in
said Art. 1571 had begun to run.
With respect to the second point raised by La Fuerza, Art.
1571 of the Civil Code provides:
Actions arising from the provisions of the preceding ten
articles shall be barred after six months, from the delivery
of the thing sold.
xxx xxx xxx
Among the "ten articles" referred to in this provision, are
Articles 1566 and 1567, reading:
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof. ."This provision shall not apply if
the contrary has been stipulated, and the vendor was not
aware of the hidden faults or defects in the thing sold.
Art. 1567. In the cases of articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between withdrawing
from the contract and demanding a proportionate
reduction of the price, with damages in either case.
xxx xxx xxx
Pursuant to these two (2) articles, if the thing sold has
hidden faults or defects — as the conveyors are claimed
to have — the vendor — in the case at bar, the plaintiff —
shall be responsible therefor and the vendee — or La
Fuerza, in the present case — "may elect between
withdrawing from the contract and demanding a
proportional reduction of the price, with damages in either
case." In the exercise of this right of election, La Fuerza
had chosen to withdraw from the contract, by praying for
its rescission; but the action therefor — in the language of
Art. 1571 — "shall be barred after six months, from the
delivery of the thing sold." The period of four (4) years,
provided in Art. 1389 of said Code, for "the action to claim
rescission," applies to contracts, in general, and must
yields, in the instant case, to said Art. 1571, which refers
to sales in particular.
Indeed, in contracts of the latter type, especially when
goods, merchandise, machinery or parts or equipment
thereof are involved, it is obviously wise to require the
parties to define their position, in relation thereto, within
the shortest possible time. Public interest demands that
the status of the relations between the vendor and the
vendee be not left in a condition of uncertainty for an
unreasonable length of time, which would be the case, if
the lifetime of the vendee's right of rescission were four
(4) years.
WHEREFORE, the appealed resolution of the Court of
Appeals is hereby affirmed, with costs against appellant,
La Fuerza, Inc. It is so ordered.
143
Sales – Chapter 3-12 Cases
FABIO CAHAYAG and CONRADO RIVERA,
Petitioners,
vs.
COMMERCIAL CREDIT CORPORATION, represented
by its President, LEONARDO B. ALEJANDRO;
TERESITA T. QUA, assisted by her husband
ALFONSO MA. QUA; and the REGISTER OF DEEDS
OF LAS PINAS, METRO MANILA, DISTRICT IV,
Respondents.
Before us are consolidated Rule 45 Petitions1 seeking to
nullify the Court of Appeals (CA) Decision dated 2
November 20042 and Resolution dated 10 May 20053 in
CA-G.R. CV No. 47421. The CA Decision reversed and
set aside the Decision dated 6 July 1992 issued by the
Regional Trial Court (RTC), Branch 65 of Makati.4
FACTUAL ANTECEDENTS
Petitioner Dulos Realty was the registered owner of
certain residential lots covered by Transfer Certificate of
Title (TCT) Nos. S-39767, S-39775, S-28335, S-39778
and S-29776, located at Airmen's Village Subdivision,
Pulang Lupa II, Las Pinas, Metro Manila.
On 20 December 1980, Dulos Realty obtained a loan from
respondent CCC in the amount of P300,000. To secure
the loan, the realty executed a Real Estate Mortgage over
the subject properties in favor of respondent. The
mortgage was duly annotated on the certificates of title on
3 February 1981.5
On 29 March 1981, Dulos Realty entered into a Contract
to Sell with petitioner Cahayag over the lot covered by
TCT No. S-39775.6
On 12 August 1981, Dulos Realty entered into another
Contract to Sell, this time with petitioner Rivera over the
lot covered by TCT No. S-28335.7
Dulos Realty defaulted in the payment of the mortgage
loan, prompting respondent CCC to initiate extrajudicial
foreclosure proceedings. On 17 November 1981, the
auction sale was held, with respondent CCC emerging as
the highest bidder.8
On 23 November 1981, a Certificate of Sale covering the
properties, together with all the buildings and
improvements existing thereon, was issued in favor of
CCC.9 The Certificate of Sale was annotated on the
corresponding titles to the properties on 8 March 1982.10
Thereafter, or on 13 January 1983, Dulos Realty entered
into a Contract to Sell with petitioner Escalona over the
house and lot covered by TCT No. S-29776.11
On 10 November 1983, an Affidavit of Consolidation in
favor of respondent CCC dated 26 August 1983 was
annotated on the corresponding titles to the properties.12
By virtue of the affidavit, TCT Nos. S-39775, S-28335, S-
39778 and S-29776 - all in the name of Dulos Realty -
were cancelled and TCT Nos. 74531, 74532, 74533 and
74534 were issued in the name of respondent CCC on the
same day.13
On 10 December 1983, Dulos Realty entered into a Deed
of Absolute Sale with petitioner Baldoza over the property
covered by TCT No. S-39778, together with the
improvements existing thereon.14
On 21 December 1983, respondent CCC, through a Deed
of Absolute Sale, sold to respondent Qua the same
subject properties, now covered by TCT Nos. 74531,
74532, 74533 and 74534, which were in the name of
respondent CCC. The sale was duly annotated on the
corresponding titles to the properties on 5 January
1984.15
Accordingly, TCT Nos. 74531, 74532, 74533 and 74534
were cancelled; and TCT Nos. 77012, 77013, 77014 and
770015 were issued to respondent Qua on 5 January
1984.16
Subsequently, respondent Qua filed ejectment suits
individually against petitioners Du1os Realty,17
Cahayag,18 Esca1ona,19 and Rivera20 before the
Metropolitan Trial Court (MTC) of Las Piñas, Metro
Manila.
The MTC rendered Decisions in favor of respondent Qua.
It ordered Dulos Realty, Escalona, Cahayag, and Rivera
to vacate the properties.
On 8 March 1988, the MTC issued a Writ of Execution to
enforce its Decision dated 20 October 1986 in Civil Case
No. 2257 against Dulos Realty "and all persons claiming
right under defendant."21 The subject of the writ of
execution was Lot 11 Block II,22 which was the lot sold by
Dulos Realty to petitioner Baldoza.
COMPLAINT FOR ANNULMENT
OF SHERIFF'S SALE AND OTHER DOCUMENTS
On 5 December 1988, petitioners filed a Complaint
against respondents for the "Annulment of Sherifffs] Sale
and Other Documents with Preliminary Injunction and/or
Temporary Restraining Order" before the RTC of Makati
City, where it was docketed as Civil Case No. 88-2599.23
The Complaint24 alleged that petitioners Cahayag,
Rivera, Escalona and Baldoza were owners of the
properties in question by virtue of Contracts of Sale
individually executed in their favor, and that the Real
Estate Mortgage between Dulos Realty and defendant-
appellant CCC did not include the houses, but merely
referred to the lands themselves.25 Thus, the inclusion of
the housing units in the Deed of Sale executed by
respondent CCC in favor of respondent Qua was allegedly
illegal.26
Respondents failed to file an answer within the
reglementary period. Subsequently, they were declared in
default. They appealed the order of default but their
appeal was dismissed on 8 February 1990.27
On 6 July 1992, the RTC rendered a Decision,28 which
ruled that the houses were not included in the Real Estate
Mortgage; and that the foreclosure of the mortgage over
the subject lots, as well as the housing units, was not
valid.29 The trial court held that this conclusion was
established by the plaintiffs' evidence, which went
unrefuted when defendants were declared in default.30
THE CA DECISION
Respondents proceeded to the CA, where they secured a
favorable ruling. In its Decision rendered on 2 November
2004,31 the appellate court held that the extrajudicial
foreclosure was valid, since the Real Estate Mortgage
144
Sales – Chapter 3-12 Cases
clearly included the buildings and improvements on the
lands, subject of the mortgage.
After establishing the inclusion of the housing units in the
Real Estate Mortgage, the CA determined the rights of the
buyers in the Contracts to Sell/Contract of Sale vis-a-vis
those of the mortgagee and its successor-in-interest.
In the cases of petitioners Cahayag, Rivera and Escalona,
the CA pointed to lack of evidence establishing full
payment of the price. As supporting reason, it stated that
even if there were full payment of the purchase price, the
mortgagee and the latter's successor-in-interest had a
better right over the properties. The CA anchored this
conclusion on the fact that the Real Estate Mortgage was
annotated at the back of the titles to the subject properties
before the execution of the Contracts to Sell. It said that
the annotation constituted sufficient notice to third parties
that the property was subject to an encumbrance. With the
notice, Cahayag, Rivera and Escalona should have
redeemed the properties within the one-year redemption
period, but they failed to do so. Consequently, the right of
respondent CCC over the properties became absolute,
and the transfer to respondent Qua was valid.
As regards Baldoza, though the case involved a Contract
of Sale, and not a mere Contract to Sell, the CA declared
the transaction null and void on the purported ground that
Dulos was no longer the owner at the time of the sale.
The CA accordingly reversed and set aside the RTC
Decision, dismissed the case for lack of merit, and
ordered petitioners to surrender possession of the
properties to respondent Qua.
THE RULE 45 PETITIONS
On 30 May 2005, petitioners Cahayag and Rivera filed
their Rule 45 Petition with this Court.32 For their part,
petitioners Dulos Realty, Baldoza and Escalona filed their
Rule 45 Petition on 19 July 2005.33
In the Petition under G.R. No. 168357, it is argued, among
others, that the Deed of Absolute Sale in favor of
petitioner Baldoza was the culmination of a Contract to
Sell between her and Dulos Realty. She claims that the
Contract to Sell, marked as Exhibit "L" during the trial, was
executed on 10 January 1979, which preceded the
execution of the Deed of Real Estate Mortgage and the
registration of the mortgage on 3 February 1981.34 After
full payment of the price under the Contract to Sell, Dulos
Realty executed the Deed of Absolute Sale. In other
words, Baldoza is arguing that she has a better title to the
property than respondent Qua since the unregistered
contract to sell in her favor was executed before the
registration of the mortgage. But the CA ignored Exhibit
"L" and merely stated that there was only a Deed of
Absolute Sale in favor of Baldoza.
THE ARGUMENTS
The arguments of petitioners, as stated in their respective
Memoranda, are summarized as follows:
Coverage of the Mortgage
Initially, petitioners attempt to stave off the effects of the
extra judicial foreclosure by attacking the coverage of the
Real Estate Mortgage with respect to its subject-matter.35
They draw attention to the fact that the List of Properties
attached to the Deed of Real Estate Mortgage refers
merely to the lands themselves and does not include the
housing units found thereon.36 Petitioners also contend
that doubts should be resolved against the drafter
inasmuch as the agreement is a contract of adhesion,
having been prepared by the mortgagee.37
As backup argument for the theory that the houses are
outside the coverage of the mortgage agreement,
petitioners argue that the improvements were not owned
by Dulos Realty, the mortgagor, but by its buyers under
the Contracts to Sell and Contracts of Sale; hence, those
improvements are excluded from the coverage of the real
estate mortgage.
Validity of the Mortgage
Petitioners next challenge the validity of the foreclosure
sale on the ground that the mortgage executed by the
mortgagor (petitioner Dulos Realty) and the mortgagee
(respondent CCC) was null and void.38 Petitioners claim
that Dulos Realty was no longer the owner of the
properties it had mortgaged at the time of the execution of
the mortgage contract, as they were sold under existing
Contracts to Sell and Deed of Absolute Sale.39
Petitioners Cahayag, Rivera and Escalona lean on the
unregistered Contracts to Sell they had individually
executed with Dulos Realty as vendor. For his part,
petitioner Baldoza points to the Deed of Absolute Sale
executed by Dulos Realty in his favor.
Better Right over the Properties
Petitioners claim that respondent CCC cannot claim to be
a mortgagee in good faith, since it is a financial
institution.40 As such, respondent CCC knew that it was
dealing with a subdivision developer, which was in the
business of selling subdivision lots.41 Dela Merced v.
GSIS42 which states that the general rule that a
mortgagee need not look beyond the title cannot benefit
banks and other financial institutions, as a higher due
diligence requirement is imposed on them.
They also raise the contention that lack of full payment of
the purchase price under the Contracts to Sell on the part
of Cahayag, Rivera and Escalona was due to respondent
Qua's "harassment and unlawful actuations.43
Petitioners further state that respondent Qua is a mere
transferee of respondent CCC and that, like a stream, she
cannot rise higher than her source. They also argue that
Qua is not an innocent purchaser for value, since she is a
former investor of respondent CCC and one of its principal
stockholders.44
No Prior Written HLURB Approval of
the Mortgage
Finally, petitioners allege that the mortgage contract in this
case was not approved by the BLURB, which violates
Section 18 of P.D. 95745 and results in the nullity of the
mortgage.46
Exhibit "L" as Evidence of a Prior
Contract to Sell
The matter of CA ignoring Exhibit "L" as evidence of a
prior unregistered Contract to Sell was not included in the
Memoranda of petitioners.
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Sales – Chapter 3-12 Cases
THE ISSUES
Based on the foregoing facts and arguments raised by
petitioners, the threshold issues to be resolved are the
following:
1. Whether the real mortgage covers the lands only, as
enumerated in the Deed of Real Estate Mortgage or the
housing units as well;
2. Whether Dulos Realty was the owner of the properties it
had mortgaged at the time of its execution in view of the
various Contracts to Sell and Deed of Absolute Sale
respectively executed in favor of petitioners Cahayag,
Rivera, Escalona and Cahayag;
3. Who, as between petitioners-buyers and respondent
Qua, has a better right over the properties?
4. Whether the Deed of Absolute Sale in favor of Baldoza
was not preceded by a Contract to Sell and full payment
of the purchase price; and
5. Whether the mortgage is void on the ground that it
lacked the prior written approval of the HLURB.
OUR RULING
We deny the Petition for reasons as follows.
1. Attack on the Subject-matter of
the Real Estate Mortgage
It is true that the List of Properties attached to the Deed of
Real Estate Mortgage refers merely to the lands
themselves and does not include the housing units found
thereon. A plain reading of the Real Estate Mortgage,
however, reveals that it covers the housing units as well.
We quote the pertinent provision of the agreement:
[T]he MORTGAGOR has transferred and conveyed and,
by these presents, do hereby transfer and convey by way
of FIRST MORTGAGE unto the MORTGAGEE, its
successors and assigns the real properties described in
the list appearing at the back of this document and/or in a
supplemental document attached hereto as Annex "A"
and made and integral part hereof, together with all the
buildings and/or other improvements now existing or
which may hereafter be place[d] or constructed thereon,
all of which the MORTGAGOR hereby warrants that he is
the absolute owner and exclusive possessor thereof, free
from all liens and encumbrances of whatever kind and
nature. xxx.47 (Emphasis Ours)
Thus, the housing units would fall under the catch-all
phrase "together with all the buildings and/or other
improvements now existing or which may hereafter be
placed or constructed thereon."
The contra proferentem rule finds no application to this
case. The doctrine provides that in the interpretation of
documents, ambiguities are to be construed against the
drafter.48 By its very nature, the precept assumes the
existence of an ambiguity in the contract, which is why
contra proferentem is also called the ambiguity
doctrine.49 In this case, the Deed of Real Estate
Mortgage clearly establishes that the improvements found
on the real properties listed therein are included as
subject-matter of the contract. It covers not only the real
properties, but the buildings and improvements thereon as
well.
2. Challenge to the Foreclosure
Sale with Regard to the
Ownership of the Mortgaged
Properties
To begin with, the Contracts to Sell and Deed of Absolute
Sale could not have posed an impediment at all to the
mortgage, given that these contracts had yet to
materialize when the mortgage was constituted. They
were all executed after the constitution of the Real Estate
Mortgage on 20 December 1980.
As regards Cahayag, the Contract to Sell in his favor was
executed on 29 March 1981, more than three months after
the execution of the mortgage contract.50 This is taken
from the Contract to Sell itself, which forms part of the
records of this case.51
At this juncture, we note that the CA, for reasons
unknown, specified 29 September 1980,52 and not 29
March 1981, as the date of the execution of the Contract
to Sell in its Decision. Respondent Qua has raised this
point in her Memorandum filed with us. This Court cannot
be bound by the factual finding of the CA with regard to
the date of the Contract to Sell in favor of Cahayag. The
general rule that the Court is bound by the factual findings
of the CA must yield in this case, as it falls under one of
the exceptions: when the findings of the CA are
contradicted by the evidence on record.53 In this case,
there is nothing in the records to support the CA's
conclusion that the Contract to Sell was executed on 29
September 1980. The evidence on record, however,
reveals that the correct date is 29 March 1981.
In the case of petitioner Rivera, the corresponding
Contract to Sell in his favor was executed only on 12
August 1981, or almost eight months after the perfection
of the mortgage contract on 20 December 1980.
Lastly, Dulos Realty executed the Deed of Absolute Sale
in favor of petitioner Baldoza on 10 December 1983,
which was almost three years from the time the mortgage
contract was executed on 20 December 1980.
There was neither a contract to sell nor a deed of absolute
sale to speak of when the mortgage was executed.
Petitioners equate a contract to sell to a contract of sale,
in which the vendor loses ownership over the property
upon its delivery.54 But a contract to sell, standing alone,
does not transfer ownership.55 At the point of perfection,
the seller under a contract to sell does not even have the
obligation to transfer ownership to the buyer.56 The
obligation arises only when the buyer fulfills the condition:
full payment of the purchase price.57 In other words, the
seller retains ownership at the time of the execution of the
contract to sell.58
There is no evidence to show that any of petitioners
Cahayag, Rivera and Escalona were able to effect full
payment of the purchase price, which could have at least
given rise to the obligation to transfer ownership.
Petitioners Cahayag and Rivera even admit that they
defaulted on their obligations under their respective
Contracts to Sell, although they attribute the default to
respondent Qua's "harassment and unlawful
actuations."59 The statement, though, was a mere
146
Sales – Chapter 3-12 Cases
allegation that was left unsubstantiated and, as such,
could not qualify as proof of anything.60
3. Who Has a Better Right over the Properties
Registration of the mortgage hound the buyers under the
Contracts to Sell
Registration of the mortgage establishes a real right or
lien in favor of the mortgagee, as provided by Articles
131261 and 212662 of the Civil Code.63 Corollary to the
rule, the lien has been treated as "inseparable from the
property inasmuch as it is a right in rem."64 In other
words, it binds third persons to the mortgage.
The purpose of registration is to notify persons other than
the parties to the contract that a transaction concerning
the property was entered into.65 Ultimately, registration,
because it provides constructive notice to the whole world,
makes the certificate of title reliable, such that third
persons dealing with registered land need only look at the
certificate to determine the status of the property.66
In this case, the Real Estate Mortgage over the property
was registered on 3 February 1981. On the other hand,
the Contracts to Sell were all executed after the
registration of the mortgage. The Contract to Sell in favor
of petitioner Cahayag was executed on 29 March 1981, or
almost two months after the registration of the mortgage.
The corresponding Contract to Sell in favor of Rivera was
executed only on 12 August 1981, roughly six months
after the registration of the mortgage contract. Lastly, the
Contract to Sell in favor of Escalona was executed on 13
January 1983, or nearly two years after the registration of
the mortgage on 3 February 1981.
Consequently, petitioners Cahayag, Rivera and Escalona,
were bound to the mortgage executed between mortgagor
Dulos Realty and mortgagee CCC, by virtue of its
registration. Definitely, the buyers each had constructive
knowledge of the existence of the mortgage contract when
they individually executed the Contracts to Sell.
Dela Merced v. GSIS not applicable
Petitioner invokes the above case. Dela Merced involved
a clash between an unrecorded contract to sell and a
registered mortgage contract. The contract to sell between
the mortgagors (Spouses Zulueta) and the buyer
(Francisco Dela Merced) was executed before the
former's constitution of the mortgage in favor of GSIS.
Because the Zuluetas defaulted on their loans, the
mortgage was foreclosed; the properties were sold at
public auction to GSIS as the highest bidder; and the titles
were consolidated after the spouses' failure to redeem the
properties within the one-year redemption period. GSIS
later sold the contested lot to Elizabeth D. Manlongat and
Ma. Therese D. Manlongat. However, Dela Merced was
able to fully pay the purchase price to Spouses Zulueta,
who executed a Deed of Absolute Sale in his favor prior to
the foreclosure sale.
This Court stated therein the general rule that the
purchaser is not required to go beyond the Torrens title if
there is nothing therein to indicate any cloud or vice in the
ownership of the property or any encumbrance thereon.
The case nonetheless provided an exception to the
general rule. The exception arises when the purchaser or
mortgagee has knowledge of a defect in the vendor's title
or lack thereof, or is aware of sufficient facts to induce a
reasonably prudent person to inquire into the status of the
property under litigation. The Court applied the exception,
taking into consideration the fact that GSIS, the
mortgagee, was a financing institution.
But Dela Merced is not relevant here. Dela Merced
involved a Contract to Sell that was executed prior to the
mortgage, while the Contracts to Sell in this case were all
executed after the constitution and registration of the
mortgage.
In Dela Merced, since GSIS had knowledge of the
contract to sell, this knowledge was equivalent to the
registration of the Contract to Sell. Effectively, this
constitutes registration canceled out the subsequent
registration of the mortgage. In other words, the buyer
under the Contract to Sell became the- first to register.
Following the priority in time rule in civil law, the lot buyer
was accorded preference or priority in right in Dela
Merced.
In this case, the registration of the mortgage, which
predated the Contracts to Sell, already bound the buyers
to the mortgage. Consequently, the determination of good
faith does not come into play.
Dela Merced materially differs from this case on another
point. The Contract to Sell in favor of Dela Merced was
followed by full payment of the price and execution of the
Deed of Absolute Sale. In this case, the Contract to Sell in
favor of each of petitioners Cahayag, Rivera and
Escalona, is not coupled with full payment and execution
of a deed of absolute sale.
This case also needs to be distinguished from Luzon
Development Bank v. Enriquez.67 In that case, the
unregistered Contract to Sell was executed after the
execution of the mortgage. Instead of resorting to
foreclosure, the owner/developer and the bank entered
into a dacion en pago. The Court declared that the bank
was bound by the Contract to Sell despite the non-
registration of the contract. It reasoned that the bank
impliedly assumed the risk that some of the units might
have been covered by contracts to sell. On the other
hand, the Court pronounced the mortgage to be void, as it
was without the approval of the Housing and Land Use
Regulatory Board (HLURB). The Court consequently
ordered the unit buyer in that case to pay the balance to
the bank, after which the buyer was obliged to deliver a
clean title to the property.
There are points of distinction between the case at bar
and Luzon Development Bank. First, there is a definite
finding in Luzon Development Bank that the mortgage
was without prior HLURB approval, rendering the
mortgage void. In the present case, as will be discussed
later, there is no proof from the records on whether the
HLURB did or did not approve the mortgage. Second,
Luzon Development Bank did not even reach the
foreclosure stage of the mortgage. This case, however,
not only reached the foreclosure stage; it even went past
the redemption period, consolidation of the title in the
owner, and sale of the property by the highest bidder to a
third person.
The first distinction deserves elaboration. The absence of
prior written approval of the mortgage by the HLURB
rendered it void. This effectively wiped out any discussion
on whether registration bound the installment buyer. In
fact, Luzon Development Bank did not even bother to
147
Sales – Chapter 3-12 Cases
state whether the mortgage was registered or not. More
important, the tables were turned when Luzon
Development Bank held that the bank was bound to the
Contract to Sell in view of the latter's constructive notice of
the Contract to Sell. Stated differently, the actually
unregistered Contract to Sell became fictionally
registered, making it binding on the bank.
In this case, on account of its registration, and the fact that
the contracts were entered into after it, the mortgage is
valid even as to petitioners.
No Redemption within One Year from the Foreclosure
Sale
When it comes to extrajudicial foreclosures, the law68
grants mortgagors or their successors-in-interest an
opportunity to redeem the property within one year from
the date of the sale. The one-year period has been
jurisprudentially held to be counted from the registration of
the foreclosure sale with the Register of Deeds.69 An
exception to this rule has been carved out by Congress for
juridical mortgagors. Section 47 of the General Banking
Law of 2000 shortens the redemption period to within
three months after the foreclosure sale or until the
registration of the certificate of sale, whichever comes
first.70 The General Banking Law of 2000 came into law
on 13 June 2000.
If the redemption period expires and the mortgagors or
their successors-in-interest fail to redeem the foreclosed
property, the title thereto is consolidated in the
purchaser.71 The consolidation confirms the purchaser as
the owner of the property; concurrently, the mortgagor-for
failure to exercise the right of redemption within the
period-loses all interest in the property.72
We now apply the rules to this case.
As the foreclosure sale took place prior to the advent of
the General Banking Law of 2000, the applicable
redemption period is one year. In this case, because the
Certificate of Sale in favor of respondent CCC was
registered on 8 March 1982, the redemption period was
until 8 March 1983. It lapsed without any right of
redemption having been exercised by Dulos Realty.
Consequently, the right of respondent CCC, as purchaser
of the subject lots, became absolute. As a matter of right,
it was entitled to the consolidation of the titles in its name
and to the possession of those lots. Further, the right of
respondent CCC over the lots was transferred to
respondent Qua by virtue of the Deed of Sale executed
between them.
Given the foregoing considerations, respondent Qua, who
now has title to the properties subject of the various
Contracts to Sell, is the lawful owner thereof.
Foreclosure Sale vs. Contract of Sale
When Dulos Realty executed a Deed of Absolute Sale
covering the real property registered under TCT No. S-
39778 in favor of petitioner Baldoza on 10 December
1983, it was no longer the owner of the property. Titles to
the subject properties, including the one sold to Baldoza,
had already been consolidated in favor of respondent
CCC as early as 10 November 1983. In fact, on the same
date, the titles to the subject lots in the name of Dulos
Realty had already been cancelled and new ones issued
to respondent CCC.
The fact that Dulos Realty was no longer the owner of the
real property at the time of the sale led the CA to declare
that the Contract of Sale was null and void. On this
premise, the appellate court concluded that respondent
Qua had a better title to the property over petitioner
Baldoza.
We find no error in the conclusion of the CA that
respondent Qua has a better right to the property. The
problem lies with its reasoning. We therefore take a
different route to reach the same conclusion.
Proper place of nemo dat quod non habet in the Law on
Sales
Undeniably, there is an established rule under the law on
sales that one cannot give what one does not have (Nemo
dat quad non ha bet).73 The CA, however, confuses the
application of this rule with respect to time. It makes the
nemo dat quad non habet rule a requirement for the
perfection of a contract of sale, such that a violation
thereof goes into the validity of the sale. But the Latin
precept has been jurisprudentially held to apply to a
contract of sale at its consummation stage, and not at the
perfection stage.74
Cavite Development Bank v. Spouses Syrus Lim75 puts
nemo dat quad non habet in its proper place.1âwphi1
Initially, the Court rules out ownership as a requirement
for the perfection of a contract of sale. For all that is
required is a meeting of the minds upon the object of the
contract and the price. The case then proceeds to give
examples of the rule. It cites Article 1434 of the Civil
Code, which provides that in case the seller does not own
the subject matter of the contract at the time of the sale,
but later acquires title to the thing sold, ownership shall
pass to the buyer. The Court also refers to the rule as the
rationale behind Article 1462, which deals with sale of
"future goods."
Cavite Development Bank thereafter turns to Article 1459,
which requires ownership by the seller of the thing sold at
the time of delivery or consummation stage of the sale.
The Court explains that if the rule were otherwise, the
seller would not be able to comply with the latter's
obligation to transfer ownership to the buyer under a
perfected contract of sale. The Court ends the discourse
with the conclusion that "[i]t is at the consummation stage
where the principle of nemo dat quad non habet
applies.76
Case law also provides that the fact th,at the seller is not
the owner of the subject matter of the sale at the time of
perfection does not make the sale void.77
Hence, the lesson: for title to pass to the buyer, the seller
must be the owner of the thing sold at the consummation
stage or at the time of delivery of the item sold. The seller
need not be the owner at the perfection stage of the
contract, whether it is of a contract to sell or a contract of
sale. Ownership is not a requirement for a valid contract of
sale; it is a requirement for a valid transfer of ownership'.
Consequently, it was not correct for the CA to consider the
contract of sale void. The CA erroneously considered lack
of ownership on the part of the seller as having an effect
on the validity of the sale. The sale was very much valid
when the Deed of Absolute Sale between the parties was
executed on 10 December 1983, even though title to the
property had earlier been consolidated in favor of
148
Sales – Chapter 3-12 Cases
respondent CCC as early as 10 November 1983. The fact
that Dulos Realty was no longer the owner of the property
in question at the time of the sale did not affect the validity
of the contract.
On the contrary, lack of title goes into the performance of
a contract of sale. It is therefore crucial to determine in
this case if the seller was the owner at the time of delivery
of the object of the sale. For this purpose, it should be
noted that execution of a public instrument evidencing a
sale translates to delivery.78 It transfers ownership of the
item sold to the buyer.79
In this case, the delivery coincided with the perfection of
the contract -The Deed of Absolute Sale covering the real
property in favor of petitioner Baldoza was executed on 10
December 1983. As already mentioned, Dulos Realty was
no longer the owner of the property on that date.
Accordingly, it could not have validly transferred
ownership of the real property it had sold to petitioner.
Thus, the correct conclusion that should be made is that
while there was a valid sale, there was no valid transfer of
title to Baldoza, since Dulos Realty was no longer the
owner at the time of the execution of the Deed of Absolute
Sale.
No Bad Faith on Qua
The contention that Qua is a stockholder and former
member of the Board of Directors of respondent CCC and
therefore she is not exactly a stranger to the affairs of
CCC is not even relevant.
An innocent purchaser for value is one who "buys the
property of another without notice that some other person
has a right to or interest in it, and who pays a full and fair
price at the time of the purchase or before receiving any
notice of another person's claim."80 The concept thus
presupposes that there must be an adverse claim or
defect in the title to the property to be purchased by the
innocent purchaser for value.
Respondent Qua traces her title to respondent CCC,
whose acquisition over the property proceeded from a
foreclosure sale that was valid. As there is no defect in the
title of respondent CCC to speak of in this case, there is
no need to go into a discussion of whether Qua is an
innocent purchaser for value.
4. Dispute as to the Factual Finding of the CA that the
Deed of Absolute Sale in Favor of Baldoza was not
Preceded by a Contract to Sell and Full Payment of the
Purchase Price
We absolutely discard the argument. We can think of at
least four reasons why. First, Exhibit "L" was not formally
offered in evidence. Second, it was not even incorporated
into the records. Third, the argument is irrelevant. Fourth,
it was even abandoned in the Memoranda filed by
petitioners with us. Last, we are not a trier of facts and
thus we yield to the finding of the CA.
Exhibit "L" not formally offered
A perusal of the records shows that the Contract to Sell
that Baldoza referred to had in fact been marked as
Exhibit "L" during her direct examination in court.81 Even
so, Exhibit "L" was never formally offered as evidence. For
this reason, we reject her contention. Courts do not
consider evidence that has not been formally offered.82
This explains why the CA never mentioned the alleged
Contract to Sell in favor of Baldoza.
The rationale behind the rule rests on the need for judges
to confine their factual findings and ultimately their
judgment solely and strictly to the evidence offered by the
parties to a suit.83 The rule has a threefold purpose. It
allows the trial judge to know the purpose of the evidence
presented; affords opposing parties the opportunity to
examine the evidence and object to its admissibility when
necessary; and facilitates review, given that an appellate
court does not have to review documents that have not
been subjected to scrutiny by the trial court.84
Exhibit "L" not incorporated into the records
The rule, of course, admits an exception. Evidence not
formally offered may be admitted and considered by the
trial court so long as the following requirements obtain: (1)
the evidence is duly identified by testimony duly recorded;
and (2) the evidence is incorporated into the records of
the case.
The exception does not apply to the case of Baldoza.
While she duly identified the Contract to Sell during her
direct examination, which was duly recorded, Exhibit "L"
was not incorporated into the records.
Exhibit "L" not relevant
Be that as it may, the contention that a Contract to Sell in
favor of Baldoza preceded the sale in her favor is
irrelevant. It must be stressed that the sale to Baldoza
made by Dulos Realty took place after the lapse of the
redemption period and after consolidation of title in the
name of respondent CCC on 10 November 1983, one
month prior to the sale to Baldoza on 10 December 1983.
Dulos Realty still would have lost all interest over the
property mortgaged.
The fact that Dulos Realty ceased to be the owner of the
property and therefore it could no longer effect delivery of
the property at the time the Deed of Absolute Sale in favor
of Baldoza was executed is the very reason why the case
of Baldoza cannot be compared with Dela Merced. In the
case, the buyer in the Contract to Sell was able to effect
full payment of the purchase price and to execute a Deed
of Absolute Sale in his favor before the foreclosure sale.
In this case, the full payment of the purchase price and
the execution of a Deed of Absolute Sale in favor of
Baldoza was done after the foreclosure sale.
Issue over Exhibit "L" not included in the Memorandum
Equally important is the fact that petitioners failed to
include the issue over Exhibit "L" in any of the Memoranda
they filed with us. The omission is fatal. Issues raised in
previous pleadings but not included in the memorandum
are deemed waived or abandoned (A.M. No. 99-2-04-SC).
As they are "a summation of the parties' previous
pleadings, the memoranda alone may be considered by
the Court in deciding or resolving the petition."85 Thus,
even as the issue was raised in the Petition, the Court
may not consider it in resolving the case on the ground of
failure of petitioners to include the issue in the
Memorandum. They have either waived or abandoned it.
5. Issue of HLURB's Non-Approval of the Mortgage
149
Sales – Chapter 3-12 Cases
Petitioners allege before the Court that the mortgage
contract in this case was not approved by the HLURB.
They claim that this violates Section 18 of P.D. 95786 and
results in the nullity of the mortgage. Respondents have
disputed the claim and counter-argue that the allegation of
the petitioners is not supported by evidence. Respondents
likewise aver that the argument was raised for the first
time on appeal.87
It is rather too late in the day for petitioners to raise this
argument. Parties are not permitted to change their theory
of a case at the appellate stage.88 Thus, theories and
issues not raised at the trial level will not be considered by
a reviewing court on the ground that they cannot be raised
for the first time on appeal.89 Overriding considerations of
fair play, justice and due process dictate this recognized
rule.90 This Court cannot even receive evidence on this
matter.
Petitioners' original theory of the case is the nullity of the
mortgage on the grounds previously discussed. If
petitioners are allowed to introduce their new theory,
respondents would have no more opportunity to rebut the
new claim with contrary evidence, as the trial stage has
already been terminated. In the interest of fair play and
justice, the introduction of the new argument must be
barred.91
any way related to jurisdiction, and so the first exception is
not applicable. There is nothing in the record to allow us to
make any conclusion with respect to this new allegation.
Neither will the case fall under the second exception.
Evidence would be required of the respondents to
disprove the new allegation that the mortgage did not
have the requisite prior HLURB approval. Besides, to the
mind of this court, to allow petitioners to change their
theory at this stage of the proceedings will be exceedingly
inappropriate.
Petitioners raised the issue only after obtaining an
unfavorable judgment from the CA. Undoubtedly, if we
allow a change of theory late in the game, so to speak, we
will unjustifiably close our eyes to the fundamental right of
petitioners to procedural due process. They will lose the
opportunity to meet the challenge, because trial has
already ended. Ultimately, we will be throwing the
Constitutional rulebook out the window.
WHEREFORE, premises considered, the Petitions are
DENIED, and the Court of Appeals Decision dated 2
November 2004 and Resolution dated 10 May 2005 in
CA-G.R. CV No. 47421 are hereby AFFIRMED.
SO ORDERED.

Exceptions Not Applicable

The Court is aware that the foregoing is merely a general

rule. Exceptions are written in case law: first, an issue of
jurisdiction may be raised at any time, even on appeal, for
as long as the exercise thereof will not result in a mockery
of the demands of fair play;92 second, in the interest of
justice and at the sound discretion of the appellate court,
a party may be allowed to change its legal theory on
appeal, but only when the factual bases thereof would not
require further presentation of evidence by the adverse
party for the purpose of addressing the issue raised in the
new theory;93 and last, which is actually a bogus
exception, is when the question falls within the issues
raised at the trial court.94

The exceptions do not apply to the instant case. The new

argument offered in this case concerns a factual matter -
prior approval by the HLURB. This prerequisite is not in
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Sales – Chapter 3-12 Cases
BEHN, MEYER & CO., plaintiff,
vs.
J.S. STANLEY, ET AL., defendants.
And
LAZARUS G. JOSEPH and A.N. JUREIDINI & BROS.,
appellants,
vs.
JOHN BORDMAN, J.M. MENZI, and THE BANK OF
THE PHILIPPINE ISLANDS, intervenors-appellees.
There is particularly no dispute as to the facts in this case.
On January 23, 1917, Behn, Meyer & Co., Ltd., a foreign
corporation with a branch in the Philippine Islands,
brought an action against the Collector of Customs to
recover the possession of certain merchandise imported
into the Islands and then in the hands of the Collector.
A.N. Jureidini & Bros. intervened in the case and claimed
title to the merchandise under a sale of the same ordered
by the British Admiralty Court of Alexandria, Egypt, in
prize court proceedings.
The Court of First Instance on February 28, 1918,
rendered judgment in favor of Behn, Meyer & Co., on the
ground that the title to the merchandise originally rested in
Behn, Meyer & Co., Ltd., and that no record on the prize
court proceedings showing that Behn, Meyer & Co., Ltd.,
had been divested of the title had been presented in
evidence. On appeal to the Supreme Court the judgment
was reversed and the case remanded to the court below
with instructions to allow Jureidini & Bros. a reasonable
time within which to obtain a duly certified copy of the
decision of the Admiralty Court of Alexandria, in which the
court declared that the merchandise constituted lawful
prize. 1 A new trial was held on February 24, 1922, after
which a judgment was entered in favor of A.N. Jureidini &
Bros. and against Behn, Meyer & Co., Ltd., for the sum of
P1,988 in damages for the further sum of P1,988 for the
value of the merchandise in default of delivery to Jureidini
& Bros.
In the meantime, on the 16th day of February, 1918, all
the business, property, and assets of every nature of the
firm of Behn, Meyer & Co., Ltd., were taken over by the
Alien Property Custodian of the United States under the
provisions of the Trading with the Enemy Act and by
direction of the said Alien Property Custodian, one W.D.
Pemberton was appointed receiver and placed in full
charge of the business and assets of the firm.
During the month of January, 1919, the business of the
Philippine branch of Behn, Meyer & Co., Ltd., was
liquidated and the property and assets of the corporation
in the Philippine Islands, including the goodwill, trade-
marks, accounts receivable, together with all vouchers,
entries, and other proofs of the indebtedness, such as the
books of account, etc., were sold to one of the intervenors
herein, John Bordman, by the direction and under the
supervision of the said Alien Property Custodian, in
accordance with the provisions of the Alien Enemy Act, for
the sum of P660,000, as shown by the letters and bills of
sale, Exhibits B, C, D, and E.
The intervenor herein the Bank of the Philippine Islands,
advanced to Bordman the sum of P660,000 with which to
purchase the said business, property, and assets of the
said Behn, Meyer & Co., Ltd., which sum was turned over
to W.D. Pemberton, the receiver appointed by the Alien
Property Custodian.
On the 21st of February, 1919, Behn, Meyer & Co., Ltd.,
was declared by the Alien Property Custodian to be an
enemy not holding a license granted by the President, and
on the same date demand was made on the receiver to
convey, transfer, assign, deliver, and pay over to the Alien
Property Custodian the bet proceeds of the sale and
liquidation of the business, property, and assets aforesaid,
and by virtue of that demand, the said net proceeds in the
sum of P392,674.96 was on February 28, 1919, delivered
to the managing director of the office of the Alien Property
Custodian in the Philippine Islands, as shown by Exhibits
F and G, which sum as far as the record shows, is still in
possession of the Alien Property Custodian.
Execution of the judgment of February 24, 1922, in favor
of A.N. Jureidini & Bros, having been issued and returned
unsatisfied, Jureidini & Bros. on August 8, 1922, filed an
ex-parte petition in the same case praying that a receiver
be appointed by the court to take charge of the estate and
effects of Behn, Meyer & Co., Ltd., and on August 10,
1922, the Court of First Instance issued an order
appointing Lazarus G. Joseph receiver of the property,
assets and estate of the said firm, upon giving a bond in
the sum of P1,000.
On the 4th of September, 1923, the said Lazarus G.
Joseph, as such receiver, commenced an action in the
Court of First Instance of Manila against the Bank of the
Philippine Islands and J.M. Menzi, being civil case No.
24892 of said court, to annul the aforesaid sale of the
business, property, and assets, etc., of the said Behn, &
Co., Ltd., to John Bordman and to recover back the
property sold as property of the said Behn, Meyer & Co.,
Ltd., and for an accounting and other relief.
On the 5th of September, 1923, the said Lazarus G.
Joseph, in his capacity of receiver, appeared in the
present case in the Court of First Instance and obtained
an order directed to the said J.M. Menzi citing him to
appear before the court on a certain date to show cause
why he should not turn over to the said receiver the books
of account of the said Behn, Meyer & Co., Ltd.
On September 14, 1923, John Bordman, J.M. Menzi, and
the Bank of the Philippine Islands filed in the same case a
motion for permission to intervene in the receivership
proceedings solely for the purpose of vacating the order of
August 10, 1922, appointing a receiver for the property,
assets, and estate of the said Behn, Meyer & Co., Ltd.,
and alleging in support thereof that they had a legal
interest in the subject-matter of said receivership and an
interest against that of the parties to said
proceedings.lawphi1.net
At the same time the intervenors filed a verified motion
setting forth the facts hereinabove stated asking that the
said order of August 10, 1922, appointing the said
Lazarus G. Joseph, receiver of the said Behn, Meyer &
Co. Ltd., be vacated and set aside on the ground that
Jureidini & Bros., under the facts and circumstances
stated, had no legal right to such receivership and that the
court had no jurisdiction to make such appointment, and
that consequently its order to that effect was null and void.
Upon hearing, the Court of First Instance, under date of
September 26, 1923, entered an order, the dispositive
part of which reads as follows:
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Sales – Chapter 3-12 Cases
For the foregoing and the interests of J.M. Menzi, John
Bordman and the Bank of the Philippine Islands in this
proceeding having, in the opinion of the court, been
shown, that of Bordman consisting in his having in his
acquired through purchase for the sum of P660,000 all the
interests, rights, choses in action, books, vouchers of the
herein plaintiff; that of J.M. Menzi in his having been
designated by said Bordman to take charge of said
properties and books in his name; and that of the Bank of
the Philippine Islands in its having furnished the sum of
money with which said Bordman made the purchase, it is
hereby adjudged to permit said parties, as they are hereby
permitted and authorized, to intervene in this case; and
the court having reached the conclusion that it has not,
and did not have, any jurisdiction to appoint a receiver in
view of the fact that all of the properties of the said plaintiff
had been sold by the Alien Property Custodian in
accordance with the Act of Congress hereinbefore
mentioned; it is hereby adjudged that the order of this
court of August 10, 1922, appointing Lazarus G. Joseph,
receiver, should be, as it hereby is, set aside. Let the bond
given by said receiver to secure the faithful performance
of his duties be cancelled, and J.M. Menzi is held to be
under no obligation to deliver to the aforesaid Lazarus G.
Joseph, the books under said Menzi's charge which
formerly belonged to the plaintiff Behn, Meyer & Co., Ltd.
No exception was taken to this order neither by the
receiver nor by Jureidini Bros., but on October 1, 1923,
their counsel filed the following motion for reconsideration:
Come now the Receiver and A.N. Jureidini & Bros. in the
above entitled case and move this court that the court
reconsider the resolution of this court dated September
26, 1923, and, thereafter order the delivery of the books to
the said receiver.
On December 3, 1923, the motion for reconsideration was
denied, exception duly taken and the case is now before
us upon appeal from the two orders last mentioned.
The appellants contend that the court below erred in
permitting the appellees to intervene inasmuch as (a) a
final judgment had been entered in the case and (b) the
appellees had no legal interest in the matter in litigation.
Neither of these points is, in our opinion, well taken. The
appellees intervene only in the receivership proceedings
which still were an open issue and did not attempt to
interfere in the part of the case which was covered by the
final judgment. They claimed no interest in the controversy
between Jureidini & Bros., and Behn, Meyer & Co., Ltd.,
but that Bordman and the Bank of the Philippine Islands
had a vital interest in the subsequent receivership is
clearly shown by the fact that one of the first actions of the
receiver appears to have been the institution of an action
against them to annul the sale made by the Alien Property
Custodian to Bordman, thus disturbing the latter in his '
property rights and threatening the lien held by the bank
upon the property sold. As to the appellee Menzi, it is
sufficient to say that he was brought into the present case
by the receiver himself on the order to show cause why he
did not turn over and deliver to said receiver the books of
account of Behn, Meyer & Co., Ltd. We fail to find any
error or abuse of discretion on the part of the court below
in permitting the intervention.
Appellants further maintain that the court erred in holding
that the appointment of the receiver was in excess of its
jurisdiction. This contention is also untenable. As soon as
Behn, Meyer & Co., Ltd., was an "enemy not holding a
license granted by the President of the United States," it
became the duty of the Alien Property Custodian to take
possession of its business and all its assets within United
States territory, and we must presume that this duty was
duly performed and that all such assets are now either
actually or constructively in the possession of the Alien
Property Custodian and under his control. If so, they are
beyond the jurisdiction and control of the Philippine
Courts. Section 7 of the Trading with Enemy Act as
amended provides as follows:
"The sole relief and remedy of any person having any
claim to any money or other property heretofore or
hereafter conveyed, transferred, assigned, delivered, or
paid over to the Alien Property Custodian, or required so
to be, or seized by him shall be that provided by the terms
of this Act, and in the event of sale or other disposition of
such property by the Alien Property Custodian, shall be
limited to and enforced against the net proceeds received
therefrom and held by the Alien Property Custodian or by
the Treasurer of the United States."lawphi1.net
Section 9 of the Act provides that anyone "not an enemy
or ally of enemy claiming any interest, right, or title in any
money of other property so requested and held, may give
notice of his claim and institute a suit in equity against the
Custodian or the Treasurer, as the case may be, to
establish and enforce his claim, and where suit is brought,
the money or property is to be retained by the Custodian
or in the Treasury, to abide the final decree. The same
section further provides:
Except as herein provided, the money or other property
conveyed, transferred, assigned, delivered, or paid to the
Alien Property Custodian shall not be liable to lien,
attachment, garnishment, trustee, process, or execution,
or subject to any order to decree of any court.
Section 17 of the same Act provides:
That the district courts of the United States are hereby
given jurisdiction to make and enter all such rules as to
notice and otherwise, and all such orders and decrees,
and to issue such process as may be necessary and
proper in the premises to enforce the provisions of this
Act, with a right of appeal from the final order or decree of
such court as provided in sections one hundred and
twenty-eight and two hundred and thirty-eight of the Act of
March third, nineteen hundred and eleven, entitled "An
Act to codify, revise, and amend the laws relating to the
judiciary."
The only jurisdiction given to the Courts of First Instance
of the Philippine Islands is in regard to criminal offenses
under said Act, as shown by section 18 thereof. Had it
been the intention of Congress to give the Philippine
courts jurisdiction over civil litigation in regard to property
under the control of the Alien Property Custodian, the Act
would, of course, have so stated.
The orders appealed from are affirmed, with the costs
against the appellants. So ordered.
152
Sales – Chapter 3-12 Cases
VIRGILIO S. DAVID, Petitioner,
vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE,
INC., Respondent.
Before this Court is a petition for review under Rule 45 of the
Rules of Court assailing the July 8, 2010 Decision1 of the
Court of Appeals (CA), in CA-G.R. CR No. 91839, which
affirmed the July 17, 2008 Decision2 of the Regional Trial
Court, Branch VIII, Manila (RTC) in Civil Case No. 94-69402,
an action for specific performance and damages.
The Facts:
Petitioner Virgilio S. David (David) was the owner or
proprietor of VSD Electric Sales, a company engaged in the
business of supplying electrical hardware including
transformers for rural electric cooperatives like respondent
Misamis Occidental II Electric Cooperative, Inc. (MOELCI),
with principal office located in Ozamis City.
To solve its problem of power shortage affecting some areas
within its coverage, MOELCI expressed its intention to
purchase a 10 MVA power transformer from David. For this
reason, its General Manager, Engr. Reynaldo Rada (Engr.
Rada), went to meet David in the latter’s office in Quezon
City. David agreed to supply the power transformer provided
that MOELCI would secure a board resolution because the
item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez
(Jimenez), who was in-charge of procurement, returned to
Manila and presented to David the requested board
resolution which authorized the purchase of one 10 MVA
power transformer. In turn, David presented his proposal for
the acquisition of said transformer. This proposal was the
same proposal that he would usually give to his clients.
After the reading of the proposal and the discussion of terms,
David instructed his then secretary and bookkeeper, Ellen M.
Wong, to type the names of Engr. Rada and Jimenez at the
end of the proposal. Both signed the document under the
word "conforme." The board resolution was thereafter
attached to the proposal.
As stated in the proposal, the subject transformer, together
with the basic accessories, was valued at P5,200,000.00. It
was also stipulated therein that 50% of the purchase price
should be paid as downpayment and the remaining balance
to be paid upon delivery. Freight handling, insurance,
customs duties, and incidental expenses were for the account
of the buyer.
The Board Resolution, on the other hand, stated that the
purchase of the said transformer was to be financed through
a loan from the National Electrification Administration (NEA).
As there was no immediate action on the loan application,
Engr. Rada returned to Manila in early December 1992 and
requested David to deliver the transformer to them even
without the required downpayment. David granted the request
provided that MOELCI would pay interest at 24% per annum.
Engr. Rada acquiesced to the condition. On December 17,
1992, the goods were shipped to Ozamiz City via William
Lines. In the Bill of Lading, a sales invoice was included
which stated the agreed interest rate of 24% per annum.
When nothing was heard from MOELCI for sometime after
the shipment, Emanuel Medina (Medina), David’s Marketing
Manager, went to Ozamiz City to check on the shipment.
Medina was able to confer with Engr. Rada who told him that
the loan was not yet released and asked if it was possible to
withdraw the shipped items. Medina agreed.
When no payment was made after several months, Medina
was constrained to send a demand letter, dated September
15, 1993, which MOELCI duly received. Engr. Rada replied in
writing that the goods were still in the warehouse of William
Lines again reiterating that the loan had not been approved
by NEA. This prompted Medina to head back to Ozamiz City
where he found out that the goods had already been released
to MOELCI evidenced by the shipping company’s copy of the
Bill of Lading which was stamped "Released," and with the
notation that the arrastre charges in the amount of P5,095.60
had been paid. This was supported by a receipt of payment
with the corresponding cargo delivery receipt issued by the
Integrated Port Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI
demanding the payment of the whole amount plus the
balance of previous purchases of other electrical hardware.
Aside from the formal demand letters, David added that
several statements of accounts were regularly sent through
the mails by the company and these were never disputed by
MOELCI.
On February 17, 1994, David filed a complaint for specific
performance with damages with the RTC. In response,
MOECLI moved for its dismissal on the ground that there was
lack of cause of action as there was no contract of sale, to
begin with, or in the alternative, the said contract was
unenforceable under the Statute of Frauds. MOELCI argued
that the quotation letter could not be considered a binding
contract because there was nothing in the said document
from which consent, on its part, to the terms and conditions
proposed by David could be inferred. David knew that
MOELCI’s assent could only be obtained upon the issuance
of a purchase order in favor of the bidder chosen by the
Canvass and Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of
Court, MOELCI filed its Motion for Preliminary Hearing of
Affirmative Defenses and Deferment of the Pre-Trial
Conference which was denied by the RTC to abbreviate
proceedings and for the parties to proceed to trial and avoid
piecemeal resolution of issues. The order denying its motion
was raised with the CA, and then with this Court. Both courts
sustained the RTC ruling.
Trial ensued. By reason of MOELCI’s continued failure to
appear despite notice, David was allowed to present his
testimonial and documentary evidence ex parte, pursuant to
Rule 18, Section 5 of the Rules. A Very Urgent Motion to
Allow Defendant to Present Evidence was filed by MOELCI,
but was denied.
In its July 17, 2008 Decision, the RTC dismissed the
complaint. It found that although a contract of sale was
perfected, it was not consummated because David failed to
prove that there was indeed a delivery of the subject item and
that MOELCI received it.3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the
assailed decision, the CA reasoned out that although David
was correct in saying that MOELCI was deemed to have
admitted the genuineness and due execution of the
"quotation letter" (Exhibit A), wherein the signatures of the
Chairman and the General Manager of MOELCI appeared,
he failed to offer any textual support to his stand that it was a
contract of sale instead of a mere price quotation agreed to
by MOELCI representatives. On this score, the RTC erred in
stating that a contract of sale was perfected between the
parties despite the irregularities that tainted their transaction.
Further, the fact that MOELCI’s representatives agreed to the
terms embodied in the agreement would not preclude the
finding that said contract was at best a mere contract to sell.
A motion for reconsideration was filed by David but it was
denied.4
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Sales – Chapter 3-12 Cases
Hence, this petition.
Before this Court, David presents the following issues for
consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED
CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT
CONSUMMATED THE CONTRACT.
The Court finds merit in the petition.
I.
On the issue as to whether or not there was a perfected
contract of sale, this Court is required to delve into the
evidence of the case. In a petition for review on certiorari
under Rule 45 of the Rules of Court, the issues to be
threshed out are generally questions of law only, and not of
fact.
This was reiterated in the case of Buenaventura v. Pascual,5
where it was written:
Time and again, this Court has stressed that its jurisdiction in
a petition for review on certiorari under Rule 45 of the Rules
of Court is limited to reviewing only errors of law, not of fact,
unless the findings of fact complained of are devoid of
support by the evidence on record, or the assailed judgment
is based on the misapprehension of facts. The trial court,
having heard the witnesses and observed their demeanor
and manner of testifying, is in a better position to decide the
question of their credibility. Hence, the findings of the trial
court must be accorded the highest respect, even finality, by
this Court.
That being said, the Court is not unmindful, however, of the
recognized exceptions well-entrenched in jurisprudence. It
has always been stressed that when supported by substantial
evidence, the findings of fact of the CA are conclusive and
binding on the parties and are not reviewable by this Court,
unless the case falls under any of the following recognized
exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd
or impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of
facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific
evidence on which the conclusions are based;
(9) When the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record. 6 [Emphasis
supplied]
In this case, the CA and the RTC reached different
conclusions on the question of whether or not there was a
perfected contract of sale. The RTC ruled that a contract of
sale was perfected although the same was not consummated
because David failed to show proof of delivery.7
The CA was of the opposite view. The CA wrote:
Be that as it may, it must be emphasized that the appellant
failed to offer any textual support to his insistence that Exhibit
"A" is a contract of sale instead of a mere price quotation
conformed to by MOELCI representatives. To that extent, the
trial court erred in laying down the premise that "indeed a
contract of sale is perfected between the parties despite the
irregularities attending the transaction." x x x
That representatives of MOELCI conformed to the terms
embodied in the agreement does not preclude the finding that
such contract is, at best, a mere contract to sell with
stipulated costs quoted should it ultimately ripen into one of
sale. The conditions upon which that development may occur
may even be obvious from statements in the agreement itself,
that go beyond just "captions." Thus, the appellant opens
with, "WE are pleased to submit our quotation xxx." The
purported contract also ends with. "Thank you for giving us
the opportunity to quote on your requirements and we hope to
receive your order soon" apparently referring to a purchase
order which MOELCI contends to be a formal requirement for
the entire transaction.8
In other words, the CA was of the position that Exhibit A was
at best a contract to sell.
A perusal of the records persuades the Court to hold
otherwise.
The elements of a contract of sale are, to wit: a) Consent or
meeting of the minds, that is, consent to transfer ownership in
exchange for the price; b) Determinate subject matter; and c)
Price certain in money or its equivalent.9 It is the absence of
the first element which distinguishes a contract of sale from
that of a contract to sell.
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, such as, in most cases,
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-fulfillment of which prevents the obligation to sell from
arising and, thus, ownership is retained by the prospective
seller without further remedies by the prospective buyer.10
In a contract of sale, on the other hand, the title to the
property passes to the vendee upon the delivery of the thing
sold. Unlike in a contract to sell, 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. 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
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Sales – Chapter 3-12 Cases
performed by the seller. The vendor loses ownership over the
property and cannot recover it until and unless the contract is
resolved or rescinded.11
An examination of the alleged contract to sell, "Exhibit A,"
despite its unconventional form, would show that said
document, with all the stipulations therein and with the
attendant circumstances surrounding it, was actually a
Contract of Sale. The rule is that it is not the title of the
contract, but its express terms or stipulations that determine
the kind of contract entered into by the parties.12 First, there
was meeting of minds as to the transfer of ownership of the
subject matter. The letter (Exhibit A), though appearing to be
a mere price quotation/proposal, was not what it seemed. It
contained terms and conditions, so that, by the fact that
Jimenez, Chairman of the Committee on Management, and
Engr. Rada, General Manager of MOELCI, had signed their
names under the word "CONFORME," they, in effect, agreed
with the terms and conditions with respect to the purchase of
the subject 10 MVA Power Transformer. As correctly argued
by David, if their purpose was merely to acknowledge the
receipt of the proposal, they would not have signed their
name under the word "CONFORME."
Besides, the uncontroverted attending circumstances bolster
the fact that there was consent or meeting of minds in the
transfer of ownership. To begin with, a board resolution was
issued authorizing the purchase of the subject power
transformer. Next, armed with the said resolution, top officials
of MOELCI visited David’s office in Quezon City three times
to discuss the terms of the purchase. Then, when the loan
that MOELCI was relying upon to finance the purchase was
not forthcoming, MOELCI, through Engr. Rada, convinced
David to do away with the 50% downpayment and deliver the
unit so that it could already address its acute power shortage
predicament, to which David acceded when it made the
delivery, through the carrier William
Lines, as evidenced by a bill of lading.
Second, the document specified a determinate subject matter
which was one (1) Unit of 10 MVA Power Transformer with
corresponding KV Line Accessories. And third, the document
stated categorically the price certain in money which was
P5,200,000.00 for one (1) unit of 10 MVA Power Transformer
and P2,169,500.00 for the KV Line Accessories.
In sum, since there was a meeting of the minds, there was
consent on the part of David to transfer ownership of the
power transformer to MOELCI in exchange for the price,
thereby complying with the first element. Thus, the said
document cannot just be considered a contract to sell but
rather a perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered
to it, argued that the Bill of Lading which David was relying
upon was not conclusive. It argued that although the bill of
lading was stamped "Released," there was nothing in it that
indicated that said power transformer was indeed released to
it or delivered to its possession. For this reason, it is its
position that it is not liable to pay the purchase price of the 10
MVA power transformer.
This Court is unable to agree with the CA that there was no
delivery of the items. On the contrary, there was delivery and
release.
To begin with, among the terms and conditions of the
proposal to which MOELCI agreed stated:
2. Delivery – Ninety (90) working days upon receipt of your
purchase order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and
incidental expenses shall be for the account of MOELCI II. 13
(Emphasis supplied)
On this score, it is clear that MOELCI agreed that the power
transformer would be delivered and that the freight, handling,
insurance, custom duties, and incidental expenses shall be
shouldered by it.
On the basis of this express agreement, Article 1523 of the
Civil Code becomes applicable.1âwphi1 It provides:
Where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer delivery
of the goods to a carrier, whether named by the buyer or not,
for the purpose of transmission to the buyer is deemed to be
a delivery of the goods to the buyer, except in the cases
provided for in Article 1503, first, second and third
paragraphs, or unless a contrary intent appears. (Emphasis
supplied)
Thus, the delivery made by David to William Lines, Inc., as
evidenced by the Bill of Lading, was deemed to be a delivery
to MOELCI. David was authorized to send the power
transformer to the buyer pursuant to their agreement. When
David sent the item through the carrier, it amounted to a
delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v.
Yangco,14 it was pointed out that a specification in a contract
relative to the payment of freight can be taken to indicate the
intention of the parties with regard to the place of delivery. So
that, if the buyer is to pay the freight, as in this case, it is
reasonable to suppose that the subject of the sale is
transferred to the buyer at the point of shipment. In other
words, the title to the goods transfers to the buyer upon
shipment or delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in
order to overcome said presumption, MOELCI should have
presented evidence to the contrary. The burden of proof was
shifted to MOELCI, who had to show that the rule under
Article 1523 was not applicable. In this regard, however,
MOELCI failed.
There being delivery and release, said fact constitutes partial
performance which takes the case out of the protection of the
Statute of Frauds. It is elementary that the partial execution of
a contract of sale takes the transaction out of the provisions
of the Statute of Frauds so long as the essential requisites of
consent of the contracting parties, object and cause of the
obligation concur and are clearly established to be present.15
That being said, the Court now comes to David’s prayer that
MOELCI be made to pay the total sum of ₱ 5,472,722.27 plus
the stipulated interest at 24% per annum from the filing of the
complaint. Although the Court agrees that MOELCI should
pay interest, the stipulated rate is, however, unconscionable
and should be equitably reduced. While there is no question
that parties to a loan agreement have wide latitude to
stipulate on any interest rate in view of the Central Bank
Circular No. 905 s. 1982 which suspended the Usury Law
ceiling on interest effective January 1, 1983, it is also worth
stressing that interest rates whenever unconscionable may
still be reduced to a reasonable and fair level. There is
nothing in the said circular which grants lenders carte blanche
authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their
assets.16 Accordingly, the excessive interest of 24% per
annum stipulated in the sales invoice should be reduced to
12% per annum.
155
Sales – Chapter 3-12 Cases
Indeed, David was compelled to file an action against
MOELCI but this reason alone will not warrant an award of
attorney’s fees. It is settled that the award of attorney's fees is
the exception rather than the rule. Counsel's fees are not
awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to
litigate. Attorney's fees, as part of damages, are not
necessarily equated to the amount paid by a litigant to a
lawyer. In the ordinary sense, attorney's fees represent the
reasonable compensation paid to a lawyer by his client for the
legal services he has rendered to the latter; while in its
extraordinary concept, they may be awarded by the court as
indemnity for damages to be paid by the losing party to the
prevailing party. Attorney's fees as part of damages are
awarded only in the instances specified in Article 2208 of the
Civil Code 17 which demands factual, legal, and equitable
justification. Its basis cannot be left to speculation or
conjecture. In this regard, none was proven.

Moreover, in the absence of stipulation, a winning party may

be awarded attorney's fees only in case plaintiffs action or
defendant's stand is so untenable as to amount to gross and
evident bad faith.18 is MOELCI's case cannot be similarly
classified.

Also, David's claim for the balance of P73,059.76 plus the

stipulated interest is denied for being unsubstantiated.

WHEREFORE, the petition Is GRANTED. The July 8, 2010

Decision of the Court of Appeals Is REVERSED and SET
ASIDE. Respondent Misamis Occidental II Electric
Cooperative, Inc. is ordered to pay petitioner Virgilio S. David
the total sum of P5,472,722.27 with interest at the rate of
12o/o per annum reckoned from the filing of the complaint
until fully paid.

SO ORDERED.

156
Sales – Chapter 3-12 Cases
SPOUSES JOSE C. ROQUE AND BEATRIZ DELA
CRUZ ROQUE, with deceased Jose C. Roque
represented by his substitute heir JOVETTE ROQUE-
LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG,
JR., NATIONAL COUNCIL OF CHURCHES IN THE
PHILIPPINES (NCCP), represented by its Secretary
General SHARON ROSE JOY RUIZ-DUREMDES, LAND
BANK OF THE PHILIPPINES (LBP), represented by
Branch Manager EVELYN M. MONTERO, ATTY.
MARIO S.P. DIAZ, in his Official Capacity as Register
of Deeds for Rizal, Morong Branch, and CECILIO U.
PULAN, in his Official Capacity as Sheriff, Office of
the Clerk of Court, Regional Trial Court, Binangonan,
Rizal, Respondents.
Assailed in this petition for review on certiorari1 are the
Decision2 dated May 12, 2010 and the Resolution3 dated
September 15, 2010 of the Court of Appeals (CA) in CA
G.R. CV No. 92113 which affirmed the Decision4 dated
July 8, 2008 of the Regional Trial Court of Binangonan,
Rizal, Branch 69 (RTC) that dismissed Civil Case Nos. 03-
022 and 05-003 for reconveyance, annulment of sale,
deed of real estate mortgage, foreclosure and certificate
of sale, and damages.
The Facts
The property subject of this case is a parcel of land with
an area of 20,862 square meters (sq. m.), located in Sitio
Tagpos, Barangay Tayuman, Binangonan, Rizal, known
as Lot 18089.5
On July 21, 1977, petitioners-spouses Jose C. Roque and
Beatriz dela Cruz Roque (Sps. Roque) and the original
owners of the then unregistered Lot 18089 – namely,
Velia R. Rivero (Rivero), Magdalena Aguilar, Angela
Gonzales, Herminia R. Bernardo, Antonio Rivero, Araceli
R. Victa, Leonor R. Topacio, and Augusto Rivero (Rivero,
et al.) – executed a Deed of Conditional Sale of Real
Property6 (1977 Deed of Conditional Sale) over a 1,231-
sq. m. portion of Lot 18089 (subject portion) for a
consideration of ₱30,775.00. The parties agreed that Sps.
Roque shall make an initial payment of ₱15,387.50 upon
signing, while the remaining balance of the purchase price
shall be payable upon the registration of Lot 18089, as
well as the segregation and the concomitant issuance of a
separate title over the subject portion in their names. After
the deed’s execution, Sps. Roque took possession and
introduced improvements on the subject portion which
they utilized as a balut factory.7
On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.),
former Treasurer of the National Council of Churches in
the Philippines (NCCP), applied for a free patent over the
entire Lot 18089 and was eventually issued Original
Certificate of Title (OCT) No. M-59558 in his name on
October 21, 1991. On June 24, 1993, Sabug, Jr. and
Rivero, in her personal capacity and in representation of
Rivero, et al., executed a Joint Affidavit9 (1993 Joint
Affidavit), acknowledging that the subject portion belongs
to Sps. Roque and expressed their willingness to
segregate the same from the entire area of Lot 18089.
On December 8, 1999, however, Sabug, Jr., through a
Deed of Absolute Sale10 (1999 Deed of Absolute Sale),
sold Lot 18089 to one Ma. Pamela P. Aguado (Aguado)
for ₱2,500,000.00, who, in turn, caused the cancellation of
OCT No. M-5955 and the issuance of Transfer Certificate
of Title (TCT) No. M-96692 dated December 17, 199911
in her name.
Thereafter, Aguado obtained an ₱8,000,000.00 loan from
the Land Bank of the Philippines (Land Bank) secured by
a mortgage over Lot 18089.12 When she failed to pay her
loan obligation, Land Bank commenced extra-judicial
foreclosure proceedings and eventually tendered the
highest bid in the auction sale. Upon Aguado’s failure to
redeem the subject property, Land Bank consolidated its
ownership, and TCT No. M-11589513 was issued in its
name on July 21, 2003.14
On June 16, 2003, Sps. Roque filed a complaint15 for
reconveyance, annulment of sale, deed of real estate
mortgage, foreclosure, and certificate of sale, and
damages before the RTC, docketed as Civil Case No. 03-
022, against Aguado, Sabug, Jr., NCCP, Land Bank, the
Register of Deeds of Morong, Rizal, and Sheriff Cecilio U.
Pulan, seeking to be declared as the true owners of the
subject portion which had been erroneously included in
the sale between Aguado and Sabug, Jr., and,
subsequently, the mortgage to Land Bank, both covering
Lot 18089 in its entirety.
In defense, NCCP and Sabug, Jr. denied any knowledge
of the 1977 Deed of Conditional Sale through which the
subject portion had been purportedly conveyed to Sps.
Roque.16
For her part, Aguado raised the defense of an innocent
purchaser for value as she allegedly derived her title
(through the 1999 Deed of Absolute Sale) from Sabug, Jr.,
the registered owner in OCT No. M-5955, covering Lot
18089, which certificate of title at the time of sale was free
from any lien and/or encumbrances. She also claimed that
Sps. Roque’s cause of action had already prescribed
because their adverse claim was made only on April 21,
2003, or four (4) years from the date OCT No. M-5955
was issued in Sabug, Jr.’s name on December 17,
1999.17
On the other hand, Land Bank averred that it had no
knowledge of Sps. Roque’s claim relative to the subject
portion, considering that at the time the loan was taken
out, Lot 18089 in its entirety was registered in Aguado’s
name and no lien and/or encumbrance was annotated on
her certificate of title.18
Meanwhile, on January 18, 2005, NCCP filed a separate
complaint19 also for declaration of nullity of documents
and certificates of title and damages, docketed as Civil
Case No. 05-003. It claimed to be the real owner of Lot
18089 which it supposedly acquired from Sabug, Jr.
through an oral contract of sale20 in the early part of
1998, followed by the execution of a Deed of Absolute
Sale on December 2, 1998 (1998 Deed of Absolute
Sale).21 NCCP also alleged that in October of the same
year, it entered into a Joint Venture Agreement (JVA) with
Pilipinas Norin Construction Development Corporation
(PNCDC), a company owned by Aguado’s parents, for the
development of its real properties, including Lot 18089,
into a subdivision project, and as such, turned over its
copy of OCT No. M-5955 to PNCDC.22 Upon knowledge
of the purported sale of Lot 18089 to Aguado, Sabug, Jr.
denied the transaction and alleged forgery. Claiming that
the Aguados23 and PNCDC conspired to defraud NCCP,
it prayed that PNCDC’s corporate veil be pierced and that
the Aguados be ordered to pay the amount of
₱38,092,002.00 representing the unrealized profit from
the JVA.24 Moreover, NCCP averred that Land Bank
157
Sales – Chapter 3-12 Cases
failed to exercise the diligence required to ascertain the
true owners of Lot 18089. Hence, it further prayed that: (a)
all acts of ownership and dominion over Lot 18089 that
the bank might have done or caused to be done be
declared null and void; (b) it be declared the true and real
owners of Lot 18089; and (c) the Register of Deeds of
Morong, Rizal be ordered to cancel any and all certificates
of title covering the lot, and a new one be issued in its
name.25 In its answer, Land Bank reiterated its stance
that Lot 18089 was used as collateral for the
₱8,000,000.00 loan obtained by the Countryside Rural
Bank, Aguado, and one Bella Palasaga. There being no
lien and/ or encumbrance annotated on its certificate of
title, i.e., TCT No. M-115895, it cannot be held liable for
NCCP’s claims. Thus, it prayed for the dismissal of
NCCP’s complaint.26
On September 7, 2005, Civil Case Nos. 02-022 and 05-
003 were ordered consolidated.27
The RTC Ruling
After due proceedings, the RTC rendered a Decision28
dated July 8, 2008, dismissing the complaints of Sps.
Roque and NCCP.
With respect to Sps. Roque’s complaint, the RTC found
that the latter failed to establish their ownership over the
subject portion, considering the following: (a) the
supposed owners-vendors, i.e., Rivero, et al., who
executed the 1977 Deed of Conditional Sale, had no proof
of their title over Lot 18089; (b) the 1977 Deed of
Conditional Sale was not registered with the Office of the
Register of Deeds;29 (c) the 1977 Deed of Conditional
Sale is neither a deed of conveyance nor a transfer
document, as it only gives the holder the right to compel
the supposed vendors to execute a deed of absolute sale
upon full payment of the consideration; (d) neither Sps.
Roque nor the alleged owners-vendors, i.e., Rivero, et al.,
have paid real property taxes in relation to Lot 18089; and
(e) Sps. Roque’s occupation of the subject portion did not
ripen into ownership that can be considered superior to
the ownership of Land Bank.30 Moreover, the RTC ruled
that Sps. Roque’s action for reconveyance had already
prescribed, having been filed ten (10) years after the
issuance of OCT No. M-5955.31
On the other hand, regarding NCCP’s complaint, the RTC
observed that while it anchored its claim of ownership
over Lot 18089 on the 1998 Deed of Absolute Sale, the
said deed was not annotated on OCT No. M-5955. Neither
was any certificate of title issued in its name nor did it take
possession of Lot 18089 or paid the real property taxes
therefor. Hence, NCCP’s claim cannot prevail against
Land Bank’s title, which was adjudged by the RTC as an
innocent purchaser for value. Also, the RTC disregarded
NCCP’s allegation that the signature of Sabug, Jr. on the
1999 Deed of Absolute Sale in favor of Aguado was
forged because his signatures on both instruments bear
semblances of similarity and appear genuine. Besides, the
examiner from the National Bureau of Investigation, who
purportedly found that Sabug, Jr.’s signature thereon was
spurious leading to the dismissal of a criminal case
against him, was not presented as a witness in the civil
action.32
Finally, the RTC denied the parties’ respective claims for
damages.33
The CA Ruling
On appeal, the Court of Appeals (CA) affirmed the
foregoing RTC findings in a Decision34 dated May 12,
2010. While Land Bank was not regarded as a
mortgagee/purchaser in good faith with respect to the
subject portion considering Sps. Roque’s possession
thereof,35 the CA did not order its reconveyance or
segregation in the latter’s favor because of Sps. Roque’s
failure to pay the remaining balance of the purchase price.
Hence, it only directed Land Bank to respect Sps. Roque’s
possession with the option to appropriate the
improvements introduced thereon upon payment of
compensation.36
As regards NCCP, the CA found that it failed to establish
its right over Lot 18089 for the following reasons: (a) the
sale to it of the lot by Sabug, Jr. was never registered; and
(b) there is no showing that it was in possession of Lot
18089 or any portion thereof from 1998. Thus, as far as
NCCP is concerned, Land Bank is a mortgagee/purchaser
in good faith.37
Aggrieved, both Sps. Roque38 and NCCP39 moved for
reconsideration but were denied by the CA in a
Resolution40 dated September 15, 2010, prompting them
to seek further recourse before the Court.
The Issue Before the Court
The central issue in this case is whether or not the CA
erred in not ordering the reconveyance of the subject
portion in Sps. Roque’s favor.
Sps. Roque maintain that the CA erred in not declaring
them as the lawful owners of the subject portion despite
having possessed the same since the execution of the
1977 Deed of Conditional Sale, sufficient for acquisitive
prescription to set in in their favor.41 To bolster their
claim, they also point to the 1993 Joint Affidavit whereby
Sabug, Jr. and Rivero acknowledged their ownership
thereof.42 Being the first purchasers and in actual
possession of the disputed portion, they assert that they
have a better right over the 1,231- sq. m. portion of Lot
18089 and, hence, cannot be ousted therefrom by Land
Bank, which was adjudged as a ortgagee/purchaser in
bad faith, pursuant to Article 1544 of the Civil Code.43
In opposition, Land Bank espouses that the instant
petition should be dismissed for raising questions of fact,
in violation of the proscription under Rule 45 of the Rules
of Court which allows only pure questions of law to be
raised.44 Moreover, it denied that ownership over the
subject portion had been acquired by Sps. Roque who
admittedly failed to pay the remaining balance of the
purchase price.45 Besides, Land Bank points out that
Sps. Roque’s action for reconveyance had already
prescribed.46
Instead of traversing the arguments of Sps. Roque,
NCCP, in its Comment47 dated December 19, 2011,
advanced its own case, arguing that the CA erred in
holding that it failed to establish its claimed ownership
over Lot 18089 in its entirety. Incidentally, NCCP’s appeal
from the CA Decision dated May 12, 2010 was already
denied by the Court,48 and hence, will no longer be dealt
with in this case.
The Court’s Ruling
The petition lacks merit.
158
Sales – Chapter 3-12 Cases
The essence of an action for reconveyance is to seek the
transfer of the property which was wrongfully or
erroneously registered in another person’s name to its
rightful owner or to one with a better right.49 Thus, it is
incumbent upon the aggrieved party to show that he has a
legal claim on the property superior to that of the
registered owner and that the property has not yet passed
to the hands of an innocent purchaser for value.50
Sps. Roque claim that the subject portion covered by the
1977 Deed of Conditional Sale between them and Rivero,
et al. was wrongfully included in the certificates of title
covering Lot 18089, and, hence, must be segregated
therefrom and their ownership thereof be confirmed. The
salient portions of the said deed state:
DEED OF CONDITIONAL SALE OF REAL PROPERTY
KNOW ALL MEN BY THESE PRESENTS:
xxxx
That for and in consideration of the sum of THIRTY
THOUSAND SEVEN HUNDRED SEVENTY FIVE PESOS
(₱30,775.00), Philippine Currency, payable in the manner
hereinbelow specified, the VENDORS do hereby sell,
transfer and convey unto the VENDEE, or their heirs,
executors, administrators, or assignors, that unsegregated
portion of the above lot, x x x.
That the aforesaid amount shall be paid in two
installments, the first installment which is in the amount of
__________ (₱15,387.50) and the balance in the amount
of __________ (₱15,387.50), shall be paid as soon as the
described portion of the property shall have been
registered under the Land Registration Act and a
Certificate of Title issued accordingly;
That as soon as the total amount of the property has been
paid and the Certificate of Title has been issued, an
absolute deed of sale shall be executed accordingly;
x x x x51
Examining its provisions, the Court finds that the
stipulation above-highlighted shows that the 1977 Deed of
Conditional Sale is actually in the nature of a contract to
sell and not one of sale contrary to Sps. Roque’s belief.52
In this relation, it has been consistently ruled that where
the seller promises to execute a deed of absolute sale
upon the completion by the buyer of the payment of the
purchase price, the contract is only a contract to sell even
if their agreement is denominated as a Deed of
Conditional Sale,53 as in this case. This treatment stems
from the legal characterization of a contract to sell, that is,
a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds
himself to sell the subject property exclusively to the
prospective buyer upon fulfillment of the condition agreed
upon, such as, the full payment of the purchase price.54
Elsewise stated, in a contract to sell, ownership is retained
by the vendor and is not to pass to the vendee until full
payment of the purchase price.55 Explaining the subject
matter further, the Court, in Ursal v. CA,56 held that:
[I]n contracts to sell the obligation of the seller to sell
becomes demandable only upon the happening of the
suspensive condition, that is, the full payment of the
purchase price by the buyer. It is only upon the existence
of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer. Prior
to the existence of the contract of sale, the seller is not
obligated to transfer the ownership to the buyer, even if
there is a contract to sell between them.
Here, it is undisputed that Sps. Roque have not paid the
final installment of the purchase price.57 As such, the
condition which would have triggered the parties’
obligation to enter into and thereby perfect a contract of
sale in order to effectively transfer the ownership of the
subject portion from the sellers (i.e., Rivero et al.) to the
buyers (Sps. Roque) cannot be deemed to have been
fulfilled. Consequently, the latter cannot validly claim
ownership over the subject portion even if they had made
an initial payment and even took possession of the
same.58
The Court further notes that Sps. Roque did not even take
any active steps to protect their claim over the disputed
portion. This remains evident from the following
circumstances appearing on record: (a) the 1977 Deed of
Conditional Sale was never registered; (b) they did not
seek the actual/physical segregation of the disputed
portion despite their knowledge of the fact that, as early as
1993, the entire Lot 18089 was registered in Sabug, Jr.’s
name under OCT No. M-5955; and (c) while they signified
their willingness to pay the balance of the purchase
price,59 Sps. Roque neither compelled Rivero et al.,
and/or Sabug, Jr. to accept the same nor did they consign
any amount to the court, the proper application of which
would have effectively fulfilled their obligation to pay the
purchase price.60 Instead, Sps. Roque waited 26 years,
reckoned from the execution of the 1977 Deed of
Conditional Sale, to institute an action for reconveyance
(in 2003), and only after Lot 18089 was sold to Land Bank
in the foreclosure sale and title thereto was consolidated
in its name. Thus, in view of the foregoing, Sabug, Jr. – as
the registered owner of Lot 18089 borne by the grant of
his free patent application – could validly convey said
property in its entirety to Aguado who, in turn, mortgaged
the same to Land Bank. Besides, as aptly observed by the
RTC, Sps. Roque failed to establish that the parties who
sold the property to them, i.e., Rivero, et al., were indeed
its true and lawful owners.61 In fine, Sps. Roque failed to
establish any superior right over the subject portion as
against the registered owner of Lot 18089, i.e., Land
Bank, thereby warranting the dismissal of their
reconveyance action, without prejudice to their right to
seek damages against the vendors, i.e., Rivero et al.62 As
applied in the case of Coronel v. CA:63
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 fulfilment 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.1âwphi1 Title to the
property will transfer to the buyer after registration
because there is no defect in the owner-seller’s title per
se, but the latter, of course, may be sued for damages by
the intending buyer. (Emphasis supplied)
159
Sales – Chapter 3-12 Cases
On the matter of double sales, suffice it to state that Sps.
Roque’s reliance64 on Article 154465 of the Civil Code
has been misplaced since the contract they base their
claim of ownership on is, as earlier stated, a contract to
sell, and not one of sale. In Cheng v. Genato,66 the Court
stated the circumstances which must concur in order to
determine the applicability of Article 1544, none of which
are obtaining in this case, viz.:

(a) The two (or more) sales transactions in issue must

pertain to exactly the same subject matter, and must be
valid sales transactions;

(b) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each represent
conflicting interests; and

(c) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each have bought
from the same seller.

Finally, regarding Sps. Roque’s claims of acquisitive

prescription and reimbursement for the value of the
improvements they have introduced on the subject
property,67 it is keenly observed that none of the
arguments therefor were raised before the trial court or
the CA.68 Accordingly, the Court applies the well-settled
rule that litigants cannot raise an issue for the first time on
appeal as this would contravene the basic rules of fair
play and justice. In any event, such claims appear to
involve questions of fact which are generally prohibited
under a Rule 45 petition.69

With the conclusions herein reached, the Court need not

belabor on the other points raised by the parties, and
ultimately finds it proper to proceed with the denial of the
petition.

WHEREFORE, the petition is DENIED. The Decision

dated May 12, 2010 and the Resolution dated September
15, 2010 of the Court of Appeals in CAG.R. CV No. 92113
are hereby AFFIRMED.

SO ORDERED.

160
Sales – Chapter 3-12 Cases
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.
The petition before us has its roots in a complaint for
specific performance to compel herein petitioners (except
the last named, Catalina Balais Mabanag) to consummate
the sale of a parcel of land with its improvements located
along Roosevelt Avenue in Quezon City entered into by
the parties sometime in January 1985 for the price of
P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
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
Received from Miss Ramona Patricia Alcaraz of 146
Timog, Quezon City, the sum of Fifty Thousand Pesos
purchase price of our inherited house and lot, covered by
TCT No. 119627 of the Registry of Deeds of Quezon City,
in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from
our deceased father, Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the down
payment above-stated.
On our presentation of the TCT already in or name, We
will immediately execute the deed of absolute sale of said
property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
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")
For this reason, Coronels canceled and rescinded the
contract (Exh. "A") with Ramona by depositing the down
payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a
complaint for specific performance against the Coronels
and caused the annotation of a notice of lis pendens at
the back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a
notice of adverse claim covering the same property with
the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of
Absolute Sale over the subject property in favor of
Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was
issued in the name of Catalina under TCT No. 351582
(Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court
(Branch 83, RTC, Quezon City) the parties agreed to
submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now private
respondents) proffered their documentary evidence
accordingly marked as Exhibits "A" through "J", inclusive
of their corresponding submarkings. Adopting these same
exhibits as their own, then defendants (now petitioners)
accordingly offered and marked them as Exhibits "1"
through "10", likewise inclusive of their corresponding
submarkings. Upon motion of the parties, the trial court
gave them thirty (30) days within which to simultaneously
submit their respective memoranda, and an additional 15
days within which to submit their corresponding comment
or reply thereof, after which, the case would be deemed
submitted for resolution.
On April 14, 1988, the case was submitted for resolution
before Judge Reynaldo Roura, who was then temporarily
detailed to preside over Branch 82 of the RTC of Quezon
City. On March 1, 1989, judgment was handed down by
Judge Roura from his regular bench at Macabebe,
Pampanga for the Quezon City branch, disposing as
follows:
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Sales – Chapter 3-12 Cases
WHEREFORE, judgment for specific performance is
hereby rendered ordering defendant to execute in favor of
plaintiffs a deed of absolute sale covering that parcel of
land embraced in and covered by Transfer Certificate of
Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and
encumbrances, and once accomplished, to immediately
deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and
upon receipt thereof, the plaintiffs are ordered to pay
defendants the whole balance of the purchase price
amounting to P1,190,000.00 in cash. Transfer Certificate
of Title No. 331582 of the Registry of Deeds for Quezon
City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are
hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs' claim for
damages and attorney's fees, as well as the
counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before
the new presiding judge of the Quezon City RTC but the
same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul
the decision and to render anew decision by the
undersigned Presiding Judge should be denied for the
following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties
terminated the presentation of their respective
documentary evidence and when the Presiding Judge at
that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did
not change the fact that the hearing of the case was
terminated before Judge Roura and therefore the same
should be submitted to him for decision; (2) When the
defendants and intervenor did not object to the authority
of Judge Reynaldo Roura to decide the case prior to the
rendition of the decision, when they met for the first time
before the undersigned Presiding Judge at the hearing of
a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have
acquiesced thereto and they are now estopped from
questioning said authority of Judge Roura after they
received the decision in question which happens to be
adverse to them; (3) While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at this Branch of the
Court, he was in all respects the Presiding Judge with full
authority to act on any pending incident submitted before
this Court during his incumbency. When he returned to his
Official Station at Macabebe, Pampanga, he did not lose
his authority to decide or resolve such cases submitted to
him for decision or resolution because he continued as
Judge of the Regional Trial Court and is of co-equal rank
with the undersigned Presiding Judge. The standing rule
and supported by jurisprudence is that a Judge to whom a
case is submitted for decision has the authority to decide
the case notwithstanding his transfer to another branch or
region of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the
Decision dated March 1, 1989 rendered in the instant
case, resolution of which now pertains to the undersigned
Presiding Judge, after a meticulous examination of the
documentary evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is supported
by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for
Reconsideration and/or to Annul Decision and Render
Anew Decision by the Incumbent Presiding Judge" dated
March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on
December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5,
1992. The last pleading, private respondents' Reply
Memorandum, was filed on September 15, 1993. The
case was, however, re-raffled to undersigned ponente
only on August 28, 1996, due to the voluntary inhibition of
the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain
refinements in the disquisition of respondent court in the
affirmance of the trial court's decision, we definitely find
the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in
the resolution of the other issues in the case at bar is the
precise determination of the legal significance of the
document entitled "Receipt of Down Payment" which was
offered in evidence by both parties. There is no dispute as
to the fact that said document embodied the binding
contract between Ramona Patricia Alcaraz on the one
hand, and the heirs of Constancio P. Coronel on the
other, pertaining to a particular house and lot covered by
TCT No. 119627, as defined in Article 1305 of the Civil
Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds
between two persons whereby one binds himself, with
respect to the other, to give something or to render some
service.
While, it is the position of private respondents that the
"Receipt of Down Payment" embodied a perfected
contract of sale, which perforce, they seek to enforce by
means of an action for specific performance, petitioners
on their part insist that what the document signified was a
mere executory contract to sell, subject to certain
suspensive conditions, and because of the absence of
Ramona P. Alcaraz, who left for the United States of
America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties'
contentions is brought about by the way each interprets
the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and
admissible evidence may be available on record, this,
Court, as were the courts below, is now called upon to
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Sales – Chapter 3-12 Cases
adjudge what the real intent of the parties was at the time
the said document was executed.
The Civil Code defines a contract of sale, 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.
Sale, by its very nature, is a consensual contract because
it is perfected by mere consent. The essential elements of
a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent
to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
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 explicity 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 is
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-fulfillment of which prevents
the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies
by the prospective buyer. In Roque vs. Lapuz (96 SCRA
741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner
and the respondent was a contract to sell where the
ownership or title is retained by the seller and is not to
pass until the full payment of the price, such payment
being a positive suspensive condition and failure of which
is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from
acquiring binding force.
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 which states:
Art. 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.
A contract to sell may thus be defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
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.
With the above postulates as guidelines, we now proceed
to the task of deciphering the real nature of the contract
entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the
words used therein should be given their natural and
ordinary meaning unless a technical meaning was
intended (Tan vs. Court of Appeals, 212 SCRA 586
163
Sales – Chapter 3-12 Cases
[1992]). Thus, when petitioners declared in the said
"Receipt of Down Payment" that they —
Received from Miss Ramona Patricia Alcaraz of 146
Timog, Quezon City, the sum of Fifty Thousand Pesos
purchase price of our inherited house and lot, covered by
TCT No. 1199627 of the Registry of Deeds of Quezon
City, in the total amount of P1,240,000.00.
without any reservation of title until full payment of the
entire purchase price, the natural and ordinary idea
conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its
entirety, it becomes more manifest that there was a clear
intent on the part of petitioners to transfer title to the
buyer, but since the transfer certificate of title was still in
the name of petitioner's father, they could not fully effect
such transfer although the buyer was then willing and able
to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down
payment from private respondent Ramona P. Alcaraz, to
cause the issuance of a new certificate of title in their
names from that of their father, after which, they promised
to present said title, now in their names, to the latter and
to execute the deed of absolute sale whereupon, the latter
shall, in turn, pay the entire balance of the purchase price.
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.
Moreover, unlike in a contract to sell, petitioners in the
case at bar did not merely promise to sell the properly to
private respondent upon the fulfillment of the suspensive
condition. On the contrary, having already agreed to sell
the subject property, they undertook to have the certificate
of title changed to their names and immediately thereafter,
to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to
sell where the sellers, after compliance by the buyer with
certain terms and conditions, promised to sell the property
to the latter. What may be perceived from the respective
undertakings of the parties to the contract is that
petitioners had already agreed to sell the house and lot
they inherited from their father, completely willing to
transfer full ownership of the subject house and lot to the
buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title
was then still in the name of their father. It was more
expedient to first effect the change in the certificate of title
so as to bear their names. That is why they undertook to
cause the issuance of a new transfer of the certificate of
title in their names upon receipt of the down payment in
the amount of P50,000.00. As soon as the new certificate
of title is issued in their names, petitioners were
committed to immediately execute the deed of absolute
sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is
most commonly entered into so as to protect the seller
against a buyer who intends to buy the property in
installment by withholding ownership over the property
until the buyer effects full payment therefor, in the contract
entered into in the case at bar, the sellers were the one
who were unable to enter into a contract of absolute sale
by reason of the fact that the certificate of title to the
property was still in the name of their father. It was the
sellers in this case who, as it were, had the impediment
which prevented, so to speak, the execution of an contract
of absolute sale.
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.
The Court significantly notes this suspensive condition
was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh.
"4"). Thus, on said date, the conditional contract of sale
between petitioners and private respondent Ramona P.
Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property
by means of the execution of the deed of absolute sale in
a public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the "Receipt
of Down Payment."
Article 1475, in correlation with Article 1181, both of the
Civil Code, plainly applies to the case at bench. Thus,
Art. 1475. The 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.
From the moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts.
Art. 1181. In conditional obligations, the
acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is
the issuance of a certificate of title in petitioners' names
was fulfilled on February 6, 1985, the respective
obligations of the parties under the contract of sale
became mutually demandable, that is, petitioners, as
sellers, were obliged to present the transfer certificate of
title already in their names to private respondent Ramona
P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was
obliged to forthwith pay the balance of the purchase price
amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in
page 9 of their petition, petitioners conclusively admitted
that:
3. The petitioners-sellers Coronel bound
themselves "to effect the transfer in our names from our
deceased father Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the
164
Sales – Chapter 3-12 Cases
downpayment above-stated". The sale was still subject to
this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only,
they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition
of first transferring the title to the property under their
names, there could be no perfected contract of sale.
(Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for
Article 1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what
is more controlling than these mere hypothetical
arguments is the fact that the condition herein referred to
was actually and indisputably fulfilled on February 6,
1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403 (Exh. "D";
Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of
Down Payment" (Exh. "A"; Exh. "1"), the parties entered
into a contract of sale subject only to the suspensive
condition that the sellers shall effect the issuance of new
certificate title from that of their father's name to their
names and that, on February 6, 1985, this condition was
fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187
which pertinently provides —
Art. 1187. The effects of conditional obligation to
give, once the condition has been fulfilled, shall retroact to
the day of the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine,
in each case, the retroactive effect of the condition that
has been complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of
the suspensive condition on February 6, 1985. As of that
point in time, reciprocal obligations of both seller and
buyer arose.
Petitioners also argue there could been no perfected
contract on January 19, 1985 because they were then not
yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a
mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of
which the property, rights and obligations to be extent and
value of the inheritance of a person are transmitted
through his death to another or others by his will or by
operation of law.
Petitioners-sellers in the case at bar being the sons and
daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by
operation of law. Thus, at the point their father drew his
last breath, petitioners stepped into his shoes insofar as
the subject property is concerned, such that any rights or
obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights
to the succession are transmitted from the moment of
death of the decedent (Article 777, Civil Code; Cuison vs.
Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession
may not be declared unless the creditors have been paid
is rendered moot by the fact that they were able to effect
the transfer of the title to the property from the decedent's
name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising
their supposed lack of capacity to enter into an agreement
at that time and they cannot be allowed to now take a
posture contrary to that which they took when they
entered into the agreement with private respondent
Ramona P. Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon.
Having represented themselves as the true owners of the
subject property at the time of sale, petitioners cannot
claim now that they were not yet the absolute owners
thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation when
she rendered impossible the consummation thereof by
going to the United States of America, without leaving her
address, telephone number, and Special Power of
Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p.
43), for which reason, so petitioners conclude, they were
correct in unilaterally rescinding rescinding the contract of
sale.
We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We
note that these supposed grounds for petitioners'
rescission, are mere allegations found only in their
responsive pleadings, which by express provision of the
rules, are deemed controverted even if no reply is filed by
the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court).
The records are absolutely bereft of any supporting
evidence to substantiate petitioners' allegations. We have
stressed time and again that allegations must be proven
by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil.
882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961].
Mere allegation is not an evidence (Lagasca vs. De Vera,
79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in
the United States of America on February 6, 1985, we
cannot justify petitioner-sellers' act of unilaterally and
extradicially rescinding the contract of sale, there being no
express stipulation authorizing the sellers to extarjudicially
rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA
165
Sales – Chapter 3-12 Cases
375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722
[1984])
Moreover, petitioners are estopped from raising the
alleged absence of Ramona P. Alcaraz because although
the evidence on record shows that the sale was in the
name of Ramona P. Alcaraz as the buyer, the sellers had
been dealing with Concepcion D. Alcaraz, Ramona's
mother, who had acted for and in behalf of her daughter, if
not also in her own behalf. Indeed, the down payment was
made by Concepcion D. Alcaraz with her own personal
check (Exh. "B"; Exh. "2") for and in behalf of Ramona P.
Alcaraz. There is no evidence showing that petitioners
ever questioned Concepcion's authority to represent
Ramona P. Alcaraz when they accepted her personal
check. Neither did they raise any objection as regards
payment being effected by a third person. Accordingly, as
far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract
of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to
be in default, insofar as her obligation to pay the full
purchase price is concerned. Petitioners who are
precluded from setting up the defense of the physical
absence of Ramona P. Alcaraz as above-explained
offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their
names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with their
agreement. Ramona's corresponding obligation to pay the
balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to
have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be
considered in default, to wit:
Art. 1169. Those obliged to deliver or to do
something, incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
xxx xxx xxx
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 fulfill his obligation, delay by
the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other
petitioner, Catalina B. Mabanag, gave rise to a case of
double sale where Article 1544 of the Civil Code will
apply, to wit:
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 if be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in 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 record of the case shows that the Deed of Absolute
Sale dated April 25, 1985 as proof of the second contract
of sale was registered with the Registry of Deeds of
Quezon City giving rise to the issuance of a new
certificate of title in the name of Catalina B. Mabanag on
June 5, 1985. Thus, the second paragraph of Article 1544
shall apply.
The above-cited provision on double sale presumes title
or ownership to pass to the first buyer, the exceptions
being: (a) when the second buyer, in good faith, registers
the sale ahead of the first buyer, and (b) should there be
no inscription by either of the two buyers, when the
second buyer, in good faith, acquires possession of the
property ahead of the first buyer. Unless, the second
buyer satisfies these requirements, title or ownership will
not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted
authority on the subject, now a distinguished member of
the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first
in time, stronger in right). Knowledge by the first buyer of
the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith
the second sale (Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register,
since knowledge taints his registration with bad faith (see
also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that it is essential,
to merit the protection of Art. 1544, second paragraph,
that the second realty buyer must act in good faith in
registering his deed of sale (citing Carbonell vs. Court of
Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No.
95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence,
1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the
case at bar was annoted on the title of the subject
property only on February 22, 1985, whereas, the second
sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on
February 18, 1985. The idea conveyed is that at the time
petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any
adverse claim or previous sale, for which reason she is
buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and
materiality is not whether or not the second buyer was a
buyer in good faith but whether or not said second buyer
registers such second sale in good faith, that is, without
knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case,
petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985
because as early as February 22, 1985, a notice of lis
pendens had been annotated on the transfer certificate of
166
Sales – Chapter 3-12 Cases
title in the names of petitioners, whereas petitioner
Mabanag registered the said sale sometime in April, 1985.
At the time of registration, therefore, petitioner Mabanag
knew that the same property had already been previously
sold to private respondents, or, at least, she was charged
with knowledge that a previous buyer is claiming title to
the same property. Petitioner Mabanag cannot close her
eyes to the defect in petitioners' title to the property at the
time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he

has acquired knowledge that there was a previous sale of
the same property to a third party or that another person
claims said property in a pervious sale, the registration will
constitute a registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87 SCRA 349
[1978]; citing Palarca vs. Director of Land, 43 Phil. 146;
Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs.
Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between

petitioners and Ramona P. Alcaraz, perfected on February
6, 1985, prior to that between petitioners and Catalina B.
Mabanag on February 18, 1985, was correctly upheld by
both the courts below.

Although there may be ample indications that there was in

fact an agency between Ramona as principal and
Concepcion, her mother, as agent insofar as the subject
contract of sale is concerned, the issue of whether or not
Concepcion was also acting in her own behalf as a co-
buyer is not squarely raised in the instant petition, nor in
such assumption disputed between mother and daughter.
Thus, We will not touch this issue and no longer disturb
the lower courts' ruling on this point.

WHEREFORE, premises considered, the instant petition

is hereby DISMISSED and the appealed judgment
AFFIRMED.

SO ORDERED.

167
Sales – Chapter 3-12 Cases
ANGEL M. PAGADUAN, et al.
- versus -
SPOUSES ESTANISLAO & FE POSADAS OCUMA,
Respondents.
In this Petition for Review,[1] petitioners assail the
Decision[2] of the Court of Appeals dated September 18,
2006 which ruled that petitioners action for reconveyance
is barred by prescription and consequently reversed the
decision[3] dated June 25, 2002 of the Regional Trial
Court (RTC) of Olongapo City.
Petitioners Angel N. Pagaduan, Amelia P. Tucci, Teresita
P. del Monte, Orlita P. Gadin, Perla P. Espiritu, Elisa P.
Dunn, Lorna P. Kimble, Edito N. Pagaduan and Leo N.
Pagaduan are all heirs of the late Agaton Pagaduan.
Respondents are the spouses Estanislao Ocuma and Fe
Posadas Ocuma.
The facts are as follows:
The subject lot used to be part of a big parcel of land that
originally belonged to Nicolas Cleto as evidenced by
Certificate of Title (C.T.) No. 14. The big parcel of land
was the subject of two separate lines of dispositions. The
first line of dispositions began with the sale by Cleto to
Antonio Cereso on May 11, 1925. Cereso in turn sold the
land to the siblings with the surname Antipolo on
September 23, 1943. The Antipolos sold the property to
Agaton Pagaduan, father of petitioners, on March 24,
1961. All the dispositions in this line were not registered
and did not result in the issuance of new certificates of title
in the name of the purchasers.
The second line of dispositions started on January 30,
1954, after Cletos death, when his widow Ruperta
Asuncion as his sole heir and new owner of the entire
tract, sold the same to Eugenia Reyes. This resulted in
the issuance of Transfer Certificate of Title (TCT) No. T-
1221 in the name of Eugenia Reyes in lieu of TCT No. T-
1220 in the name of Ruperta Asuncion.
On November 26, 1961, Eugenia Reyes executed a
unilateral deed of sale where she sold the northern portion
with an area of 32,325 square meters to respondents for
P1,500.00 and the southern portion consisting of 8,754
square meters to Agaton Pagaduan for P500.00. Later, on
June 5, 1962, Eugenia executed another deed of sale,
this time conveying the entire parcel of land, including the
southern portion, in respondents favor. Thus, TCT No. T-
1221 was cancelled and in lieu thereof TCT No. T-5425
was issued in the name of respondents. On June 27,
1989, respondents subdivided the land into two lots. The
subdivision resulted in the cancellation of TCT No. T-5425
and the issuance of TCT Nos. T-37165 covering a portion
with 31,418 square meters and T-37166 covering the
remaining portion with 9,661 square meters.
On July 26, 1989, petitioners instituted a complaint for
reconveyance of the southern portion with an area of
8,754 square meters, with damages, against respondents
before the RTC of Olongapo City.
On June 25, 2002, the trial court rendered a decision in
petitioners favor. Ruling that a constructive trust over the
property was created in petitioners favor, the court below
ordered respondents to reconvey the disputed southern
portion and to pay attorneys fees as well as litigation
expenses to petitioners. The dispositive portion of the
decision reads:
WHEREFORE, foregoing premises considered, judgment
is hereby rendered:
1. Ordering the defendants to reconvey to the plaintiffs, a
portion of their property originally covered by Certificate of
Title No. T-54216[4] now TCT Nos. 37165 and 37166 an
area equivalent to 8,754 square meters.
2. Ordering the defendant to pay plaintiffs P15,000.00 as
attorneys fees and P5,000.00 for litigation expenses.
3. Defendants counterclaims are dismissed.
SO ORDERED.[5]
Dissatisfied with the decision, respondents appealed it to
the Court of Appeals. The Court of Appeals reversed and
set aside the decision of the trial court; with the dispositive
portion of the decision reading, thus:
WHEREFORE, premises considered, the appeal is
granted. Accordingly, prescription having set in, the
assailed June 25, 2002 Decision of the RTC is reversed
and set aside, and the Complaint for reconveyance is
hereby DISMISSED.
SO ORDERED.[6]
The Court of Appeals ruled that while the registration of
the southern portion in the name of respondents had
created an implied trust in favor of Agaton Pagaduan,
petitioners, however, failed to show that they had taken
possession of the said portion. Hence, the appellate court
concluded that prescription had set in, thereby precluding
petitioners recovery of the disputed portion.
Unperturbed by the reversal of the trial courts decision,
the petitioners come to this Court via a petition for review
on certiorari.[7] They assert that the Civil Code provision
on double sale is controlling. They submit further that
since the incontrovertible evidence on record is that they
are in possession of the southern portion, the ten (10)-
year prescriptive period for actions for reconveyance
should not apply to them.[8] Respondents, on the other
hand, aver that the action for reconveyance has
prescribed since the ten (10)-year period, which according
to them has to be reckoned from the issuance of the title
in their name in 1962, has elapsed long ago.[9]
The Court of Appeals decision must be reversed and set
aside, hence the petition succeeds.
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Sales – Chapter 3-12 Cases
An action for reconveyance respects the decree of
registration as incontrovertible but seeks the transfer of
property, which has been wrongfully or erroneously
registered in other persons' names, to its rightful and legal
owners, or to those who claim to have a better right.
However, contrary to the positions of both the appellate
and trial courts, no trust was created under Article 1456 of
the new Civil Code which provides:
Art. 1456. If property is acquired through mistake or fraud,
the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person
from whom the property comes. (Emphasis supplied)
The property in question did not come from the
petitioners. In fact that property came from Eugenia
Reyes. The title of the Ocumas can be traced back from
Eugenia Reyes to Ruperta Asuncion to the original owner
Nicolas Cleto. Thus, if the respondents are holding the
property in trust for anyone, it would be Eugenia Reyes
and not the petitioners.
Moreover, as stated in Berico v. Court of Appeals,[10]
Article 1456 refers to actual or constructive fraud. Actual
fraud consists in deception, intentionally practiced to
induce another to part with property or to surrender some
legal right, and which accomplishes the end designed.
Constructive fraud, on the other hand, is a breach of legal
or equitable duty which the law declares fraudulent
irrespective of the moral guilt of the actor due to the
tendency to deceive others, to violate public or private
confidence, or to injure public interests. The latter
proceeds from a breach of duty arising out of a fiduciary or
confidential relationship. In the instant case, none of the
elements of actual or constructive fraud exists. The
respondents did not deceive Agaton Pagaduan to induce
the latter to part with the ownership or deliver the
possession of the property to them. Moreover, no fiduciary
relations existed between the two parties.
This lack of a trust relationship does not inure to the
benefit of the respondents. Despite a host of
jurisprudence that states a certificate of title is
indefeasible, unassailable and binding against the whole
world, it merely confirms or records title already existing
and vested, and it cannot be used to protect a usurper
from the true owner, nor can it be used for the
perpetration of fraud; neither does it permit one to enrich
himself at the expense of others.[11]
Rather, after a thorough scrutiny of the records of the
instant case, the Court finds that this is a case of double
sale under article 1544 of the Civil Code which reads:
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 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 possession;
and, in the absence thereof; to the person who presents
the oldest title, provided there is good faith.
Otherwise stated, where it is an immovable property that
is the subject of a double sale, ownership shall be
transferred: (1) to the person acquiring it who in good faith
first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who
presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good
faith and registration in good faith.[12]
In this case there was a first sale by Eugenia Reyes to
Agaton Pagaduan and a second sale by Eugenia Reyes
to the respondents.[13] For a second buyer like the
respondents to successfully invoke the second paragraph,
Article 1544 of the Civil Code, it must possess good faith
from the time of the sale in its favor until the registration of
the same. Respondents sorely failed to meet this
requirement of good faith since they had actual
knowledge of Eugenias prior sale of the southern portion
property to the petitioners, a fact antithetical to good faith.
This cannot be denied by respondents since in the same
deed of sale that Eugenia sold them the northern portion
to the respondents for P1,500.00, Eugenia also sold the
southern portion of the land to Agaton Pagaduan for
P500.00.[14]
It is to be emphasized that the Agaton Pagaduan never
parted with the ownership and possession of that portion
of Lot No. 785 which he had purchased from Eugenia
Santos. Hence, the registration of the deed of sale by
respondents was ineffectual and vested upon them no
preferential rights to the property in derogation of the
rights of the petitioners.
Respondents had prior knowledge of the sale of the
questioned portion to Agaton Pagaduan as the same
deed of sale that conveyed the northern portion to them,
conveyed the southern portion to Agaton Pagaduan.[15]
Thus the subsequent issuance of TCT No. T-5425, to the
extent that it affects the Pagaduans portion, conferred no
better right than the registration which was the source of
the authority to issue the said title. Knowledge gained by
respondents of the first sale defeats their rights even if
they were first to register the second sale. Knowledge of
the first sale blackens this prior registration with bad
faith.[16] Good faith must concur with the registration.[17]
Therefore, because the registration by the respondents
was in bad faith, it amounted to no registration at all.
As the respondents gained no rights over the land, it is
petitioners who are the rightful owners, having established
that their successor-in-interest Agaton Pagaduan had
purchased the property from Eugenia Reyes on
November 26, 1961 and in fact took possession of the
said property. The action to recover the immovable is not
barred by prescription, as it was filed a little over 27 years
after the title was registered in bad faith by the Ocumas as
per Article 1141 of the Civil Code.[18]
169
Sales – Chapter 3-12 Cases
WHEREFORE, the petition is GRANTED. The Decision of
the Court of Appeals dated January 25, 2006 and its
Resolution dated May 5, 2006 are hereby REVERSED
and SET ASIDE. The Decision of the Regional Trial Court
is hereby REINSTATED.

SO ORDERED.

170
Sales – Chapter 3-12 Cases
ROSARIO CARBONELL, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO,
EMMA INFANTE and RAMON INFANTE, respondents.
Petitioner seeks a review of the resolution of the Court of
Appeals (Special Division of Five) dated October 30,
1968, reversing its decision of November 2, 1967 (Fifth
Division), and its resolution of December 6, 1968 denying
petitioner's motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration filed on behalf
of appellee Emma Infante, is hereby granted and the
decision of November 2, 1967, is hereby annulled and set
aside. Another judgement shall be entered affirming in
toto that of the court a quo, dated January 20, 1965,
which dismisses the plaintiff's complaint and defendant's
counterclaim.
Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a
native of the Batanes Islands, was the owner of the parcel
of land herein involve with improvements situated at 179
V. Agan St., San Juan, Rizal, having an area of some one
hundred ninety-five (195) square meters, more or less,
covered by TCT No. 5040 and subject to mortgage in
favor of the Republic Savings Bank for the sum of
P1,500.00. Petitioner Rosario Carbonell, a cousin and
adjacent neighbor of respondent Poncio, and also from
the Batanes Islands, lived in the adjoining lot at 177 V.
Agan Street.
Both petitioners Rosario Carbonell and respondent Emma
Infante offered to buy the said lot from Poncio (Poncio's
Answer, p. 38, rec. on appeal).
Respondent Poncio, unable to keep up with the
installments due on the mortgage, approached petitioner
one day and offered to sell to the latter the said lot,
excluding the house wherein respondent lived. Petitioner
accepted the offer and proposed the price of P9.50 per
square meter. Respondent Poncio, after having secured
the consent of his wife and parents, accepted the price
proposed by petitioner, on the condition that from the
purchase price would come the money to be paid to the
bank.
Petitioner and respondent Jose Poncio then went to the
Republic Savings Bank and secured the consent of the
President thereof for her to pay the arrears on the
mortgage and to continue the payment of the installments
as they fall due. The amount in arrears reached a total
sum of P247.26. But because respondent Poncio had
previously told her that the money, needed was only
P200.00, only the latter amount was brought by petitioner
constraining respondent Jose Poncio to withdraw the sum
of P47.00 from his bank deposit with Republic Savings
Bank. But the next day, petitioner refunded to Poncio the
sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio,
in the presence of a witness, made and executed a
document in the Batanes dialect, which, translated into
English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT
FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose Poncio can start
living on the lot sold by him to me, Rosario Carbonell, until
after one year during which time he will not pa anything.
Then if after said one can he could not find an place
where to move his house, he could still continue
occupying the site but he should pay a rent that man, be
agreed.
(Sgd) JOSE PONCIO
(Sgd.) ROSARIO CARBONELL
(Sgd) CONSTANCIO MEONADA
Witness
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also
from the Batanes Islands, to prepare the formal deed of
sale, which she brought to respondent Poncio together
with the amount of some P400.00, the balance she still
had to pay in addition to her assuming the mortgaged
obligation to Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house,
however, the latter told petitioner that he could not
proceed any more with the sale, because he had already
given the lot to respondent Emma Infants; and that he
could not withdraw from his deal with respondent Mrs.
Infante, even if he were to go to jail. Petitioner then sought
to contact respondent Mrs. Infante but the latter refused to
see her.
On February 5, 1955, petitioner saw Emma Infante
erecting a all around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised
her to present an adverse claim over the land in question
with the Office of the Register of Deeds of Rizal. Atty.
Garcia actually sent a letter of inquiry to the Register of
Deeds and demand letters to private respondents Jose
Poncio and Emma Infante.
In his answer to the complaint Poncio admitted "that on
January 30, 1955, Mrs. Infante improved her offer and he
agreed to sell the land and its improvements to her for
P3,535.00" (pp. 38-40, ROA).
In a private memorandum agreement dated January 31,
1955, respondent Poncio indeed bound himself to sell to
his corespondent Emma Infante, the property for the sum
of P2,357.52, with respondent Emma Infante still
assuming the existing mortgage debt in favor of Republic
Savings Bank in the amount of P1,177.48. Emma Infante
lives just behind the houses of Poncio and Rosario
Carbonell.
On February 2, 1955, respondent Jose Poncio executed
the formal deed of sale in favor of respondent Mrs. Infante
in the total sum of P3,554.00 and on the same date, the
latter paid Republic Savings Bank the mortgage
indebtedness of P1,500.00. The mortgage on the lot was
eventually discharged.
Informed that the sale in favor of respondent Emma
Infante had not yet been registered, Atty. Garcia prepared
an adverse claim for petitioner, who signed and swore to
an registered the same on February 8, 1955.
171
Sales – Chapter 3-12 Cases
The deed of sale in favor of respondent Mrs. Infante was
registered only on February 12, 1955. As a consequence
thereof, a Transfer Certificate of Title was issued to her
but with the annotation of the adverse claim of petitioner
Rosario Carbonell.
Respondent Emma Infante took immediate possession of
the lot involved, covered the same with 500 cubic meters
of garden soil and built therein a wall and gate, spending
the sum of P1,500.00. She further contracted the services
of an architect to build a house; but the construction of the
same started only in 1959 — years after the litigation
actually began and during its pendency. Respondent Mrs.
Infante spent for the house the total amount of
P11,929.00.
On June 1, 1955, petitioner Rosario Carbonell, thru
counsel, filed a second amended complaint against
private respondents, praying that she be declared the
lawful owner of the questioned parcel of land; that the
subsequent sale to respondents Ramon R. Infante and
Emma L. Infante be declared null and void, and that
respondent Jose Poncio be ordered to execute the
corresponding deed of conveyance of said land in her
favor and for damages and attorney's fees (pp. 1-7, rec.
on appeal in the C.A.).
Respondents first moved to dismiss the complaint on the
ground, among others, that petitioner's claim is
unenforceable under the Statute of Frauds, the alleged
sale in her favor not being evidenced by a written
document (pp. 7-13, rec. on appeal in the C.A.); and when
said motion was denied without prejudice to passing on
the question raised therein when the case would be tried
on the merits (p. 17, ROA in the C.A.), respondents filed
separate answers, reiterating the grounds of their motion
to dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting
evidence of the sale of the land in question to her by
respondent Poncio, part of which evidence was the
agreement written in the Batanes dialect aforementioned,
respondent Infantes objected to the presentation by
petitioner of parole evidence to prove the alleged sale
between her and respondent Poncio. In its order of April
26, 1966, the trial court sustained the objection and
dismissed the complaint on the ground that the
memorandum presented by petitioner to prove said sale
does not satisfy the requirements of the law (pp. 31-35,
ROA in the C.A.).
From the above order of dismissal, petitioner appealed to
the Supreme Court (G.R. No. L-11231) which ruled in a
decision dated May 12, 1958, that the Statute of Frauds,
being applicable only to executory contracts, does not
apply to the alleged sale between petitioner and
respondent Poncio, which petitioner claimed to have been
partially performed, so that petitioner is entitled to
establish by parole evidence "the truth of this allegation,
as well as the contract itself." The order appealed from
was thus reversed, and the case remanded to the court a
quo for further proceedings (pp. 26-49, ROA in the C.A.).
After trial in the court a quo; a decision was, rendered on
December 5, 1962, declaring the second sale by
respondent Jose Poncio to his co-respondents Ramon
Infante and Emma Infante of the land in question null and
void and ordering respondent Poncio to execute the
proper deed of conveyance of said land in favor of
petitioner after compliance by the latter of her covenants
under her agreement with respondent Poncio (pp. 5056,
ROA in the C.A.).
On January 23, 1963, respondent Infantes, through
another counsel, filed a motion for re-trial to adduce
evidence for the proper implementation of the court's
decision in case it would be affirmed on appeal (pp. 56-60,
ROA in the C.A.), which motion was opposed by petitioner
for being premature (pp. 61-64, ROA in the C.A.). Before
their motion for re-trial could be resolved, respondent
Infantes, this time through their former counsel, filed
another motion for new trial, claiming that the decision of
the trial court is contrary to the evidence and the law (pp.
64-78, ROA in the C.A.), which motion was also opposed
by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the
C.A.), at which re-hearing only the respondents introduced
additional evidence consisting principally of the cost of
improvements they introduced on the land in question (p.
9, ROA in the C.A.).
After the re-hearing, the trial court rendered a decision,
reversing its decision of December 5, 1962 on the ground
that the claim of the respondents was superior to the claim
of petitioner, and dismissing the complaint (pp. 91-95,
ROA in the C.A.), From this decision, petitioner Rosario
Carbonell appealed to the respondent Court of Appeals
(p. 96, ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division
composed of Justices Magno Gatmaitan, Salvador V.
Esguerra and Angle H. Mojica, speaking through Justice
Magno Gatmaitan), rendered judgment reversing the
decision of the trial court, declaring petitioner therein, to
have a superior right to the land in question, and
condemning the defendant Infantes to reconvey to
petitioner after her reimbursement to them of the sum of
P3,000.00 plus legal interest, the land in question and all
its improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said
decision and acting on the motion for reconsideration, the
Appellate Court, three Justices (Villamor, Esguerra and
Nolasco) of Special Division of Five, granted said motion,
annulled and set aside its decision of November 2, 1967,
and entered another judgment affirming in toto the
decision of the court a quo, with Justices Gatmaitan and
Rodriguez dissenting (Appendix "B" of Petition).
Petitioner Rosario Carbonell moved to reconsider the
Resolution of the Special Division of Five, which motion
was denied by Minute Resolution of December 6, 1968
(but with Justices Rodriguez and Gatmaitan voting for
reconsideration) [Appendix "C" of Petition].
Hence, this appeal by certiorari.
Article 1544, New Civil Code, which is decisive of this
case, recites:
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 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.
172
Sales – Chapter 3-12 Cases
Should there be no inscription, the ownership shall pertain
to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith
(emphasis supplied).
It is essential that the buyer of realty must act in good faith
in registering his deed of sale to merit the protection of the
second paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544,
which accord preference to the one who first takes
possession in good faith of personal or real property, the
second paragraph directs that ownership of immovable
property should be recognized in favor of one "who in
good faith first recorded" his right. Under the first and third
paragraph, good faith must characterize the act of anterior
registration (DBP vs. Mangawang, et al., 11 SCRA 405;
Soriano, et al. vs. Magale, et al., 8 SCRA 489).
If there is no inscription, what is decisive is prior
possession in good faith. If there is inscription, as in the
case at bar, prior registration in good faith is a pre-
condition to superior title.
When Carbonell bought the lot from Poncio on January
27, 1955, she was the only buyer thereof and the title of
Poncio was still in his name solely encumbered by bank
mortgage duly annotated thereon. Carbonell was not
aware — and she could not have been aware — of any
sale of Infante as there was no such sale to Infante then.
Hence, Carbonell's prior purchase of the land was made
in good faith. Her good faith subsisted and continued to
exist when she recorded her adverse claim four (4) days
prior to the registration of Infantes's deed of sale.
Carbonell's good faith did not cease after Poncio told her
on January 31, 1955 of his second sale of the same lot to
Infante. Because of that information, Carbonell wanted an
audience with Infante, which desire underscores
Carbonell's good faith. With an aristocratic disdain
unworthy of the good breeding of a good Christian and
good neighbor, Infante snubbed Carbonell like a leper and
refused to see her. So Carbonell did the next best thing to
protect her right — she registered her adversed claim on
February 8, 1955. Under the circumstances, this recording
of her adverse claim should be deemed to have been
done in good faith and should emphasize Infante's bad
faith when she registered her deed of sale four (4) days
later on February 12, 1955.
Bad faith arising from previous knowledge by Infante of
the prior sale to Carbonell is shown by the following facts,
the vital significance and evidenciary effect of which the
respondent Court of Appeals either overlooked of failed to
appreciate:
(1) Mrs. Infante refused to see Carbonell, who
wanted to see Infante after she was informed by Poncio
that he sold the lot to Infante but several days before
Infante registered her deed of sale. This indicates that
Infante knew — from Poncio and from the bank — of the
prior sale of the lot by Poncio to Carbonell. Ordinarily, one
will not refuse to see a neighbor. Infante lives just behind
the house of Carbonell. Her refusal to talk to Carbonell
could only mean that she did not want to listen to
Carbonell's story that she (Carbonell) had previously
bought the lot from Poncio.
(2) Carbonell was already in possession of the
mortgage passbook [not Poncio's saving deposit
passbook — Exhibit "1" — Infantes] and Poncio's copy of
the mortgage contract, when Poncio sold the lot Carbonell
who, after paying the arrearages of Poncio, assumed the
balance of his mortgaged indebtedness to the bank, which
in the normal course of business must have necessarily
informed Infante about the said assumption by Carbonell
of the mortgage indebtedness of Poncio. Before or upon
paying in full the mortgage indebtedness of Poncio to the
Bank. Infante naturally must have demanded from Poncio
the delivery to her of his mortgage passbook as well as
Poncio's mortgage contract so that the fact of full payment
of his bank mortgage will be entered therein; and Poncio,
as well as the bank, must have inevitably informed her
that said mortgage passbook could not be given to her
because it was already delivered to Carbonell.
If Poncio was still in possession of the mortgage passbook
and his copy of the mortgage contract at the time he
executed a deed of sale in favor of the Infantes and when
the Infantes redeemed his mortgage indebtedness from
the bank, Poncio would have surrendered his mortgage
passbook and his copy of the mortgage contract to the
Infantes, who could have presented the same as exhibits
during the trial, in much the same way that the Infantes
were able to present as evidence Exhibit "1" — Infantes,
Poncio's savings deposit passbook, of which Poncio
necessarily remained in possession as the said deposit
passbook was never involved in the contract of sale with
assumption of mortgage. Said savings deposit passbook
merely proves that Poncio had to withdraw P47.26, which
amount was tided to the sum of P200.00 paid by
Carbonell for Poncio's amortization arrearages in favor of
the bank on January 27, 1955; because Carbonell on that
day brought with her only P200.00, as Poncio told her that
was the amount of his arrearages to the bank. But the
next day Carbonell refunded to Poncio the sum of P47.26.
(3) The fact that Poncio was no longer in possession
of his mortgage passbook and that the said mortgage
passbook was already in possession of Carbonell, should
have compelled Infante to inquire from Poncio why he was
no longer in possession of the mortgage passbook and
from Carbonell why she was in possession of the same
(Paglago, et. al vs. Jara et al 22 SCRA 1247, 1252-1253).
The only plausible and logical reason why Infante did not
bother anymore to make such injury , w because in the
ordinary course of business the bank must have told her
that Poncio already sold the lot to Carbonell who thereby
assumed the mortgage indebtedness of Poncio and to
whom Poncio delivered his mortgage passbook. Hoping to
give a semblance of truth to her pretended good faith,
Infante snubbed Carbonell's request to talk to her about
the prior sale to her b Poncio of the lot. As aforestated,
this is not the attitude expected of a good neighbor
imbued with Christian charity and good will as well as a
clear conscience.
(4) Carbonell registered on February 8, 1955 her
adverse claim, which was accordingly annotated on
Poncio's title, four [4] days before Infante registered on
February 12, 1955 her deed of sale executed on February
2, 1955. Here she was again on notice of the prior sale to
Carbonell. Such registration of adverse claim is valid and
effective (Jovellanos vs. Dimalanta, L-11736-37, Jan. 30,
1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as
defendant in the Court of First Instance, he alleged that
both Mrs. Infante and Mrs. Carbonell offered to buy the lot
at P15.00 per square meter, which offers he rejected as
173
Sales – Chapter 3-12 Cases
he believed that his lot is worth at least P20.00 per square
meter. It is therefore logical to presume that Infante was
told by Poncio and consequently knew of the offer of
Carbonell which fact likewise should have put her on her
guard and should have compelled her to inquire from
Poncio whether or not he had already sold the property to
Carbonell.
As recounted by Chief Justice Roberto Concepcion, then
Associate Justice, in the preceding case of Rosario
Carbonell vs. Jose Poncio, Ramon Infante and Emma
Infante (1-11231, May 12, 1958), Poncio alleged in his
answer:
... that he had consistently turned down several offers,
made by plaintiff, to buy the land in question, at P15 a
square meter, for he believes that it is worth not less than
P20 a square meter; that Mrs. Infante, likewise, tried to
buy the land at P15 a square meter; that, on or about
January 27, 1955, Poncio was advised by plaintiff that
should she decide to buy the property at P20 a square
meter, she would allow him to remain in the property for
one year; that plaintiff then induced Poncio to sign a
document, copy of which if probably the one appended to
the second amended complaint; that Poncio signed it
'relying upon the statement of the plaintiff that the
document was a permit for him to remain in the premises
in the event defendant decided to sell the property to the
plaintiff at P20.00 a square meter'; that on January 30,
1955, Mrs. Infante improved her offer and agreed to sell
the land and its improvement to her for P3,535.00; that
Poncio has not lost 'his mind,' to sell his property, worth at
least P4,000, for the paltry sum P1,177.48, the amount of
his obligation to the Republic Saving s Bank; and that
plaintiff's action is barred by the Statute of Frauds. ... (pp.
38-40, ROA, emphasis supplied).
II
EXISTENCE OF THE PRIOR SALE TO CARBONELL
DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the
complaint on the ground that the private document Exhibit
"A" executed by Poncio and Carbonell and witnessed by
Constancio Meonada captioned "Contract for One-half Lot
which I Bought from Jose Poncio," was not such a
memorandum in writing within the purview of the Statute
of Frauds, the trial judge himself recognized the fact of the
prior sale to Carbonell when he stated that "the
memorandum in question merely states that Poncio is
allowed to stay in the property which he had sold to the
plaintiff. There is no mention of the reconsideration, a
description of the property and such other essential
elements of the contract of sale. There is nothing in the
memorandum which would tend to show even in the
slightest manner that it was intended to be an evidence of
contract sale. On the contrary, from the terms of the
memorandum, it tends to show that the sale of the
property in favor of the plaintiff is already an accomplished
act. By the very contents of the memorandum itself, it
cannot therefore, be considered to be the memorandum
which would show that a sale has been made by Poncio in
favor of the plaintiff" (p. 33, ROA, emphasis supplied). As
found by the trial court, to repeat the said memorandum
states "that Poncio is allowed to stay in the property which
he had sold to the plaintiff ..., it tends to show that the sale
of the property in favor of the plaintiff is already an
accomplished act..."
(2) When the said order was appealed to the
Supreme Court by Carbonell in the previous case of
Rosario Carbonell vs. Jose Poncio, Ramon Infante and
Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then
Associate Justice, speaking for a unanimous Court,
reversed the aforesaid order of the trial court dismissing
the complaint, holding that because the complaint alleges
and the plaintiff claims that the contract of sale was partly
performed, the same is removed from the application of
the Statute of Frauds and Carbonell should be allowed to
establish by parol evidence the truth of her allegation of
partial performance of the contract of sale, and further
stated:
Apart from the foregoing, there are in the case at bar
several circumstances indicating that plaintiff's claim might
not be entirely devoid of factual basis. Thus, for instance,
Poncio admitted in his answer that plaintiff had offered
several times to purchase his land.
Again, there is Exhibit A, a document signed by the
defendant. It is in the Batanes dialect, which, according to
plaintiff's uncontradicted evidence, is the one spoken by
Poncio, he being a native of said region. Exhibit A states
that Poncio would stay in the land sold by him to plaintiff
for one year, from January 27, 1955, free of charge, and
that, if he cannot find a place where to transfer his house
thereon, he may remain upon. Incidentally, the allegation
in Poncio's answer to the effect that he signed Exhibit A
under the belief that it "was a permit for him to remain in
the premises in the" that "he decided to sell the property"
to the plaintiff at P20 a sq. m." is, on its face, somewhat
difficult to believe. Indeed, if he had not decided as yet to
sell the land to plaintiff, who had never increased her offer
of P15 a square meter, there was no reason for Poncio to
get said permit from her. Upon the other hand, if plaintiff
intended to mislead Poncio, she would have caused
Exhibit A to be drafted, probably, in English , instead of
taking the trouble of seeing to it that it was written
precisely in his native dialect, the Batanes. Moreover,
Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign document without
reading its contents, apart from the fact that Meonada had
read Exhibit A to him and given him a copy thereof, before
he signed thereon, according to Meonada's
uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in plaintiff's complaint that bears any
relation to her claim that there has been partial
performance of the supposed contract of sale, is the
notation of the sum of P247.26 in the bank book of
defendant Jose Poncio. The noting or jotting down of the
sum of P247.26 in the bank book of Jose Poncio does not
prove the fact that the said amount was the purchase
price of the property in question. For all we knew, the sum
of P247.26 which plaintiff claims to have paid to the
Republic Savings Bank for the account of the defendant,
assuming that the money paid to the Republic Savings
Bank came from the plaintiff, was the result of some
usurious loan or accomodation, rather than earnest
money or part payment of the land. Neither is it competent
or satisfactory evidence to prove the conveyance of the
land in question the fact that the bank book account of
Jose Poncio happens to be in the possession of the
plaintiff. (Defendants-Appellees' brief, pp. 25-26).
How shall We know why Poncio's bank deposit book is in
plaintiffs possession, or whether there is any relation
174
Sales – Chapter 3-12 Cases
between the P247.26 entry therein and the partial
payment of P247.26 allegedly made by plaintiff to Poncio
on account of the price of his land, if we do not allow the
plaintiff to explain it on the witness stand? Without
expressing any opinion on the merits of plaintiff's claim, it
is clear, therefore, that she is entitled , legally as well as
from the viewpoint of equity, to an opportunity to introduce
parol evidence in support of the allegations of her second
amended complaint. (pp. 46-49, ROA, emphasis
supplied).
(3) In his first decision of December 5, 1962 declaring null
and void the sale in favor of the Infantes and ordering
Poncio to execute a deed of conveyance in favor of
Carbonell, the trial judge found:
... A careful consideration of the contents of Exh. 'A' show
to the satisfaction of the court that the sale of the parcel of
land in question by the defendant Poncio in favor of the
plaintiff was covered therein and that the said Exh. "a' was
also executed to allow the defendant to continue staying
in the premises for the stated period. It will be noted that
Exh. 'A' refers to a lot 'sold by him to me' and having been
written originally in a dialect well understood by the
defendant Poncio, he signed the said Exh. 'A' with a full
knowledge and consciousness of the terms and
consequences thereof. This therefore, corroborates the
testimony of the plaintiff Carbonell that the sale of the land
was made by Poncio. It is further pointed out that there
was a partial performance of the verbal sale executed by
Poncio in favor of the plaintiff, when the latter paid
P247.26 to the Republic Savings Bank on account of
Poncio's mortgage indebtedness. Finally, the possession
by the plaintiff of the defendant Poncio's passbook of the
Republic Savings Bank also adds credibility to her
testimony. The defendant contends on the other hand that
the testimony of the plaintiff, as well as her witnesses,
regarding the sale of the land made by Poncio in favor of
the plaintiff is inadmissible under the provision of the
Statute of Fraud based on the argument that the note
Exh. "A" is not the note or memorandum referred to in the
to in the Statute of Fraud. The defendants argue that Exh.
"A" fails to comply with the requirements of the Statute of
Fraud to qualify it as the note or memorandum referred to
therein and open the way for the presentation of parole
evidence to prove the fact contained in the note or
memorandum. The defendant argues that there is even no
description of the lot referred to in the note, especially
when the note refers to only one half lot. With respect to
the latter argument of the Exhibit 'A', the court has arrived
at the conclusion that there is a sufficient description of
the lot referred to in Exh. 'A' as none other than the parcel
of land occupied by the defendant Poncio and where he
has his improvements erected. The Identity of the parcel
of land involved herein is sufficiently established by the
contents of the note Exh. "A". For a while, this court had
that similar impression but after a more and thorough
consideration of the context in Exh. 'A' and for the reasons
stated above, the Court has arrived at the conclusion
stated earlier (pp. 52-54, ROA, emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial
Judge rendered on January 20, 1965 another decision
dismissing the complaint, although he found
1. That on January 27, 1955, the plaintiff purchased
from the defendant Poncio a parcel of land with an area of
195 square meters, more or less, covered by TCT No.
5040 of the Province of Rizal, located at San Juan del
Monte, Rizal, for the price of P6.50 per square meter;
2. That the purchase made by the plaintiff was not
reduced to writing except for a short note or memorandum
Exh. A, which also recited that the defendant Poncio
would be allowed to continue his stay in the premises,
among other things, ... (pp. 91-92, ROA, emphasis
supplied).
From such factual findings, the trial Judge confirms the
due execution of Exhibit "A", only that his legal conclusion
is that it is not sufficient to transfer ownership (pp. 93-94,
ROA).
(5) In the first decision of November 2, 1967 of the
Fifth Division of the Court of Appeals composed of
Justices Esguerra (now Associate Justice of the Supreme
Court), Gatmaitan and Mojica, penned by Justice
Gatmaitan, the Court of Appeals found that:
... the testimony of Rosario Carbonell not having at all
been attempted to be disproved by defendants,
particularly Jose Poncio, and corroborated as it is by the
private document in Batanes dialect, Exhibit A, the
testimony being to the effect that between herself and
Jose there had been celebrated a sale of the property
excluding the house for the price of P9.50 per square
meter, so much so that on faith of that, Rosario had
advanced the sum of P247.26 and binding herself to pay
unto Jose the balance of the purchase price after
deducting the indebtedness to the Bank and since the
wording of Exhibit A, the private document goes so far as
to describe their transaction as one of sale, already
consummated between them, note the part tense used in
the phrase, "the lot sold by him to me" and going so far
even as to state that from that day onwards, vendor would
continue to live therein, for one year, 'during which time he
will not pay anything' this can only mean that between
Rosario and Jose, there had been a true contract of sale,
consummated by delivery constitutum possession, Art.
1500, New Civil Code; vendor's possession having
become converted from then on, as a mere tenant of
vendee, with the special privilege of not paying rental for
one year, — it is true that the sale by Jose Poncio to
Rosario Carbonell corroborated documentarily only by
Exhibit A could not have been registered at all, but it was
a valid contract nonetheless, since under our law, a
contract sale is consensual, perfected by mere consent,
Couto v. Cortes, 8 Phil 459, so much so that under the
New Civil Code, while a sale of an immovable is ordered
to be reduced to a public document, Art. 1358, that
mandate does not render an oral sale of realty invalid, but
merely incapable of proof, where still executory and action
is brought and resisted for its performance, 1403, par. 2,
3; but where already wholly or partly executed or where
even if not yet, it is evidenced by a memorandum, in any
case where evidence to further demonstrate is presented
and admitted as the case was here, then the oral sale
becomes perfectly good, and becomes a good cause of
action not only to reduce it to the form of a public
document, but even to enforce the contract in its entirety,
Art. 1357; and thus it is that what we now have is a case
wherein on the one hand Rosario Carbonell has proved
that she had an anterior sale, celebrated in her favor on
27 January, 1955, Exhibit A, annotated as an adverse
claim on 8 February, 1955, and on other, a sale is due
form in favor of Emma L. Infante on 2 February, 1955,
Exhibit 3-Infante, and registered in due form with title unto
her issued on 12 February, 1955; the vital question must
now come on which of these two sales should prevail; ...
(pp. 74-76, rec., emphasis supplied).
175
Sales – Chapter 3-12 Cases
(6) In the resolution dated October 30, 1968 penned
by then Court of Appeals Justice Esguerra (now a
member of this Court), concurred in by Justices Villamor
and Nolasco, constituting the majority of a Special
Division of Five, the Court of Appeals, upon motion of the
Infantes, while reversing the decision of November 2,
1967 and affirming the decision of the trial court of
January 20, 1965 dismissing plaintiff's complaint, admitted
the existence and genuineness of Exhibit "A", the private
memorandum dated January 27, 1955, although it did not
consider the same as satisfying "the essential elements of
a contract of sale," because it "neither specifically
describes the property and its boundaries, nor mention its
certificate of title number, nor states the price certain to be
paid, or contrary to the express mandate of Articles 1458
and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez,
Justice Gatmaitan maintains his decision of November 2,
1967 as well as his findings of facts therein, and reiterated
that the private memorandum Exhibit "A", is a perfected
sale, as a sale is consensual and consummated by mere
consent, and is binding on and effective between the
parties. This statement of the principle is correct [pp. 89-
92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE
SALE
IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was
about to be foreclosed by the bank for failure on the part
of Poncio to pay the amortizations thereon. To forestall
the foreclosure and at the same time to realize some
money from his mortgaged lot, Poncio agreed to sell the
same to Carbonell at P9.50 per square meter, on
condition that Carbonell [1] should pay (a) the amount of
P400.00 to Poncio and 9b) the arrears in the amount of
P247.26 to the bank; and [2] should assume his mortgage
indebtedness. The bank president agreed to the said sale
with assumption of mortgage in favor of Carbonell an
Carbonell accordingly paid the arrears of P247.26. On
January 27, 1955, she paid the amount of P200.00 to the
bank because that was the amount that Poncio told her as
his arrearages and Poncio advanced the sum of P47.26,
which amount was refunded to him by Carbonell the
following day. This conveyance was confirmed that same
day, January 27, 1955, by the private document, Exhibit
"A", which was prepared in the Batanes dialect by the
witness Constancio Meonada, who is also from Batanes
like Poncio and Carbonell.
The sale did not include Poncio's house on the lot. And
Poncio was given the right to continue staying on the land
without paying any rental for one year, after which he
should pay rent if he could not still find a place to transfer
his house. All these terms are part of the consideration of
the sale to Carbonell.
It is evident therefore that there was ample consideration,
and not merely the sum of P200.00, for the sale of Poncio
to Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by
Infante, reneged on his commitment to Carbonell and told
Carbonell, who confronted him about it, that he would not
withdraw from his deal with Infante even if he is sent to jail
The victim, therefore, "of injustice and outrage is the
widow Carbonell and not the Infantes, who without moral
compunction exploited the greed and treacherous nature
of Poncio, who, for love of money and without remorse of
conscience, dishonored his own plighted word to
Carbonell, his own cousin.
Inevitably evident therefore from the foregoing discussion,
is the bad faith of Emma Infante from the time she enticed
Poncio to dishonor his contract with Carbonell, and
instead to sell the lot to her (Infante) by offering Poncio a
much higher price than the price for which he sold the
same to Carbonell. Being guilty of bad faith, both in taking
physical possession of the lot and in recording their deed
of sale, the Infantes cannot recover the value of the
improvements they introduced in the lot. And after the
filing by Carbonell of the complaint in June, 1955, the
Infantes had less justification to erect a building thereon
since their title to said lot is seriously disputed by
Carbonell on the basis of a prior sale to her.
With respect to the claim of Poncio that he signed the
document Exhibit "A" under the belief that it was a permit
for him to remain in the premises in ease he decides to
sell the property to Carbonell at P20.00 per square meter,
the observation of the Supreme Court through Mr. Chief
Justice Concepcion in G.R. No. L-11231, supra, bears
repeating:
... Incidentally, the allegation in Poncio's answer to the
effect that he signed Exhibit A under the belief that it 'was
a permit for him to remain in the premises in the event that
'he decided to sell the property' to the plaintiff at P20.00 a
sq. m is, on its face, somewhat difficult to believe. Indeed,
if he had not decided as yet to sell that land to plaintiff,
who had never increased her offer of P15 a square meter,
there as no reason for Poncio to get said permit from her.
Upon the they if plaintiff intended to mislead Poncio, she
would have Exhibit A to be drafted, probably, in English,
instead of taking the trouble of seeing to it that it was
written precisely in his native dialect, the Batanes.
Moreover, Poncio's signature on Exhibit A suggests that
he is neither illiterate nor so ignorant as to sign a
document without reading its contents, apart from the fact
that Meonada had read Exhibit A to him-and given him a
copy thereof, before he signed thereon, according to
Meonada's uncontradicted testimony. (pp. 46-47, ROA).
As stressed by Justice Gatmaitan in his first decision of
November 2, 1965, which he reiterated in his dissent from
the resolution of the majority of the Special Division. of
Five on October 30, 1968, Exhibit A, the private document
in the Batanes dialect, is a valid contract of sale between
the parties, since sale is a consensual contract and is
perfected by mere consent (Couto vs. Cortes, 8 Phil. 459).
Even an oral contract of realty is all between the parties
and accords to the vendee the right to compel the vendor
to execute the proper public document As a matter of fact,
Exhibit A, while merely a private document, can be fully or
partially performed, to it from the operation of the statute
of frauds. Being a all consensual contract, Exhibit A
effectively transferred the possession of the lot to the
vendee Carbonell by constitutum possessorium (Article
1500, New Civil Code); because thereunder the vendor
Poncio continued to retain physical possession of the lot
as tenant of the vendee and no longer as knew thereof.
More than just the signing of Exhibit A by Poncio and
Carbonell with Constancio Meonada as witness to fact the
contract of sale, the transition was further confirmed when
Poncio agreed to the actual payment by at Carbonell of
his mortgage arrearages to the bank on January 27, 1955
and by his consequent delivery of his own mortgage
176
Sales – Chapter 3-12 Cases
passbook to Carbonell. If he remained owner and
mortgagor, Poncio would not have surrendered his
mortgage passbook to' Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE
DISPUTED LOT IN THE MEMORANDUM EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not
sufficiently describe the disputed lot as the subject matter
of the sale, was correctly disposed of in the first decision
of the trial court of December 5, 1962, thus: "The
defendant argues that there is even no description of the
lot referred to in the note (or memorandum), especially
when the note refers to only one-half lot. With respect to
the latter argument of the defendant, plaintiff points out
that one- half lot was mentioned in Exhibit 'A' because the
original description carried in the title states that it was
formerly part of a bigger lot and only segregated later. The
explanation is tenable, in (sic) considering the time value
of the contents of Exh. 'A', the court has arrived at the
conclusion that there is sufficient description of the lot
referred to in Exh. As none other than the parcel of lot
occupied by the defendant Poncio and where he has his
improvements erected. The Identity of the parcel of land
involved herein is sufficiently established by the contents
of the note Exh. 'A'. For a while, this court had that similar
impression but after a more and through consideration of
the context in Exh. 'A' and for the reasons stated above,
the court has arrived to (sic) the conclusion stated earlier"
(pp. 53-54, ROA).
Moreover, it is not shown that Poncio owns another parcel
with the same area, adjacent to the lot of his cousin
Carbonell and likewise mortgaged by him to the Republic
Savings Bank. The transaction therefore between Poncio
and Carbonell can only refer and does refer to the lot
involved herein. If Poncio had another lot to remove his
house, Exhibit A would not have stipulated to allow him to
stay in the sold lot without paying any rent for one year
and thereafter to pay rental in case he cannot find another
place to transfer his house.
While petitioner Carbonell has the superior title to the lot,
she must however refund to respondents Infantes the
amount of P1,500.00, which the Infantes paid to the
Republic Savings Bank to redeem the mortgage.
It appearing that the Infantes are possessors in bad faith,
their rights to the improvements they introduced op the
disputed lot are governed by Articles 546 and 547 of the
New Civil Code. Their expenses consisting of P1,500.00
for draining the property, filling it with 500 cubic meters of
garden soil, building a wall around it and installing a gate
and P11,929.00 for erecting a b ' bungalow thereon, are
useful expenditures, for they add to the value of the
property (Aringo vs. Arenas, 14 Phil. 263; Alburo vs.
Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13
Phil. 45).
Under the second paragraph of Article 546, the possessor
in good faith can retain the useful improvements unless
the person who defeated him in his possession refunds
him the amount of such useful expenses or pay him the
increased value the land may have acquired by reason
thereof. Under Article 547, the possessor in good faith has
also the right to remove the useful improvements if such
removal can be done without damage to the land, unless
the person with the superior right elects to pay for the
useful improvements or reimburse the expenses therefor
under paragraph 2 of Article 546. These provisions seem
to imply that the possessor in bad faith has neither the
right of retention of useful improvements nor the right to a
refund for useful expenses.
But, if the lawful possessor can retain the improvements
introduced by the possessor in bad faith for pure luxury or
mere pleasure only by paying the value thereof at the time
he enters into possession (Article 549 NCC), as a matter
of equity, the Infantes, although possessors in bad faith,
should be allowed to remove the aforesaid improvements,
unless petitioner Carbonell chooses to pay for their value
at the time the Infantes introduced said useful
improvements in 1955 and 1959. The Infantes cannot
claim reimbursement for the current value of the said
useful improvements; because they have been enjoying
such improvements for about two decades without paying
any rent on the land and during which period herein
petitioner Carbonell was deprived of its possession and
use.
WHEREFORE, THE DECISION OF THE SPECIAL
DIVISION OF FIVE OF THE COURT OF APPEALS OF
OCTOBER 30, 1968 IS HEREBY REVERSED;
PETITIONER ROSARIO CARBONELL IS HEREBY
DECLARED TO HAVE THE SUPERIOR RIGHT TO THE
LAND IN QUESTION AND IS HEREBY DIRECTED TO
REIMBURSE TO PRIVATE RESPONDENTS INFANTES
THE SUM OF ONE THOUSAND FIVE HUNDRED
PESOS (P1,500.00) WITHIN THREE (3) MONTHS FROM
THE FINALITY OF THIS DECISION; AND THE
REGISTER OF DEEDS OF RIZAL IS HEREBY
DIRECTED TO CANCEL TRANSFER CERTIFICATE OF
TITLE NO. 37842 ISSUED IN FAVOR OF PRIVATE
RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER
CERTIFICATE OF TITLE NO. 5040 IN THE NAME OF
JOSE PONCIO, AND TO ISSUE A NEW TRANSFER
CERTIFICATE OF TITLE IN FAVOR OF PETITIONER
ROSARIO CARBONELL UPON PRESENTATION OF
PROOF OF PAYMENT BY HER TO THE INFANTES OF
THE AFORESAID AMOUNT OF ONE THOUSAND FIVE
HUNDRED PESOS (P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE
THEIR AFOREMENTIONED USEFUL IMPROVEMENTS
FROM THE LOT WITHIN THREE (3) MONTHS FROM
THE FINALITY OF THIS DECISION, UNLESS THE
PETITIONER ROSARIO CARBONELL ELECTS TO
ACQUIRE THE SAME AND PAYS THE INFANTES THE
AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED
TWENTY-NINE PESOS (P13,429.00) WITHIN THREE (3)
MONTHS FROM THE FINALITY OF THIS DECISION.
SHOULD PETITIONER CARBONELL FAIL TO PAY THE
SAID AMOUNT WITHIN THE AFORESTATED PERIOD
OF THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, THE PERIOD OF THREE (3) MONTHS
WITHIN WHICH THE RESPONDENTS INFANTES MAY
REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS SHALL COMMENCE FROM THE
EXPIRATION OF THE THREE (3) MONTHS GIVEN
PETITIONER CARBONELL TO PAY FOR THE SAID
USEFUL IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
177
Sales – Chapter 3-12 Cases
Republic of the Philippines
*HOSPICIO D. ROSAROSO, ANTONIO D. ROSAROSO,
MANUEL D. ROSAROSO, ALGERICA D. ROSAROSO,
and CLEOFE R. LABINDAO, Petitioners,
vs.
LUCILA LABORTE SORIA, SPOUSES HAM SOLUTAN
and **LAILA SOLUTAN, and MERIDIAN REALTY
CORPORATION, Respondents.
This is a petition for review on certiorari under Rule 45 of
the Rules of Court assailing the December 4, 2009
Decision1 of the Court of Appeals (CA). in CA G.R. CV
No. 00351, which reversed and set aside the July 30,
2004 Decision2 of the Regional Trial Court, Branch 8, 7th
Judicial Region, Cebu City (RTC), in Civil Case No. CEB-
16957, an action for declaration of nullity of documents.
The Facts
Spouses Luis Rosaroso (Luis) and Honorata Duazo
(Honorata) acquired several real properties in Daan
Bantayan, Cebu City, including the subject properties. The
couple had nine (9) children namely: Hospicio, Arturo,
Florita, Lucila, Eduardo, Manuel, Cleofe, Antonio, and
Angelica. On April 25, 1952, Honorata died. Later on, Luis
married Lourdes Pastor Rosaroso (Lourdes).
On January 16, 1995, a complaint for Declaration of
Nullity of Documents with Damages was filed by Luis, as
one of the plaintiffs, against his daughter, Lucila R. Soria
(Lucila); Lucila’s daughter, Laila S. Solutan (Laila); and
Meridian Realty Corporation (Meridian). Due to Luis’
untimely death, however, an amended complaint was filed
on January 6, 1996, with the spouse of Laila, Ham
Solutan (Ham); and Luis’ second wife, Lourdes, included
as defendants.3
In the Amended Complaint, it was alleged by petitioners
Hospicio D. Rosaroso, Antonio D. Rosaroso (Antonio),
Angelica D. Rosaroso (Angelica), and Cleofe R. Labindao
(petitioners) that on November 4, 1991, Luis, with the full
knowledge and consent of his second wife, Lourdes,
executed the Deed of Absolute Sale4 (First Sale) covering
the properties with Transfer Certificate of Title (TCT) No.
31852 (Lot No. 8); TCT. No. 11155 (Lot 19); TCT No.
10885 (Lot No. 22); TCT No. 10886 (Lot No. 23); and Lot
Nos. 5665 and 7967, all located at Daanbantayan, Cebu,
in their favor.5
They also alleged that, despite the fact that the said
properties had already been sold to them, respondent
Laila, in conspiracy with her mother, Lucila, obtained the
Special Power of Attorney (SPA),6 dated April 3, 1993,
from Luis (First SPA); that Luis was then sick, infirm, blind,
and of unsound mind; that Lucila and Laila accomplished
this by affixing Luis’ thumb mark on the SPA which
purportedly authorized Laila to sell and convey, among
others, Lot Nos. 8, 22 and 23, which had already been
sold to them; and that on the strength of another SPA7 by
Luis, dated July 21, 1993 (Second SPA), respondents
Laila and Ham mortgaged Lot No. 19 to Vital Lending
Investors, Inc. for and in consideration of the amount of
₱150,000.00 with the concurrence of Lourdes.8
Petitioners further averred that a second sale took place
on August 23, 1994, when the respondents made Luis
sign the Deed of Absolute Sale9 conveying to Meridian
three (3) parcels of residential land for ₱960,500.00
(Second Sale); that Meridian was in bad faith when it did
not make any inquiry as to who were the occupants and
owners of said lots; and that if Meridian had only
investigated, it would have been informed as to the true
status of the subject properties and would have desisted
in pursuing their acquisition.
Petitioners, thus, prayed that they be awarded moral
damages, exemplary damages, attorney’s fees, actual
damages, and litigation expenses and that the two SPAs
and the deed of sale in favor of Meridian be declared null
and void ab initio.10
On their part, respondents Lucila and Laila contested the
First Sale in favor of petitioners. They submitted that even
assuming that it was valid, petitioners were estopped from
questioning the Second Sale in favor of Meridian because
they failed not only in effecting the necessary transfer of
the title, but also in annotating their interests on the titles
of the questioned properties. With respect to the assailed
SPAs and the deed of absolute sale executed by Luis,
they claimed that the documents were valid because he
was conscious and of sound mind and body when he
executed them. In fact, it was Luis together with his wife
who received the check payment issued by Meridian
where a big part of it was used to foot his hospital and
medical expenses.11
Respondent Meridian, in its Answer with Compulsory
Counterclaim, averred that Luis was fully aware of the
conveyances he made. In fact, Sophia Sanchez
(Sanchez), Vice-President of the corporation, personally
witnessed Luis affix his thumb mark on the deed of sale in
its favor. As to petitioners’ contention that Meridian acted
in bad faith when it did not endeavor to make some
inquiries as to the status of the properties in question, it
countered that before purchasing the properties, it
checked the titles of the said lots with the Register of
Deeds of Cebu and discovered therein that the First Sale
purportedly executed in favor of the plaintiffs was not
registered with the said Register of Deeds. Finally, it
argued that the suit against it was filed in bad faith.12
On her part, Lourdes posited that her signature as well as
that of Luis appearing on the deed of sale in favor of
petitioners, was obtained through fraud, deceit and
trickery. She explained that they signed the prepared
deed out of pity because petitioners told them that it was
necessary for a loan application. In fact, there was no
consideration involved in the First Sale. With respect to
the Second Sale, she never encouraged the same and
neither did she participate in it. It was purely her
husband’s own volition that the Second Sale materialized.
She, however, affirmed that she received Meridian’s
payment on behalf of her husband who was then
bedridden.13
RTC Ruling
After the case was submitted for decision, the RTC ruled
in favor of petitioners. It held that when Luis executed the
second deed of sale in favor of Meridian, he was no
longer the owner of Lot Nos. 19, 22 and 23 as he had
already sold them to his children by his first marriage. In
fact, the subject properties had already been delivered to
the vendees who had been living there since birth and so
had been in actual possession of the said properties. The
trial court stated that although the deed of sale was not
registered, this fact was not prejudicial to their interest. It
was of the view that the actual registration of the deed of
sale was not necessary to render a contract valid and
effective because where the vendor delivered the
178
Sales – Chapter 3-12 Cases
possession of the parcel of land to the vendee and no
superior rights of third persons had intervened, the
efficacy of said deed was not destroyed. In other words,
Luis lost his right to dispose of the said properties to
Meridian from the time he executed the first deed of sale
in favor of petitioners. The same held true with his alleged
sale of Lot 8 to Lucila Soria.14 Specifically, the dispositive
portion of the RTC decision reads:
IN VIEW OF THE FOREGOING, the Court finds that a
preponderance of evidence exists in favor of the plaintiffs
and against the defendants. Judgment is hereby
rendered:
a. Declaring that the Special Power of Attorney, Exhibit
"K," for the plaintiffs and Exhibit "3" for the defendants null
and void including all transactions subsequent thereto and
all proceedings arising therefrom;
b. Declaring the Deed of Sale marked as Exhibit "E" valid
and binding;
c. Declaring the Deed of Absolute Sale of Three (3)
Parcels of Residential Land marked as Exhibit "F" null and
void from the beginning;
d. Declaring the Deed of Sale, Exhibit "16" (Solutan) or
Exhibit "FF," null and void from the beginning;
e. Declaring the vendees named in the Deed of Sale
marked as Exhibit "E" to be the lawful, exclusive and
absolute owners and possessors of Lots Nos. 8, 19, 22,
and 23;
f. Ordering the defendants to pay jointly and severally
each plaintiff ₱50,000.00 as moral damages; and
g. Ordering the defendants to pay plaintiffs ₱50,000.00 as
attorney’s fees; and ₱20,000.00 as litigation expenses.
The crossclaim made by defendant Meridian Realty
Corporation against defendants Soria and Solutan is
ordered dismissed for lack of sufficient evidentiary basis.
SO ORDERED."15
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC
decision. The CA ruled that the first deed of sale in favor
of petitioners was void because they failed to prove that
they indeed tendered a consideration for the four (4)
parcels of land. It relied on the testimony of Lourdes that
petitioners did not pay her husband. The price or
consideration for the sale was simulated to make it appear
that payment had been tendered when in fact no payment
was made at all.16
With respect to the validity of the Second Sale, the CA
stated that it was valid because the documents were
notarized and, as such, they enjoyed the presumption of
regularity. Although petitioners alleged that Luis was
manipulated into signing the SPAs, the CA opined that
evidence was wanting in this regard. Dr. Arlene Letigio
Pesquira, the attending physician of Luis, testified that
while the latter was physically infirmed, he was of sound
mind when he executed the first SPA.17
With regard to petitioners’ assertion that the First SPA
was revoked by Luis when he executed the affidavit,
dated November 24, 1994, the CA ruled that the Second
Sale remained valid. The Second Sale was transacted on
August 23, 1994, before the First SPA was revoked. In
other words, when the Second Sale was consummated,
the First SPA was still valid and subsisting. Thus,
"Meridian had all the reasons to rely on the said SPA
during the time of its validity until the time of its actual
filing with the Register of Deeds considering that
constructive notice of the revocation of the SPA only came
into effect upon the filing of the Adverse Claim and the
aforementioned Letters addressed to the Register of
Deeds on 17 December 1994 and 25 November 1994,
respectively, informing the Register of Deeds of the
revocation of the first SPA."18 Moreover, the CA observed
that the affidavit revoking the first SPA was also revoked
by Luis on December 12, 1994.19
Furthermore, although Luis revoked the First SPA, he did
not revoke the Second SPA which authorized respondent
Laila to sell, convey and mortgage, among others, the
property covered by TCT T-11155 (Lot No. 19). The CA
opined that had it been the intention of Luis to discredit
the
Second Sale, he should have revoked not only the First
SPA but also the Second SPA. The latter being valid, all
transactions emanating from it, particularly the mortgage
of Lot 19, its subsequent redemption and its second sale,
were valid.20 Thus, the CA disposed in this wise:
WHEREFORE, the appeal is hereby GRANTED. The
Decision dated 30 July 2004 is hereby REVERSED AND
SET ASIDE, and in its stead a new decision is hereby
rendered:
1. DECLARING the Special Power of Attorney, dated 21
July 1993, as valid;
2. DECLARING the Special Power of Attorney, dated 03
April 1993, as valid up to the time of its revocation on 24
November 1994;
3. DECLARING the Deed of Absolute sale, dated 04
November 1991, as ineffective and without any force and
effect;
4. DECLARING the Deed of Absolute Sale of Three (3)
Parcels of Residential Land, dated 23 August 1994, valid
and binding from the very beginning;
5. DECLARING the Deed of Absolute Sale, dated 27
September 1994, also valid and binding from the very
beginning;
6. ORDERING the substituted plaintiffs to pay jointly and
severally the defendant-appellant Meridian Realty
Corporation the sum of Php100,000.00 as moral
damages, Php100,000.00 as attorney’s fee and
Php100,000.00 as litigation expenses; and
7. ORDERING the substituted plaintiffs to pay jointly and
severally the defendant-appellants Leila Solutan et al., the
sum of Php50,000.00 as moral damages.
SO ORDERED.21
Petitioners filed a motion for reconsideration, but it was
denied in the CA Resolution,22 dated November 18,
2010. Consequently, they filed the present petition with
the following ASSIGNMENT OF ERRORS
179
Sales – Chapter 3-12 Cases
I.
THE HONORABLE COURT OF APPEALS (19TH
DIVISION) GRAVELY ERRED WHEN IT DECLARED AS
VOID THE FIRST SALE EXECUTED BY THE LATE LUIS
ROSAROSO IN FAVOR OF HIS CHILDREN OF HIS
FIRST MARRIAGE.
II.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT SUSTAINING AND AFFIRMING THE
RULING OF THE TRIAL COURT DECLARING THE
MERIDIAN REALTY CORPORATION A BUYER IN BAD
FAITH, DESPITE THE TRIAL COURT’S FINDINGS THAT
THE DEED OF SALE (First Sale), IS GENUINE AND HAD
FULLY COMPLIED WITH ALL THE LEGAL
FORMALITIES.
III.
THE HONORABLE COURT OF APPEALS FURTHER
ERRED IN NOT HOLDING THE SALE (DATED 27
SEPTEMBER 1994), NULL AND VOID FROM THE VERY
BEGINNING SINCE LUIS ROSAROSO ON NOVEMBER
4, 1991 WAS NO LONGER THE OWNER OF LOTS 8,
19, 22 AND 23 AS HE HAD EARLIER DISPOSED SAID
LOTS IN FAVOR OF THE CHILDREN OF HIS (LUIS
ROSAROSO) FIRST MARRIAGE.23
Petitioners argue that the second deed of sale was null
and void because Luis could not have validly transferred
the ownership of the subject properties to Meridian, he
being no longer the owner after selling them to his
children. No less than Atty. William Boco, the lawyer who
notarized the first deed of sale, appeared and testified in
court that the said deed was the one he notarized and that
Luis and his second wife, Lourdes, signed the same
before him. He also identified the signatures of the
subscribing witnesses.24 Thus, they invoke the finding of
the RTC which wrote:
In the case of Heirs of Joaquin Teves, Ricardo Teves
versus Court of Appeals, et al., G.R. No. 109963, October
13, 1999, the Supreme Court held that a public document
executed [with] all the legal formalities is entitled to a
presumption of truth as to the recitals contained therein. In
order to overthrow a certificate of a notary public to the
effect that a grantor executed a certain document and
acknowledged the fact of its execution before him, mere
preponderance of evidence will not suffice. Rather, the
evidence must (be) so clear, strong and convincing as to
exclude all reasonable dispute as to the falsity of the
certificate. When the evidence is conflicting, the certificate
will be upheld x x x .
A notarial document is by law entitled to full faith and
credit upon its face. (Ramirez vs. Ner, 21 SCRA 207). As
such it … must be sustained in full force and effect so long
as he who impugns it shall not have presented strong,
complete and conclusive proof of its falsity or nullity on
account of some flaw or defect provided against by law
(Robinson vs. Villafuerte, 18 Phil. 171, 189-190).25
Furthermore, petitioners aver that it was erroneous for the
CA to say that the records of the case were bereft of
evidence that they paid the price of the lots sold to them.
In fact, a perusal of the records would reveal that during
the cross-examination of Antonio Rosaroso, when asked if
there was a monetary consideration, he testified that they
indeed paid their father and their payment helped him
sustain his daily needs.26
Petitioners also assert that Meridian was a buyer in bad
faith because when its representative visited the site, she
did not make the necessary inquiries. The fact that there
were already houses on the said lots should have put
Meridian on its guard and, for said reason, should have
made inquiries as to who owned those houses and what
their rights were over the same.27
Meridian’s assertion that the Second Sale was registered
in the Register of Deeds was a falsity. The subject titles,
namely: TCT No. 11155 for Lot 19, TCT No. 10885 for Lot
22, and TCT No. 10886 for Lot 23 were free from any
annotation of the alleged sale.28
After an assiduous assessment of the records, the Court
finds for the petitioners.
The First Deed Of Sale Was Valid
The fact that the first deed of sale was executed,
conveying the subject properties in favor of petitioners,
was never contested by the respondents. What they
vehemently insist, though, is that the said sale was
simulated because the purported sale was made without a
valid consideration.
Under Section 3, Rule 131 of the Rules of Court, the
following are disputable presumptions: (1) private
transactions have been fair and regular; (2) the ordinary
course of business has been followed; and (3) there was
sufficient consideration for a contract.29 These
presumptions operate against an adversary who has not
introduced proof to rebut them. They create the necessity
of presenting evidence to rebut the prima facie case they
created, and which, if no proof to the contrary is presented
and offered, will prevail. The burden of proof remains
where it is but, by the presumption, the one who has that
burden is relieved for the time being from introducing
evidence in support of the averment, because the
presumption stands in the place of evidence unless
rebutted.30
In this case, the respondents failed to trounce the said
presumption. Aside from their bare allegation that the sale
was made without a consideration, they failed to supply
clear and convincing evidence to back up this claim. It is
elementary in procedural law that bare allegations,
unsubstantiated by evidence, are not equivalent to proof
under the Rules of Court.31
The CA decision ran counter to this established rule
regarding disputable presumption. It relied heavily on the
account of Lourdes who testified that the children of Luis
approached him and convinced him to sign the deed of
sale, explaining that it was necessary for a loan
application, but they did not pay the purchase price for the
subject properties.32 This testimony, however, is self-
serving and would not amount to a clear and convincing
evidence required by law to dispute the said presumption.
As such, the presumption that there was sufficient
consideration will not be disturbed.
Granting that there was no delivery of the consideration,
the seller would have no right to sell again what he no
longer owned. His remedy would be to rescind the sale for
failure on the part of the buyer to perform his part of their
obligation pursuant to Article 1191 of the New Civil Code.
In the case of Clara M. Balatbat v. Court Of Appeals and
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Sales – Chapter 3-12 Cases
Spouses Jose Repuyan and Aurora Repuyan,33 it was
written:
The failure of the buyer to make good the price does not,
in law, cause the ownership to revest to the seller unless
the bilateral contract of sale is first rescinded or resolved
pursuant to Article 1191 of the New Civil Code. Non-
payment only creates a right to demand the fulfillment of
the obligation or to rescind the contract. [Emphases
supplied]
Meridian is Not a
Buyer in Good Faith
Respondents Meridian and Lucila argue that, granting that
the First Sale was valid, the properties belong to them as
they acquired these in good faith and had them first
recorded in the Registry of Property, as they were
unaware of the First Sale.34
Again, the Court is not persuaded.
The fact that Meridian had them first registered will not
help its cause. In case of double sale, Article 1544 of the
Civil Code provides:
ART. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have first 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 possession;
and, in the absence thereof; to the person who presents
the oldest title, provided there is good faith.
Otherwise stated, ownership of an immovable property
which is the subject of a double sale shall be transferred:
(1) to the person acquiring it who in good faith first
recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who
presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good
faith and registration in good faith. Good faith must concur
with the registration. If it would be shown that a buyer was
in bad faith, the alleged registration they have made
amounted to no registration at all.
The principle of primus tempore, potior jure (first in time,
stronger in right) gains greater significance in case of a
double sale of immovable property. When the thing sold
twice is an immovable, the one who acquires it and first
records it in the Registry of Property, both made in good
faith, shall be deemed the owner. Verily, the act of
registration must be coupled with good faith— that is, the
registrant must have no knowledge of the defect or lack of
title of his vendor or must not have been aware of facts
which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with
the defects in the title of his vendor.)35 [Emphases and
underlining supplied]
When a piece of land is in the actual possession of
persons other than the seller, the buyer must be wary and
should investigate the rights of those in possession.
Without making such inquiry, one cannot claim that he is a
buyer in good faith. When a man proposes to buy or deal
with realty, his duty is to read the public manuscript, that
is, to look and see who is there upon it and what his rights
are. A want of caution and diligence, which an honest man
of ordinary prudence is accustomed to exercise in making
purchases, is in contemplation of law, a want of good
faith. The buyer who has failed to know or discover that
the land sold to him is in adverse possession of another is
a buyer in bad faith.36 In the case of Spouses Sarmiento
v. Court of Appeals,37 it was written:
Verily, every person dealing with registered land may
safely rely on the correctness of the certificate of title
issued therefor and the law will in no way oblige him to go
behind the certificate to determine the condition of the
property. Thus, the general rule is that a purchaser may
be considered a purchaser in good faith when he has
examined the latest certificate of title. An exception to this
rule is when there exist important facts that would create
suspicion in an otherwise reasonable man to go beyond
the present title and to investigate those that preceded it.
Thus, it has been said that a person who deliberately
ignores a significant fact which would create suspicion in
an otherwise reasonable man is not an innocent
purchaser for value. A purchaser cannot close his eyes to
facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor. As we
have held:
The failure of appellees to take the ordinary precautions
which a prudent man would have taken under the
circumstances, specially in buying a piece of land in the
actual, visible and public possession of another person,
other than the vendor, constitutes gross negligence
amounting to bad faith.
In this connection, it has been held that where, as in this
case, the land sold is in the possession of a person other
than the vendor, the purchaser is required to go beyond
the certificate of title to make inquiries concerning the
rights of the actual possessor. Failure to do so would
make him a purchaser in bad faith. (Citations omitted).
One who purchases real property which is in the actual
possession of another should, at least make some inquiry
concerning the right of those in possession. The actual
possession by other than the vendor should, at least put
the purchaser upon inquiry. He can scarely, in the
absence of such inquiry, be regarded as a bona fide
purchaser as against such possessors. (Emphases
supplied)
Prescinding from the foregoing, the fact that private
respondent RRC did not investigate the Sarmiento
spouses' claim over the subject land despite its
knowledge that Pedro Ogsiner, as their overseer, was in
actual possession thereof means that it was not an
innocent purchaser for value upon said land. Article 524 of
the Civil Code directs that possession may be exercised in
one's name or in that of another. In herein case, Pedro
Ogsiner had informed RRC that he was occupying the
subject land on behalf of the Sarmiento spouses. Being a
corporation engaged in the business of buying and selling
real estate, it was gross negligence on its part to merely
rely on Mr. Puzon's assurance that the occupants of the
property were mere squatters considering the invaluable
information it acquired from Pedro Ogsiner and
considering further that it had the means and the
181
Sales – Chapter 3-12 Cases
opportunity to investigate for itself the accuracy of such
information. [Emphases supplied]
In another case, it was held that if a vendee in a double
sale registers the sale after he has acquired knowledge of
a previous sale, the registration constitutes a registration
in bad faith and does not confer upon him any right. If the
registration is done in bad faith, it is as if there is no
registration at all, and the buyer who has first taken
possession of the property in good faith shall be
preferred.38
In the case at bench, the fact that the subject properties
were already in the possession of persons other than Luis
was never disputed. Sanchez, representative and witness
for Meridian, even testified as follows:
x x x; that she together with the two agents, defendant
Laila Solutan and Corazon Lua, the president of Meridian
Realty Corporation, went immediately to site of the lots;
that the agents brought with them the three titles of the
lots and Laila Solutan brought with her a special power of
attorney executed by Luis B. Rosaroso in her favor but
she went instead directly to Luis Rosaroso to be sure; that
the lots were pointed to them and she saw that there were
houses on it but she did not have any interest of the
houses because her interest was on the lots; that Luis
Rosaroso said that the houses belonged to him; that he
owns the property and that he will sell the same because
he is very sickly and he wanted to buy medicines; that she
requested someone to check the records of the lots in the
Register of Deeds; that one of the titles was mortgaged
and she told them to redeem the mortgage because the
corporation will buy the property; that the registered owner
of the lots was Luis Rosaroso; that in more or less three
months, the encumbrance was cancelled and she told the
prospective sellers to prepare the deed of sale; that there
were no encumbrances or liens in the title; that when the
deed of absolute sale was prepared it was signed by the
vendor Luis Rosaroso in their house in Opra x x x.39
(Underscoring supplied)
From the above testimony, it is clear that Meridian,
through its agent, knew that the subject properties were in
possession of persons other than the seller. Instead of
investigating the rights and interests of the persons
occupying the said lots, however, it chose to just believe
that Luis still owned them. Simply, Meridian Realty failed Lorenzo Sumulong, R. B. Hilao and B. S. Felipe for
to exercise the due diligence required by law of intervenor-appellee.
purchasers in acquiring a piece of land in the possession REGALA, J.:
of person or persons other than the seller. This is an appeal, on purely legal questions, from a
decision of the Court of First Instance of Quezon City,
In this regard, great weight is accorded to the findings of Branch IV, declaring the intervenor-appellee, Teodoro
fact of the RTC. Basic is the rule that the trial court is in a Santos, entitled to the possession of the car in dispute.
better position to examine real evidence as well as to The records before this Court disclose that sometime in
observe the demeanor of witnesses who testify in the May, 1959, Teodoro Santos advertised in two
case.40 metropolitan papers the sale of his FORD FAIRLANE 500.
In the afternoon of May 28, 1959, a certain L. De Dios,
WHEREFORE, the petition is GRANTED. The December claiming to be a nephew of Vicente Marella, went to the
4, 2009 Decision and the November 18, 201 0 Resolution Santos residence to answer the ad. However, Teodoro
of the Court of Appeals, in CA-G.R. CV No. 00351, are Santos was out during this call and only the latter's son,
REVERSED and SET ASIDE. The July 30, 2004 Decision Irineo Santos, received and talked with De Dios. The latter
of the Regional Trial Court, Branch 8, 7th Judicial Region, told the young Santos that he had come in behalf of his
Cebu City, in Civil Case No. CEB-16957, is hereby uncle, Vicente Marella, who was interested to buy the
REINSTATED. advertised car.
On being informed of the above, Teodoro Santos
SO ORDERED. instructed his son to see the said Vicente Marella the
following day at his given address: 1642 Crisostomo
Street, Sampaloc, Manila. And so, in the morning of May
29, 1959, Irineo Santos went to the above address. At this
meeting, Marella agreed to buy the car for P14,700.00 on
the understanding that the price would be paid only after
the car had been registered in his name.
Irineo Santos then fetched his father who, together with L.
De Dios, went to the office of a certain Atty. Jose Padolina
where the deed of the sale for the car was executed in
Marella's favor. The parties to the contract thereafter
proceeded to the Motor Vehicles Office in Quezon City
where the registration of the car in Marella's name was
effected. Up to this stage of the transaction, the
purchased price had not been paid.
From the Motor Vehicles Office, Teodoro Santos returned
to his house. He gave the registration papers and a copy
of the deed of sale to his son, Irineo, and instructed him
not to part with them until Marella shall have given the full
payment for the car. Irineo Santos and L. De Dios then
G.R. No. L-18536 March 31, 1965 proceeded to 1642 Crisostomo Street, Sampaloc, Manila
JOSE B. AZNAR, plaintiff-appellant, where the former demanded the payment from Vicente
vs. Marella. Marella said that the amount he had on hand
RAFAEL YAPDIANGCO, defendant-appellee; then was short by some P2,000.00 and begged off to be
TEODORO SANTOS, intervenor-appellee. allowed to secure the shortage from a sister supposedly
Florentino M. Guanlao for plaintiff-appellant. living somewhere on Azcarraga Street, also in Manila.
Rafael Yapdiangco in his own behalf as defendant- Thereafter, he ordered L. De Dios to go to the said sister
appellee. and suggested that Irineo Santos go with him. At the
182
Sales – Chapter 3-12 Cases
same time, he requested the registration papers and the
deed of sale from Irineo Santos on the pretext that he
would like to show them to his lawyer. Trusting the good
faith of Marella, Irineo handed over the same to the latter
and thereupon, in the company of L. De Dios and another
unidentified person, proceeded to the alleged house of
Marella's sister.
At a place on Azcarraga, Irineo Santos and L. De Dios
alighted from the car and entered a house while their
unidentified companion remained in the car. Once inside,
L. De Dios asked Irineo Santos to wait at the sala while he
went inside a room. That was the last that Irineo saw of
him. For, after a considerable length of time waiting in vain
for De Dios to return, Irineo went down to discover that
neither the car nor their unidentified companion was there
anymore. Going back to the house, he inquired from a
woman he saw for L. De Dios and he was told that no
such name lived or was even known therein. Whereupon,
Irineo Santos rushed to 1642 Crisostomo to see Marella.
He found the house closed and Marella gone. Finally, he
reported the matter to his father who promptly advised the
police authorities.
That very same day, or on the afternoon of May 29, 1959
Vicente Marella was able to sell the car in question to the
plaintiff-appellant herein, Jose B. Aznar, for P15,000.00.
Insofar as the above incidents are concerned, we are
bound by the factual finding of the trial court that Jose B.
Aznar acquired the said car from Vicente Marella in good
faith, for a valuable consideration and without notice of the
defect appertaining to the vendor's title.
While the car in question was thus in the possession of
Jose B. Aznar and while he was attending to its
registration in his name, agents of the Philippine
Constabulary seized and confiscated the same in
consequence of the report to them by Teodoro Santos
that the said car was unlawfully taken from him.
In due time, Jose B. Aznar filed a complaint for replevin
against Captain Rafael Yapdiangco, the head of the
Philippine Constabulary unit which seized the car in
question Claiming ownership of the vehicle, he prayed for
its delivery to him. In the course of the litigation, however,
Teodoro Santos moved and was allowed to intervene by
the lower court.
At the end of the trial, the lower court rendered a decision
awarding the disputed motor vehicle to the intervenor-
appellee, Teodoro Santos. In brief, it ruled that Teodoro
Santos had been unlawfully deprived of his personal
property by Vicente Marella, from whom the plaintiff-
appellant traced his right. Consequently, although the
plaintiff-appellant acquired the car in good faith and for a
valuable consideration from Vicente Marella, the said
decision concluded, still the intervenor-appellee was
entitled to its recovery on the mandate of Article 559 of the
New Civil Code which provides:
ART. 559. The possession of movable property acquired
in good faith is equivalent to title. Nevertheless, one who
lost any movable or has been unlawfully deprived thereof,
may recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner
has been unlawfully deprived, has acquired it in good faith
at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.
From this decision, Jose B. Aznar appeals.
The issue at bar is one and simple, to wit: Between
Teodoro Santos and the plaintiff-appellant, Jose B. Aznar,
who has a better right to the possession of the disputed
automobile?
We find for the intervenor-appellee, Teodoro Santos.
The plaintiff-appellant accepts that the car in question
originally belonged to and was owned by the intervenor-
appellee, Teodoro Santos, and that the latter was
unlawfully deprived of the same by Vicente Marella.
However, the appellant contends that upon the facts of
this case, the applicable provision of the Civil Code is
Article 1506 and not Article 559 as was held by the
decision under review. Article 1506 provides:
ART. 1506. Where the seller of goods has a voidable title
thereto, but his, title has not been voided at the time of the
sale, the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and
without notice of the seller's defect of title.
The contention is clearly unmeritorious. Under the
aforequoted provision, it is essential that the seller should
have a voidable title at least. It is very clearly inapplicable
where, as in this case, the seller had no title at all.
Vicente Marella did not have any title to the property
under litigation because the same was never delivered to
him. He sought ownership or acquisition of it by virtue of
the contract. Vicente Marella could have acquired
ownership or title to the subject matter thereof only by the
delivery or tradition of the car to him.
Under Article 712 of the Civil Code, "ownership and other
real rights over property are acquired and transmitted by
law, by donation, by testate and intestate succession, and
in consequence of certain contracts, by tradition." As
interpreted by this Court in a host of cases, by this
provision, ownership is not transferred by contract merely
but by tradition or delivery. Contracts only constitute titles
or rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the
same (Gonzales v. Rojas, 16 Phil. 51; Ocejo, Perez and
Co. v. International Bank, 37 Phil. 631, Fidelity and
Deposit Co. v. Wilson, 8 Phil. 51; Kuenzle & Streiff v.
Wacke & Chandler, 14 Phil. 610; Easton v. Diaz Co., 32
Phil. 180).
For the legal acquisition and transfer of ownership and
other property rights, the thing transferred must be
delivered, inasmuch as, according to settled
jurisprudence, the tradition of the thing is a necessary and
indispensable requisite in the acquisition of said
ownership by virtue of contract. (Walter Laston v. E. Diaz
& Co. & the Provincial Sheriff of Albay, supra.)
So long as property is not delivered, the ownership over it
is not transferred by contract merely but by delivery.
Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the
method of accomplishing the same, the title and the
method of acquiring it being different in our law. (Gonzales
v. Roxas, 16 Phil. 51)
In the case on hand, the car in question was never
delivered to the vendee by the vendor as to complete or
consummate the transfer of ownership by virtue of the
contract. It should be recalled that while there was indeed
a contract of sale between Vicente Marella and Teodoro
Santos, the former, as vendee, took possession of the
subject matter thereof by stealing the same while it was in
the custody of the latter's son.
There is no adequate evidence on record as to whether
Irineo Santos voluntarily delivered the key to the car to the
unidentified person who went with him and L. De Dios to
the place on Azcarraga where a sister of Marella allegedly
lived. But even if Irineo Santos did, it was not the delivery
contemplated by Article 712 of the Civil Code. For then, it
would be indisputable that he turned it over to the
unidentified companion only so that he may drive Irineo
Santos and De Dios to the said place on Azcarraga and
not to vest the title to the said vehicle to him as agent of
Vicente Marella. Article 712 above contemplates that the
act be coupled with the intent of delivering the thing. (10
Manresa 132)
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Sales – Chapter 3-12 Cases
The lower court was correct in applying Article 559 of the committed, cannot be applied in a case which is covered
Civil Code to the case at bar, for under it, the rule is to the by an express provision of the new Civil Code, specifically
effect that if the owner has lost a thing, or if he has been Article 559. Between a common law principle and a
unlawfully deprived of it, he has a right to recover it, not statutory provision, the latter must prevail in this
only from the finder, thief or robber, but also from third jurisdiction. (Cruz v. Pahati, supra)
persons who may have acquired it in good faith from such UPON ALL THE FOREGOING, the instant appeal is
finder, thief or robber. The said article establishes two hereby dismissed and the decision of the lower court
exceptions to the general rule of irrevindicability, to wit, affirmed in full. Costs against the appellant.
when the owner (1) has lost the thing, or (2) has been Bengzon, C.J., Bautista Angelo, Concepcion, Reyes,
unlawfully deprived thereof. In these cases, the possessor J.B.L., Barrera, Paredes, Dizon, M
cannot retain the thing as against the owner, who may
recover it without paying any indemnity, except when the
possessor acquired it in a public sale. (Del Rosario v.
Lucena, 8 Phil. 535; Varela v. Finnick, 9 Phil. 482; Varela
v. Matute, 9 Phil. 479; Arenas v. Raymundo, 19 Phil.
46. Tolentino, id., Vol. II, p. 261.)
In the case of Cruz v. Pahati, et al., 52 O.G. 3053 this
Court has already ruled
that —
Under Article 559 of the new Civil Code, a person illegally
deprived of any movable may recover it from the person in
possession of the same and the only defense the latter
may have is if he has acquired it in good faith at a public
sale, in which case, the owner cannot obtain its return
without reimbursing the price paid therefor. In the present
case, plaintiff has been illegally deprived of his car
through the ingenious scheme of defendant B to enable
the latter to dispose of it as if he were the owner thereof.
Plaintiff, therefore, can still recover possession of the car
even if it is in the possession of a third party who had
acquired it in good faith from defendant B. The maxim that Tagatac v. Jimenez
"no man can transfer to another a better title than he had TRINIDAD TAGATAC v. LIBERATO JIMENEZ
himself" obtains in the civil as well as in the common law. 1957 / Ocampo / Appeal from CFI judgment
(U.S. v. Sotelo, 28 Phil. 147) Trinidad Tagatac bought a car for $4,500 in the US, and
Finally, the plaintiff-appellant here contends that inasmuch seven months later, she brought the car to the Philippines.
as it was the intervenor-appellee who had caused the When her friend Joseph Lee came to see her, he was with
fraud to be perpetrated by his misplaced confidence on one Warner Feist who posed as a wealthy man. Seeing
Vicente Marella, he, the intervenor-appellee, should be that Tagatac seemed to believe him, he offered to buy her
made to suffer the consequences arising therefrom, car for P15,000, and Tagatac was amenable to the idea.
following the equitable principle to that effect. Suffice it to The deed of sale was made, Feist paid by means of a
say in this regard that the right of the owner to recover postdated check, and the car was delivered to Feist.
personal property acquired in good faith by another, is When Tagatac tried to encash the check, PNB refused to
based on his being dispossessed without his consent. The honor it and told her that Feist had no account in said
common law principle that where one of two innocent bank. Tagatac notified the law enforcement agencies of
persons must suffer by a fraud perpetrated by another, the the estafa committed on her by Feist, but he was not
law imposes the loss upon the party who, by his apprehended and the car disappeared.
misplaced confidence, has enabled the fraud to be
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Sales – Chapter 3-12 Cases
Meanwhile, Feist managed to have the private deed of
sale notarized, so he succeeded in having the car’s
registration certificate [RC] transferred in his name. He
sold the car to Sanchez, who was able to transfer the RC
to his name. He offered to sell the car to defendant
Liberato Jimenez, who bought the car for P10,000 after
investigating in the Motor Vehicles Office. Jimenez
delivered the car to the California Car Exchange so that it
may be displayed for sale. Masalonga offered to sell the
car for Jimenez, so the car was transferred to the former,
but when Masalonga failed to sell it right away, he
transferred it to Villanueva so he could sell it for Jimenez.
Tagatac discovered that the car was in California Car
Exchange’s possession, so she demanded from the
manager for the delivery of the car, but the latter refused.
The RC was retransferred to Jimenez.
Tagatac filed a suit for the recovery of the car’s
fall under the scope of NCC 599. 2In this case, there is a
valid transmission of ownership from true owner [Tagatac]
to the swindler [Feist], considering that they had a contract
of sale.
As long as no action is taken by the entitled party
[annulment / ratification], the contract of sale remains valid
and binding. Feist acquired defective and voidable title,
but when he sold it to Sanchez, he conferred a good title
on the latter. Jimenez bought the car from Sanchez in
good faith, for value, and without notice of any defect in
Sanchez’ title, so he acquired a good title to the car. Good
title means an indefeasible title to the car, even as against
original owner Tagatac. As between two innocent parties,
the one whose acts made possible the injury must
shoulder the consequences thereof.
————————-
1 Civil liability of person who is criminally liable includes

possession, and the sheriff, pursuant to a warrant of restitution of thing even though it is with a third person
seizure that Tagatac obtained, seized and impounded the who acquired it legally
2 Although possession of movable property acquired in
car, but it was delivered back to Jimenez upon his filing of
a counter-bond. The lower court held that Jimenez had good faith is equivalent to a title, one who has lost any
the right of ownership and possession over the car. movable or has been unlawfully deprived thereof may
JIMENEZ IS A PURCHASER IN GOOD FAITH; recover it from the person who possesses it.
TAGATAC NOT ENTITLED TO POSSESSION
RATIO
The disputable presumption that a person found in
possession of a thing taken in the doing of a recent
wrongful act is the taker and the doer of the whole
act does NOT apply in this case because the car was not
stolen from Tagatac, and Jimenez came into possession
of the car two months after Feist swindled Tagatac. In
addition, when Jimenez acquired the car, he had no
knowledge of any flaw in the title of the person from whom
he acquired it. It was only later that he became fully aware
that there were some questions regarding the car, when
he filed a petition to dissolve Tagatac’s search warrant
which had as its subject the car in question.
Re: Tagatac’s allegation that the lower court ignored the
judgment
convicting Feist of estafa, and that it erred in not declaring
that restitution of the swindled property must follow, SHE
IS WRONG! The lower court noted that Feist was accused
of estafa because of the check and NOT because of the
delivery of the car.
Her legal basis for the restitution of thing is RPC 104-51 .
Now the question is WON she has beenunlawfully G.R. No. 80298 April 26, 1990
deprived of her car. It seems like though, but it does not
185
Sales – Chapter 3-12 Cases
EDCA PUBLISHING & DISTRIBUTING
CORP., petitioner,
vs.
THE SPOUSES LEONOR and GERARDO SANTOS,
doing business under the name and style of "SANTOS
BOOKSTORE," and THE COURT OF
APPEALS, respondents.
Emiliano S. Samson, R. Balderrama-Samson, Mary Anne
B. Samson for petitioner.
Cendana Santos, Delmundo & Cendana for private
respondents.
CRUZ, J.:
The case before us calls for the interpretation of Article
559 of the Civil Code and raises the particular question of
when a person may be deemed to have been "unlawfully
deprived" of movable property in the hands of another.
The article runs in full as follows:
Art. 559. The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of
the same.
If the possessor of a movable lost or of which the owner
has been unlawfully deprived has acquired it in good faith
at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.
The movable property in this case consists of books,
which were bought from the petitioner by an impostor who
sold it to the private respondents. Ownership of the books
was recognized in the private respondents by the
Municipal Trial Court, 1 which was sustained by the
Regional Trial Court, 2 which was in turn sustained by the
Court of Appeals. 3 The petitioner asks us to declare that
all these courts have erred and should be reversed.
This case arose when on October 5, 1981, a person
identifying himself as Professor Jose Cruz placed an order
by telephone with the petitioner company for 406 books,
payable on delivery. 4 EDCA prepared the corresponding
invoice and delivered the books as ordered, for which
Cruz issued a personal check covering the purchase price
of P8,995.65. 5 On October 7, 1981, Cruz sold 120 of the
books to private respondent Leonor Santos who, after
verifying the seller's ownership from the invoice he
showed her, paid him P1,700.00. 6
Meanwhile, EDCA having become suspicious over a
second order placed by Cruz even before clearing of his
first check, made inquiries with the De la Salle College
where he had claimed to be a dean and was informed that
there was no such person in its employ. Further
verification revealed that Cruz had no more account or
deposit with the Philippine Amanah Bank, against which
he had drawn the payment check. 7 EDCA then went to
the police, which set a trap and arrested Cruz on October
7, 1981. Investigation disclosed his real name as Tomas
de la Peña and his sale of 120 of the books he had
ordered from EDCA to the private respondents. 8
On the night of the same date, EDCA sought the
assistance of the police in Precinct 5 at the UN Avenue,
which forced their way into the store of the private
respondents and threatened Leonor Santos with
prosecution for buying stolen property. They seized the
120 books without warrant, loading them in a van
belonging to EDCA, and thereafter turned them over to
the petitioner. 9
Protesting this high-handed action, the private
respondents sued for recovery of the books after demand
for their return was rejected by EDCA. A writ of
preliminary attachment was issued and the petitioner,
after initial refusal, finally surrendered the books to the
private respondents. 10 As previously stated, the petitioner
was successively rebuffed in the three courts below and
now hopes to secure relief from us.
To begin with, the Court expresses its disapproval of the
arbitrary action of the petitioner in taking the law into its
own hands and forcibly recovering the disputed books
from the private respondents. The circumstance that it did
so with the assistance of the police, which should have
been the first to uphold legal and peaceful processes, has
compounded the wrong even more deplorably. Questions
like the one at bar are decided not by policemen but by
judges and with the use not of brute force but of lawful
writs.
Now to the merits
It is the contention of the petitioner that the private
respondents have not established their ownership of the
disputed books because they have not even produced a
receipt to prove they had bought the stock. This is
unacceptable. Precisely, the first sentence of Article 559
provides that "the possession of movable property
acquired in good faith is equivalent to a title," thus
dispensing with further proof.
The argument that the private respondents did not acquire
the books in good faith has been dismissed by the lower
courts, and we agree. Leonor Santos first ascertained the
ownership of the books from the EDCA invoice showing
that they had been sold to Cruz, who said he was selling
them for a discount because he was in financial need.
Private respondents are in the business of buying and
selling books and often deal with hard-up sellers who
urgently have to part with their books at reduced prices.
To Leonor Santos, Cruz must have been only one of the
many such sellers she was accustomed to dealing with. It
is hardly bad faith for any one in the business of buying
and selling books to buy them at a discount and resell
them for a profit.
But the real issue here is whether the petitioner has been
unlawfully deprived of the books because the check
issued by the impostor in payment therefor was
dishonored.
In its extended memorandum, EDCA cites numerous
cases holding that the owner who has been unlawfully
deprived of personal property is entitled to its recovery
except only where the property was purchased at a public
sale, in which event its return is subject to reimbursement
of the purchase price. The petitioner is begging the
question. It is putting the cart before the horse. Unlike in
the cases invoked, it has yet to be established in the case
at bar that EDCA has been unlawfully deprived of the
books.
The petitioner argues that it was, because the impostor
acquired no title to the books that he could have validly
transferred to the private respondents. Its reason is that
as the payment check bounced for lack of funds, there
was a failure of consideration that nullified the contract of
sale between it and Cruz.
The contract of sale is consensual and is perfected once
agreement is reached between the parties on the subject
matter and the consideration. According to the Civil Code:
Art. 1475. The 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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts.
xxx xxx xxx
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive
delivery thereof.
186
Sales – Chapter 3-12 Cases
Art. 1478. The parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has fully paid
the price.
It is clear from the above provisions, particularly the last
one quoted, that ownership in the thing sold shall not pass
to the buyer until full payment of the purchase only if there
is a stipulation to that effect. Otherwise, the rule is that
such ownership shall pass from the vendor to the vendee
upon the actual or constructive delivery of the thing
sold even if the purchase price has not yet been paid.
Non-payment only creates a right to demand payment or
to rescind the contract, or to criminal prosecution in the
case of bouncing checks. But absent the stipulation above
noted, delivery of the thing sold will effectively transfer
ownership to the buyer who can in turn transfer it to
another.
In Asiatic Commercial Corporation v. Ang,11 the plaintiff
sold some cosmetics to Francisco Ang, who in turn sold
them to Tan Sit Bin. Asiatic not having been paid by Ang,
it sued for the recovery of the articles from Tan, who
claimed he had validly bought them from Ang, paying for
the same in cash. Finding that there was no conspiracy
between Tan and Ang to deceive Asiatic the Court of
Appeals declared:
Yet the defendant invoked Article 464 12 of the Civil Code
providing, among other things that "one who has been
unlawfully deprived of personal property may recover it
from any person possessing it." We do not believe that the
plaintiff has been unlawfully deprived of the cartons of
Gloco Tonic within the scope of this legal provision. It has
voluntarily parted with them pursuant to a contract of
purchase and sale. The circumstance that the price was
not subsequently paid did not render illegal a transaction
which was valid and legal at the beginning.
In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist,
who sold it to Sanchez, who sold it to Jimenez. When the
payment check issued to Tagatac by Feist was
dishonored, the plaintiff sued to recover the vehicle from
Jimenez on the ground that she had been unlawfully
deprived of it by reason of Feist's deception. In ruling for
Jimenez, the Court of Appeals held:
The point of inquiry is whether plaintiff-appellant Trinidad
C. Tagatac has been unlawfully deprived of her car. At
first blush, it would seem that she was unlawfully deprived
thereof, considering that she was induced to part with it by
reason of the chicanery practiced on her by Warner L.
Feist. Certainly, swindling, like robbery, is an illegal
method of deprivation of property. In a manner of
speaking, plaintiff-appellant was "illegally deprived" of her
car, for the way by which Warner L. Feist induced her to
part with it is illegal and is punished by law. But does this
"unlawful deprivation" come within the scope of Article 559
of the New Civil Code?
xxx xxx xxx
. . . The fraud and deceit practiced by Warner L. Feist
earmarks this sale as a voidable contract (Article 1390
N.C.C.). Being a voidable contract, it is susceptible of
either ratification or annulment. If the contract is ratified,
the action to annul it is extinguished (Article 1392, N.C.C.)
and the contract is cleansed from all its defects (Article
1396, N.C.C.); if the contract is annulled, the contracting
parties are restored to their respective situations before
the contract and mutual restitution follows as a
consequence (Article 1398, N.C.C.).
However, as long as no action is taken by the party
entitled, either that of annulment or of ratification, the
contract of sale remains valid and binding. When plaintiff-
appellant Trinidad C. Tagatac delivered the car to Feist by
virtue of said voidable contract of sale, the title to the car
passed to Feist. Of course, the title that Feist acquired
was defective and voidable. Nevertheless, at the time he
sold the car to Felix Sanchez, his title thereto had not
been avoided and he therefore conferred a good title on
the latter, provided he bought the car in good faith, for
value and without notice of the defect in Feist's title
(Article 1506, N.C.C.). There being no proof on record that
Felix Sanchez acted in bad faith, it is safe to assume that
he acted in good faith.
The above rulings are sound doctrine and reflect our own
interpretation of Article 559 as applied to the case before
us.
Actual delivery of the books having been made, Cruz
acquired ownership over the books which he could then
validly transfer to the private respondents. The fact that he
had not yet paid for them to EDCA was a matter between
him and EDCA and did not impair the title acquired by the
private respondents to the books.
One may well imagine the adverse consequences if the
phrase "unlawfully deprived" were to be interpreted in the
manner suggested by the petitioner. A person relying on
the seller's title who buys a movable property from him
would have to surrender it to another person claiming to
be the original owner who had not yet been paid the
purchase price therefor. The buyer in the second sale
would be left holding the bag, so to speak, and would be
compelled to return the thing bought by him in good faith
without even the right to reimbursement of the amount he
had paid for it.
It bears repeating that in the case before us, Leonor
Santos took care to ascertain first that the books belonged
to Cruz before she agreed to purchase them. The EDCA
invoice Cruz showed her assured her that the books had
been paid for on delivery. By contrast, EDCA was less
than cautious — in fact, too trusting in dealing with the
impostor. Although it had never transacted with him
before, it readily delivered the books he had ordered (by
telephone) and as readily accepted his personal check in
payment. It did not verify his identity although it was easy
enough to do this. It did not wait to clear the check of this
unknown drawer. Worse, it indicated in the sales invoice
issued to him, by the printed terms thereon, that the books
had been paid for on delivery, thereby vesting ownership
in the buyer.
Surely, the private respondent did not have to go beyond
that invoice to satisfy herself that the books being offered
for sale by Cruz belonged to him; yet she did. Although
the title of Cruz was presumed under Article 559 by his
mere possession of the books, these being movable
property, Leonor Santos nevertheless demanded more
proof before deciding to buy them.
It would certainly be unfair now to make the private
respondents bear the prejudice sustained by EDCA as a
result of its own negligence.1âwphi1 We cannot see the
justice in transferring EDCA's loss to the Santoses who
had acted in good faith, and with proper care, when they
bought the books from Cruz.
While we sympathize with the petitioner for its plight, it is
clear that its remedy is not against the private
respondents but against Tomas de la Peña, who has
apparently caused all this trouble. The private
respondents have themselves been unduly
inconvenienced, and for merely transacting a customary
deal not really unusual in their kind of business. It is they
and not EDCA who have a right to complain.
WHEREFORE, the challenged decision is AFFIRMED and
the petition is DENIED, with costs against the petitioner.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ.,
concur.
187
Sales – Chapter 3-12 Cases
CHRYSLER PHILIPPINES CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and
SAMBOK MOTORS CO. (BACOLOD), respondents,
Reyes, Santayana, Tayao & Picazo Law Office for
petitioner.
Alampay, Alvero & Alampay Law Office for private
respondent.
MELENCIO-HERRERA, J:
Subject of this Petition for Review is the Decision of the
then Court of Appeals in CA-G.R. No. 65328-R reversing
the judgment of the then Court of First Instance of Rizal,
Branch XX, in Civil Case No. 16624, and dismissing
petitioner Chrysler Philippines Corporation's suit for
Damages against private respondent Sambok Motors
Company (Bacolod) arising from breach of contract.
Petitioner is a domestic corporation engaged in the
assembling and sale of motor vehicles and other
automotive products. Respondent Sambok Motors Co., a
general partnership, during the period relevant to these
proceedings, was its dealer for automotive products with
offices at Bacolod (Sambok, Bacolod) and Iloilo (Sambok,
Iloilo). The two offices were run by relatives. Miguel Ng
was Assistant Manager for Sambok, Bacolod, while an
elder brother, Pepito Ng, was the President. 1
On September 7, 1972, petitioner filed with the Court of
First Instance of Rizal, Branch XX, Pasig, Rizal, a
Complaint for Damages against Allied Brokerage
Corporation, Negros Navigation Company and Sambok,
Bacolod, alleging that on October 2, 1970, Sambok,
Bacolod, ordered from petitioner various automotive
products worth P30,909.61, payable in 45 days; that on
November 25, 1970, petitioner delivered said products to
its forwarding agent, Allied Brokerage Corporation, for
shipment; that Allied Brokerage loaded the goods on
board the M/S Doña Florentina, a vessel owned and
operated by Negros Navigation Company, for delivery to
Sambok, Bacolod; that when petitioner tried to collect from
the latter the amount of P31,037.56, representing the
price of the spare parts plus handling charges, Sambok,
Bacolod, refused to pay claiming that it had not received
the merchandise; that petitioner also demanded the return
of the merchandise or their value from Allied Brokerage
and Negros Navigation, but both denied any liability.
In its Answer, Sambok, Bacolod, denied having received
from petitioner or from any of its co-defendants, the
automotive products referred to in the Complaint, and
professed no knowledge of having ordered from petitioner
said articles.
Upon a Joint Motion to Dismiss filed by petitioner and
Allied Brokerage, the Trial Court. on October 23, 1975,
dismissed the case with prejudice against Allied
Brokerage for lack of cause of action, and also dismissed
the latter's counterclaim against petitioner.
On July 31, 1978, the Trial Court rendered its Decision
dismissing the Complaint against Negros Navigation for
lack of cause of action, but finding Sambok, Bacolod,
liable for the claim of petitioner, thus:
PREMISES CONSIDERED, the Court renders judgment
as follows:
(1) The complaint against defendant Negros Navigation is
dismissed for lack of cause of action.
(2) Defendant Sambok Motors Co. (Bacolod) is ordered to
pay plaintiff Chrysler Philippines Corporation:
(a) The sum of Thirty-One Thousand Thirty Seven Pesos
and Fifty Six Centavos (P31,037.56) with interest at the
rate of twelve percent (12) per annum from January 1,
1971 until fully paid;
(b) The sum of Five Thousand Pesos as and for attorney's
fees and expenses of litigation;
(c) The costs of the suit.
(3) The counterclaim of defendant Negros Navigation and
Sambok Motors Co. (Bacolod) are dismissed for lack of
merit.
The case against Negros Navigation was dismissed for
failure of petitioner and Sambok, Bacolod, to file the
necessary notices and claims as conditions precedent for
a judicial action. 2
On the other hand, the Trial Court found that the act of
Sambok, Bacolod, "in refusing to take delivery of the
shipment for no justifiable reason from Negros Navigation
despite having received the Bill of Lading constituted
wrongful neglect or refusal to accept and pay for the
subject shipment, by reason of which defendant Sambok
Motors may be held liable for damages."
Sambok, Bacolod, appealed. On November 26, 1980,
respondent Appellate Court set aside the appealed
judgment and dismissed petitioner's Complaint, after
finding that the latter had not performed its part of the
obligation under the contract by not delivering the goods
at Sambok, Iloilo, the place designated in the Parts Order
Form (Exhibits "A", "A-1" to "A-6"), and must, therefore,
188
Sales – Chapter 3-12 Cases
suffer the loss. In other words, respondent Appellate Court
found. that there was misdelivery.
Hence, this Petition for Review on Certiorari, with the
following errors assigned to respondent Court:
I take delivery as they were advised by Negros Navigation
The Respondent Court of Appeals erred in finding that the
issue of misshipment or misdelivery of the automotive
spare parts involved in the litigation was raised by the
private respondent Sambok Motors Co. (Bacolod) in the
Trial Court.
II
The Respondent Court of Appeals erred in refusing to
apply the provisions of Section 18, Rule 46 of the Revised
Rules of Court quoted below, that since the question of
misshipment or misdelivery was not raised by the private
respondent in the Trial Court, this issue cannot for the first
time be raised on appeal.
Section 18. Questions that may be raised on appeal.
Whether or not the appellant has filed a motion for new
trial in the court below, he may include in his assignment
of errors any question of law or fact that has been raised
in the court below and which is within the issues framed
by the parties.
III
The Respondent Court of Appeals erred in finding that the
private respondent gave the alleged instruction to the
petitioner to ship the automotive spare parts to Iloilo City
and not to Bacolod City.
IV
The Respondent Court of Appeals erred in finding that the
defendant Negros Navigation notified the private
respondent of the arrival of the shipment at Bacolod City.
V on non-delivery since the merchandise was never placed
The Respondent Court of Appeals erred in reversing the
decision of the Trial Court that the act of the private
respondent in refusing to take delivery of the automotive
spare parts that it purchased from the petitioner after
having been notified of the shipment constitutes wrongful
neglect resulting in the loss of the cargo for which it
should be liable in damages to the petitioner.
To our minds, the matter of misdelivery is not the decisive
factor for relieving Sambok, Bacolod, of liability herein.
While it may be that the Parts Order Form (E exhibits "A",
"A-1" to "A-6") specifically indicated Iloilo as the
destination, as testified to by Ernesto Ordonez, Parts
Sales Representative of petitioner, 3 Sambok, Bacolod,
and Sambok, Iloilo, are actually one. In fact, admittedly,
the order for spare parts was made by the President of
Sambok, Pepito Ng, through its marketing consultant.
Notwithstanding, upon receipt of the Bill of Lading,
Sambok, Bacolod, initiated, but did not pursue, steps to
that because some parts were missing. they would just be
informed as soon as the missing parts were located. 4
It was only four years later, however, or in 1974, when a
warehouseman of Negros Navigation, Severino Aguarte,
found in their off-shore bodega, parts of the shipment.- in
question, but already deteriorated and valueless. 5
Under the circumstances, Sambok, Bacolod, cannot be
faulted for not accepting or refusing to accept the
shipment from Negros Navigation four years after
shipment. The evidence is clear that Negros Navigation
could not produce the merchandise nor ascertain its
whereabouts at the time Sambok, Bacolod, was ready to
take delivery. Where the seller delivers to the buyer a
quantity of goods less than he contracted to sell, the buyer
may reject them. 6
From the evidentiary record, Negros Navigation was the
party negligent in failing to deliver the complete shipment
either to Sambok, Bacolod, or to Sambok, Iloilo, but as the
Trial Court found, petitioner failed to comply with the
conditions precedent to the filing of a judicial action. Thus,
in the last analysis, it is petitioner that must shoulder the
resulting loss. The general rule that before, delivery, the
risk of loss is home by the seller who is still the owner,
under the principle of "res petit domino", 7 is applicable in
petitioner's case.
In sum, the judgment of respondent Appellate Court, will
have to be sustained not on the basis of misdelivery but
in the control and possession of Sambok, Bacolod, the
vendee. 8
WHEREFORE, we hereby affirm the Decision of the then
Court of Appeals in CA-G.R. No. 65328-R, without
pronouncement as to costs.
189
Sales – Chapter 3-12 Cases
LAWYERS COOPERATIVE PUBLISHING
COMPANY, plaintiff-appellee,
vs.
PERFECTO A. TABORA, defendant-appellant.
Paredes, Poblador, Cruz and Nazareno for plaintiff-
appellee.
Tabora and Concon for defendant-appellant.
BAUTISTA ANGELO, J.:
On May 3, 1955, Perfecto A. Tabora bought from the
Lawyers Cooperative Publishing Company one complete
set of American Jurisprudence consisting of 48 volumes
with 1954 pocket parts, plus one set of American
Jurisprudence, General Index, consisting of 4 volumes, for
a total price of P1,675.50 which, in addition to the cost of
freight of P6.90, makes a total of P1,682.40. Tabora made
a partial payment of P300.00, leaving a balance of
P1,382.40. The books were duly delivered and receipted
for by Tabora on May 15, 1955 in his law office Ignacio
Building, Naga City.
In the midnight of the same date, however, a big fire broke
out in that locality which destroyed and burned all the
buildings standing on one whole block including at the law
office and library of Tabora As a result, the books bought
from the company as above stated, together with Tabora's
important documents and papers, were burned during the
conflagration. This unfortunate event was immediately
reported by Tabora to the company in a letter he sent on
May 20, 1955. On May 23, the company replied and as a
token of goodwill it sent to Tabora free of charge volumes
75, 76, 77 and 78 of the Philippine Reports. As Tabora
failed to pay he monthly installments agreed upon on the
balance of the purchase price notwithstanding the long
time that had elapsed, the company demanded payment
of the installments due, and having failed, to pay the
same, it commenced the present action before the Court
of First Instance of Manila for the recovery of the balance
of the obligation. Plaintiff also prayed that defendant be
ordered to pay 25% of the amount due as liquidated
damages, and the cost of action.
Defendant, in his answer, pleaded force majeure as a
defense. He alleged that the books bought from the
plaintiff were burned during the fire that broke out in Naga
City on May 15, 1955, and since the loss was due to force
majeure he cannot be held responsible for the loss. He
prayed that the complaint be dismissed and that he be
awarded moral damages in the amount of P15,000.00.
After due hearing, the court a quo rendered judgment for
the plaintiff. It ordered the defendant to pay the sum of
P1,382.40, with legal interest thereon from the filing of the
complaint, plus a sum equivalent to 25% of the total
amount due as liquidated damages, and the cost of
action.
Defendant took the case to the Court of Appeals, but the
same is now before us by virtue of a certification issued by
that Court that the case involves only questions of law.
Appellant bought from appellee one set of American
Jurisprudence, including one set of general index, payable
on installment plan. It was provided in the contract that
"title to and ownership of the books shall remain with the
seller until the purchase price shall have been fully paid.
Loss or damage to the books after delivery to the buyer
shall be borne by the buyer." The total price of the books,
including the cost of freight, amounts to P1,682.40.
Appellant only made a down payment of P300.00 thereby
190
Sales – Chapter 3-12 Cases
leaving a balance of P1,382.40. This is now the import of
the present action aside from liquidated damages.
Appellant now contends that since it was agreed that the
title to and the ownership of the books shall remain with
the seller until the purchase price shall have been fully
paid, and the books were burned or destroyed
immediately after the transaction, appellee should be the
one to bear the loss for, as a result, the loss is always
borne by the owner. Moreover, even assuming that the
ownership of the books were transferred to the buyer after
the perfection of the contract the latter should not answer
for the loss since the same occurred through force
majeure. Here, there is no evidence that appellant has
contributed in any way to the occurrence of the
conflagration.1äwphï1.ñët
This contention cannot be sustained. While as a rule the
loss of the object of the contract of sale is borne by the
owner or in case of force majeure the one under obligation
to deliver the object is exempt from liability, the application
of that rule does not here obtain because the law on the
contract entered into on the matter argues against it. It is
true that in the contract entered into between the parties
the seller agreed that the ownership of the books shall
remain with it until the purchase price shall have been fully
paid, but such stipulation cannot make the seller liable in
case of loss not only because such was agreed merely to
secure the performance by the buyer of his obligation but
in the very contract it was expressly agreed that the "loss
or damage to the books after delivery to the buyer shall be
borne by the buyer." Any such stipulation is sanctioned by
Article 1504 of our Civil Code, which in part provides:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by the
buyer of his obligations under the contract, the goods are
at the buyer's risk from the time of such delivery.
Neither can appellant find comfort in the claim that since
the books were destroyed by fire without any fault on his
part he should be relieved from the resultant obligation
under the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event. This
is because this rule only holds true when the obligation
consists in the delivery of a determinate thing and there is
no stipulation holding him liable even in case of fortuitous
event. Here these qualifications are not present. The
obligation does not refer to a determinate thing, but is
pecuniary in nature, and the obligor bound himself to
assume the loss after the delivery of the goods to him. In
other words, the obligor agreed to assume any risk
concerning the goods from the time of their delivery, which
is an exception to the rule provided for in Article 1262 of
our Civil Code.
Appellant likewise contends that the court a quo erred in
sentencing him to pay attorney's fees. This is merely the
result of a misapprehension for what the court a
quo ordered appellant to pay is not 25% of the amount
due as attorney's fees, but as liquidated damages, which
is in line with an express stipulation of the contract. We
believe, however, that the appellant should not be made
to pay any damages because his denial to pay the
balance of the account is not due to bad faith.
WHEREFORE, the decision appealed from is modified by
eliminating that portion which refers to liquidated
damages. No costs.
G.R. No. L-46306 October 27, 1939
LEVY HERMANOS, INC., plaintiff-appellant,
vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee.
MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the
Court of First Instance of Manila, which substantially
recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to
defendant Lazaro Blas Gervacio, a Packard car.
Defendant, after making the initial payment, executed a
promissory note for the balance of P2,400, payable on or
before June 15, 1937, with interest at 12 per cent per
annum, to secure the payment of the note, he mortgaged
the car to the plaintiff. Defendant failed to pay the note it
its maturity. Wherefore, plaintiff foreclosed the mortgage
and the car was sold at public auction, at which plaintiff
was the highest bidder for P1,800. The present action is
for the collection of the balance of P1,600 and interest.
Defendant admitted the allegations of the complaint, and
with this admission, the parties submitted the case for
decision. The lower court applied, the provisions of Act
No. 4122, inserted as articles 1454-A of the Civil Code,
and rendered judgment in favor of the defendant. Plaintiff
appealed.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable in
installments shall confer upon the vendor the right to
cancel the sale or foreclose the mortgage if one has been
given on the property, without reimbursement to the
purchaser of the installments already paid, if there be an
agreement to this effect.
However, if the vendor has chosen to foreclose the
mortgage he shall have no further action against the
purchaser for the recovery of any unpaid balance owing
by the same and any agreement to the contrary shall be
null and void.
In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170),
we held that "in order to apply the provisions of article
1454-A of the Civil Code it must appear that there was a
contract for the sale of personal property payable in
installments and that there has been a failure to pay two
191
Sales – Chapter 3-12 Cases
or more installments." The contract, in the instant case,
while a sale of personal property, is not, however, one on
installments, but on straight term, in which the balance,
after payment of the initial sum, should be paid in its
totality at the time specified in the promissory note. The
transaction is not is not, therefore, the one contemplated
in Act No. 4122 and accordingly the mortgagee is not
bound by the prohibition therein contained as to the right
to the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the
price is payable in several installments, for, generally, it is
in these cases that partial payments consist in relatively
small amounts, constituting thus a great temptation for
improvident purchasers to buy beyond their means. There
is no such temptation where the price is to be paid in
cash, or, as in the instant case, partly in cash and partly in [G.R. No. 61043. September 2, 1992.]
one term, for, in the latter case, the partial payments are
not so small as to place purchasers off their guard and DELTA MOTOR SALES CORPORATION, Plaintiff-
delude them to a miscalculation of their ability to pay. The Appellee, v. NIU KIM DUAN and CHAN FUE
oretically, perhaps, there is no difference between paying ENG, Defendants-Appellants.
the price in tow installments, in so far as the size of each
partial payment is concerned; but in actual practice the Francisco C. Bonoan for Plaintiff-Appellee.
difference exists, for, according to the regular course of
business, in contracts providing for payment of the price in Agapito M. Joaquin, for Defendants-Appellants.
two installments, there is generally a provision for initial
payment. But all these considerations are immaterial, the
language of the law being so clear as to require no SYLLABUS
construction at all.lâwphi1.nêt
The suggestion that the cash payment made in this case
should be considered as an installment in order to bring 1. CIVIL LAW; SALES; TREATMENT OF THE
the contract sued upon under the operation of the law, is INSTALLMENT PAYMENTS AS RENTALS;
completely untenable. A cash payment cannot be STIPULATION IN A CONTRACT THAT THE
considered as a payment by installment, and even if it can INSTALLMENTS PAID SHALL NOT BE RETURNED TO
be so considered, still the law does not apply, for it THE VENDEE HELD VALID PROVIDED IT IS NOT
requires non-payment of two or more installments in order UNCONSCIONABLE. — Defendants-appellants cannot
that its provisions may be invoked. Here, only one complain that their downpayment of P774.00 and
installment was unpaid. installment payments of P5,655.92 were treated as rentals
Judgment is reversed, and the defendant-appellee is — even though the total amount of P6,429,92 which they
hereby sentenced to pay plaintiff-appellant the sum of had paid, approximates one-third (1/3) of the cost of the
P1,600 with interest at the rate of 12 per cent per annum three (3) air-conditioners. A stipulation in a contract that
from June 15, 1937, and the sum of P52.08 with interest the installments paid shall not be returned to the vendee is
at the rate of 6 per cent from the date of the filing of the valid insofar as the same may not be unconscionable
complaint, with costs in both instances against the under the circumstances is sanctioned by Article 1486 of
appellee. the New Civil Code. The monthly installment payable by
defendants-appellants was P774.00. The P5,655.92
installment payments correspond only to seven (7)
monthly installments. Since they admit having used the
192
Sales – Chapter 3-12 Cases
air-conditioners for twenty-two (22) months, this means
that they did not pay fifteen (15) monthly installments on
the said air-conditioners and were thus using the same
FREE for said period — to the prejudice of plaintiff-
appellee. Under the circumstances, the treatment of the
installment payments as rentals cannot be said to be
unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF
PERSONAL PROPERTY PAYABLE IN INSTALLMENTS;
REMEDIES ARE ALTERNATIVE AND NOT
CUMULATIVE. — The vendor in a sale of personal
property payable in installments may exercise one of three
remedies, namely, (1) exact the fulfillment of the
obligation, should the vendee fail to pay; (2) cancel the
sale upon the vendee’s failure to pay two or more
installments; (3) foreclose the chattel mortgage, if one has
been constituted on the property sold, upon the vendee’s
failure to pay two or more installments. The third option or
remedy, however, is subject to the limitation that the
vendor cannot recover any unpaid balance of the price
and any agreement to the contrary is void (Art. 1484) The
three (3) remedies are alternative and NOT cumulative. If
the creditor chooses one remedy, he cannot avail himself
of the other two.
DECISION
NOCON, J.:
Elevated to this Court by the Court of Appeals, in its
Resolution of May 20, 1982, on a pure question of law, 1
is the appeal therein by defendants-appellants, Niu Kim
Duan and Chan Fue Eng assailing the trial court’s
decision promulgated on October 11, 1977, 2 which
ordered them to pay plaintiff-appellee, Delta Motor Sales
Corporation, the amount of P6,188.29 with a 14% per
annum interest which was due on the three (3) "Daikin"
air-conditioners defendants-appellants purchased from
plaintiff-appellee under a Deed of Conditional Sale, after
the same was declared rescinded by the trial court. They
were likewise ordered to pay plaintiff-appellee P1,000.00
for and as attorney’s fees.chanrobles virtual lawlibrary
The events which led to the filing of the case in the lower
court were summarized by the Court of Appeals, as
follows:jgc:chanrobles.com.ph
"‘On July 5, 1975, the defendants purchased from the
plaintiff three (3) units of ‘DAIKIN’ air-conditioner all
valued at P19,350.00 as evidenced by the Deed of
Conditional Sale, Exhibit A; that the aforesaid deed of sale
had the following terms and conditions:chanrob1es virtual
1aw library
‘(a) the defendants shall pay a down payment of P774.00
and the balance of P18,576.00 shall [be] paid by them in
twenty four (24) installments; (b) the title to the properties
purchased shall remain with the plaintiff until the purchase
price thereof is fully paid; (c) if any two installments are
not paid by the defendants on their due dates, the whole
of the principal sum remaining unpaid shall become due,
with interest at the rate of 14% per annum: and (d) in case
of a suit, the defendants shall pay an amount equivalent
to 25% of the remaining unpaid obligation as damages,
penalty and attorney’s fees; that to secure the payment of
the balance of P18,576.00 the defendants jointly and
severally executed in favor of the plaintiff a promissory
note, Exhibit C; that the three (3) air-conditioners were
delivered to and received by the defendants as shown by
the delivery receipt, Exhibit B; that after paying the
amount of P6,966.00, the defendants failed to pay at least
two (2) monthly installments; that as of January 6, 1977,
the remaining unpaid obligation of the defendants
amounted to P12,920.08; that statements of accounts
were sent to the defendants and the plaintiff’s collectors
personally went to the former to effect collections but they
failed to do so; that because of the unjustified refusal of
the defendants to pay their outstanding account and their
wrongful detention of the properties in question, the
plaintiff tried to recover the said properties extra-judicially
but it failed to do so; that the matter was later referred by
the plaintiff to its legal counsel for legal action; that in its
verified complaint dated January 28, 1977, the plaintiff
prayed for the issuance of a writ of replevin, which the
Court granted in its Order dated February 28, 1977, after
the plaintiff posted the requisite bond; that on April 11,
1977, the plaintiff, by virtue of the aforesaid writ,
succeeded in retrieving the properties in question: that as
of October 3, 1977, the outstanding account of the
defendants is only in the amount of P6,188.29 as shown
by the computation, Exhibit F, after deducting the interests
in arrears, cover charges, replevin bond premiums, the
value of the units repossessed and the like; and, that in
view of the failure of the defendants to pay their
obligations, the amount of P6,966.00 which had been paid
by way of installments were treated as rentals for the units
in question for two (2) years pursuant to the provisions of
paragraph 5 of the Deed of Conditional Sale, Exhibit A.’
(pp. 5-7, Record; pp. 4-6, Appellant’s Brief)." chanrobles
law library
As above-stated, the trial court ruled in favor of Plaintiff-
Appellee.
Defendants-appellants assail the Deed of Conditional
Sale under which they purchased the three (3) Daikin air-
conditioners from plaintiff-appellee as being contrary to
law, morals, good custom, public order or public policy. In
particular, they point to the contract’s paragraphs 5 and 7
as iniquitous, which paragraphs state
that:jgc:chanrobles.com.ph
"5. Should BUYER fail to pay any of the monthly
installments when due, or otherwise fail to comply with
any of the terms and conditions herein stipulated, this
contract shall automatically become null and void and all
sums so paid by BUYER by reason thereof shall be
considered as rental and the SELLER shall then and there
be free to take possession thereof without liability for
trespass or responsibility for any article left in or attached
to the PROPERTY:chanrob1es virtual 1aw library
x x x
"7. Should SELLER rescind this contract for any of the
reasons stipulated in the preceding paragraph, the
BUYER, by these presents obligates himself to peacefully
deliver the PROPERTY to the SELLER in case of
rescission, and should a suit be brought in court by the
SELLER to seek judicial declaration of rescission and take
possession of the PROPERTY, the BUYER hereby
obligates himself to pay all the expenses to be incurred by
reason of such suit and in addition to pay the sum
equivalent to 25% of the remaining unpaid obligation as
damages, penalty and attorney’s fees;" 3
Defendants-appellants claim that for the use of the
193
Sales – Chapter 3-12 Cases
plaintiff-appellee’s three air-conditioners, from July 5,
1975 4 to April 11, 1977, 5 or for a period of about 22
months, they, in effect, paid rentals in the amount of
P6,429,92, 6 or roughly one-third (1/3) of the entire price
of said air-conditioners which was P19,350.00. They also
complain that for the said period the trial court is ordering
them to pay P6,188.29 as the balance due for the three
air-conditioners repossessed. Defendants-appellants were
likewise ordered to pay P1,000.00 as attorney’s fees when
plaintiff-appellee never sought for attorney’s fees in its
complaint. They satirically pointed out that by putting "a
few touches here and there, the same units can be sold
again to the next imprudent customer" 7 by plaintiff-
appellee. Thus, enforcement of the Deed of Conditional
Sale will unjustly enrich plaintiff-appellee at the expense of
defendants-appellants.chanrobles law library : red
I paragraphs 5 and 7 of its Deed of Conditional Sale when
Defendants-appellants cannot complain that their
downpayment of P774.00 and installment payments of
P5,655.92 8 were treated as rentals — even though the
total amount of P6,429,92 which they had paid,
approximates one-third (1/3) of the cost of the three (3)
air-conditioners. A stipulation in a contract that the
installments paid shall not be returned to the vendee is
valid insofar as the same may not be unconscionable
under the circumstances is sanctioned by Article 1486 of
the New Civil Code. 9 The monthly installment payable by
defendants-appellants was P774.00. 10 The P5,655.92
installment payments correspond only to seven (7)
monthly installments. Since they admit having used the
air-conditioners for twenty-two (22) months, this means
that they did not pay fifteen (15) monthly installments on
the said air-conditioners and were thus using the same
FREE for said period — to the prejudice of plaintiff-
appellee. Under the circumstances, the treatment of the
installment payments as rentals cannot be said to be
unconscionable.
II
The vendor in a sale of personal property payable in
installments may exercise one of three remedies, namely,
(1) exact the fulfillment of the obligation, should the
vendee fail to pay; (2) cancel the sale upon the vendee’s
failure to pay two or more installments; (3) foreclose the
chattel mortgage, if one has been constituted on the
property sold, upon the vendee’s failure to pay two or
more installments. The third option or remedy, however, is
subject to the limitation that the vendor cannot recover
any unpaid balance of the price and any agreement to the
contrary is void (Art. 1484) 11
The three (3) remedies are alternative and NOT
cumulative. If the creditor chooses one remedy, he cannot
avail himself of the other two.chanrobles lawlibrary :
rednad
It is not disputed that the plaintiff-appellee had taken
possession of the three air-conditioners, through a writ of
replevin when defendants-appellants refused to extra-
judicially surrender the same. This was done pursuant to
defendants-appellants failed to pay at least two (2)
monthly installments, so much so that as of January 6,
1977, the total amount they owed plaintiff-appellee,
inclusive of interest, was P12,920.08. 12 The case
plaintiff-appellee filed was to seek a judicial declaration
that it had validly rescinded the Deed of Conditional Sale.
13
Clearly, plaintiff-appellee chose the second remedy of
Article 1484 in seeking enforcement of its contract with
defendants-appellants. This is shown from the fact that its
Exhibit "F" which showed the computation of the
outstanding account of defendants-appellants as of
October 3, 1977 took into account "the value of the units
repossessed." 14 Having done so, it is barred from
exacting payment from defendants-appellants of the
balance of the price of the three air-conditioning units
which it had already repossessed. It cannot have its cake
and eat it too. 15
WHEREFORE, the judgment of the trial court in Civil Case
No. 25578 is hereby SET ASIDE and the complaint filed
by plaintiff-appellee Delta Motor Sales Corporation is
hereby DISMISSED. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.
194
Sales – Chapter 3-12 Cases
G.R. No. L-10789 May 28, 1957
AMADOR TAJANLANGIT, ET AL., plaintiff-appellants,
vs.
SOUTHERN MOTORS, INC., ET AL., defendants-
appellees.
Almacen and Almacen for appellants.
Diosdado Garingalao for appellees.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon.
Pantaleon Pelayo, Judge of the Iloilo court of first instance
refusing to interfere with the alias writ of execution issued
in Civil Case No. 2942 pending in another sala of the
same court.
The facts. In April 1953 Amador Tajanlangit and his wife
Angeles, residents of Iloilo, bought, from the Southern
Motors Inc. of Iloilo two tractors and a thresher. In
payment for the same, they executed the promissory note
Annex A whereby they undertook to satisfy the total
purchase price of P24,755.75 in several installments (with
interest) payable on stated dates from May 18, 1953
December 10, 1955. The note stipulated that if default be
made in the payment of interest or of any installment, then
the total principal sum still unpaid with interest shall at
once become demandable etc. The spouse failed to meet
any installment. Wherefore, they were sued, in the above
Civil Case No. 2942, for the amount of the promissory
note.1 The spouses defaulted, and the court, after
listening to the Southern Motors' evidence entered
Judgment for it in the total sum of P24,755.75 together
with interest at 12 per cent, plus 10 per cent of the total
amount due as attorney's fees and costs of collection.
Carrying out the order of execution, the sheriff levied on
the same machineries and farm implements which had
been bought by the spouses; and later sold them at public
auction to the highest bidder — which turned out to be the
Southern Motors itself — for the total sum of P10,000.
As its judgment called for much more, the Southern
Motors subsequently asked and obtained, an alias writ of
execution; and pursuant thereto, the provincial sheriff
levied attachment on the Tajanlangits' rights and interests
in certain real properties — with a view to another sale on
execution.
To prevent such sale, the Tajanlangits instituted this
action in the Iloilo court of first instance for the purpose
among others, of annulling the alias writ of execution and
all proceedings subsequent thereto. Their two main
theories: (1) They had returned the machineries and farm
implements to the Southern Motors Inc., the latter
accepted them, and had thereby settled their accounts; for
that reason, said spouses did not contest the action in
Civil Case No. 2942; and (2) as the Southern Motors Inc.
had repossessed the machines purchased on installment
(and mortgaged) the buyers were thereby relieved from
further responsibility, in view of the Recto Law, now article
1484 of the New Civil Code.
For answer, the company denied the alleged "settlement
and understanding" during the pendency of civil case No.
2949. It also denied having repossessed the machineries,
the truth being that they were attached by the sheriff and
then deposited by the latter in its shop for safekeeping,
before the sale at public auction.
The case was submitted for decision mostly upon a
stipulation of facts. Additional testimony was offered
together with documentary evidence. Everything
considered the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above referred to,
were had in the Court of First Instance (Branch 1) of the
Province and of the City of Iloilo. While this court (Branch
IV) sympathizes with plaintiffs, it cannot grant, in this
action, the relief prayed for the complaint because courts
of similar jurisdiction cannot invalidate the judgments and
orders of each other. Plaintiffs have not pursued the
proper remedy. This court is without authority and
jurisdiction to declare null and void the order directing the
issuance of alias writ of execution because it was made
by another court of equal rank and category (see Cabiao
and Izquierdo vs. Del Rosario and Lim, 44 Phil., 82-186).
WHEREFORE, judgement is hereby rendered dismissing
the complaint with costs against plaintiffs costs against
plaintiffs. Let the writ of preliminiary injunction issued on
August 26, 1954, be lifted.
The plaintiffs reasonably brought the matter to the Court
of Appeals, but the latter forwarded the expediente, being
of the opinion that the appeal involved questions of
jurisdiction and/or law
Discussion. Appellants' brief elaborately explains in the
nine errors assigned, their original two theories although
their "settlement" idea appears to be somewhat modified.
"What is being sought in this present action" say
appellants "is to prohibit and forbid the appellee Sheriff of
Iloilo from attaching and selling at public auction sale the
real properties of appellants because that is now
forbidden by our law after the chattels that have been
purchased and duly mortgagee had already been
repossessed by the same vendor-mortgagee and later on
sold at public auction sale and purchased by the same at
such meager sum of P10,000."
"Our law" provides,
ART. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the
contrary shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has
been no foreclosure of the chattel mortgage nor a
foreclosure sale. Therefore the prohibition against further
collection does not apply.
At any rate it is the actual sale of the mortgaged chattel in
accordance with section 14 Act No. 1508 that would bar
the creditor (who chooses to foreclose) from recovering
any unpaid balance. (Pacific Com. Co. vs.De la Rama, 72
Phil. 380.) (Manila Motor Co. vs. Fernandez, 99 Phil.,
782.).
It is true that there was a chattel mortgage on the goods
sold. But the Southern Motors elected to sue on the note
exclusively, i.e. to exact fulfillment of the obligation to pay.
It had a right to select among the three remedies
established in Article 1484. In choosing to sue on the
note, it was not thereby limited to the proceeds of the sale,
on execution, of the mortgaged good.2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a
similar situation arose in connection with the purchase on
installment of a Chevrolet truck by Magbanua. Upon the
latter's default, suit on the note was filed, and the truck
levied on together with other properties of the debtor.
Contending that the seller was limited to the truck, the
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Sales – Chapter 3-12 Cases
debtor obtained a discharge of the other properties. This same court. As stated, Judge Pelayo refused to interfere
court said: on that ground. Appellants insist this was error on several
By praying that the defendant be ordered to pay the sum counts. We deem it unnecessary to deal with this
of P4,690 together with the stipulated interest at 12% per procedural aspect, inasmuch as we find that, on the
annum from 17 March 1954 until fully paid, plus 10 per merits, plaintiffs are not entitled to the relief demanded.
cent of the total amount due as attorney's fees and cost of Judgment. The decision dismissing the complaint, is
collection, the plaintiff acted to exact the fulfillment of the affirmed, with costs against appellants. So ordered.
obligation and not to foreclose the mortgage on the truck. .
..
As the plaintiff has chosen to exact the fulfillment of the
defendant's obligation, the former may enforce execution
of the judgement rendered in its favor on the personal and
real properties of the latter not exempt from execution
sufficient to satisfy the judgment. That part of the
judgement depriving the plaintiff of its right to enforce
judgment against the properties of the defendant except
the mortgaged truck and discharging the writ of
attachment on his other properties is erroneous.
(Emphasis ours.)
Concerning their second theory, — settlement or
cancellation — appellants allege that the very implements
sold "were duly returned" by them, and "were duly
received and accepted by the said vendor-mortgagee".
Therefore they argue, "upon the return of the same
chattels and due acceptance of the same by the vendor-
mortgagee, the conditional sale is ipso facto cancelled,
with the right of the vendor-mortgagee to appropriate
whatever downpayment and posterior monthly
installments made by the purchaser as it did happen in the
present case at bar."
The trouble with the argument is that it assumes that
acceptance of the goods by the Southern Motors Co, with
a view to "cancellation" of the sale. The company denies
such acceptance and cancellation, asserting the goods,
were deposited in its shop when the sheriff attached them
in pursuance of the execution. Its assertion is backed up
by the sheriff, of whose credibility there is no reason to
doubt. Anyway this cancellation or settlement theory may
not be heeded now, because it would contravene the
decision in Civil Case No. 2942 above-mentioned — it
would show the Tajanlangits owned nothing to Southern
Motors Inc. Such decision is binding upon them, unless
and until they manage to set it aside in a proper
proceeding — and this is not it.
There are other points involved in the case, such as the
authority of the judge of one branch of a court of first
instance to enjoin proceedings in another branch of the
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Sales – Chapter 3-12 Cases
This is a petition for review of the decision 1 of the Court of
Appeals which affirmed in toto the decision of the
Regional Trial Court of Pasig, Branch 51, declaring
respondent spouses Rolando Lantan and Rina Lantan
owners of a 1979 model 2-door Colt Lancer car which
they had acquired under a car plan for top employees of
the Elizalde group of companies.
The facts are as follows:
Private respondent Rolando Lantan was employed at the
Elisco Tool Manufacturing Corporation as head of its cash
department. On January 9, 1980, he entered into an
agreement with the company which provided as follows:2
That, EMPLOYER is the owner of a car Colt Lancer 2
door, Model 1979, with Serial No. 3403 under LTC
Registration Certificate No. 0526558;
That, for and in consideration of a monthly rental of ONE
THOUSAND TEN & 65/100 ONLY (P1,010.65) Philippine
Currency, EMPLOYER desire to lease and EMPLOYEE
accept in lease the motor vehicle aforementioned for a
period of FIVE (5) years;
That, the EMPLOYEE agree as he hereby agreed to pay
the lease rental thru salary deduction from his monthly
remuneration in the amount as above specified for a
period of FIVE (5) years;
That, for the duration of the lease contract, all expenses
and costs of registration, insurance, repair and
maintenance, gasoline, oil, part replacement inclusive of
all expenses necessary to maintain the vehicle in top
condition shall be for the account of the EMPLOYEE;
That, at the end of FIVE (5) year period or upon payment
of the 60th monthly rental, EMPLOYEE may exercise the
option to purchase the motor vehicle from the
EMPLOYER and all monthly rentals shall be applied to the
payment of the full purchase price of the car and further,
should EMPLOYEE desire to exercise this option before
the 5-year period lapse, he may do so upon payment of
the remaining balance on the five year rental unto the
EMPLOYER, it being understood however that the option
G.R. No. 109966 May 31, 1999 is limited to the EMPLOYEE;
ELISCO TOOL MANUFACTURING That, upon failure of the EMPLOYEE to pay THREE (3)
CORPORATION, petitioner, accumulated monthly rentals will vest upon the
vs. EMPLOYER the full right to lease the vehicle to another
COURT OF APPEALS, ROLANDO LANTAN, and RINA EMPLOYEE;
LANTAN, respondents. That, in the event of resignation and or dismissal from the
service, the EMPLOYEE shall return the subject motor
MENDOZA, J.: vehicle to the EMPLOYER in its compound at Kalawaan
Sur, Pasig, Metro Manila in good working and body
condition.
On the same day, January 9, 1980, private respondent
executed a promissory note reading as follows:3
PROMISSORY NOTE
P60,639.00
FOR VALUE RECEIVED, we promise to pay [to] the order
of ELISCO TOOL MFG. CORP. — SPECIAL PROJECT,
at its office at Napindan, Taguig, Metro Manila,
Philippines, the sum of ONE THOUSAND TEN & 65/100
PESOS (P1,010.65), Philippine Currency, beginning
January 9, 1980, without the necessity of notice or
demand in accordance with the schedule of payment
hereto attached as an integral part hereof.
In case of default, in the payment of any installment on the
stipulated due date, we agree to pay as liquidated
damages 2% of the amount due and unpaid for every
thirty (30) days of default or fraction thereof. Where the
default covers two successive installments, the entire
unpaid balance shall automatically become due and
payable.
It is further agreed that if upon such default attorney's
services are availed of, an additional sum equal to
TWENTY (20%) percent of the total amount due thereon,
but in no case be less than P1,000.00 shall be paid to
holder(s) hereof as attorney's fees in addition to the legal
costs provided for by law. We agree to submit to the
jurisdiction of the proper courts of Makati, Metro Manila or
the Province of Rizal, at the option of the holder(s) waiving
for this purpose any other venue.1âwphi1.nêt
In case extraordinary inflation or deflation of the currency
stipulated should occur before this obligation is paid in full,
the value of the currency at the time of the establishment
of the obligation will be the basis of payment.
Holder(s) may accept partial payment reserving his right
of recourse against each and all endorsers who hereby
waive DEMAND PRESENTMENT and NOTICE.
Acceptance by the holder(s) of payment or any part
thereof after due date shall not be considered as
extending the time for the payment of the aforesaid
obligation or as a modification of any of the condition
hereof.
After taking possession of the car, private respondent
installed accessories therein worth P15,000.00.
In 1981, Elisco Tool ceased operations, as a result of
which private respondent Rolando Lantan was laid off.
Nonetheless, as of December 4, 1984, private respondent
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Sales – Chapter 3-12 Cases
was able to make payments for the car in the total amount
of P61,070.94.
On June 6, 1986, petitioner filed a complaint, entitled
"replevin plus sum of money," against private respondent
Rolando Lantan, his wife Rina, and two other persons,
identified only as John and Susan Doe, before the
Regional Trial Court of Pasig, Metro Manila. Petitioner
alleged that private respondents failed to pay the monthly
rentals which, as of May 1986, totalled P39,054.86; that
despite demands, private respondents failed to settle their
obligation thereby entitling petitioner to the possession of
the car; that petitioner was ready to post a bond in an
amount double the value of the car, which was P60,000;
and that in case private respondents could not return the
car, they should be held liable for the amount of P60,000
plus the accrued monthly rentals thereof, with interest at
the rate of 14% per annum, until fully paid. Petitioner's
complaint contained the following prayer:
WHEREFORE, plaintiffs prays that judgment be rendered
as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the
sum of P39,054.86 plus legal interest from the date of
demand until the whole obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure
of the motor vehicle more particularly described in
paragraph 3 of the Complaint, from defendant Rolando
Lantan and/or defendants Rina Lantan, John Doe, Susan
Doe and other person or persons in whose possession the
said motor vehicle may be found, complete with
accessories and equipment, and direct deliver thereof to
plaintiff in accordance with law, and after due hearing to
confirm said seizure and plaintiff's possession over the
same;
ON THE ALTERNATIVE CAUSE OF ACTION
In the event that manual delivery of the subject motor
vehicle cannot be effected for any reason, to render
judgment in favor of plaintiff and against defendant
Rolando Lantan ordering the latter to pay the sum of
SIXTY THOUSAND PESOS (P60,000.00) which is the
estimated actual value of the above-described motor
vehicle, plus the accrued monthly rentals thereof with
interests at the rate of fourteen percent (14%) per
annum until fully paid;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the
plaintiff an amount equivalent to twenty-five percent (25%)
of his outstanding obligation, for and as attorney's fees;
2. Ordering defendants to pay the cost or expenses of
collection, repossession, bonding fees and other
incidental expenses to be proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this
Honorable Court may deem just and equitable under the
premises.
Upon petitioner's posting a bond in the amount of
P120,000, the sheriff took possession of the car in
question and after five (5) days turned it over to
petitioner.4
In due time, private respondents filed their answer. They
claimed that the agreement on which the complaint was
based had not been signed by petitioner's representative,
Jose Ma. S. del Gallego, although it had been signed by
private respondent Rolando Lantan; that their true
agreement was "to buy and sell and not lease with option
to buy" the car in question at a monthly amortization of
P1,000; and that petitioner accepted the installment
payments made by them and, in January 1986, agreed
that the balance of the purchase price would be paid on or
before December 31, 1986. Private respondents cited the
provision of the agreement making respondent Rolando
Lantan liable for the expenses for registration, insurance,
repair and maintenance, gasoline, oil and part
replacements, inclusive of all necessary expenses, as
evidence that the transaction was one of sale. Private
respondents further alleged that, in any event, petitioner
had waived its rights under the agreement because of the
following circumstances: (a) while the parties agreed that
payment was to be made through salary deduction,
petitioner accepted payments in cash or checks; (b)
although they agreed that upon the employee's
resignation, the car should be returned to the employer,
private respondent Rolando Lantan was not required to do
so when he resigned in September 1982; (c) petitioner did
not lease the vehicle to another employee after private
respondent Rolando Lantan had allegedly failed to pay
three monthly "rentals"; and (d) petitioner failed to enforce
the manner of payment under the agreement by its
acceptance of payments in various amounts and on
different dates.
In its reply, petitioner maintained that the contract
between the parties was one of lease with option to
purchase and that the promissory note was merely a
"nominal security" for the agreement. It contended that the
mere acceptance of the amounts paid by private
respondents and for indefinite periods of time was not
evidence that the parties' agreement was one of purchase
and sale. Neither was it guilty of laches because, under
the law, an action based on a written contract can be
brought within ten (10) years from the time the action
accrues. On August 31, 1987, the trial court5 rendered its
decision.
The trial court sustained private respondents' claim that
the agreement in question was one of sale and held that
the latter had fully paid the price of the car having paid the
total amount of P61,070.94 aside from installing
accessories in the car worth P15,000.00. Said the trial
court:
Plaintiff now comes claiming ownership of the car in
question and has succeeded in repossessing the same by
virtue of the writ of seizure issued in this case on July 29,
1986. Not content with recovering possession of the said
car, plaintiff still asks that defendants should pay it the
sum of P39,054.86, allegedly representing the rentals due
on the car from the time of the last payment made by
defendants to its repossession thereof. This is indeed a
classic case of one having his cake and eating it too!
Under the Recto law (Arts. 1484 & 1485, Civil Code), the
vendor who repossesses the goods sold on installments,
has no right to sue the vendee for the unpaid balance
thereof.
The Court can take judicial notice of the practice wherein
executives enjoy car plans in progressive companies. The
agreement of January 9, 1980 between the parties is one
such car plan. If defendant Rolando Lantan failed to keep
up with his amortizations on the car in question, it was not
because of his own liking but rather he was pushed to it
by circumstances when his employer folded up and sent
him to the streets. That plaintiff was giving all the chance
to defendants to pay the value of the car and acquire full
ownership thereof is shown by the delay in instituting the
instant case. . . .
The court likewise found that the amount of P61,070.94
included a 2% penalty for late payments for which there
was no stipulation in the agreement:
. . . The agreement and defendant Rolando Lantan's
promissory note of January 9, 1980 do not provide even
for interest on the remaining balance of the purchase price
of the car. This privilege extended by corporations to their
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Sales – Chapter 3-12 Cases
top executives is considered additional emolument to
them. And so the reason for the lack of provision for
interest, much less penalty charges. Therefore, all
payments made by defendant should be applied to the
principal account. Since the principal was only
P60,639.00, the defendants have made an overpayment
of P431.94 which should be returned to defendant by
plaintiff.
For this reason, it ordered petitioner to pay private
respondents the amount of P431.94 as excess payment,
as well as rentals at the rate of P1,000 a month for
depriving private respondents of the use of their car, and
moral damages for the worry, embarrassment, and mental
torture suffered by them on account of the repossession of
the car.
The dispositive portion of the trial court's decision reads
as follows:
WHEREFORE, judgment is hereby rendered in favor of
defendants and against plaintiff, dismissing plaintiff's
complaint; declaring defendants the lawful owners of that
Colt Lancer 2-door, Model 1979 with Serial No. 3403
under Registration Certificate No. 0526558; ordering
plaintiff to deliver to defendants the aforesaid motor
vehicle complete with all the accessories installed therein
by defendants; should for any reason plaintiff is unable to
deliver the said car to defendants, plaintiff is ordered to
pay to defendants the value of said car in the sum of
P60,639.00 plus P15,000.00, the value of the
accessories, plus interest of 12% on the said sums from
August 6, 1986; and sentencing plaintiff to pay defendants
the following sums:
a) P12,431.94 as actual damages broken down as
follows:
1) P431.94 overpayment made by defendants to plaintiff;
and
2) P12,000.00 rental on the car in question from August 6,
1986 to August 5, 1987, plus the sum of P1,000.00 a
month beginning August 6, 1987 until the car is returned
by plaintiff to, and is received by, defendant;
b) the sum of P20,000.00 as moral damages;
c) the sum of P5,000.00 as exemplary damages; and
d) the sum of P5,000.00 as attorney's fees.
Costs against the plaintiff.
SO ORDERED.
Petitioner appealed to the Court of Appeals. On the other
hand, private respondents filed a motion for execution
pending appeal. In its resolution of March 9, 1989, the
Court of Appeals granted private respondents' motion
and, upon the filing of a bond, in the amount of
P70,000.00, it issued a writ of execution, pursuant to
which the car was delivered to private respondents on
April 16, 1989.6
On August 26, 1992, the Court of Appeals rendered its
decision, affirming in toto the decision of the trial court.
Hence, the instant petition for review on certiorari.
Petitioner contends that the Court of Appeals erred —
(a) in disregarding the admission in the pleadings as to
what documents contain the terms of the parties'
agreement.
(b) in holding that the interest stipulation in respondents'
Promissory Note was not valid and binding.
(c) in holding that respondents had fully paid their
obligations.
It further argues that —
On the assumption that the Lease Agreement with option
to buy in this case may be treated as a sale on
installments, the respondent Court of Appeals
nonetheless erred in not finding that the parties have
validly agreed that the petitioner as seller may [i] cancel
the contract upon the respondent's default on three or
more installments, [ii] retake possession of the
personality, and [iii] keep the rents already paid.
First. Petitioner does not deny that private respondent
Rolando Lantan acquired the vehicle in question under a
car plan for executives of the Elizalde group of
companies. Under a typical car plan, the company
advances the purchase price of a car to be paid back by
the employee through monthly deductions from his salary.
The company retains ownership of the motor vehicle until
it shall have been fully paid for.7 However, retention of
registration of the car in the company's name is only a
form of a lien on the vehicle in the event that the
employee would abscond before he has fully paid for it.
There are also stipulations in car plan agreements to the
effect that should the employment of the employee
concerned be terminated before all installments are fully
paid, the vehicle will be taken by the employer and all
installments paid shall be considered rentals per
agreement. 8
This Court has long been aware of the practice of vendors
of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the
object of the sale from passing to the vendee until and
unless the price is fully paid. As this Court noted
in Vda. de Jose v. Barrueco:9
Sellers desirous of malting conditional sales of their
goods, but who do not wish openly to make a bargain in
that form, for one reason or another, have frequently
resorted to the device of making contracts in the form of
leases either with options to the buyer to purchase for a
small consideration at the end of term, provided the so-
called rent has been duly paid, or with stipulations that if
the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are
leases only in name. The so-called rent must necessarily
be regarded as payment of the price in installments since
the due payment of the agreed amount results, by the
terms of the bargain, in the transfer of title to the lessee.
In an earlier case, Manila Gas Corporation
v. Calupitan, 10 which involved a lease agreement of a
stove and a water heater, the Court said:
. . . [W]e are of the opinion, and so hold, that when in a
so-called contract of lease of personal property it is
stipulated that the alleged lessee shall pay a certain
amount upon signing the contract, and on or before the
5th of every month, another specific amount, by way of
rental, giving the alleged lessee the right of option to buy
the said personal property before the expiration of the
period of lease, which is the period necessary for the
payment of the said amount at the rate of so much a
month, deducting the payments made by way of advance
and alleged monthly rentals, and the said alleged lessee
makes the advance payment and other monthly
installments, noting in his account and in the receipts
issued to him that said payments are on account of the
price of the personal property allegedly leased, said
contract is one of sale on installment and not of lease. 11
In U.S. Commercial v. Halili, 12 a lease agreement was
declared to be in fact a sale of personal property by
installment. Said the Court: 13
. . . There can hardly be any question that the so-called
contracts of lease on which the present action is based
were veritable leases of personal property with option to
purchase, and as such come within the purview of the
above article [Art. 1454-A of the old Civil Code on sale of
personal property by installment]. In fact the instruments
(exhibits "A" and "B") embodying the contracts bear the
heading or title "Lease-Sale (Lease-Sale of Transportation
and/or Mechanical Equipment)." The contracts fix the
value of the vehicles conveyed to the lessee and
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Sales – Chapter 3-12 Cases
expressly refer to the remainder of said value after
deduction of the down payment made by the lessee as
"the unpaid balance of the purchase price of the leased
equipment." The contracts also provide that upon the full
value (plus stipulated interest) being paid, the lease would
terminate and title to the leased property would be
transferred to the lessee. Indeed, as the defendant-
appellant points out, the inclusion of a clause waiving
benefit of article 1454-A of the old Civil Code is conclusive
proof of the parties" understanding that they were entering
into a lease contract with option to purchase which come
within the purview of said article.
Being leases of personal property with option to purchase
as contemplated in the above article, the contracts in
question are subject to the provision that when the lessor
in such case "has chosen to deprive the lessee of the
enjoyment of such personal property," "he shall have no
further action" against the lessee "for the recovery of any
unpaid balance" owing by the latter, "agreement to the
contrary being null and void."
It was held that in choosing to deprive the defendant of
possession of the leased vehicles, the plaintiff waived its
right to bring an action to recover unpaid rentals on the
said vehicles.
In the case at bar, although the agreement provides for
the payment by private respondents of "monthly rentals,"
the fifth paragraph thereof gives them the option to
purchase the motor vehicle at the end of the 5th year or
upon payment of the 60th monthly rental when "all
monthly rentals shall be applied to the payment of the full
purchase price of the car." It is clear that the transaction in
this case is a lease in name only. The so-called monthly
rentals are in truth monthly amortizations on the price of
the car.
Second. The contract being one of sale on installment, the
Court of Appeals correctly applied to it the following
provisions of the Civil Code:
Art. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the
contrary shall be void.
Art. 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of
the possession or enjoyment of the thing.
The remedies provided for in Art. 1484 are alternative, not
cumulative. The exercise of one bars the exercise of the
others. 14 This limitation applies to contracts purporting to
be leases of personal property with option to buy by virtue
of Art. 1485. 15 The condition that the lessor has deprived
the lessee of possession or enjoyment of the thing for the
purpose of applying Art. 1485 was fulfilled in this case by
the filing by petitioner of the complaint for replevin to
recover possession of movable property. By virtue of the
writ of seizure issued by the trial court, the deputy sheriff
seized the vehicle on August 6, 1986 and thereby
deprived private respondents of its use. 16 The car was
not returned to private respondent until April 16, 1989,
after two (2) years and eight (8) months, upon issuance by
the Court of Appeals of a writ of execution. 17
Petitioner prayed that private respondents be made to pay
the sum of P39,054.86, the amount that they were
supposed to pay as of May 1986, plus interest at the legal
rate. 18 At the same time, it prayed for the issuance of a
writ of replevin or the delivery to it of the motor vehicle
"complete with accessories and equipment." 19 In the
event the car could not be delivered to petitioner, it was
prayed that private respondent Rolando Lantan be made
to pay petitioner the amount of P60,000.00, the "estimated
actual value" of the car, "plus accrued monthly rentals
thereof with interests at the rate of fourteen percent
(14%) per annum until fully paid." 20 This prayer of course
cannot be granted, even assuming that private
respondents have defaulted in the payment of their
obligation. This led the trial court to say that petitioner
wanted to eat its cake and have it too.
Notwithstanding this impossibility in petitioner's choice of
remedy, this case should be considered as one for
specific performance, pursuant to Art. 1484(1), consistent
with its prayer with respect to the unpaid installments as of
May 1986. In this view, the prayer for the issuance of a
writ of replevin is only for the purpose of insuring specific
performance by private respondents.
Both the trial court and the Court of Appeals correctly
ruled that private respondents could no longer be held
liable for the amounts of P39,054.86 or P60,000.00
because private respondents had fulfilled their part of the
obligation. The agreement does not provide for the
payment of interest on unpaid monthly "rentals" or
installments because it was entered into in pursuance of a
car plan adopted by the company for the benefit of its
deserving employees. As the trial court correctly noted,
the car plan was intended to give additional benefits to
executives of the Elizalde group of companies.
Petitioner contends that the promissory note provides for
such interest payment. However, as the Court of Appeals
held:
The promissory note in which the 2% monthly interest on
delayed payments appears does not form part of the
contract. There is no consideration for the promissory
note. There is nothing to show that plaintiff advanced the
purchase price of the vehicle for Lantan so as to make the
latter indebted to the former for the amount stated in the
promissory note. Thus, as stated in the complaint: "That
sometime in January, 1980, defendant Rolando Lantan
entered into an agreement with the plaintiff for the lease of
a motor vehicle supplied by the latter, with the option to
purchase at the end of the period of lease . . . ." In other
words, plaintiff did not buy the vehicle for Rolando Lantan,
advancing the purchase price for that purpose. There is
nothing in the complaint or in the evidence to show such
arrangement. Therefore, there was no indebtedness
secured by a promissory note to speak of. There being no
consideration for the promissory note, the same, including
the penalty clause contained thereon, has no binding
effect. 21
There is no evidence that private respondents received
the amount of P60,639.00 indicated in the promissory
note as its value. What was proven below is the fact that
private respondents received from petitioner the 2-door
Colt Lancer car which was valued at P60,000 and for
which private respondent Rolando Lantan paid monthly
amortizations of P1,010.65 through salary deductions.
Indeed, as already stated, private respondents' default in
paying installments was due to the cessation of operations
of Elizalde Steel Corporation, petitioner's sister company.
Petitioner's acceptance of payments made by private
respondents through cash and checks could have been
impelled solely by petitioner's inability to deduct the
amortizations from private respondent Rolando Lantan's
salary which he stopped receiving when his employment
was terminated in September 1982. Apparently, to
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Sales – Chapter 3-12 Cases
minimize the adverse consequences of the termination of
private respondent's employment, petitioner accepted
even late payments. That petitioner accepted payments
from private respondent Rolando Lantan more than two
(2) years after the latter's employment had been
terminated constitutes a waiver of petitioner's right to
collect interest upon the delayed payments. The 2%
surcharge is not provided for in the agreement. Its
collection by the company would in fact run counter to the
purpose of providing "added emoluments" to its deserving
employees. Consequently, the total amount of P61,070.94
already paid to petitioner should be considered payment
of the full purchase price of the car or the total
installments paid.
Third. Private respondents presented evidence that they
"felt bad, were worried, embarrassed and mentally
tortured" by the repossession of the car. 22 This has not
been rebutted by petitioner. There is thus a factual basis
for the award of moral damages. In addition, petitioner
acted in a wanton, fraudulent, reckless and oppressive
manner in filing the instant case, hence, the award of
exemplary damages is justified. 23 The award of attorney's
fees is likewise proper considering that private
respondents were compelled to incur expenses to protect
their rights. 24
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with costs against petitioner.1âwphi1.nêt
SO ORDERED.

G.R. No. 130347 March 3, 1999

ABELARDO VALARAO, GLORIOSA VALARAO and
CARLOS VALARAO, petitioners,
vs.
COURT OF APPEALS and MEDEN A.
ARELLANO, respondents.

PANGANIBAN, J.:
Art. 1592 of the Civil Code applies only to contracts of
sale, and not to contracts to sell or conditional sales
where title passes to the vendee only upon full payment of
the purchase price. Furthermore, in order to enforce the
automatic forfeiture clause in a deed of conditional sale,

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Sales – Chapter 3-12 Cases
the vendors have the burden of proving a contractual
breach on the part of the vendee.
The Case
Before us is a Petition for Review assailing the June 13,
1997 Decision of the Court of Appeals (CA) 1 which
reversed and set aside the October 10, 1994 Decision 2 of
the Regional Trial Court (RTC) of Quezon City, Branch 82.
The dispositive portion of the assailed CA Decision reads:
WHEREFORE, the decision appealed from is REVERSED
and SET ASIDE, and a new one is entered (1) ordering
[herein private respondent] to pay the amount of [o]ne
[m]illion [o]ne [h]undred [n]inety [s]even [t]housand [p]esos
(P1,197,000.00) in favor of [herein petitioners], with legal
interest thereon from December 31, 1992; (2) and
directing [herein petitioners] to execute in favor of [herein
respondent], upon receipt of the aforesaid amount, the
final and absolute deed of sale of the subject property with
all the improvements. 3
Also assailed by petitioners is the August 21, 1997 CA
Resolution denying reconsideration.
The aforementioned RTC Decision, which was reversed
and set aside by the CA, disposed as follows:
WHEREFORE, premises considered, judgment is hereby
rendered declaring the aforesaid Deed of Conditional Sale
as automatically rescinded and all payments made
thereunder by the [private respondent] to the [petitioners]
as forfeited in favor of the latter, by way of rentals and as
liquidated damages, as well as declaring all improvements
introduced on the property subject to the said Deed of
Condition[al] Sale to belong to the [petitioners] without any
right of reimbursement. Further, the [private respondent]
and all persons claiming right under her are hereby
ordered to vacate the said property and to turnover
possession thereof to the [petitioners]. FINALLY, the
[private respondent] is hereby ordered to pay to the
[petitioners] the amount of P50,000.00 as attorney's fees
and for expenses of litigation, as well as to pay the costs
of the suit. The Writ of Preliminary Injunction previously
issued is hereby ordered LIFTED and DISSOLVED, and
the bond posted for its issuance held liable for the
satisfaction of the money judgment herein made in favor
of the
[petitioners]. 4
The Facts
The undisputed facts of the case as narrated by the Court
of Appeals are as follows:
On September 4, 1987, spouses Abelardo and Gloriosa
Valarao, thru their son Carlos Valarao as their attorney-in-
fact, sold to [Private Respondent] Meden Arellano under a
Deed of Conditional Sale a parcel of land situated in the
District of Diliman, Q. C., covered by TCT No. 152879 with
an area of 1,504 square meters, for the sum of THREE
MILLION TWO HUNDRED TWENTY FIVE THOUSAND
PESOS (P3,225,000.00) payable under a schedule of
payment stated therein.
In the same Deed of Conditional Sale, the [private
respondent] vendee obligated herself to encumber by way
of real estate mortgage in favor of [petitioners] vendors
her separate piece of property with the condition that upon
full payment of the balance of P2,225.000.00, the said
mortgage shall become null and void and without further
force and effect. (Item No. 3, pp. 2-3 of Deed of
Conditional Sale).
It was further stipulated upon that should the vendee fail
to pay three (3) successive monthly installments or
anyone year-end lump sum payment within the period
stipulated, the sale shall be considered automatically
rescinded without the necessity of judicial action and all
payments made by the vendee shall be forfeited in favor
of the vendors by way of rental for the use and occupancy
of the property and as liquidated damages. All
improvements introduced by the vendee to the property
shall belong to the vendors without any right of
reimbursement. (Par. (2), Item No. 3, p. 3 of Deed of
Conditional Sale).
[Private respondent] appellant alleged that as of
September, 1990, she had already paid the amount of
[t]wo [m]illion [t]wenty-[e]ight [t]housand (P2,028,000.00)
[p]esos, although she admitted having failed to pay the
installments due in October and November, 1990.
Petitioner, however, [had] tried to pay the installments due
[in] the said months, including the amount due [in] the
month of December, 1990 on December 30 and 31, 1990,
but was turned down by the vendors-[petitioners] thru their
maid, Mary Gonzales, who refused to accept the payment
offered. [Private respondent] maintains that on previous
occasions, the same maid was the one who [had]
received payments tendered by her. It appears that Mary
Gonzales refused to receive payment allegedly on orders
of her employers who were not at home.
[Private respondent] then reported the matter to, and
sought the help of, the local barangay officials. Efforts to
settle the controversy before the barangay proved
unavailing as vendors-[petitioners] never appeared in the
meetings arranged by the barangay lupon.
[Private respondent] tried to get in touch with [petitioners]
over the phone and was able to talk with [Petitioner]
Gloriosa Valarao who told her that she [would] no longer
accept the payments being offered and that [private
respondent] should instead confer with her lawyer, a
certain Atty. Tuazon. When all her efforts to make
payment were unsuccessful, [private respondent] sought
judicial action. by filing this petition for consignation on
January 4, 1991.
On the other hand, vendors-[petitioners], thru counsel,
sent [private respondent] a letter dated 4 January 1991
(Exh. "C") notifying her that they were enforcing the
provision on automatic rescission as a consequence of
which the Deed of Conditional Sale [was deemed] null and
void, and . . . all payments made, as well as the
improvements introduced on the property, [were] thereby
forfeited. The letter also made a formal demand on the
[private respondent] to vacate the property should she not
heed the demand of [petitioners] to sign a contract of
lease for her continued stay in the property (p. 2 of Letter
dated Jan. 4, 1991; Exh. "C").
In reply, [private respondent] sent a letter dated January
14, 1991 (Exh. "D"), denying that she [had] refused to pay
the installments due [in] the months of October, November
and December, and countered that it was [petitioners] who
refused to accept payment, thus constraining her to file a
petition for consignation before the Regional Trial Court of
Quezon City docketed as Civil Case No. Q-91-7603.
Notwithstanding their knowledge of the filing by [private
respondent] of a consignation case against them in the
Regional Trial Court of Quezon City docketed as Civil
Case No. Q-91-7603, [petitioners], through counsel, sent
the [private respondent] another letter dated January 19,
1991 (Exh. "F"), denying the allegations of her attempts to
tender payment on December 30 and 31, 1990, and
demanding that [private respondent] vacate and turnover
the property and pay a monthly compensation for her
continued occupation of the subject property at the rate of
P20,000.00, until she shall have vacated the same.
Ruling of the Court of Appeals
In reversing the Regional Trial Court, the Court of Appeals
held that the refusal of herein petitioners "to accept the
tender of payment was unjustified." Notwithstanding the
stipulation in the Deed of Conditional Sale that "the
rescission of the contract shall of right take place" upon
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Sales – Chapter 3-12 Cases
the failure of the vendee to pay three successive monthly
installments, the appellate court observed that a judicial
demand or a notarial act was still required pursuant to
Article 1592 of the Civil Code. Thus, petitioners' letter
informing private respondent of the rescission of the
contract did not suffice, for it was not notarized. The CA
also observed that "the alleged breach of contract arising
from the failure of the vendee to pay the monthly
installments for October and November 1990 within the
stipulated time is rather slight and not substantial, and to
authorize the automatic rescission on account thereof will
work injustice to the other party, who has paid a total of
P2,028,000.00 out of a total obligation of P3,225,000.00.
The rule is that rescission cannot be availed of as to
unjustly enrich one party."
The Issues
In their Memorandum before us, petitioners raise the
following issues: 5
I Whether the Answer [— (a)] categorically indicating
willingness to accept the amount already due if the
[private respondent] would update the account, [(b)]
praying that "if she fail[ed] to do so immediately, . . . the
Deed of Conditional Sale be declared rescinded, pursuant
to the second paragraph of Section 3 thereof, with costs
against the [private respondent], [(c)] ordering the latter to
vacate and turnover possession of the premises to the
[petitioners], and to pay the latter attorney's fees in the
amount of P50,000.00 and the expenses of litigation" [—]
is tantamount to a judicial demand and notice of
rescission under Art. 1592 of the Civil Code.
II Whether the automatic forfeiture clause is valid and
binding between the parties.
III Whether the action for consignation may prosper
without actual deposit [in court] of the amount due . . . [so
as] to produce the effect of payment.
The Court's Ruling
The petition 6 is devoid of merit.
Preliminary Matter:
Notarial or Judicial Demand
Citing Article 1592 of the Civil Code, the Court of Appeals
ruled that the petitioners' letter dated January 4, 1991,
could not effect the rescission of the Deed of Conditional
Sale, because the said letter was not notarized. On the
other hand, petitioners argue that they made a judicial
demand, which was embodied in their Manifestation filed
on May 1, 1991, and Answer submitted on July 1,1991. 7
We believe, however, that the issue of whether the
requirement of a judicial demand or a notarial act has
been fulfilled is immaterial to the resolution of the present
case. Article 1592 of the Civil Code. states:
Art. 1592. In the sale of immovable property, even though
it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no
demand for rescission of the contract has been made
upon him either judicially or by notarial act. After the
demand, the court may not grant him a new term.
It is well-settled that the above-quoted provision applies
only to a contract of sale, 8 and not to a sale on
installment 9or a contract to sell. 10 Thus, in Luzon
Brokerage v. Maritime Building, 11 this Court ruled that
"Art. 1592 of the new Civil Code (Art. 1504 of the old Civil
Code) requiring demand by suit or notarial act in case the
vendor of realty wants to rescind does not apply to a
contract to sell or promise to sell, where title remains with
the vendor until" full payment of the price. The Court
stresses the difference between these two types of
contract. In a contract to sell, "the title over the subject
property is transferred to the vendee only upon the full
payment of the stipulated consideration. Unlike in a
contract of sale, the title does not pass to the vendee
upon the execution of the agreement or the delivery of the
thing sold." 12
In the present case, the Deed of Conditional Sale is of the
same nature as a sale on installment or a contract to sell,
which is not covered by Article 1592. The aforementioned
agreement provides:
xxx xxx xxx
Should the VENDEE fail to pay three (3) successive
monthly installments or any one year-end lump sum
payment within the period stipulated herein, this Deed of
Conditional Sale shall be considered . . . automatically
rescinded without the necessity of judicial action[,] and all
payments made by the VENDEE shall be forfeited in favor
of the VENDORS by way of rental for the use and
occupancy of the property and as liquidated damages. All
improvements introduced by the VENDEE to the property
shall belong to the VENDORS without any right of
reimbursement. The VENDORS and/or their agents or
representatives shall have the right to enter the premises
of the property and to eject the VENDEE and all persons
claiming right under her therefrom with the use of
reasonable force if necessary.
That upon full payment to the VENDORS of the total
consideration of P3,225,000.00, the VENDORS shall
immediately and without delay execute in favor of the
VENDEE the final and absolute deed of sale of the
property and all its improvements.
Petitioners-vendors unmistakably reserved for themselves
the title to the property until full payment of the purchase
price by the vendee. Clearly, the agreement was not a
deed of sale, but more in he nature of a contract to sell or
of a sale on installments. 13 Even after the execution of
the Deed of Conditional Sale, the Torrens Certificate of
Title remained with and in the name of the vendors. In
rejecting the application of Article 1592 to a contract to
sell, the Court held in Luzon Brokerage 14 that "the full
payment of the price (through the punctual performance of
the monthly payments) was a condition precedent to the
execution of the final sale and to the transfer of the
property from [the vendor] to the [vendee]; so that there
was to be no actual sale until and unless full payment was
to be no actual sale until and unless full payment was
made."
Main Issue: Enforcement of the
Automatic Forfeiture Clause
As a general rule, a contract is the law between the
parties. 15 Thus, "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
consequences which, according to their nature, may be in
keeping with good faith, usage and law." 16 Also, "the
stipulations of the contract being the law between the
parties, courts have no alternative but to enforce them as
they were agreed [upon] and written, there being no law or
public policy against the stipulated forfeiture of payments
already made." 17However, it must be shown that private
respondent-vendee failed to perform her obligation,
thereby giving petitioners-vendors the right to demand the
enforcement of the contract.
We concede the validity of the automatic forfeiture clause,
which deems any previous payments forfeited and the
contract automatically rescinded upon the failure of the
vendee to pay three successive monthly installments or
any one yearend lump sum payment. However, petitioners
failed to prove the conditions that would warrant the
implementation of this clause.
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Sales – Chapter 3-12 Cases
Both the appellate and the trial courts agree on the
following:
1. The Deed of Conditional Sale provided for automatic
rescission in case the vendee failed to pay three (3)
successive monthly installments or any one yearend lump
sum payment within the stipulated period therein.
2. Each monthly installment was due at the end of the
month.
3. The installments for October and November 1990 were
not paid.
4. The private respondent-vendee, Meden Arellano, went
to the house of the petitioners-vendors on December 30,
1990.
5. Arellano offered to pay P48,000 (total amount of
installments due in October, November, and December
1990) to Mary Gonzales, the petitioner's maid, but the
latter refused to accept it upon instruction of petitioners.
6. Arellano returned the next day, December 31, 1990,
and insisted on paying, but again the maid refused to
accept it.
7. Arellano proceeded to the barangay office around
10:00 a.m. to file a case against petitioners for their
refusal to accept the payments.
8. Four (4) days later, on January 4, 1991, private
respondents filed a Petition for Consignation.
9. Despite the said petition, the money was nevertheless
not deposited in court.
10. Negotiations between both parties went under way,
culminating in the vendee's filing a Motion to Deposit the
entire balance due, which was duly opposed by the
vendor, and hence was denied by the trial court.
From the foregoing, it is clear that petitioners were not
justified in refusing to accept the tender of payment made
by private respondent on December 30 and 31, 1990. Had
they accepted it on either of said dates, she would have
paid all three monthly installments due. In other words,
there was no deliberate failure on her part to meet her
responsibility to pay. 18 The Court takes note of her
willingness and persistence to do so, and, petitioners
cannot now say otherwise. The fact is: they refused to
accept her payment and thus have no reason to demand
the enforcement of the automatic forfeiture clause. They
cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the
past, 19 it is futile for petitioners to insist now that she
could not have accepted the aforementioned tender of
payment, on the ground that she did not have a special
power of attorney to do so. Clearly, they are estopped
from denying that she had such authority. Under Article
1241 of the Civil Code, payment through a third person is
valid "[i]f by the creditor's conduct, the debtor has been
led to believe that the third person had authority to receive
the payment."
Failure to Consign the
Amount Due
Petitioners also maintain that the consignation was not
valid because the amount tendered was not deposited
with the trial court. True, there is no showing that she
deposited the money with the proper judicial authority
which, taken together with the other requisites for a valid
consignation, 20 would have released her from her
obligation to pay. However, she does not deny her
obligation and, in fact, is willing to pay not only the three
monthly installments due but also the entire residual
amount of the purchase price. Verily, she even filed a
Motion to Deposit the said entire balance with the trial
court, which however denied said motion upon opposition
of the petitioners. 21
Accordingly, we agree with the Court of Appeals that it
would be inequitable to allow the forfeiture of the amount
of more than two million pesos already paid by private
respondent, a sum which constitutes two thirds of the total
consideration. Because she did make a tender of payment
which was unjustifiably refused, we hold that petitioners
cannot enforce the automatic forfeiture clause of the
contract.
Application of the Maceda Law
In any event, the rescission of the contract and the
forfeiture of the payments already made could not be
effected, because the case falls squarely under Republic
Act No. 6552, 22 otherwise known as the "Maceda Law."
Section 3 of said law provides:
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants
under Republic Act. Numbered Thirty-eight hundred Forty-
four as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of
succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every year of installment payments
made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to
the buyer the cash surrender value on the payments on
the property equivalent to fifty percent of the total
payments made and, after five years of installments, an
additional five percent every year but not to exceed ninety
percent of the total payments made: Provided, That the
actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract
by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall
be included in the computation of the total number of
installments made.
Hence, the private respondent was entitled to a one-
month grace period for every year of installments paid,
which means that she had a total grace period of three
months from December 31, 1990. Indeed, to rule in favor
of petitioner would result in patent injustice and unjust
enrichment. This tribunal is not merely a court of law, but
also a court of justice.
WHEREFORE, the Petition is DENIED and the dispositive
portion of the appealed Decision of the Court of Appeals is
hereby AFFIRMED. The CA's discussion on the need for
judicial or notarial demand is MODIFIED in accordance
with this Decision. Costs against petitioners.
SO ORDERED.
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Sales – Chapter 3-12 Cases
G.R. No. 172036 April 23, 2010
SPOUSES FAUSTINO AND JOSEFINA GARCIA,
SPOUSES MELITON GALVEZ AND HELEN GALVEZ,
and CONSTANCIA ARCAIRA represented by their
Attorney-in-Fact JULIANA O. MOTAS, Petitioners,
vs.
COURT OF APPEALS, EMERLITA DE LA CRUZ, and
DIOGENES G. BARTOLOME, Respondents.
DECISION
CARPIO, J.:
G.R. No. 172036 is a petition for review1 assailing the
Decision2 promulgated on 25 January 2006 as well as the
Resolution3 promulgated on 16 March 2006 of the Court
of Appeals (appellate court) in CA-G.R. CV No. 63651.
The appellate court reversed and set aside the decision of
Branch 23 of the Regional Trial Court of Trece Martires
City, Cavite (trial court) in Civil Case No. TM-622. The
appellate court ordered Emerlita Dela Cruz (Dela Cruz) to
return to spouses Faustino and Josefina Garcia, spouses
Meliton and Helen Galvez, and Constancia Arcaira
(collectively, petitioners) the amount in excess of one-half
percent of ₱1,500,000. Dela Cruz’s co-defendant,
Diogenes Bartolome (Bartolome), did not incur any
liability.
The appellate court narrated the facts as follows:
On May 28, 1993, plaintiffs spouses Faustino and
Josefina Garcia and spouses Meliton and Helen Galvez
(herein appellees) and defendant Emerlita dela Cruz
(herein appellant) entered into a Contract to Sell wherein
the latter agreed to sell to the former, for Three Million
One Hundred Seventy Thousand Two Hundred Twenty
(₱3,170,220.00) Pesos, five (5) parcels of land situated at
Tanza, Cavite particularly known as Lot Nos. 47, 2768,
2776, 2767, 2769 and covered by Transfer Certificate of
Title Nos. T-340674, T-340673, T-29028, T-29026, T-
29027, respectively. At the time of the execution of the
said contract, three of the subject lots, namely, Lot Nos.
2776, 2767, and 2769 were registered in the name of one
Angel Abelida from whom defendant allegedly acquired
said properties by virtue of a Deed of Absolute Sale dated
March 31, 1989.
As agreed upon, plaintiffs shall make a down payment of
Five Hundred Thousand (₱500,000.00) Pesos upon
signing of the contract. The balance of Two Million Six
Hundred Seventy Thousand Two Hundred Twenty
(₱2,670,220.00) Pesos shall be paid in three installments,
viz: Five Hundred Thousand (₱500,000.00) Pesos on
June 30, 1993; Five Hundred Thousand (₱500,000.00)
Pesos on August 30, 1993; One Million Six Hundred
Seventy Thousand Two Hundred Twenty (₱1,670,220.00)
Pesos on December 31, 1993.
On its due date, December 31, 1993, plaintiffs failed to
pay the last installment in the amount of One Million Six
Hundred Seventy Thousand Two Hundred Twenty
(₱1,670,220.00) Pesos. Sometime in July 1995, plaintiffs
offered to pay the unpaid balance, which had already
been delayed by one and [a] half year, which defendant
refused to accept. On September 23, 1995, defendant
sold the same parcels of land to intervenor Diogenes G.
Bartolome for Seven Million Seven Hundred Ninety Three
Thousand (₱7,793,000.00) Pesos.
In order to compel defendant to accept plaintiffs’ payment
in full satisfaction of the purchase price and, thereafter,
execute the necessary document of transfer in their favor,
plaintiffs filed before the RTC a complaint for specific
performance.
In their complaint, plaintiffs alleged that they discovered
the infirmity of the Deed of Absolute Sale covering Lot
Nos. 2776, 2767 and 2769, between their former owner
Angel Abelida and defendant, the same being spurious
because the signature of Angel Abelida and his wife were
falsified; that at the time of the execution of the said deed,
said spouses were in the United States; that due to their
apprehension regarding the authenticity of the document,
they withheld payment of the last installment which was
supposedly due on December 31, 1993; that they
tendered payment of the unpaid balance sometime in July
1995, after Angel Abelida ratified the sale made in favor
[of] defendant, but defendant refused to accept their
payment for no jusitifiable reason.
In her answer, defendant denied the allegation that the
Deed of Absolute Sale was spurious and argued that
plaintiffs failed to pay in full the agreed purchase price on
its due date despite repeated demands; that the Contract
to Sell contains a proviso that failure of plaintiffs to pay the
purchase price in full shall cause the rescission of the
contract and forfeiture of one-half (1/2%) percent of the
total amount paid to defendant; that a notarized letter
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Sales – Chapter 3-12 Cases
stating the indended rescission of the contract to sell and
forfeiture of payments was sent to plaintiffs at their last
known address but it was returned with a notation
"insufficient address."
Intervenor Diogenes G. Bartolome filed a complaint in
intervention alleging that the Contract to Sell dated May
31, 1993 between plaintiffs and defendant was rescinded
and became ineffective due to unwarranted failure of the
plaintiffs to pay the unpaid balance of the purchase price
on or before the stipulated date; that he became
interested in the subject parcels of land because of their
clean titles; that he purchased the same from defendant
by virtue of an Absolute Deed of Sale executed on
September 23, 1995 in consideration of the sum of Seven
Million Seven Hundred Ninety Three Thousand
(₱7,793,000.00) Pesos.4
The Decision of the Trial Court
In its Decision dated 15 April 1999, the trial court ruled
that Dela Cruz’s rescission of the contract was not valid.
The trial court applied Republic Act No. 6552 (Maceda
Law) and stated that Dela Cruz is not allowed to
unilaterally cancel the Contract to Sell. The trial court
found that petitioners are justified in withholding the
payment of the balance of the consideration because of
the alleged spurious sale between Angel Abelida and
Emerlita Dela Cruz. Moreover, intervenor Diogenes
Bartolome (Bartolome) is not a purchaser in good faith
because he was aware of petitioners’ interest in the
subject parcels of land.
The dispositive portion of the trial court’s decision reads:
ACCORDINGLY, defendant Emerlita dela Cruz is ordered
to accept the balance of the purchase price in the amount
of ₱1,670,220.00 within ten (10) days after the judgment
of this Court in the above-entitled case has become final
and executory and to execute immediately the final deed
of sale in favor of plaintiffs.
Defendant is further directed to pay plaintiffs the amount
of ₱400,000.00 as moral damages and ₱100,000.00 as
exemplary damages.
The deed of sale executed by defendant Emerlita dela
Cruz in favor of Atty. Diogenes Bartolome is declared null
and void and the amount of ₱7,793,000.00 which was
paid by intervenor Bartolome to Emerlita dela Cruz as the
consideration of the sale of the five (5) parcels of land is
hereby directed to be returned by Emerlita dela Cruz to
Atty. Diogenes Bartolome within ten (10) days from the
finality of judgment.
Further, defendant is directed to pay plaintiff the sum of
₱100,000.00 as attorney’s fees.
SO ORDERED.5
Dela Cruz and Bartolome appealed from the judgment of
the trial court.
The Decision of the Appellate Court
The appellate court reversed the trial court’s decision and
dismissed Civil Case No. TM-622. Dela Cruz’s obligation
under the Contract to Sell did not arise because of
petitioners’ undue failure to pay in full the agreed
purchase price on the stipulated date. Moreover, judicial
action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions.
The dispositive portion of the appellate court’s decision
reads:
WHEREFORE, in view of all the foregoing, the appealed
decision of the Regional Trial Court is hereby REVERSED
and SET ASIDE and Civil Case No. TM-622 is,
consequently, DISMISSED. Defendant is however
ordered to return to plaintiffs the amount in excess of one-
half (1/2%) percent of One Million Five Hundred Thousand
(₱1,500,000.00) Pesos which was earlier paid by
plaintiffs.
SO ORDERED.6
The appellate court likewise resolved to deny petitioners’
Motion for Reconsideration for lack of merit.7
Hence, this petition.
Issues
Petitioners raised the following grounds for the grant of
their petition:
I. The Honorable Court of Appeals erred when it failed to
consider the provisions of Republic Act 6552, otherwise
known as the Maceda Law.
II. The Honorable Court of Appeals erred when it failed to
consider that Respondent Dela Cruz could not pass title
over the three (3) properties at the time she entered to a
Contract to Sell as her purported ownership was tainted
with fraud, thereby justifying Petitioners Spouses Garcia,
Spouses Galvez and Arcaira’s suspension of payment.
III. The Honorable Court of Appeals gravely erred when it
failed to consider that Respondent Dela Cruz’s
"rescission" was done in evident bad faith and malice on
account of a second sale she entered with Respondent
Bartolome for a much bigger amount.
IV. The Honorable Court of Appeals erred when it failed to
declare Respondent Bartolome is not an innocent
purchaser for value despite the presence of evidence as
to his bad faith.8
The Court’s Ruling
The petition has no merit.
Both parties admit the following: (1) the contract between
petitioners and Dela Cruz was a contract to sell; (2)
petitioners failed to pay in full the agreed purchase price
of the subject property on the stipulated date; and (3) Dela
Cruz did not want to accept petitioners’ offer of payment
and did not want to execute a document of transfer in
petitioners’ favor.
The pertinent provisions of the contract, denominated
Contract to Sell, between the parties read:
Failure on the part of the vendees to comply with the
herein stipulation as to the terms of payment shall cause
the rescission of this contract and the payments made
shall be returned to the vendees subject however, to
forfeiture in favor of the Vendor equivalent to 1/2% of the
total amount paid.
xxx
It is hereby agreed and covenanted that possession shall
be retained by the VENDOR until a Deed of Absolute Sale
shall be executed by her in favor of the Vendees. Violation
of this provision shall authorize/empower the VENDOR
[to] demolish any construction/improvement without need
of judicial action or court order.
That upon and after the full payment of the balance, a
Deed of Absolute Sale shall be executed by the Vendor in
favor of the Vendees.
That the duplicate original of the owner’s copy of the
Transfer Certificate of Title of the above subject parcels of
land shall remain in the possession of the Vendor until the
execution of the Deed of Absolute Sale.9
Contracts are law between the parties, and they are
bound by its stipulations. It is clear from the above-quoted
provisions that the parties intended their agreement to be
a Contract to Sell: Dela Cruz retains ownership of the
subject lands and does not have the obligation to execute
a Deed of Absolute Sale until petitioners’ payment of the
full purchase price. Payment of the price is a positive
suspensive condition, failure of which is not a breach but
an event that prevents the obligation of the vendor to
convey title from becoming effective. Strictly speaking,
there can be no rescission or resolution of an obligation
that is still non-existent due to the non-happening of the
suspensive condition.10 Dela Cruz is thus not obliged to
execute a Deed of Absolute Sale in petitioners’ favor
206
Sales – Chapter 3-12 Cases
because of petitioners’ failure to make full payment on the
stipulated date.
We ruled thus in Pangilinan v. Court of Appeals:11
Article 1592 of the New Civil Code, requiring demand by
suit or by notarial act in case the vendor of realty wants to
rescind does not apply to a contract to sell but only to
contract of sale. In contracts to sell, where ownership is
retained by the seller and is not to pass until the full
payment, such payment, as we said, is a positive
suspensive condition, the failure of which is not a breach,
casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring
binding force. To argue that there was only a casual
breach is to proceed from the assumption that the contract
is one of absolute sale, where non-payment is a resolutory
condition, which is not the case.
The applicable provision of law in instant case is Article
1191 of the New Civil Code which provides as follows:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The Court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
(1124)
Pursuant to the above, the law makes it available to the
injured party alternative remedies such as the power to
rescind or enforce fulfillment of the contract, with damages
in either case if the obligor does not comply with what is
incumbent upon him. There is nothing in this law which
prohibits the parties from entering into an agreement that
a violation of the terms of the contract would cause its
cancellation even without court intervention. The rationale
for the foregoing is that in contracts providing for
automatic revocation, judicial intervention is necessary not
for purposes of obtaining a judicial declaration rescinding
a contract already deemed rescinded by virtue of an
agreement providing for rescission even without judicial
intervention, but in order to determine whether or not the
rescission was proper. Where such propriety is sustained,
the decision of the court will be merely declaratory of the notice to the address supplied by petitioners in the
revocation, but it is not in itself the revocatory act. Contract to Sell.
Moreover, the vendor’s right in contracts to sell with It is undeniable that petitioners failed to pay the balance of
reserved title to extrajudicially cancel the sale upon failure the purchase price on the stipulated date of the Contract
of the vendee to pay the stipulated installments and retain to Sell. Thus, Dela Cruz is within her rights to sell the
the sums and installments already received has long been subject lands to Bartolome. Neither Dela Cruz nor
recognized by the well-established doctrine of 39 years Bartolome can be said to be in bad faith.
standing. The validity of the stipulation in the contract WHEREFORE, we DENY the petition. We AFFIRM in
providing for automatic rescission upon non-payment toto the Court of Appeals’ Decision promulgated on 25
cannot be doubted. It is in the nature of an agreement January 2006 as well as the Resolution promulgated on
granting a party the right to rescind a contract unilaterally 16 March 2006 in CA-G.R. CV No. 63651.
in case of breach without need of going to court. Thus, Costs against petitioners.
rescission under Article 1191 was inevitable due to SO ORDERED.
petitioners’ failure to pay the stipulated price within the
original period fixed in the agreement.
Petitioners justify the delay in payment by stating that they
had notice that Dela Cruz is not the owner of the subject
land, and that they took pains to rectify the alleged defect
in Dela Cruz’s title. Be that as it may, Angel Abelida’s
(Abelida) affidavit12 confirming the sale to Dela Cruz only
serves to strengthen Dela Cruz’s claim that she is the
absolute owner of the subject lands at the time the
Contract to Sell between herself and petitioners was
executed. Dela Cruz did not conceal from petitioners
that the title to Lot Nos. 2776, 2767 and 2769 still
remained under Abelida’s name, and the Contract to
Sell13 even provided that petitioners should shoulder
the attendant expenses for the transfer of ownership
from Abelida to Dela Cruz.
The trial court erred in applying R.A. 6552,14 or the
Maceda Law, to the present case. The Maceda Law
applies to contracts of sale of real estate on installment
payments, including residential condominium apartments
but excluding industrial lots, commercial buildings and
sales to tenants. The subject lands, comprising five (5)
parcels and aggregating 69,028 square meters, do not
comprise residential real estate within the contemplation
of the Maceda Law.15 Moreover, even if we apply the
Maceda Law to the present case, petitioners’ offer of
payment to Dela Cruz was made a year and a half after
the stipulated date. This is beyond the sixty-day grace
period under Section 4 of the Maceda Law.16 Petitioners
still cannot use the second sentence of Section 4 of the
Maceda Law against Dela Cruz for Dela Cruz’s alleged
failure to give an effective notice of cancellation or
demand for rescission because Dela Cruz merely sent the
207
Sales – Chapter 3-12 Cases

ACTIVE REALTY & DEVELOPMENT

CORPORATION, petitioner,
vs.
NECITA G. DAROYA, represented by Attorney-In-Fact
Shirley Daroya-Quinones, respondents.
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of
the Revised Rules of Court which seeks to reverse and
set aside the Resolution of the Court of Appeals, dated
August 3, 1999, denying due course to petitioner’s appeal
for insufficiency of form and substance.1âwphi1.nêt
Petitioner ACTIVE REALTY & DEVELOPMENT
CORPORATION is the owner and developer of Town &
Country Hills Executive Village in Antipolo, Rizal. On
January 2, 1985, it entered into a Contract to Sell 1 with
respondent NECITA DAROYA, a contract worker in the
Middle East, whereby the latter agreed to buy a 515 sq.
m. lot for P224,025.00 in petitioner’s subdivision.
The contract to sell stipulated that the respondent shall
pay the initial amount of P53,766.00 upon execution of the
contract and the balance of P170,259.00 in sixty (60)
monthly installments of P4,893.35. Adding the down
payment and installment payments, it would appear that
the total amount is P346,367.00, a figure higher than that
stated as the contract price.
On May 5, 1989, petitioner accepted respondent’s
amortization in the amount of P40,000.00. By August 8,
1989, respondent was in default of P15,282.85
representing three (3) monthly amortizations.
Petitioner sent respondent a notice of cancellation2 of
their contract to sell, to take effect thirty (30) days from
receipt of the letter. It does not appear from the records,
however, when respondent received the letter.
Nonetheless, when respondent offered to pay for the
balance of the contract price, petitioner refused as it has
allegedly sold the lot to another buyer.
On August 26, 1991, respondent filed a complaint for
specific performance and damages3 against petitioner
before the Arbitration Branch of the Housing and Land
208
Sales – Chapter 3-12 Cases
Use Regulatory Board (HLURB). It sought to compel the
petitioner to execute a final Deed of Absolute Sale in
respondent’s favor after she pays any balance that may
still be due from her. Respondent claimed that she is
entitled to the final deed of sale after she offered to pay
the balance of P24,048.47, considering that she has
already paid the total sum of P314,816.76, which
amount is P90,835.76 more than the total contract
price of P224,025.00.
On June 14, 1993, HLURB Arbiter Alfredo M. Tan II found
for the respondent. He ruled that the cancellation of the
contract to sell was void as petitioner failed to pay the
cash surrender value to respondent as mandated by law.
However, as the subject lot was already sold to a third
party and the respondent had agreed to a full refund of
her installment payments, petitioner was ordered
to refund to respondent all her payments in the
amount of P314,816.70, with 12% interest per annum
from August 26, 1991 (the date of the filing of the
complaint) until fully paid and to pay P10,000.00 as
attorney’s fees.4
On appeal, the HLURB Board of Commissioners set
aside the Arbiter’s Decision. The Board refused to apply
the remedies provided under the Maceda Law and instead
deemed it fit to formulate an "equitable" solution to the
case. It ruled that, as both parties were at
fault, i.e., respondent incurred in delay in her installment
payments and respondent failed to send a notarized
notice of cancellation, petitioner was ordered to refund
to the respondent one half of the total amount she has
paid or P157,408.35, which was allegedly akin to the
remedy provided under the Maceda Law.5
Respondent appealed to the Office of the President.
On June 2, 1998, then Chief Presidential Counsel Renato
C. Corona, acting by authority of the President, modified
the Decision of the HLURB as he found that it was not in
accord with the provisions of the Maceda Law. He held
that as petitioner did not comply with the legal requisites
for a valid cancellation of the contract, the contract to sell
between the parties subsisted and concluded that
respondent was entitled to the lot after payment of her
outstanding balance. However, as the petitioner disclosed
that the lot was already sold to another person and that
the actual value of the lot as of the date of the contract
was P1,700.00 per square meter, petitioner was ordered
to refund to the respondent the amount
of P875,000.00, the true and actual value of the lot as
of the date of the contract, with interest at 12% per
annum computed from August 26, 1991 until fully
paid, or to deliver a substitute lot at the choice of
respondent.6
Upon denial of its motion for reconsideration, petitioner
assailed the Decision in the Court of Appeals. However,
its petition for review7 was denied due course for
insufficiency in form and substance,8 because: 1) no
affidavit of service was attached to the petition; 2) except
for certified true copies of the decision and resolution of
the Office of the President, no other material portions of
the record, as would support the allegations in the petition,
were attached; and, 3) the certification of forum-shopping
was signed by the head counsel and vice-president of the
petitioner corporation who was not authorized by a Board
Resolution to represent petitioner.
Petitioner moved for reconsideration. The Court of
Appeals denied it on an entirely new ground, i.e., for
untimely filing of the petition for review.9
Petitioner now impugns the decision of the Court of
Appeals and raises the following procedural issues:
I in denying petitioner’s motion for reconsideration due to
THE HONORABLE COURT OF APPEALS GROSSLY
ERRED IN RELYING TOO MUCH ON FORM RATHER
THAN ON THE MERITS OF THE PETITION THEREBY
DENYING PETITIONER OF ITS RIGHT TO DUE
PROCESS.
II
THE HONORABLE COURT OF APPEALS ANCHORED
THE DENIAL OF PETITIONER’S MOTION FOR
RECONSIDERATION ON INCONSISTENT AND
CONFLICTING RULINGS NOT BORNE BY THE FACTS
AND THE RECORDS OF THE CASE.
On the procedural points raised, we find for the petitioner.
Our perusal of the record reveals that petitioner
substantially complied with the formal requirements of
Rule 43 of the Rules of Court.10 First, as to the non-
attachment of the affidavit of service, the records bear
that the petition was accompanied by the original registry
receipts issued by the post office, showing that the petition
and its annexes were served upon the parties. Moreover,
respondent’s counsel of record, Atty. Sergio Guadiz,
actually received a copy of the petition. 11 Second,
petitioner likewise complied with Section 6 (c) of Rule 43
requiring the submission of copies of the award, judgment,
final order and resolution appealed from. Its petition was
accompanied by the duplicate original of the appealed
Decision of the Chief Presidential Legal Counsel and his
Resolution denying petitioner’s motion for reconsideration,
the Decision of the HLURB Board of Commissioners and
that of the HLURB arbiter. A perusal of these documents
will reveal that they contained all the relevant facts of the
case from which the appellate body can form its own
decision. Its failure to submit the other documents, like the
Complaint, Answer, Position Papers and Appeal
Memoranda of the parties before the HLURB, was due to
the refusal of the Office of the President to give them a
certified true copy of these documents which were
submitted with said Office. Third, as to the lack of Board
Resolution by petitioner corporation authorizing Atty. Rene
Katigbak, its Chief Legal Counsel and Vice-President for
Legal Affairs, to represent it in the filing of the appeal,
petitioner admits that this was due to its honest belief that
such authority is not required as it was not mentioned in
Section 6(c) of Rule 43.12 To make up for such omission,
petitioner submitted a Secretary’s Certificate 13 confirming
and ratifying the authority of Atty. Katigbak to represent
petitioner. Finally, we find that the Court of Appeals erred
untimely filing as the records clearly show that it was filed
on June 25, 1999, a day before the expiration of the
period to appeal granted by the Court of Appeals.14
In denying due course to the petition, the appellate court
gave premium to form and failed to consider the important
rights of the parties in the case at bar. 15 At the very least,
petitioner substantially complied with the procedural
requirements for appeal, hence, it is best to give due
course to the petition at bar to clarify the rights and duties
of a buyer in contracts to sell real estate on installment
basis.
The issue to be resolved is whether or not the petitioner
can be compelled to refund to the respondent the value of
the lot or to deliver a substitute lot at respondent’s option.
We find for the respondent and rule in the
affirmative.1âwphi1.nêt
The contract to sell in the case at bar is governed by
Republic Act No. 6552 -- "The Realty Installment Buyer
Protection Act," or more popularly known as the Maceda
Law -- which came into effect in September 1972. Its
declared public policy is to protect buyers of real estate on
installment basis against onerous and oppressive
conditions.16 The law seeks to address the acute housing
shortage problem in our country that has prompted
thousands of middle and lower class buyers of houses,
209
Sales – Chapter 3-12 Cases
lots and condominium units to enter into all sorts of
contracts with private housing developers involving
installment schemes. Lot buyers, mostly low income
earners eager to acquire a lot upon which to build their
homes, readily affix their signatures on these contracts,
without an opportunity to question the onerous provisions
therein as the contract is offered to them on a "take it or
leave it" basis.17 Most of these contracts of adhesion,
drawn exclusively by the developers, entrap innocent
buyers by requiring cash deposits for reservation
agreements which oftentimes include, in fine print,
onerous default clauses where all the installment
payments made will be forfeited upon failure to pay any
installment due even if the buyers had made payments for
several years.18 Real estate developers thus enjoy an
unnecessary advantage over lot buyers who they often
exploit with iniquitous results. They get to forfeit all the
installment payments of defaulting buyers and resell the
same lot to another buyer with the same exigent
conditions. To help especially the low income lot buyers,
the legislature enacted R.A. No. 6552 delineating the
rights and remedies of lot buyers and protect them from
one-sided and pernicious contract stipulations.
More specifically, Section 3 of R.A. No. 6552 provided for
the rights of the buyer in case of default in the payment of
succeeding installments, where he has already paid at
least two (2) years of installments, thus:
"(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made; x
xx
(b) If the contract is cancelled, the seller shall refund to
the buyer the cash surrender value of the payments on
the property equivalent to fifty per cent of the total
payments made; provided, that the actual cancellation of
the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to
the buyer."
In this case, respondent has already paid in four (4)
years a total of P314,860.76 or P90,835.76 more than
the contract price of P224,035.00. In April 1989,
petitioner decided to cancel the contract when the
respondent incurred in delay in the payment
of P15,282.85, representing three (3) monthly
amortizations. Petitioner refused to accept respondent’s
subsequent tender of payment of the outstanding balance
alleging that it has already cancelled the contract and sold
the subject lot to another buyer. However, the records
clearly show that the petitioner failed to comply with
the mandatory twin requirements for a valid and
effective cancellation under the law,19 i.e., he failed to
send a notarized notice of cancellation and refund the
cash surrender value. At no time, from the date it gave a
notice of cancellation up to the time immediately before
the respondent filed the case against petitioner, did the
latter exert effort to pay the cash surrender value. In fact,
the records disclose that it was only during the preliminary
hearing of the case before the HLURB arbiter when
petitioner offered to pay the cash surrender value.
Petitioner justifies its inaction on the ground that the
respondent was always out of the country. Even then, the
records are bereft of evidence to show that petitioner
attempted to pay the cash surrender value to respondent
through her last known address. The omission is
surprising considering that even during the times
respondent was out of the country, petitioner has been
sending her written notices to remind her to pay her
installment arrears through her last known address.
Clearly, had respondent not filed a case demanding a final
deed of sale in her favor, petitioner would not have lifted a
finger to give respondent what was due her – actual
payment of the cash surrender value, among others. In
disregard of basic equitable principles, petitioner’s stance
would enable it to resell the property, keep respondent’s
installment payments, not to mention the cash surrender
value which it was obligated to return. The Layug20 case
cited by petitioner is inapropos. In Layug, the lot buyer did
not pay for the outstanding balance of his account and the
Court found that notarial rescission or cancellation was no
longer necessary as the seller has already filed in court a
case for rescission of the contract to sell. In the case at
bar, respondent offered to pay for her outstanding balance
of the contract price but respondent refused to accept it.
Neither did petitioner adduce proof that the respondent’s
offer to pay was made after the effectivity date stated in its
notice of cancellation. Moreover, there was no formal
notice of cancellation or court action to rescind the
contract. Given the circumstances, we find it illegal and
iniquitous that petitioner, without complying with the
mandatory legal requirements for canceling the contract,
forfeited both respondent’s land and hard-earned money
after she has paid for, not just the contract price, but more
than the consideration stated in the contract to sell.
Thus, for failure to cancel the contract in accordance
with the procedure provided by law, we hold that the
contract to sell between the parties remains valid and
subsisting. Following Section 3(a) of R.A. No. 6552,
respondent has the right to offer to pay for the
balance of the purchase price, without interest, which
she did in this case. Ordinarily, petitioner would have
had no other recourse but to accept payment. However,
respondent can no longer exercise this right as the subject
lot was already sold by the petitioner to another buyer
which lot, as admitted by the petitioner, was valued
at P1,700.00 per square meter. As respondent lost her
chance to pay for the balance of the P875,000.00 lot, it is
only just and equitable that the petitioner be ordered to
refund to respondent the actual value of the lot
resold, i.e., P875,000.00, with 12% interest per annum
computed from August 26, 1991 until fully paid or to
deliver a substitute lot at the option of the respondent.
On a final note, it would not be amiss to stress that the
HLURB Board Decision ordering petitioner to refund to
respondent one half of her total payments is not an
equitable solution as it punished the respondent for her
delinquent payments but totally disregarded petitioner’s
failure to comply with the mandatory requisites for a
valid cancellation of the contract to sell. The Board failed
to consider that the Maceda law was enacted to remedy
the plight of low and middle-income lot buyers, save
them from the exacting default clauses in real estate sales
and assure them of a home they can call their own.
Neither would the Decision of the HLURB Arbiter ordering
a full refund of the installment payments of respondent in
the amount of P314,816.70 be justified as, under the law,
respondent is entitled to the lot she purchased after
payment of her outstanding balance which she was ready
and willing to do. Thus, to penalize the petitioner for failing
in its obligation to deliver the subject lot and to give the
respondent what is rightly hers, the petitioner was
correctly ordered to refund to the respondent the actual
value of the land (P875,000.00) she lost to another buyer,
plus interest at the rate of 12% per annum from August
26, 1991 until fully paid or to deliver a substitute lot at the
choice of the respondent.1âwphi1.nêt
IN VIEW WHEREOF, the Decision of then Chief
Presidential Legal Assistant Renato Corona, Office of the
210
Sales – Chapter 3-12 Cases
President, dated June 2, 1998, is AFFIRMED in
toto. Costs against petitioner.
SO ORDERED.
G.R. No. 147695 September 13, 2007
MANUEL C. PAGTALUNAN, petitioner,
vs.
RUFINA DELA CRUZ VDA. DE MANZANO, respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of
the Rules of Court of the Court of Appeals’ (CA) Decision
promulgated on October 30, 2000 and its Resolution
dated March 23, 2001 denying petitioner’s motion for
reconsideration. The Decision of the CA affirmed the
Decision of the Regional Trial Court (RTC) of Malolos,
Bulacan, dated June 25, 1999 dismissing the case of
unlawful detainer for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio),
petitioner’s stepfather and predecessor-in-interest,
entered into a Contract to Sell with respondent, wife of
Patricio’s former mechanic, Teodoro Manzano, whereby
the former agreed to sell, and the latter to buy, a house
and lot which formed half of a parcel of land, covered by
Transfer Certificate of Title (TCT) No. T-10029 (now TCT
No. RT59929 [T-254773]), with an area of 236 square
meters. The consideration of P17,800 was agreed to be
paid in the following manner: P1,500 as downpayment
upon execution of the Contract to Sell, and the balance to
be paid in equal monthly installments of P150 on or before
the last day of each month until fully paid.
It was also stipulated in the contract that respondent could
immediately occupy the house and lot; that in case of
default in the payment of any of the installments for 90
days after its due date, the contract would be
automatically rescinded without need of judicial
declaration, and that all payments made and all
improvements done on the premises by respondent would
be considered as rentals for the use and occupation of the
property or payment for damages suffered, and
respondent was obliged to peacefully vacate the premises
and deliver the possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She
allegedly stopped paying after December 1979 without
any justification or explanation. Moreover, in a
"Kasunduan"1 dated November 18, 1979, respondent
borrowed P3,000 from Patricio payable in one year either
in one lump sum payment or by installments, failing which
the balance of the loan would be added to the principal
subject of the monthly amortizations on the land.
Lastly, petitioner asserted that when respondent ceased
paying her installments, her status of buyer was
automatically transformed to that of a lessee. Therefore,
she continued to possess the property by mere tolerance
of Patricio and, subsequently, of petitioner.
On the other hand, respondent alleged that she paid her
monthly installments religiously, until sometime in 1980
when Patricio changed his mind and offered to refund all
her payments provided she would surrender the house.
She refused. Patricio then started harassing her and
began demolishing the house portion by portion.
Respondent admitted that she failed to pay some
installments after December 1979, but that she resumed
paying in 1980 until her balance dwindled to P5,650. She
claimed that despite several months of delay in payment,
Patricio never sued for ejectment and even accepted her
late payments.
Respondent also averred that on September 14, 1981,
she and Patricio signed an agreement (Exh. 2) whereby
he consented to the suspension of respondent’s monthly
payments until December 1981. However, even before the
lapse of said period, Patricio resumed demolishing
respondent’s house, prompting her to lodge a complaint
with the Barangay Captain who advised her that she could
continue suspending payment even beyond December
31, 1981 until Patricio returned all the materials he took
from her house. This Patricio failed to do until his death.
Respondent did not deny that she still owed
Patricio P5,650, but claimed that she did not resume
paying her monthly installment because of the unlawful
acts committed by Patricio, as well as the filing of the
ejectment case against her. She denied having any
knowledge of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and on
October 17, 1994, respectively. Petitioner became their
sole successor-in-interest pursuant to a waiver by the
other heirs. On March 5, 1997, respondent received a
letter from petitioner’s counsel dated February 24, 1997
demanding that she vacate the premises within five days
on the ground that her possession had become unlawful.
Respondent ignored the demand. The Punong
Barangay failed to settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful
detainer against respondent with the Municipal Trial Court
(MTC) of Guiguinto, Bulacan praying that, after hearing,
judgment be rendered ordering respondent to immediately
vacate the subject property and surrender it to petitioner;
forfeiting the amount of P12,950 in favor of petitioner as
rentals; ordering respondent to pay petitioner the amount
of P3,000 under the Kasunduan and the amount of P500
per month from January 1980 until she vacates the
property, and to pay petitioner attorney’s fees and the
costs.
On December 22, 1998, the MTC rendered a decision in
favor of petitioner. It stated that although the Contract to
Sell provides for a rescission of the agreement upon
failure of the vendee to pay any installment, what the
contract actually allows is properly termed a resolution
under Art. 1191 of the Civil Code.
The MTC held that respondent’s failure to pay not a few
installments caused the resolution or termination of the
Contract to Sell. The last payment made by respondent
was on January 9, 1980 (Exh. 71). Thereafter,
respondent’s right of possession ipso facto ceased to be a
legal right, and became possession by mere tolerance of
Patricio and his successors-in-interest. Said tolerance
ceased upon demand on respondent to vacate the
property.
The dispositive portion of the MTC Decision reads:
Wherefore, all the foregoing considered, judgment is
hereby rendered, ordering the defendant:
a. to vacate the property covered by Transfer Certificate of
Title No. T-10029 of the Register of Deeds of Bulacan
(now TCT No. RT-59929 of the Register of Deeds of
Bulacan), and to surrender possession thereof to the
plaintiff;
b. to pay the plaintiff the amount of P113,500 representing
rentals from January 1980 to the present;
c. to pay the plaintiff such amount of rentals,
at P500/month, that may become due after the date of
judgment, until she finally vacates the subject property;
d. to pay to the plaintiff the amount of P25,000 as
attorney’s fees.
SO ORDERED.2
211
Sales – Chapter 3-12 Cases
On appeal, the RTC of Malolos, Bulacan, in a Decision
dated June 25, 1999, reversed the decision of the MTC
and dismissed the case for lack of merit. According to the
RTC, the agreement could not be automatically rescinded
since there was delivery to the buyer. A judicial
determination of rescission must be secured by petitioner
as a condition precedent to convert the possession de
facto of respondent from lawful to unlawful.
The dispositive portion of the RTC Decision states:
WHEREFORE, judgment is hereby rendered reversing the
decision of the Municipal Trial Court of Guiguinto, Bulacan
and the ejectment case instead be dismissed for lack of
merit.3
The motion for reconsideration and motion for execution
filed by petitioner were denied by the RTC for lack of merit
in an Order dated August 10, 1999.
Thereafter, petitioner filed a petition for review with the
CA.
In a Decision promulgated on October 30, 2000, the CA
denied the petition and affirmed the Decision of the RTC.
The dispositive portion of the Decision reads:
WHEREFORE, the petition for review on certiorari is
Denied. The assailed Decision of the Regional Trial Court
of Malolos, Bulacan dated 25 June 1999 and its Order
dated 10 August 1999 are hereby AFFIRMED.
SO ORDERED. 4
The CA found that the parties, as well as the MTC and
RTC failed to advert to and to apply Republic Act (R.A.)
No. 6552, more commonly referred to as the Maceda Law,
which is a special law enacted in 1972 to protect buyers of
real estate on installment payments against onerous and
oppressive conditions.
The CA held that the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552,
and recognized respondent’s right to continue occupying
unmolested the property subject of the contract to sell.
The CA denied petitioner’s motion for reconsideration in a
Resolution dated March 23, 2001.
Hence, this petition for review on certiorari.
Petitioner contends that:
A. Respondent Dela Cruz must bear the consequences of
her deliberate withholding of, and refusal to pay, the
monthly payment. The Court of Appeals erred in allowing
Dela Cruz who acted in bad faith from benefiting under the
Maceda Law.
B. The Court of Appeals erred in resolving the issue on
the applicability of the Maceda Law, which issue was not
raised in the proceedings a quo.
C. Assuming arguendo that the RTC was correct in ruling
that the MTC has no jurisdiction over a rescission case,
the Court of Appeals erred in not remanding the case to
the RTC for trial.5
Petitioner submits that the Maceda Law supports and
recognizes the right of vendors of real estate to cancel the
sale outside of court, without need for a judicial
declaration of rescission, citing Luzon Brokerage Co., Inc.,
v. Maritime Building Co., Inc.6
Petitioner contends that respondent also had more than
the grace periods provided under the Maceda Law within
which to pay. Under Sec. 37 of the said law, a buyer who
has paid at least two years of installments has a grace
period of one month for every year of installment paid.
Based on the amount of P12,950 which respondent had
already paid, she is entitled to a grace period of six
months within which to pay her unpaid installments after
December, 1979. Respondent was given more than six
months from January 1980 within which to settle her
unpaid installments, but she failed to do so. Petitioner’s
demand to vacate was sent to respondent in February
1997.
There is nothing in the Maceda Law, petitioner asserts,
which gives the buyer a right to pay arrearages after the
grace periods have lapsed, in the event of an invalid
demand for rescission. The Maceda Law only provides
that actual cancellation shall take place after 30 days from
receipt of the notice of cancellation or demand for
rescission and upon full payment of the cash surrender
value to the buyer.
Petitioner contends that his demand letter dated February
24, 1997 should be considered the notice of cancellation
since the demand letter informed respondent that she had
"long ceased to have any right to possess the premises in
question due to [her] failure to pay without justifiable
cause." In support of his contention, he cited Layug v.
Intermediate Appellate Court8 which held that "the
additional formality of a demand on [the seller’s] part for
rescission by notarial act would appear, in the premises,
to be merely circuitous and consequently superfluous." He
stated that in Layug, the seller already made a written
demand upon the buyer.
In addition, petitioner asserts that whatever cash
surrender value respondent is entitled to have been
applied and must be applied to rentals for her use of the
house and lot after December, 1979 or after she stopped
payment of her installments.
Petitioner argues that assuming Patricio accepted
respondent’s delayed installments in 1981, such act
cannot prevent the cancellation of the Contract to Sell.
Installments after 1981 were still unpaid and the
applicable grace periods under the Maceda Law on the
unpaid installments have long lapsed. Respondent cannot
be allowed to hide behind the Maceda Law. She acted
with bad faith and must bear the consequences of her
deliberate withholding of and refusal to make the monthly
payments.
Petitioner also contends that the applicability of the
Maceda Law was never raised in the proceedings below;
hence, it should not have been applied by the CA in
resolving the case.
The Court is not persuaded.
The CA correctly ruled that R.A No. 6552, which governs
sales of real estate on installment, is applicable in the
resolution of this case.
This case originated as an action for unlawful detainer.
Respondent is alleged to be illegally withholding
possession of the subject property after the termination of
the Contract to Sell between Patricio and respondent. It is,
therefore, incumbent upon petitioner to prove that the
Contract to Sell had been cancelled in accordance with
R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight hundred forty-
four as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of
succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer
only once in every five years of the life of the contract and
its extensions, if any.
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Sales – Chapter 3-12 Cases
(b) If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value of the payments
on the property equivalent to fifty percent of the total
payments made and, after five years of installments, an
additional five percent every year but not to exceed ninety
percent of the total payments made: Provided, That the
actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of
the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the
buyer.9
R.A. No. 6552, otherwise known as the "Realty
Installment Buyer Protection Act," 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.10 The
Court agrees with petitioner that the cancellation of the
Contract to Sell may be done outside the court particularly
when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller
must be in accordance with Sec. 3 (b) of R.A. No. 6552,
which requires a notarial act of rescission and the refund
to the buyer of the full payment of the cash surrender
value of the payments on the property. Actual cancellation
of the contract takes place after 30 days from receipt by
the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell was
not validly cancelled or rescinded under Sec. 3 (b) of R.A.
No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on
September 17, 1992 without canceling the Contract to
Sell.
Second, petitioner also failed to cancel the Contract to
Sell in accordance with law.
Petitioner contends that he has complied with the
requirements of cancellation under Sec. 3 (b) of R.A. No.
6552. He asserts that his demand letter dated February
24, 1997 should be considered as the notice of
cancellation or demand for rescission by notarial act and
that the cash surrender value of the payments on the
property has been applied to rentals for the use of the
house and lot after respondent stopped payment after
January 1980.
The Court, however, finds that the letter11 dated February
24, 1997, which was written by petitioner’s counsel,
merely made formal demand upon respondent to vacate
the premises in question within five days from receipt
thereof since she had "long ceased to have any right to
possess the premises x x x due to [her] failure to pay
without justifiable cause the installment payments x x x."
Clearly, the demand letter is not the same as the notice of
cancellation or demand for rescission by a notarial
actrequired by R.A No. 6552. Petitioner cannot rely
on Layug v. Intermediate Appellate Court12 to support his
contention that the demand letter was sufficient
compliance. Layug held that "the additional formality of a
demand on [the seller’s] part for rescission by notarial act
would appear, in the premises, to be merely circuitous and
consequently superfluous" since the seller therein filed an
action for annulment of contract, which is a kindred
concept of rescission by notarial act.13 Evidently, the case
of unlawful detainer filed by petitioner does not exempt
him from complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of
the cash surrender value of the payments on the property
to the buyer before cancellation of the contract. The
provision does not provide a different requirement for
contracts to sell which allow possession of the property by
the buyer upon execution of the contract like the instant
case. Hence, petitioner cannot insist on compliance with
the requirement by assuming that the cash surrender
value payable to the buyer had been applied to rentals of
the property after respondent failed to pay the installments
due.
There being no valid cancellation of the Contract to Sell,
the CA correctly recognized respondent’s right to continue
occupying the property subject of the Contract to Sell and
affirmed the dismissal of the unlawful detainer case by the
RTC.
The Court notes that this case has been pending for more
than ten years. Both parties prayed for other reliefs that
are just and equitable under the premises. Hence, the
rights of the parties over the subject property shall be
resolved to finally dispose of that issue in this case.
Considering that the Contract to Sell was not cancelled by
the vendor, Patricio, during his lifetime or by petitioner in
accordance with R.A. No. 6552 when petitioner filed this
case of unlawful detainer after 22 years of continuous
possession of the property by respondent who has paid
the substantial amount of P12,300 out of the purchase
price of P17,800, the Court agrees with the CA that it is
only right and just to allow respondent to pay her arrears
and settle the balance of the purchase price.
For respondent’s delay in the payment of the installments,
the Court, in its discretion, and applying Article 220914 of
the Civil Code, may award interest at the rate of 6% per
annum15 on the unpaid balance considering that there is
no stipulation in the Contract to Sell for such interest. For
purposes of computing the legal interest, the reckoning
period should be the filing of the complaint for unlawful
detainer on April 8, 1997.
Based on respondent’s evidence16 of payments made, the
MTC found that respondent paid a total of P12,300 out of
the purchase price of P17,800. Hence, respondent still
has a balance of P5,500, plus legal interest at the rate of
6% per annum on the unpaid balance starting April 8,
1997.
The third issue is disregarded since petitioner assails an
inexistent ruling of the RTC on the lack of jurisdiction of
the MTC over a rescission case when the instant case he
filed is for unlawful detainer.
WHEREFORE, the Decision of the Court of Appeals dated
October 30, 2000 sustaining the dismissal of the unlawful
detainer case by the RTC is AFFIRMED with the
following MODIFICATIONS:
1. Respondent Rufina Dela Cruz Vda. de Manzano shall
pay petitioner Manuel C. Pagtalunan the balance of the
purchase price in the amount of Five Thousand Five
Hundred Pesos (P5,500) plus interest at 6% per annum
from April 8, 1997 up to the finality of this judgment, and
thereafter, at the rate of 12% per annum;
2. Upon payment, petitioner Manuel C. Pagtalunan shall
execute a Deed of Absolute Sale of the subject property
and deliver the certificate of title in favor of respondent
Rufina Dela Cruz Vda. de Manzano; and
3. In case of failure to pay within 60 days from finality of
this Decision, respondent Rufina Dela Cruz Vda. de
Manzano shall immediately vacate the premises without
need of further demand, and the downpayment and
installment payments of P12,300 paid by her shall
constitute rental for the subject property.
No costs.
SO ORDERED.
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Sales – Chapter 3-12 Cases
Inc. (BF Homes) and herein respondent Julie Chandumal
(Chandumal). The property subject of the contract is
located in Talon Dos, Las Piñas City and covered by
Transfer Certificate of Title No. T-10779. On February 12,
1993, BF Homes sold to PDB all its rights, participations
and interests over the contract.
Chandumal paid her monthly amortizations from
December 1990 until May 1994 when she began to
default in her payments. In a Notice of Delinquency and
Rescission of Contract with Demand to Vacate4 dated July
14, 1998, PDB gave Chandumal a period of thirty (30)
days from receipt within which to settle her installment
arrearages together with all its increments; otherwise, all
her rights under the contract shall be deemed
extinguished and terminated and the contract declared as
rescinded. Despite demand, Chandumal still failed to
settle her obligation.
On June 18, 1999, an action for judicial confirmation of
notarial rescission and delivery of possession was filed by
PDB against Chandumal, docketed as Civil Case No. LP-
99-0137. PDB alleged that despite demand, Chandumal
failed and/or refused to pay the amortizations as they fell
due; hence, it caused the rescission of the contract by
means of notarial act, as provided in Republic Act (R.A.)
No. 6552.5 According to PDB, it tried to deliver the cash
surrender value of the subject property, as required under
R.A. No. 6552, in the amount of ₱ 10,000.00; however,
the defendant was unavailable for such purpose.6
Consequently, summons was issued and served by
G.R. No. 195619 September 5, 2012 deputy sheriff Roberto T. Galing (Sheriff Galing).
PLANTERS DEVELOPMENT BANK, Petitioner, According to his return, Sheriff Galing attempted to
vs. personally serve the summons upon Chandumal on July
JULIE CHANDUMAL, Respondent. 15, 19 and 22, 1999 but it was unavailing as she was
DECISION always out of the house on said dates. Hence, the sheriff
REYES, J.: caused substituted service of summons on August 5,
In this petition for review under Rule 45 of the Rules of 1999 by serving the same through Chandumal’s mother
Court, Planters Development Bank (PDB) questions the who acknowledged receipt thereof.7
Decision1 dated July 27, 2010 of the Court of Appeals For her failure to file an answer within the prescribed
(CA), as well as its Resolution2 dated February 16, 2011, period, PDB filed on April 24, 2000 an ex parte motion to
denying the petitioner's motion for reconsideration in CA- declare Chandumal in default. On January 12, 2001, the
G.R. CV No. 82861. The assailed decision nullified the RTC issued an Order granting the motion of PDB.8
Decision3 dated May 31, 2004 of the Regional Trial Court On February 23, 2001, Chandumal filed an Urgent Motion
(RTC), Las Piñas City, Branch 255 in Civil Case No. LP- to Set Aside Order of Default and to Admit Attached
99-0137. Answer. She maintained that she did not receive the
Antecedent Facts summons and/or was not notified of the same. She further
The instant case stemmed from a contract to sell a parcel alleged that her failure to file an answer within the
of land, together with improvements, between BF Homes, reglementary period was due to fraud, mistake or
214
Sales – Chapter 3-12 Cases
excusable negligence. In her answer, Chandumal alleged
the following defenses: (a) contrary to the position of PDB,
the latter did not make any demand for her to pay the
unpaid monthly amortization; and (b) PDB did not tender
or offer to give the cash surrender value of the property in
an amount equivalent to fifty percent (50%) of the actual
total payment made, as provided for under Section 3(b) of
R.A. No. 6552. Moreover, Chandumal claimed that since
the total payment she made amounts to ₱ 782,000.00, the
corresponding cash surrender value due her should be ₱
391,000.00.9
Per Order10 dated August 2, 2001, the RTC denied
Chandumal’s motion to set aside the order of default. Her
motion for reconsideration was also denied for lack of
merit.11 Conformably, the RTC allowed PDB to present its
evidence ex parte.12 On May 31, 2004, the RTC rendered
a The trial court did not err in confirming and ratifying the
Decision13 in favor of PDB, the dispositive portion of which
reads:
WHEREFORE, the foregoing considered, judgment is
hereby rendered in favor of the plaintiff Planters
Development Bank and against defendant Julie
Chandumal as follows, to wit:
1. Declaring the notarial rescission of the Contract to Sell
dated 03 January 1990 made by the plaintiff per the
Notice of Delinquency and Rescission of Contract with
Demand to Vacate dated 14 July 1998 as judicially
confirmed and ratified;
2. Requiring the plaintiff to deposit in the name of the
defendant the amount of ₱ 10,000.00 representing the
cash surrender value for the subject property with the
Land Bank of the Philippines, Las Pi[ñ]as City Branch in
satisfaction of the provisions of R.A. No. 6552; and,
3. Ordering the defendant to pay the plaintiff the amount
of ₱ 50,000.00 as and by way of attorney’s fees, including
the costs of suit.
SO ORDERED.14
From the foregoing judgment, Chandumal appealed to the
CA.
On July 27, 2010, the CA, without ruling on the propriety
of the judicial confirmation of the notarial rescission,
rendered the assailed decision nullifying the RTC decision
due to invalid and ineffective substituted service of
summons. The dispositive portion of the CA decision
provides:
WHEREFORE, premises considered, the decision of
Branch 255 of the Regional Trial Court of Las Piñas City,
dated May 31, 2004, in Civil Case No. LP-99-0137 is
hereby NULLIFIED and VACATED.
SO ORDERED.15
PDB filed a motion for reconsideration but it was denied
by the CA in its Resolution dated February 16, 2011.
Hence, this petition based on the following assignment of
errors:
I summons or through voluntary appearance in court and
The Honorable Court of Appeals erred in reversing the
decision of the trial court on the ground of improper
service of summons;
II
The decision of the trial court is valid as it duly acquired
jurisdiction over the person of respondent Chandumal
through voluntary appearance; and
III
notarial rescission of the subject contract to sell.16
PDB contends that the RTC properly acquired jurisdiction
over the person of Chandumal.1âwphi1 According to
PDB, there was proper service of summons since the
sheriff complied with the proper procedure governing
substituted service of summons as laid down in Section 7,
Rule 14 of the Rules of Court. PDB alleges that it is clear
from the sheriff’s return that there were several attempts
on at least three (3) different dates to effect personal
service within a reasonable period of nearly a month,
before he caused substituted service of summons. The
sheriff likewise stated the reason for his failure to effect
personal service and that on his fourth attempt, he
effected the service of summons through Chandumal’s
mother who is unarguably, a person of legal age and with
sufficient discretion. PDB also argues that Chandumal
voluntarily submitted herself to the jurisdiction of the court
when she filed an Urgent Motion to Set Aside Order of
Default and to Admit Attached Answer.
For her part, Chandumal asserts that she never received
a copy of the summons or was ever notified of it and she
only came to know of the case sometime in July or August
2000, but she was already in the United States of America
by that time, and that the CA correctly ruled that there was
no valid service of summons; hence, the RTC never
acquired jurisdiction over her person.
Issues
1. Whether there was a valid substituted service of
summons;
2. Whether Chandumal voluntarily submitted to the
jurisdiction of the trial court; and
3. Whether there was proper rescission by notarial act of
the contract to sell.
Our Ruling
The fundamental rule is that jurisdiction over a defendant
in a civil case is acquired either through service of
submission to its authority. If a defendant has not been
properly summoned, the court acquires no jurisdiction
over its person, and a judgment rendered against it is null
and void.17
Where the action is in personam18 and the defendant is in
the Philippines, service of summons may be made
through personal service, that is, summons shall be
served by handing to the defendant in person a copy
thereof, or if he refuses to receive and sign for it, by
tendering it to him.19 If the defendant cannot be personally
served with summons within a reasonable time, it is then
that substituted service may be made.20 Personal service
of summons should and always be the first option, and it
is only when the said summons cannot be served within a
reasonable time can the process server resort to
substituted service.21
No valid substituted service of
summons
In this case, the sheriff resorted to substituted service of
summons due to his failure to serve it personally. In
Manotoc v. Court of Appeals,22 the Court detailed the
requisites for a valid substituted service of summons,
summed up as follows: (1) impossibility of prompt
personal service – the party relying on substituted service
or the sheriff must show that the defendant cannot be
served promptly or there is impossibility of prompt service;
(2) specific details in the return – the sheriff must describe
in the Return of Summons the facts and circumstances
surrounding the attempted personal service; (3) a person
of suitable age and discretion – the sheriff must determine
if the person found in the alleged dwelling or residence of
defendant is of legal age, what the recipient’s relationship
with the defendant is, and whether said person
comprehends the significance of the receipt of the
summons and his duty to immediately deliver it to the
defendant or at least notify the defendant of said receipt of
summons, which matters must be clearly and specifically
described in the Return of Summons; and (4) a competent
person in charge, who must have sufficient knowledge to
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Sales – Chapter 3-12 Cases
understand the obligation of the defendant in the
summons, its importance, and the prejudicial effects
arising from inaction on the summons.23 These were
reiterated and applied in Pascual v. Pascual,24 where the
substituted service of summon made was invalidated due
to the sheriff’s failure to specify in the return the necessary
details of the failed attempts to effect personal service
which would justify resort to substituted service of
summons.
In applying the foregoing requisites in the instant case, the
CA correctly ruled that the sheriff’s return failed to justify a
resort to substituted service of summons. According to the
CA, the Return of Summons does not specifically show or
indicate in detail the actual exertion of efforts or any
positive step taken by the officer or process server in
attempting to serve the summons personally to the
defendant. The return merely states the alleged
whereabouts of the defendant without indicating that such
information was verified from a person who had
knowledge thereof.25Indeed, the sheriff’s return shows a
mere perfunctory attempt to cause personal service of the
summons on Chandumal. There was no indication if he
even asked Chandumal’s mother as to her specific
whereabouts except that she was "out of the house",
where she can be reached or whether he even tried to
await her return. The "efforts" exerted by the sheriff clearly
do not suffice to justify substituted service and his failure
to comply with the requisites renders such service
ineffective.26
Respondent voluntarily submitted
to the jurisdiction of the trial court
Despite that there was no valid substituted service of
summons, the Court, nevertheless, finds that Chandumal
voluntarily submitted to the jurisdiction of the trial court.
Section 20, Rule 14 of the Rules of Court states:
Sec. 20. Voluntary appearance. – The defendant’s
voluntary appearance in the action shall be equivalent to
service of summons. The inclusion in a motion to dismiss
of other grounds aside from lack of jurisdiction over the
person of the defendant shall not be deemed a voluntary
appearance.
When Chandumal filed an Urgent Motion to Set Aside
Order of Default and to Admit Attached Answer, she
effectively submitted her person to the jurisdiction of the
trial court as the filing of a pleading where one seeks an
affirmative relief is equivalent to service of summons and
vests the trial court with jurisdiction over the defendant’s
person. Thus, it was ruled that the filing of motions to
admit answer, for additional time to file answer, for
reconsideration of a default judgment, and to lift order of
default with motion for reconsideration is considered
voluntary submission to the trial court’s jurisdiction.27 The
Court notes that aside from the allegation that she did not
receive any summons, Chandumal’s motion to set aside
order of default and to admit attached answer failed to
positively assert the trial court’s lack of jurisdiction. In fact,
what was set forth therein was the substantial claim that
PDB failed to comply with the requirements of R.A. No.
6552 on payment of cash surrender value,28 which already
delves into the merits of PDB’s cause of action. In
addition, Chandumal even appealed the RTC decision to
the CA, an act which demonstrates her recognition of the
trial court’s jurisdiction to render said judgment.
Given Chandumal’s voluntary submission to the
jurisdiction of the trial court, the RTC, Las Piñas City,
Branch 255, had all authority to render its Decision dated
May 31, 2004. The CA, therefore, erred in nullifying said
RTC decision and dispensing with the resolution of the
substantial issue raised herein, i.e., validity of the notarial
rescission. Instead, however, of remanding this case to
the CA, the Court will resolve the same considering that
the records of the case are already before us and in order
to avoid any further delay.29
There is no valid rescission of the
contract to sell by notarial act
pursuant to Section 3(b), R.A. No. 6552
That the RTC had jurisdiction to render the decision does
not necessarily mean, however, that its ruling on the
validity of the notarial rescission is in accord with the
established facts of the case, the relevant law and
jurisprudence.1âwphi1
PDB claims that it has validly rescinded the contract by
notarial act as provided under R.A. No. 6552. Basically,
PDB instituted Civil Case No. LP-99-0137 in order to
secure judicial confirmation of the rescission and to
recover possession of the property subject of the contract.
In Leaño v. Court of Appeals,30 it was held that:
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. The law also provides for the
rights of the buyer in case of cancellation. Thus, Sec. 3 (b)
of the law provides that:
"If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments
made and, after five years of installments, an additional
five percent every year but not to exceed ninety percent of
the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to
the buyer."31 (Citation omitted and emphasis ours)
R.A. No. 6552 recognizes the right of the seller to cancel
the contract but any such cancellation must be done in
conformity with the requirements therein prescribed. In
addition to the notarial act of rescission, the seller is
required to refund to the buyer the cash surrender value of
the payments on the property. The actual cancellation of
the contract can only be deemed to take place upon the
expiry of a thirty (30)-day period following the receipt by
the buyer of the notice of cancellation or demand for
rescission by a notarial act and the full payment of the
cash surrender value.32
In this case, it is an admitted fact that PDB failed to give
Chandumal the full payment of the cash surrender value.
In its complaint,33 PDB admitted that it tried to deliver the
cash surrender value of the subject property as required
under R.A. No. 6552 but Chandumal was "unavailable" for
such purpose. Thus, it prayed in its complaint that it be
ordered to "deposit with a banking institution in the
Philippines, for the account of Defendants (sic), the
amount of Ten Thousand Pesos (₱ 10,000.00), Philippine
Currency, representing the cash surrender value of the
subject property; x x x."34 The allegation that Chandumal
made herself unavailable for payment is not an excuse as
the twin requirements for a valid and effective cancellation
under the law, i.e., notice of cancellation or demand for
rescission by a notarial act and the full payment of the
cash surrender value, is mandatory.35 Consequently, there
was no valid rescission of the contract to sell by notarial
act undertaken by PDB and the RTC should not have
given judicial confirmation over the same.
WHEREFORE, the petition is DENIED. The Decision
dated July 27, 2010 of the Court of Appeals, as well as its
Resolution dated February 16, 2011, denying the Motion
for Reconsideration in CA-G.R. CV No. 82861
216
Sales – Chapter 3-12 Cases
are AFFIRMED in so far as there was no valid service of
summons. Further, the Court DECLARES that there was
no valid rescission of contract pursuant to R.A. No. 6552.
Accordingly, the Decision dated May 31, 2004 of the
Regional Trial Court, Las Piñas City, Branch 255 in Civil
Case No. LP-99-0 137 is REVERSED and SET ASIDE,
and is therefore, DISMISSED for lack of merit.
SO ORDERED.

G.R. No. 189145 December 4, 2013

OPTIMUM DEVELOPMENT BANK, Petitioner,
vs.
SPOUSES BENIGNO V. JOVELLANOS and LOURDES
R. JOVELLANOS, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari 1 are the
Decision2 dated May 29, 2009 and Resolution 3 dated
August 10, 2009 of the Court of Appeals (CA) in CA-G.R.
SP No. 104487 which reversed the Decision4 dated
217
Sales – Chapter 3-12 Cases
December 27, 2007 of the Regional Trial Court of
Caloocan City, Branch 128 (RTC) in Civil Case No. C-
21867 that, in turn, affirmed the Decision5 dated June 8,
2007 of the Metropolitan Trial Court, Branch 53 of that
same city (MeTC) in Civil Case No. 06-28830 ordering
respondents-spouses Benigno and Lourdes Jovellanos
(Sps. Jovellanos) to, inter alia, vacate the premises of the
property subject of this case.
The Facts
On April 26, 2005, Sps. Jovellanos entered into a Contract
to Sell6 with Palmera Homes, Inc. (Palmera Homes) for
the purchase of a residential house and lot situated in
Block 3, Lot 14, Villa Alegria Subdivision, Caloocan City
(subject property) for a total consideration of
₱1,015,000.00. Pursuant to the contract, Sps. Jovellanos
took possession of the subject property upon a down
payment of ₱91,500.00, undertaking to pay the remaining
balance of the contract price in equal monthly installments
of ₱13,107.00 for a period of 10 years starting June 12,
2005.7
On August 22, 2006, Palmera Homes assigned all its
rights, title and interest in the Contract to Sell in favor of
petitioner Optimum Development Bank (Optimum) through
a Deed of Assignment of even date.8
On April 10, 2006, Optimum issued a Notice of
Delinquency and Cancellation of Contract to Sell 9 for Sps.
Jovellanos’s failure to pay their monthly installments
despite several written and verbal notices.10
In a final Demand Letter dated May 25, 2006, 11 Optimum
required Sps. Jovellanos to vacate and deliver possession
of the subject property within seven (7) days which,
however, remained unheeded. Hence, Optimum filed, on
November 3, 2006, a complaint for unlawful
detainer12 before the MeTC, docketed as Civil Case No.
06-28830. Despite having been served with summons,
together with a copy of the complaint,13 Sps. Jovellanos
failed to file their answer within the prescribed
reglementary period, thus prompting Optimum to move for
the rendition of judgment.14
Thereafter, Sps. Jovellanos filed their opposition with
motion to admit answer, questioning the jurisdiction of the
court, among others. Further, they filed a Motion to
Reopen and Set the Case for Preliminary Conference,
which the MeTC denied.
The MeTC Ruling
In a Decision15 dated June 8, 2007, the MeTC ordered
Sps. Jovellanos to vacate the subject property and pay
Optimum reasonable compensation in the amount of
₱5,000.00 for its use and occupation until possession has
been surrendered. It held that Sps. Jovellanos’s
possession of the said property was by virtue of a
Contract to Sell which had already been cancelled for
non-payment of the stipulated monthly installment
payments. As such, their "rights of possession over the
subject property necessarily terminated or expired and
hence, their continued possession thereof constitute[d]
unlawful detainer."16
Dissatisfied, Sps. Jovellanos appealed to the RTC,
claiming that Optimum counsel made them believe that a
compromise agreement was being prepared, thus their
decision not to engage the services of counsel and their
concomitant failure to file an answer.17
They also assailed the jurisdiction of the MeTC, claiming
that the case did not merely involve the issue of physical
possession but rather, questions arising from their rights
under a contract to sell which is a matter that is incapable
of pecuniary estimation and, therefore, within the
jurisdiction of the RTC.18
The RTC Ruling
In a Decision19 dated December 27, 2007, the RTC
affirmed the MeTC’s judgment, holding that the latter did
not err in refusing to admit Sps. Jovellanos’ s belatedly
filed answer considering the mandatory period for its filing.
It also affirmed the MeTC’s finding that the action does not
involve the rights of the respective parties under the
contract but merely the recovery of possession by
Optimum of the subject property after the spouses’
default.20
Aggrieved, Sps. Jovellanos moved for reconsideration
which was, however, denied in a Resolution21 dated June
27, 2008. Hence, the petition before the CA reiterating
that the RTC erred in affirming the decision of the MeTC
with respect to:
(a) the non-admission of their answer to the complaint;
and
(b) the jurisdiction of the MeTC over the complaint for
unlawful detainer.22
The CA Ruling
In an Amended Decision23 dated May 29, 2009, the CA
reversed and set aside the RTC’s decision, ruling to
dismiss the complaint for lack of jurisdiction. It found that
the controversy does not only involve the issue of
possession but also the validity of the cancellation of the
Contract to Sell and the determination of the rights of the
parties thereunder as well as the governing law, among
others, Republic Act No. (RA) 6552.24
Accordingly, it concluded that the subject matter is one
which is incapable of pecuniary estimation and thus,
within the jurisdiction of the RTC.25
Undaunted, Optimum moved for reconsideration which
was denied in a Resolution26 dated August 10, 2009.
Hence, the instant petition, submitting that the case is one
for unlawful detainer, which falls within the exclusive
original jurisdiction of the municipal trial courts, and not a
case incapable of pecuniary estimation cognizable solely
by the regional trial courts.
The Court’s Ruling
The petition is meritorious. What is determinative of the
nature of the action and the court with jurisdiction over it
are the allegations in the complaint and the character of
the relief sought, not the defenses set up in an answer.27
A complaint sufficiently alleges a cause of action for
unlawful detainer if it recites that:
(a) initially, possession of the property by the defendant
was by contract with or by tolerance of the plaintiff;
(b) eventually, such possession became illegal upon
notice by plaintiff to defendant of the termination of the
latter's right of possession;
(c) thereafter, defendant remained in possession of the
property and deprived plaintiff of the enjoyment thereof;
and
(d) within one year from the last demand on defendant to
vacate the property, plaintiff instituted the complaint for
ejectment.28
Corollarily, the only issue to be resolved in an unlawful
detainer case is physical or material possession of the
property involved, independent of any claim of ownership
by any of the parties involved.29
In its complaint, Optimum alleged that it was by virtue of
the April 26, 2005 Contract to Sell that Sps. Jovellanos
were allowed to take possession of the subject property.
However, since the latter failed to pay the stipulated
monthly installments, notwithstanding several written and
verbal notices made upon them, it cancelled the said
contract as per the Notice of Delinquency and
Cancellation dated April 10, 2006. When Sps. Jovellanos
refused to vacate the subject property despite repeated
demands, Optimum instituted the present action for
unlawful detainer on November 3, 2006, or within one
year from the final demand made on May 25, 2006.
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Sales – Chapter 3-12 Cases
While the RTC upheld the MeTC’s ruling in favor of
Optimum, the CA, on the other hand, declared that the
MeTC had no jurisdiction over the complaint for unlawful
detainer, reasoning that the case involves a matter which
is incapable of pecuniary estimation – i.e., the validity of
the cancellation of the Contract to Sell and the
determination of the rights of the parties under the
contract and law – and hence, within the jurisdiction of the
RTC. The Court disagrees. Metropolitan Trial Courts are
conditionally vested with authority to resolve the question
of ownership raised as an incident in an ejectment case
where the determination is essential to a complete
adjudication of the issue of possession.30 Concomitant to
the ejectment court’s authority to look into the claim of
ownership for purposes of resolving the issue of
possession is its authority to interpret the contract or
agreement upon which the claim is premised. Thus, in the
case of Oronce v. CA,31 wherein the litigants’ opposing
claims for possession was hinged on whether their written
agreement reflected the intention to enter into a sale or
merely an equitable mortgage, the Court affirmed the
propriety of the ejectment court’s examination of the terms
of the agreement in question by holding that, "because
metropolitan trial courts are authorized to look into the
ownership of the property in controversy in ejectment
cases, it behooved MTC Branch 41 to examine the bases
for petitioners’ claim of ownership that entailed
interpretation of the Deed of Sale with Assumption of
Mortgage."32 Also, in Union Bank of the Philippines v.
Maunlad Homes, Inc.33 (Union Bank), citing Sps. Refugia
v. CA,34 the Court declared that MeTCs have authority to
interpret contracts in unlawful detainer cases, viz.: 35
The authority granted to the MeTC to preliminarily resolve
the issue of ownership to determine the issue of
possession ultimately allows it to interpret and enforce the
contract or agreement between the plaintiff and the
defendant. To deny the MeTC jurisdiction over a
complaint merely because the issue of possession
requires the interpretation of a contract will effectively rule
out unlawful detainer as a remedy. As stated, in an action
for unlawful detainer, the defendant’s right to possess the
property may be by virtue of a contract, express or
implied;
corollarily, the termination of the defendant’s right to
possess would be governed by the terms of the same
contract.
Interpretation of the contract between the plaintiff and the
defendant is inevitable because it is the contract that
initially granted the defendant the right to possess the
property; it is this same contract that the plaintiff
subsequently claims was violated or extinguished,
terminating the defendant’s right to possess. We ruled in
Sps. Refugia v. CA that – where the resolution of the
issue of possession hinges on a determination of the
validity and interpretation of the document of title or any
other contract on which the claim of possession is
premised, the inferior court may likewise pass upon these
issues.
The MeTC’s ruling on the rights of the parties based on its
interpretation of their contract is, of course, not conclusive,
but is merely provisional and is binding only with respect
to the issue of possession. (Emphases supplied; citations
omitted)
In the case at bar, the unlawful detainer suit filed by
Optimum against Sps. Jovellanos for illegally withholding
possession of the subject property is similarly premised
upon the cancellation or termination of the Contract to Sell
between them. Indeed, it was well within the jurisdiction of
the MeTC to consider the terms of the parties’ agreement
in order to ultimately determine the factual bases of
Optimum’s possessory claims over the subject property.
Proceeding accordingly, the MeTC held that Sps.
Jovellanos’s non-payment of the installments due had
rendered the Contract to Sell without force and effect, thus
depriving the latter of their right to possess the property
subject of said contract.36 The foregoing disposition aptly
squares with existing jurisprudence. As the Court similarly
held in the Union Bank case, the seller’s cancellation of
the contract to sell necessarily extinguished the buyer’s
right of possession over the property that was the subject
of the terminated agreement.37
Verily, in a contract to sell, the prospective seller binds
himself to sell the property subject of the agreement
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon which is the full payment of the
purchase price but reserving to himself the ownership of
the subject property despite delivery thereof to the
prospective buyer.38
The full payment of the purchase price in a contract to sell
is a suspensive condition, the non-fulfillment of which
prevents the prospective seller’s obligation to convey title
from becoming effective,39 as in this case. Further, it is
significant to note that given that the Contract to Sell in
this case is one which has for its object real property to be
sold on an installment basis, the said contract is especially
governed by – and thus, must be examined under the
provisions of – RA 6552, or the "Realty Installment Buyer
Protection Act", which provides for the rights of the buyer
in case of his default in the payment of succeeding
installments. Breaking down the provisions of the law, the
Court, in the case of Rillo v. CA,40 explained the
mechanics of cancellation under RA 6552 which are
based mainly on the amount of installments already paid
by the buyer under the subject contract, to wit:41
Given the nature of the contract of the parties, the
respondent court correctly applied Republic Act No. 6552.
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, viz.:
(1) Where he has paid at least two years of installments,
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer
only once in every five years of the life of the contract and
its extensions, if any. (b) If the contract is cancelled, the
seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of
the total payments made and, after five years of
installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made:
Provided, That the actual cancellation of the contract shall
take place after cancellation or the demand for rescission
of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall
be included in the computation of the total number of
installments made.
(2) Where he has paid less than two years in installments,
Sec. 4. x x x the seller shall give the buyer a grace period
of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due
at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of
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Sales – Chapter 3-12 Cases
the notice of cancellation or the demand for rescission of are SET ASIDE. The Decision dated June 8, 2007 of
the contract by a notarial act. (Emphasis and underscoring Metropolitan Trial Court, Branch 53, Caloocan City in Civil
supplied) Case No. 06-28830 is hereby REINSTATED.
Pertinently, since Sps. Jovellanos failed to pay their SO ORDERED.
stipulated monthly installments as found by the MeTC, the
Court examines Optimum’s compliance with Section 4 of
RA 6552, as above-quoted and highlighted, which is the
provision applicable to buyers who have paid less than
two (2) years-worth of installments. Essentially, the said
provision provides for three (3) requisites before the seller
may actually cancel the subject contract: first, the seller
shall give the buyer a 60-day grace period to be
reckoned from the date the installment became
due; second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if
the buyer fails to pay the installments due at the expiration
of the said grace period; and third, the seller may actually
cancel the contract only after thirty (30) days from the
buyer’s receipt of the said notice of cancellation/demand
for rescission by notarial act. In the present case, the 60-
day grace period automatically operated42 in favor of the
buyers, Sps. Jovellanos, and took effect from the time that
the maturity dates of the installment payments lapsed.
With the said grace period having expired bereft of any
installment payment on the part of Sps.
Jovellanos,43 Optimum then issued a notarized Notice of
Delinquency and Cancellation of Contract on April 10,
2006. Finally, in proceeding with the actual cancellation of
the contract to sell, Optimum gave Sps. Jovellanos an
additional thirty (30) days within which to settle their
arrears and reinstate the contract, or sell or assign their
rights to another.44
It was only after the expiration of the thirty day (30) period
did Optimum treat the contract to sell as effectively
cancelled – making as it did a final demand upon Sps.
Jovellanos to vacate the subject property only on May 25,
2006. Thus, based on the foregoing, the Court finds that
there was a valid and effective cancellation of the Contract
to Sell in accordance with Section 4 of RA 6552 and since
Sps. Jovellanos had already lost their right to retain
possession of the subject property as a consequence of
such cancellation, their refusal to vacate and turn over
possession to Optimum makes out a valid case for
unlawful detainer as properly adjudged by the MeTC.
WHEREFORE, the petition is GRANTED. The Decision
dated May 29, 2009 and Resolution dated August 10,
2009 of the Court of Appeals in CA-G.R. SP No. 104487
220
Sales – Chapter 3-12 Cases
vs.
CITIHOMES BUILDER AND DEVELOPMENT,
INC., Respondent.
DECISION
MENDOZA, J.:
In this petition for review on certiorari1 under Rule 45 of
the Rules of Court, Spouses Noel and Michelle Noynay
(Spouses Noynay) assail the July 16, 2012 Decision 2 of
the Court of Appeals (CA) and October 15, 2012
Resolution,3 which affirmed with modification the
September 17, 20 I 0 Decision4 of the Regional Trial
CoUii, Branch 21, Malolos, Bulacan ( RTCJ. Earlier, the
RTC reversed the March 26, 2010 Decision 5 of the
Municipal Trial Court for Cities, San Jose Del Monte,
Bulacan (MTCC). which dismissed the complaint6 for
unlawful detainer filed by Citihomes Builder and
Development, Inc. (Citihomes) against Spouses Noynay
for lack of cause of action.
The Facts:
On December 29, 2004, Citihomes and Spouses Noynay
executed a contract to sell7 covering the sale of a house
and lot located in San Jose Del Monte, Bulacan, and
covered by Transfer Certificate of Title (TCT) No. T-
43469. Under the terms of the contract, the price of the
property was fixed at ₱915,895.00, with a downpayment
of ₱183,179.00, and the remaining balance to be paid in
120 equal monthly installments with an annual interest
rate of 21% commencing on February 8, 2005 and every
8th day of the month thereafter.
Subsequently, on May 12, 2005, Citihomes executed the
Deed of Assignment of Claims and
Accounts8(Assignment)in favor of United Coconut
Planters Bank (UCPB) on May 12, 2005. Under the said
agreement, UCPB purchased from Citihomes various
accounts, including the account of Spouses Noynay, for a
consideration of ₱100,000,000.00. In turn, Citihomes
assigned its rights, titles, interests, and participation in
various contracts to sell with its buyers to UCPB.
In February of 2007, Spouses Noynay allegedly started to
default in their payments. Months later, Citihomes decided
to declare Spouses Noynay delinquent and to cancel the
contract considering that nine months of agreed
amortizations were left unpaid. On December 8, 2007, the
notarized Notice of Delinquency and Cancellation of the
G.R. No. 204160 September 22, 2014 Contract To Sell,9 dated November 21, 2007, was
SPOUSES MICHELLE M. NOYNAY and NOEL S. received by Spouses Noynay. They were given 30 days
NOYNAY, Petitioners,
within which to pay the arrears and failure to do so would
authorize Citihomes to consider the contract as cancelled.
On June 15, 2009, Citihomes sent its final demand letter
asking Spouses Noynay to vacate the premises due to
their continued failure to pay the arrears. Spouses Noynay
did not heed the demand, forcing Citihomes to file the
complaint for unlawful detainerbefore the MTCC on July
29, 2009.
In the said complaint, Citihomes alleged that as per
Statement of Account as of March 18, 2009,
SpousesNoynay had a total arrears in the amount of
₱272,477.00, inclusive of penalties. Thus, Citihomes
prayed that Spouses Noynay be ordered to vacate the
subject property and pay the amount of ₱8,715.97 a
month as a reasonable compensation for the use and
occupancy to commence from January 8, 2007 until
Spouses Noynay vacate the same.
In its March 26, 2010 Decision,10 the MTCC dismissed the
complaint. It considered the annotation in the certificate of
title, which was dated prior to the filing of the complaint,
which showed that Citihomes had executed the
Assignment favor of UCPB, as having the legal effect of
divesting Citihomes of its interest and right over the
subject property. As far as the MTCC was concerned,
Citihomes did not have a cause of action against Spouses
Noynay.
The RTC, however, reversedthe ruling of the MTCC. In its
September 17, 2010 Decision,11 the RTC stated that the
MTCC erred in interpreting the deed of assignment as
having the effect of relinquishing all of Citihomes’ rights
over the subject property. The RTC explained that the
assignment was limited only to the installment accounts
receivables due from Spouses Noynay and did not include
the transfer of title or ownership over the property. It
pointed out that Citihomes remained as the registered
owner of the subject property, and so it had the right to
ask for the eviction of Spouses Noynay. As to the issue of
who had the better right of possession, the RTC ordered
that the records be remanded to the MTCC for the proper
determination.
Spouses Noynay then went to the CA. On July 16, 2012,
the CA affirmed the conclusion of the RTC that Citihomes
still had the right and interest over the property in its
capacity as the registered owner. Moreover, the issue on
who, between the parties had a better possessory right
over the property, was resolved infavor of Citihomes.
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Sales – Chapter 3-12 Cases
In disposing the issue of possession, the CA primarily
recognized the relevance of Republic Act (R.A.)No. 6552,
otherwise known as the Realty Installment Buyer Act
(Maceda Law), in determining the limits of the right to
possess of Spouses Noynay in their capacity as defaulting
buyers in a realty installment scheme. Under the said law,
the cancellation of a contract would only follow if the
requirements set forth therein had been complied with,
particularly the giving of a "notice of delinquency and
cancellation of the contract" to the defaulting party and,in
some cases, the payment to the buyer of the cash
surrender value if at least two years of installments had
been paid. The CA noted that Spouses Noynay failed to
complete the minimum two (2) years of installment,
despite the allegation that three (3) years of amortizations
had already been paid. As an effect, the CA pronounced
that the termination of the contract was validly effected by
the expiration of the 30-day period from the time the
notice of cancellation was received by Spouses Noynay.
From thatmoment, the CA treated Spouses Noynay to
have lost the right to possess the property. In addition, the
CA made Spouses Noynay liable for the payment of
monthly rentals from the time their possession became
illegal.
Spouses Noynay moved for reconsideration, but the CA
denied their motion.
Hence, this petition.
ISSUE
The lone issue presented for resolution is whether
Citihomes has a cause of action for ejectment against
Spouses Noynay. In effect, Spouses Noynay would have
this Court determine whether Citihomes may rightfully
evict them.
Position of Spouses Noynay
Spouses Noynay insist that by virtue of the assignment of
rights which Citihomes executed in favor of UCPB,
Citihomes did not have a cause of action against them
because it no longerhad an interest over the subject
property. Contrary to the findings of the CA, the monthly
installments amounting to three years were already paid,
by reason of which, Section 3(b) of the Maceda Law
should apply. This means that for the cancellation to be
effective, the cash surrender value should have been paid
first to them by Citihomes; and that because no payment
was made, it follows that no valid cancellation could also
be effected. Thisallegedly strengthened their right to the
possession of the property even to this day.
Position of Citihomes
Citihomes counters that it has the right to ask for the
eviction of the petitioners in its capacity as the registered
owner despite the assignment of rights it made to UCPB.
It believes that because Spouses Noynay failed to pay at
least two (2) years of installments, the cancellation
became effective upon the expiration of the 30-day
periodfollowing the receipt of the notice of delinquency
and cancellation notice and without the need for the
payment of the cash surrender value under Section 3(b) of
the Maceda Law.
Ruling of the Court
Cause of action has been defined as an act or omission
by which a party violates a right of another.12 It requires
the existence of a legal right on the part of the plaintiff, a
correlative obligation of the defendant to respect such
right, and an act or omission of such defendant in violation
of the plaintiff’s rights.13 A complaint should not be
dismissed for insufficiency of cause of action if it appears
clearly from the complaint and its attachments that the
plaintiff is entitled to relief.14 The complaint, however, may
be dismissed for lack of cause of action laterafter
questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented.15
Relative thereto, a plaintiff in an unlawful detainer case
which seeks recovery of the property must prove one’s
legal right to evict the defendant, a correlative obligation
on the part of such defendant to respect the plaintiff’s right
to evict, and the defendant’s act or omission in the form of
refusal to vacate upon demand when his possession
ultimately becomes illegal.
At first glance, the main thrust of the discussion in the
lower courts is the issue on whether Citihomes had
suchright to evict Spouses Noynay. At its core is the ruling
of the MTCC thatthe right to demand the eviction of
Spouses Noynay was already transferred to UCPB from
the moment the Assignment was executed by Citihomes,
which was done prior to the institution of the unlawful
detainer case. Thus, based on the evidence presented
during the trial, the MTCC held that Citihomes did not
have a cause of action against Spouses Noynay.The RTC
held otherwise justifying that Citihomes may still be the
right party to evict Spouses Noynay in its capacity as the
registered owner of the property. The CA affirmed the
RTC on this point.
The Court, however, agrees with the MTCC.
The determination of whether Citihomes has a right to ask
for the eviction of Spouses Noynay entirely depends on
the review of the Assignment of Claims and Accounts it
executed in favor of UCPB. If it turns out that what was
assigned merely covered the collectible amounts or
receivables due from Spouses Noynay, Citihomes would
necessarily have the right to demand the latter’s eviction
asonly an aspect of the contract to sell passed on to
UCPB. Simply put, because an assignment covered only
credit dues, the relation between Citihomes as the seller
and Spouses Noynay as the buyer under their Contract to
Sell remained. If on the other hand, it appears that the
assignment covered all of Citihomes’ rights, obligations
and benefits in favor ofUCPB, the conclusion would
certainly be different.
Under the provisions of the Assignment, it was stipulated
that:
NOW, THEREFORE, for and in consideration of the
foregoing premises, the ASSIGNOR hereby agrees as
follows:
1. The ASSIGNOR hereby assigns, transfers and sets
over unto the ASSIGNEE all its rights, titles and interest in
and to, excluding its obligations under the Contract/s to
Sellenumerated and described in the List of Assigned
Receivables which is hereto attached and marked as
Annex "A" hereof, including any and all sum of money due
and payable to the ASSIGNOR, the properties pertaining
thereto,all replacements, substitution, increases and
accretion thereof and thereto which the ASSIGNOR has
executed with the Buyers, as defined in the Agreement,
and all moneysdue, or which may grow upon the sales
therein set forth.
2. For purposes of this ASSIGNMENT, the ASSIGNOR
hereby delivers to the ASSIGNEE, which hereby
acknowledges receipt of the following documents
evidencing the ASSIGNOR’s title, right, interest,
participation and benefit in the assigned Installment
Account Receivables listed in Annex "A" and made as
integral part hereof.
a) Original Contracts to Sell
b) Transfer Certificates of Title
3. The ASSIGNOR, hereby irrevocably appoints the
ASSIGNEE to be its true and lawful agent or
representativefor it and in its name and stead, but for such
ASSIGNEE’s own benefit: (1) to sell, assign, transfer, set
over, pledge, compromise or discharge the whole, or any
part, of said assignment; (2) to do all acts and things
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Sales – Chapter 3-12 Cases
necessary, or proper, for any such purpose; (3) to ask,
collect, receive and sue for the moneys due, or which may
grow due, upon the said Assignment;and (4) to substitute
one person, or more, with like powers; hereby ratifying
and confirming all that said agent or representative, or his
substitute, or substitutes, shall lawfully do, by virtue
hereof.16
[Emphases supplied]
Clearly, the conclusion of the MTCC had factual and legal
bases. Evident from the tenor of the agreement was the
intent on the part of Citihomes, as assignor, to assign all
of its rights and benefits in favor of UCPB. Specifically,
what Citihomes did was an assignment or transfer of all
contractual rights arising from various contracts to sell,
including the subject contract to sell, with all the rights,
obligations and benefits appurtenant thereto in favor of
UCPB for a consideration of ₱100,000,000.00. Indeed,
the intent was more than just an assignment of credit. This
intent to assign all rights under the contract to sell was
even fortified by the delivery of documents such as the
pertinent contracts to sell and the TCTs. Had it been the
intent of Citihomes to assign merely its interest in the
receivables due from Spouses Noynay, the tenor of the
deed of assignment would have been couched in very
specific terms.
Included in those matters which were handed over to
UCPB were the provisions outlined in Section 6 of the
Contract to Sell. In the said provision, Citihomes, as the
seller has been given the right to cancel the contract to
sell in cases of continuing default by Spouses Noynay, to
wit: SECTION 6. If for any reason, whatsoever, the
BUYER fails to pay three (3) consecutive monthly
installments, the provision of RA No. 6552 shall apply.
Where the BUYER has paid less than two (2) years of
installments and defaults in the payment of three (3)
consecutive monthly installment, he shall be given a grace
period of not less than sixty (60) days from the date the
installment payments became due and payable within
which to pay the installments and/or make payments in
arrears together with the installments corresponding to the
months of the grace period. In the event the BUYER
continues to default in the payment of the installments
within or at the expiration of the grace period herein
provided, the SELLER shall have the right to cancel this
agreement thirty (30) days from the BUYER’s receipt of
the notice of cancellation or demand for rescission by a
notarial act. Thereafter, the SELLER may dispose of the
residential house and lot subject of this agreement in favor
of other persons as if this agreement had never been
entered into.
WHERE the BUYER has paid atleast two (2) years of
installments and he defaults in the payment of three (3)
consecutive monthly installments, the SELLER shall be
entitled:
a. To pay, without additional interest, the unpaid
installment due within the total grace period earned by the
BUYER which is fixed at the rate of one (1) month grace
period for every one (1) year of installment payment
made; Provided, that this right shall be exercised by the
BUYER only once for every five (5) years of the life of this
agreement.
b. If this agreement is cancelled, the SELLER shall refund
to the BUYER the cash surrender value of the payments
equivalent to fifty percent thereof and, after five years of
installments, an additional five percent (5%) for every year
but not to exceed ninety (90%) of the total payments
made; Provided, that the actual cancellation of this
agreement shall take place after thirty (30) days from
receipt by the BUYER of the notice of cancellation or
demand for rescission by a notarial act and upon full
payment of the cash surrender value to the BUYER.
xxx xxx xxx
The BUYER, at the termination of the contract, shall
promptly surrender the said property to the SELLER, and
should the former fail to comply with the provision, on top
of the remedy provided for above, the BUYER hereby
expressly appoints the SELLER as their duly authorized
attorney-in-fact with power and authority to open, enter
and take full possession of the property in the presence of
any peace officer and to take an inventory of the
equipment, furniture, merchandise and effect. In case the
BUYER fails to claim the said equipment, furniture,
merchandise and effects and/or liquidate their liabilities
with the SELLER within thirty (30) days from the date of
transfer of possession of the property to the latter, the
SELLER is hereby given the right to dispose of said
property in a private or public sale and to apply the
proceeds to whatever expenses it may have incurred in
line with the warehousing of the equipment, furniture,
merchandise and effects.17
The exercise of such right to cancel necessarily
determines the existence of the right to evict Spouses
Noynay. The existence of the right to evict is the first
constitutive element ofthe cause of action in this unlawful
detainer case. Considering,however, that the right to
cancel was already assigned prior to the commencement
of this controversy with the execution of the Assignment,
its legal consequences cannotbe avoided.
Well-established is the rule that the assignee is deemed
subrogated to the rights as well as to the obligations of the
seller/assignor. By virtue of the deed of assignment, the
assignee is deemed subrogated to the rights and
obligations of the assignor and is bound by exactly the
same conditions as those which bound the
assignor.18 What can be inferred from here is the effect on
the status of the assignor relative to the relations
established by a contract which has been subsequently
assigned; that is, the assignor becomes a complete
stranger to all the mattersthat have been conferred to the
assignee.
In this case, the execution of the Assignment in favor of
UCPB relegated Citihomes to the status of a mere
stranger to the jural relations established under the
contractto sell. With UCPB as the assignee, it is clear that
Citihomes has ceased tohave any right to cancel the
contract to sell with Spouses Noynay. Without this
right,which has been vested in UCPB, Citihomes
undoubtedly had no cause ofaction against Spouses
Noynay.
This is not to say that Citihomes lost all interest over the
property. To be clear, what were assigned covered only
the rights inthe Contract to Sell and not the property rights
over the house and lot, which remained registered under
Citihomes’ name. Considering, however, that the unlawful
detainer case involves mere physical or
materialpossession of the property and is independent of
any claim of ownership by any of the parties,19 the
invocation of ownership by Citihomes is immaterial in the
just determination of the case.
Granting that the MTCC erred in ruling that Citihomes had
no cause of action by reason of the Assignment it made in
favor of UCPB, the Court still upholds the right of the
Spouses Noynay to remain undisturbed in the possession
of the subject property. The reason is simple – Citihomes
failed to comply with the procedures for the proper
cancellation of the contract to sell as prescribed by
Maceda Law.
In Pagtalunan v. Manzano,20 the Court stressed the
importance of complying with the provisions of the
Maceda Law as to the cancellation of contracts to sell
involving realty installment schemes. There it was held
223
Sales – Chapter 3-12 Cases
that the cancellation of the contract by the seller must be
in accordance with Section 3 (b) of the Maceda Law,
which requires the notarial act of rescission and the refund
to the buyer of the full payment of the cash surrender
value of the payments made on the property. The actual
cancellation of the contract takes place after thirty (30)
days from receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by a notarial
act and upon fullpayment of the cash surrender value to
the buyer, to wit: (b) If the contract is cancelled, the seller
shall refund to the buyer the cash surrender value of the
payments on the propertyequivalent to fifty percent of the
total payments made and, after five years of installments,
an additional five percent every year but not to exceed
ninety percent of the total payments made: Provided, That
the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract
bya notarial act and upon full payment of the cash
surrender value to the buyer.
[Emphases supplied]
According to the lower courts, Spouses Noynay failed to
complete the two-year minimum period of paid
amortizations, thus, the cancellation of the contract to sell
no longer required the payment of the cash surrender
value. This conclusion rests on the allegation that the
amortization payments commenced only on May 31,
2005. If indeedit were true that the payments started only
on that date, Spouses Noynay would not have completed
the required two-year period to be entitled to the payment
of cash surrender value. Records, however, show
otherwise. The Contract to Sell, dated December 29,
2004, was very particularon the matter. It stipulated as
follows:
SECTION 1. NOW, THEREFORE, for and in
consideration of the sume of NINE HUNDRED FIFTEEN
THOUSAND EIGHT HUNDRED NINETY FIVE PESOS
ONLY, (915,895.00) Philippine Currency, inclusive of
miscellaneous charges hereunder set forth, and of the
foregoing premises, the SELLER hereby agrees to sell,
cede and convey to the BUYER, their heirs,
administrators, and successors-in-interest, the
aforedescribed residential house and lot or lot only under
the following terms and conditions:
a. The amount of ONE HUNDRED EIGHTY THREE
THOUSAND ONE HUNDRED SEVENTY NINE PESOS
ONLY (₱183,179.00), Philippine Currency, representing
full downpayment shall be paid upon signing of this
contract.
b. The balanceof the total purchase price in the amount of
SEVEN HUNDRED THIRTY TWO THOUSAND SEVEN
HUNDRED SIXTEEN PESOS ONLY, (₱732,716..00),
Philippine Currency shall be paid by the BUYER in 120
equal monthly installments in the amount of ₱14,649.31
per month with an interest of 21% per annum to
commenceon 02.08.05 and every 8th day of the month
thereafter.21
Citihomes claimed that the period ofthe payment of the
amortizations started from May 31, 2005.22 As can be
gleaned from the contract to sell, however, it appears that
the payment of the downpayment started from the signing
thereof on December 29, 2004.
To this end, the factual admissions made by the parties
during the preliminary conference would shed light on the
matter. It must be remembered that these judicial
admissions are legally binding on the party making the
admissions. Similar to pre-trial admissions in a pre-trial
order in ordinary civil cases, the contents of the record of
a preliminary conference control the subsequent course of
the action, thereby, defining and limiting the issues to be
tried. A contrary ruling would render useless the
proceedings during the preliminary conference and would,
in fact, be antithetical to the very purpose of a preliminary
conference, which is, among others, to allow the parties to
admit and stipulate on a given set of facts and to simplify
the issues involved.23
The fairly recent case of Oscar Constantino v. Heirs of
Oscar Constantino,24 is most instructive:
In Bayas, et al. v. Sandiganbayan, et al., this Court
emphasized that:
Once the stipulations are reduced into writing and signed
by the parties and their counsels, they become binding on
the parties who made them. They become judicial
admissionsof the fact or facts stipulated. Even if placed at
a disadvantageous position, a party may not be allowed to
rescind them unilaterally, it must assume the
consequences of the disadvantage.(citations omitted)
Moreover, in Alfelor v. Halasan,this Court declared that:
A party who judicially admits a fact cannot later challenge
the fact as judicial admissions are a waiver of proof;
production of evidence is dispensed with. A judicial
admissionalso removes an admitted fact from the field of
controversy. Consequently, an admission made in the
pleadings cannot be controverted by the party making
such admission and are conclusive as to such party, and
all proofs to the contrary or inconsistent therewith should
be ignored, whether objection is interposed by the party or
not. The allegations, statements or admissions contained
in a pleading are conclusive as against the pleader. A
party cannot subsequently take a position contrary of or
inconsistent with what was pleaded. (Citations omitted)
[Emphases supplied]
Here, Spouses Noynay proposed for stipulation the factual
allegation that they had been paying Citihomesthe
monthly amortization of the property for more than three
(3) years and only stopped payment by January 8, 2008.
In the Preliminary Conference Order,25 dated January 28,
2010, the MTCC noted the said factas admitted, to wit:
The defendants proposed the following matters for
stipulations:
1. That the defendants had already paid the plaintiff the
total amount of Php 633,000.00 – Not Admitted
2. That the defendants have beenpaying the plaintiff the
monthly amortization of the property for more than three
years and only stopped payment by January 8, 2008 –
Admitted.26
xxx xxx x x x[Emphasis supplied]
Moreover, based on the Statement of Account,27 dated
March 18, 2009, Spouses Noynay started defaulting from
January 8, 2008. This shows that prior to that date,
amortizations covering the 3-year period, which started
with the downpayment, had been paid. This is consistent
with the admission of Citihomes during the preliminary
conference. By its admission that Spouses Noynay had
been paying the amortizations for three (3) years, there is
no reason to doubt Spouses Noynay's compliance with
the minimum requirement of two years payment of
amortization, entitling them to the payment of the cash
surrender value provided for by law and by the contract to
sell. To reiterate, Section 3(b) of the Maceda Law requires
that for an actual cancellation to take place, the notice of
cancellation by notarial act and the full payment of the
cash surrender value must be first received by the buyer.
Clearly, no payment of the cash surrender value was
made to Spouses Noynay. Necessarily, no cancellation of
the contract to selI could be considered as validly
effected.
Without the valid cancellation of the contract, there is no
basis to treat the possession of the property by Spouses
Noynay as illegal.1âwphi1 In AMOSUP-PTGWO-ITF v.
Decena,28 the Court essentially held that such similar
224
Sales – Chapter 3-12 Cases
failure' to validly cancel the contract, meant that the
possessor therein, similar to Spouses Noynay in this case,
remained entitled to the possession of the property. In the
said case, the Court stated:
In the parallel case of Pagtalunan v. Dela Cruz Vda. De
Manzano, which likewise originated as an action for
unlawful detainer, we affirmed the finding of the appellate
court that, since the contract to sell was not validly
cancelled or rescinded under Section 3(b) of R.A. No.
6552, the respondent therein had the right to continue
occupying unmolested the property subject thereof.
WHEREFORE, the petition is GRANTED. The July 16,
2012 Decision and October 15, 2012 Resolution of the
Court of Appeals are hereby REVERSED and SET
ASIDE. The March 26, 2010 Decision of the Municipal
Trial Court for Cities is REINSTATED.
SO ORDERED.

G.R. No. 178584 October 8, 2012

ASSOCIATED MARINE OFFICERS AND SEAMEN'S
UNION OF THE PHILIPPINES PTGWO-ITF, Petitioner,
vs.
NORIEL DECENA, Respondent.
DECISION
225
Sales – Chapter 3-12 Cases
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari seeks the reversal of
the Decision1 of the Court of Appeals (CA) dated July 31,
2006, as well as the Resolution2 dated June 20, 2007,
which dismissed the complaint for unlawful detainer filed
by petitioner against respondent on the ground of
prematurity, as petitioner has not shown that it complied
with the mandatory requirements for a valid and effective
cancellation of the contract to sell a house and lot.
The Factual Antecedents
Associated Marine Officers and Seamen's Union of the
Philippines –
PTGWO-ITF (petitioner) is a duly registered labor
organization engaged in an on-going Shelter Program,
which offers residential lots and fully-furnished houses to
its members-seafarers under a reimbursement scheme
requiring no down payment and no interest on the
principal sum advanced for the acquisition and
development of the land and the construction of the
house.
On April 27, 1995, petitioner entered into a contract3 under
the Shelter Program with one of its members, Noriel
Decena (respondent), allowing the latter to take
possession of a house and lot described as 7 STOLT
MODEL, Lot 16, Block 7, in the Seamen's Village, Sitio
Piela, Barangay Paliparan, Dasmariñas, Cavite, with the
obligation to reimburse petitioner the cost
(US$28,563)4 thereof in 180 equal monthly payments. It
was stipulated in said contract that, in case respondent
fails to remit three (3) monthly reimbursement payments,
he shall be given a 3-month grace period within which to
remit his arrears, otherwise, the contract shall be
automatically revoked or cancelled and respondent shall
voluntarily vacate the premises without need of demand or
judicial action.5
Subsequently, respondent failed to pay twenty-five (25)
monthly reimbursement payments covering the period
August 1999 to August 2001, despite demands. Hence,
petitioner cancelled the contract and treated all his
reimbursement payments as rental payments for his
occupancy of the house and lot.
On August 21, 2001, petitioner sent respondent a notice
of final demand6 requiring him to fulfill his obligation within
a 30-day grace period. Thereafter, on October 18, 2001,
his wife received a notice to vacate7 the premises. For
failure of respondent to heed said notices, petitioner filed
a complaint before the barangay lupon and, eventually, a
case for unlawful detainer, docketed as Civil Case No.
12108 before the Municipal Trial Court (MTC) of
Dasmariñas, Cavite.
The Ruling of the MTC
On December 4, 2002, the MTC found petitioner's case
meritorious and, thus, rendered judgment9 ordering
respondent to (1) vacate the premises; (2) pay monthly
rental in the amount of ₱ 8,109.00 from August 1999 with
legal interests thereon until he has actually and fully paid
the same; and (3) pay attorney's fees in the amount of ₱
30,000.00, as well as the costs of suit.
The Ruling of the RTC
On appeal (App. Civil Case No. 312-03), the Regional
Trial Court (RTC) of Imus, Cavite, affirmed10 in toto the
decision of the MTC after finding that the cancellation and
revocation of the contract for failure of respondent to remit
25 monthly reimbursement payments converted the
latter's stay on the premises to one of "mere
permission"11by petitioner, and that respondent's refusal
to heed the notice to vacate the premises rendered his
continued possession thereof unlawful.12
With respect to the issue raised by respondent that the
instant case is covered by Republic Act No. 6552 (R.A.
No. 6552),13 the Maceda Law, the RTC ruled in the
negative, ratiocinating that the Shelter Contract Award is
neither a contract of sale nor a contract to sell. Rather, it is
"more akin to a contract of lease with the monthly
reimbursements as rentals."14
The Ruling of the Court of Appeals
On petition for review (CA-G.R. SP No. 81954) before the
CA, the appellate court set aside the decision of the RTC
and entered a new judgment15 dismissing the complaint
for unlawful detainer and restoring respondent to the
peaceful possession of the subject house and lot. The CA
held that the contract between the parties is not a contract
of lease, but a contract to sell, which stipulates that upon
full payment of the value of the house and lot, respondent
shall become the owner thereof.16 The issues, which
involve "the propriety of terminating the relationship
contracted by the parties, as well as the demand upon
[respondent] to deliver the premises and to pay unpaid
reimbursements,"17 extend beyond those commonly
involved in unlawful detainer suits, thus, converting the
instant case into one incapable of pecuniary estimation
exclusively cognizable by the RTC.18
Moreover, the appellate court faulted petitioner for failing
to comply with the mandatory twin requirements for a valid
and effective cancellation of a contract to sell under
Section 3 (b) of R.A. No. 6552: (1) to send a notarized
notice of cancellation, and (2) to refund the cash
surrender value of the payments on the property.
Consequently, it held that the contract to sell still subsists,
at least until properly rescinded, and the action for
ejectment filed by petitioner is premature.19
Aggrieved, petitioner filed a motion for reconsideration,
which was denied by the CA in its Resolution 20 dated June
20, 2007. Hence, petitioner is now before this Court
alleging that –
The Issues
1. The Honorable Court of Appeals erred in changing the
main issue to be resolved in the instant unlawful detainer
case from who has the better right of possession to
whether or not the agreement between the parties is a
contract of lease or a contract to sell, especially when the
nature of the agreement between the parties was never
questioned nor raised as an issue in the court a quo.
2. Even assuming that the Honorable Court of Appeals
was correct in changing the main issue to be resolved, it
nevertheless erred in determining that:
a. The agreement between the parties is allegedly one of
contract to sell – when the Housing and Land Use
Regulatory Board itself already made a pronouncement
that the Shelter Program and its contract award is not a
sale of real estate.
b. The action for unlawful detainer filed by petitioner
AMOSUP is allegedly premature – especially considering
that Republic Act No. 6552, which requires notarial notice
of rescission, is not applicable to the case at bar and,
thus, the written notice of termination previously served on
the respondent is already sufficient.21
The Ruling of the Court
It is basic that a contract is what the law defines it to be,
and not what it is called by the contracting parties. A
contract to sell is defined as a bilateral contract whereby
the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof
to the prospective buyer, binds itself to sell the said
property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full
payment of the purchase price.22
The Shelter Contract Award granted to respondent
expressly stipulates that "upon completion of payment of
the amount of US$28,563 representing the full value of
the House and Lot subject of the Contract Award, the
226
Sales – Chapter 3-12 Cases
UNION shall execute a Deed of Transfer and shall cause
the issuance of the corresponding Transfer Certificate of
Title in favor of and in the name of the AWARDEE." 23 It
cannot be denied, therefore, that the parties herein
entered into a contract to sell in the guise of a
reimbursement scheme requiring respondent to make
monthly reimbursement payments which are, in actuality,
installment payments for the value of the subject house
and lot.
While respondent occupied the subject premises, title
nonetheless remained with petitioner. Considering,
therefore, that the basis for such occupation is a contract
to sell the premises on installment, the contractual
relations between the parties are more than that of a
lessor-lessee.24 The appellate court thus correctly ruled
that the Shelter Contract Award has not been converted
into one of lease.
Petitioner tried, albeit in vain, to mislead the Court that the
nature of the agreement between the parties, and even
the validity of the termination thereof, were never raised in
the trial courts. In the pre-trial brief filed by respondent
before the MTC, the first issue he presented is "whether
or not the present action is a simple case of or an action
for unlawful detainer or an action for rescission of the
Contract of Shelter Award which is outside of the
jurisdiction of the Honorable Court."25
In the parallel case of Pagtalunan v. Dela Cruz Vda. De
Manzano,26 which likewise originated as an action for
unlawful detainer, we affirmed the finding of the appellate
court that, since the contract to sell was not validly
cancelled or rescinded under Section 3(b) of R.A. No.
6552, the respondent therein had the right to continue
occupying unmolested the property subject thereof.
Section 3(b) reads:
SEC. 3. In all transactions or contracts involving the sale
or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and sales
to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he defaults
in the payment of succeeding installments:
xxx
(b) If the contract is canceled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty per cent of the total payments
made, and, after five years of installments, an additional
five per cent every year but not to exceed ninety per cent
of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to
the buyer. (Emphasis supplied)
As we emphasized in Pagtalunan, "R.A. No. 6552,
otherwise known as the Realty Installment Buyer
Protection Act, 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." While we agreed that the
cancellation of a contract to sell may be done outside of
court, however, "the cancellation by the seller must be in
accordance with Sec. 3(b) of R.A. No. 6552, which
requires a notarial act of rescission and the refund to the
buyer of the full payment of the cash surrender value of
the payments on the property."27 In the present case, as
aptly pointed out by the appellate court, petitioner failed to
prove that the Shelter Contract Award had been cancelled
in accordance with R.A. No. 6552, which would have been
the basis for the illegality of respondent's possession of
the subject premises. Hence, the action for ejectment
must necessarily fail.
Petitioner nonetheless insists on the inapplicability of R.A.
No. 6552 in this case, capitalizing on the Decision28 of the
Housing and Land Use Regulatory Board in HLURB
CASE No. IV6-090902-1842 entitled "Seamen's Village
Brotherhood Homeowners Association, Inc. v. Associated
Marine Officers And Seamen's Union of the Philippines
(AMOSUP)" which held that the transaction between
petitioner and the residents of Seamen's Village cannot be
considered a sale within the purview of Presidential
Decree (P.D.) No. 957.29 It should be pointed out that the
only issue resolved in that case is "whether or not the
respondent (petitioner herein) is engaged in the business
of selling real estate subdivisions, so as to fall under the
ambit of P.D. 957, the resolution of which would determine
whether or not respondent is required under the law to
register with (the) Office and procure a license to sell." 30
Section 2(b) of P.D. 957 defines a sale as follows:
b.) Sale or Sell – "sale" or "sell" shall include every
disposition, or attempt to dispose, for a valuable
consideration, of a subdivision lot, including the building
and other improvements thereon, if any, in a subdivision
project or a condominium unit in a condominium project.
"Sale" or "sell" shall include a contract to sell, a contract of
purchase and sale, an exchange, an attempt to sell, an
option of sale or purchase, a solicitation of a sale, or an
offer to sell, directly or by an agent, or by a circular letter,
advertisement or otherwise.
A privilege given to a member of a cooperative,
corporation, partnership, or any association and/or the
issuance of a certificate or receipt evidencing or giving the
right of participation in, or right to any land in
consideration of payment of the membership fee or dues,
shall be deemed a sale within the meaning of this
definition.
A reading of the Decision in its entirety reveals a
vacillation on the part of the HLURB in classifying the
transaction between petitioner and its members. While the
HLURB held that there is no sale as contemplated under
the first paragraph of the aforequoted provision "for the
reason that there is no valuable consideration involved in
the transaction,"31 yet it went on to opine that the second
paragraph of the same provision "appears to have an
apparent application in the instant case although the
same is not clear."32 Then, in its final disposition,33 the
HLURB required petitioner to secure a Certificate of
Registration and License to Sell for its subdivision project
thereby effectively bringing it under the jurisdiction of said
office. Clearly, the argument of petitioner that respondent
is not a realty installment buyer that needs to be protected
by the law has no leg to stand on.
In the interest, however, of putting an end to the
controversy between the parties herein that had lasted for
more than ten (10) years, as in the cited case of
Pagtalunan, the Court orders respondent to pay his
arrears and settle the balance of the full value of the
subject premises. He had enjoyed the use thereof since
1995. After defaulting in August 1999, respondent had not
made any subsequent reimbursement payments. Thus,
for the delay in his reimbursement payments, we award
interest at the rate of 6% per annum on the unpaid
balance applying Article 220934 of the Civil Code, there
being no stipulation in the Shelter Contract Award for such
interest.35 For purposes of computing the legal interest,
the reckoning period should be the notice of final demand,
227
Sales – Chapter 3-12 Cases
conformably with Articles 116936 and 158937 of the same reasonable rental in the amount determined by the trial
Code, which, as found by the MTC, was sent by petitioner court.
to respondent on August 21, 2001.38 SO ORDERED.
In his Comment to the instant Petition, respondent
claimed that he had made payments in the amount of ₱
318,167.70.39 The total amount for reimbursement for the
subject house and lot is US$28,563, which the Shelter
Contract Award requires to be paid in "180 equal monthly
periodic reimbursements of US$159 or in equivalent
Philippine Currency at the time the same falls due." 40 For
lack of pertinent data with which to determine how many
months respondent's alleged total payment of ₱
318,167.70 is equivalent to, we direct petitioner to submit
to the trial court an accounting of the payments made by
respondent particularly showing the number of months he
was able to make the required payments of US$159 or its
peso equivalent. The balance of the full value of the
subject premises shall then be computed on the basis of
the following formula: (180 months minus the number of
months that respondent had already paid) multiplied by
US$159 or its peso equivalent at the time of payment.
WHEREFORE, the Decision of the Court of Appeals dated
July 31, 2006 and the Resolution dated June 20, 2007 are
hereby AFFIRMED with the following MODIFICATIONS:
1. The Municipal Trial Court of Dasmariñas, Cavite is
directed to conduct a hearing, within a maximum period of
thirty (30) days from receipt of this Decision, to determine:
(a) the unpaid balance of the full value of the subject
house and Jot; and (b) the reasonable amount of rental
for the subject property at present times.
2. Within sixty (60) days from the determination of the trial
court of said balance, respondent shall pay the amount
thereof to petitioner, with interest at six percent ( 6%) per
annum from August 1, 2001 up to the date of actual
payment;
3. Upon payment, petitioner shall execute a Deed of
Absolute Sale of the subject property and deliver the
transfer certificate of title in favor of respondent;
4. In case of failure to pay within the mandated 60-day
period, respondent shall immediately vacate the premises
without need of further demand. Petitioner, on the other
hand, shall pay respondent the cash surrender value
equivalent to 50% of the total reimbursement payments
made. The Shelter Contract Award shall then be deemed
cancelled thirty (30) days after receipt by respondent of
the full payment of the cash surrender value. If respondent
fails to vacate the premises, he shall be charged
228
Sales – Chapter 3-12 Cases
G.R. No. 107207 November 23, 1995
VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA
VDA. DE ONGSIONG, respondents.
VITUG, J.:
The parties pose this question: May the vendor demand
the rescission of a contract for the sale of a parcel of land
for a cause traceable to his own failure to have the
squatters on the subject property evicted within the
contractually-stipulated period?
Petitioner Virgilio R. 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, petitioner and his foreign
partners decided to put up a central warehouse in Metro
Manila on a land area of approximately 2,000 square
meters. The project was made known to several freelance
real estate brokers.
A day or so after the announcement, Alfonso Flores and
his wife, accompanied by a broker, offered a parcel of
land measuring 1,952 square meters. Located in
Barangay San Dionisio, Parañaque, Metro Manila, the lot
was covered by TCT No. 361402 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.
Later, the Flores spouses 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 P800.00 per
square meter. Petitioner expressed his concurrence. On
09 June 1988, a contract, denominated "Deed of
Conditional Sale," was executed between petitioner and
private respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of
Makati, Philippines this 9th day of June, 1988 by and
between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age,
widow, Filipino and residing at 105 Simoun St., Quezon
City, Metro Manila, hereinafter referred to as the
VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina L. Lat, of
Legal age, Filipino, and residing at 110 San Miguel St.,
Plainview Subd., Mandaluyong Metro Manila, hereinafter
referred to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel
of land with a total area of ONE THOUSAND NINE
HUNDRED FIFTY TWO (1,952) SQUARE METERS,
more or less, located in Barrio San Dionisio, Municipality
of Parañaque, Province of Rizal, covered by TCT No.
361402 issued by the Registry of Deeds of Pasig and
more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a
parcel of land and the VENDOR has accepted the offer,
subject to the terms and conditions hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum
of ONE MILLION FIVE HUNDRED SIXTY ONE
THOUSAND SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by VENDEE to in to
(sic) manner set forth, the VENDOR agrees to sell to the
VENDEE, their heirs, successors, administrators,
executors, assign, all her rights, titles and interest in and
to the property mentioned in the FIRST WHEREAS
CLAUSE, subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS
(P50,000.00) ONLY Philippine Currency, is to be paid
upon signing and execution of this instrument.
2. The balance of the purchase price in the amount of
ONE MILLION FIVE HUNDRED ELEVEN THOUSAND
SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be
paid 45 days after the removal of all squatters from the
above described property.
3. Upon full payment of the overall purchase price as
aforesaid, VENDOR without necessity of demand shall
immediately sign, execute, acknowledged (sic) and deliver
the corresponding deed of absolute sale in favor of the
VENDEE free from all liens and encumbrances and all
Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and stipulated by and
between the parties hereto that if after 60 days from the
date of the signing of this contract the VENDOR shall not
be able to remove the squatters from the property being
purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
229
Sales – Chapter 3-12 Cases
That in the event that the VENDEE shall not be able to
pay the VENDOR the balance of the purchase price of
ONE MILLION FIVE HUNDRED ELEVEN THOUSAND
SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45
days from written notification to the VENDEE of the
removal of the squatters from the property being
purchased, the FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be forfeited in favor
of the VENDOR.
Expenses for the registration such as registration fees,
documentary stamp, transfer fee, assurances and such
other fees and expenses as may be necessary to transfer
the title to the name of the VENDEE shall be for the
account of the VENDEE while capital gains tax shall be
paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed
those (sic) presents in the City of Makati MM, Philippines
on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz1
Alfonso Flores, in behalf of private respondent, forthwith
received and acknowledged a check for P50,000.00 2from
petitioner.3
Pursuant to the agreement, private respondent filed a
complaint for ejectment (Civil Case No. 7579) against
Melchor Musa and 29 other squatter families with the
Metropolitan Trial Court of Parañaque. A few months later,
or on 21 February 1989, judgment was rendered ordering
the defendants to vacate the premises. The decision was
handed down beyond the 60-day period (expiring 09
August 1988) stipulated in the contract. The writ of
execution of the judgment was issued, still later, on 30
March 1989.
In a letter, dated 07 April 1989, private respondent 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. Atty. Sergio A.F. Apostol, counsel for petitioner, in
his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable
diligence considering the favorable decision rendered by
the Court and the writ of execution issued pursuant
thereto, it is now possible to eject the squatters from the
premises of the subject property, for which reason, he
proposes that he shall take it upon himself to eject the
squatters, provided, that expenses which shall be incurred
by reason thereof shall be chargeable to the purchase
price of the land.4
Meanwhile, the Presidential Commission for the Urban
Poor ("PCUD"), through its Regional Director for Luzon,
Farley O. Viloria, asked the Metropolitan Trial Court of
Parañaque for a grace period of 45 days from 21 April
1989 within which to relocate and transfer the squatter
families. Acting favorably on the request, the court
suspended the enforcement of the writ of execution
accordingly.
On 08 June 1989, Atty. Apostol reminded private
respondent on the expiry of the 45-day grace period and
his client's willingness to "underwrite the expenses for the
execution of the judgment and ejectment of the
occupants."5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr.,
counsel for private respondent, advised Atty. Apostol that
the Deed of Conditional Sale had been
rendered null and void by virtue of his client's failure to
evict the squatters from the premises within the agreed
60-day period. He added that private respondent had
"decided to retain the property."6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected
from the very moment that there was a meeting of the
minds of the parties upon the subject lot and the price in
the amount of P1,561,600.00. Moreover, the contract had
already been partially fulfilled and executed upon receipt
of the downpayment of your client. Ms. Ongsiong is
precluded from rejecting its binding effects relying upon
her inability to eject the squatters from the premises of
subject property during the agreed period. Suffice it to
state that, the provision of the Deed of Conditional Sale
do not grant her the option or prerogative to rescind the
contract and to retain the property should she fail to
comply with the obligation she has assumed under the
contract. In fact, a perusal of the terms and conditions of
the contract clearly shows that the right to rescind the
contract and to demand the return/reimbursement of the
downpayment is granted to our client for his protection.
Instead, however, of availing himself of the power to
rescind the contract and demand the return,
reimbursement of the downpayment, our client had opted
to take it upon himself to eject the squatters from the
premises. Precisely, we refer you to our letters addressed
to your client dated April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the
power to rescind is given to the injured party.
Undoubtedly, under the circumstances, our client is the
injured party.
Furthermore, your client has not complied with her
obligation under their contract in good faith. It is
undeniable that Ms. Ongsiong deliberately refused to
exert efforts to eject the squatters from the premises of
the subject property and her decision to retain the
property was brought about by the sudden increase in the
value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your
client and a demand to execute the absolute Deed of
Sale.7
A few days later (or on 27 June 1989), private respondent,
prompted by petitioner's continued refusal to accept the
return of the P50,000.00 advance payment, filed with the
Regional Trial Court of Makati, Branch 133, Civil Case No.
89-4394 for rescission of the deed of "conditional" sale,
plus damages, and for the consignation of P50,000.00
cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial
Court issued an alias writ of execution in Civil Case No.
7579 on motion of private respondent but the squatters
apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the
Regional Trial Court of Makati8 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. The court ruled that the provisions in the
contract relating to (a) the return/reimbursement of the
P50,000.00 if the vendor were to fail in her obligation to
free the property from squatters within the stipulated
period or (b), upon the other hand, the sum's forfeiture by
the vendor if the vendee were to fail in paying the agreed
purchase price, amounted to "penalty clauses". The court
added:
This Court is not convinced of the ground relied upon by
the plaintiff in seeking the rescission, namely: (1) he (sic)
is afraid of the squatters; and (2) she has spent so much
to eject them from the premises (p. 6, tsn, ses. Jan. 3,
1990). Militating against her profession of good faith is
230
Sales – Chapter 3-12 Cases
plaintiffs conduct which is not in accord with the rules of
fair play and justice. Notably, she caused the issuance of
an alias writ of execution on August 25, 1989 (Exh. 6) in
the ejectment suit which was almost two months after she
filed the complaint before this Court on June 27, 1989. If
she were really afraid of the squatters, then she should
not have pursued the issuance of an alias writ of
execution. Besides, she did not even report to the police
the alleged phone threats from the squatters. To the mind
of the Court, the so-called squatter factor is simply
factuitous (sic).9
The lower court, accordingly, dismissed the complaint and
ordered, instead, private respondent to eject or cause the
ejectment of the squatters from the property and to
execute the absolute deed of conveyance upon payment
of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On
29 May 1992, the appellate court rendered its
decision. 10It opined that the contract entered into by the
parties was subject to a resolutory condition, i.e., the
ejectment of the squatters from the land, the non-
occurrence of which resulted in the failure of the object of
the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it
was petitioner who was not ready to pay the purchase
price and fulfill his part of the contract, and that the
provision requiring a mandatory return/reimbursement of
the P50,000.00 in case private respondent would fail to
eject the squatters within the 60-day period was not a
penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED
and SET ASIDE, and a new one entered declaring the
contract of conditional sale dated June 9, 1988 cancelled
and ordering the defendant-appellee to accept the return
of the downpayment in the amount of P50,000.00 which
was deposited in the court below. No pronouncement as
to costs.11
Failing to obtain a reconsideration, petitioner filed this
petition for review on certiorari raising issues that, in fine,
center on the nature of the contract adverted to and the
P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or
conditional12 depending on whether the agreement is
devoid of, or subject to, any condition imposed on
the passing of title of the thing to be conveyed or on
the obligation of a party thereto. When ownership is
retained until the fulfillment of a positive condition the
breach of the condition will simply prevent the duty to
convey title from acquiring an obligatory force. If the
condition is imposed on an obligationof a party which is
not complied with, the other party may either refuse to
proceed or waive said condition (Art. 1545, Civil Code).
Where, of course, the condition is imposed upon
the perfection of the contract itself, the failure of such
condition would prevent the juridical relation itself from
coming into existence.13
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.14
The term "condition" in the context of a perfected contract
of sale pertains, in reality, to the compliance by one party
of an undertaking the fulfillment of which would beckon, in
turn, the demandability of the reciprocal prestation of the
other party. The reciprocal obligations referred to would
normally be, in the case of vendee, the payment of the
agreed purchase price and, in the case of the vendor, the
fulfillment of certain express warranties (which, in the case
at bench is the timely eviction of the squatters on the
property).
It would be futile to challenge the agreement here in
question as not being a duly perfected contract. 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.15
The object of the sale, in the case before us, was
specifically identified to be a 1,952-square meter lot in
San Dionisio, Parañaque, Rizal, covered by Transfer
Certificate of Title No. 361402 of the Registry of Deeds for
Pasig and therein technically described. The purchase
price was fixed at P1,561,600.00, of which P50,000.00
was to be paid upon the execution of the document of
sale and the balance of P1,511,600.00 payable "45 days
after the removal of all squatters from the above described
property."
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.16 This option clearly belongs to petitioner and not to
private respondent.
We share the opinion of the appellate court that the
undertaking required of private respondent does not
constitute a "potestative condition dependent solely on his
will" that might, otherwise, be void in accordance with
Article 1182 of the Civil Code17 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."18 We must hasten to add,
however, that where the so-called "potestative condition"
is imposed not on the birth of the obligation but on its
fulfillment, only the obligation is avoided, leaving
unaffected the obligation itself.19
In contracts of sale particularly, Article 1545 of the Civil
Code, aforementioned, allows the obligee to choose
between proceeding with the agreement or waiving the
performance of the condition. It is this provision which is
the pertinent rule in the case at bench. Here, evidently,
petitioner has waived the performance of the condition
imposed on private respondent to free the property from
squatters.20
In any case, private respondent's action for rescission is
not warranted. She is not the injured party.21 The right of
resolution of a party to an obligation under Article 1191 of
the Civil Code is predicated on a breach of faith by the
other party that violates the reciprocity between them.22 It
is private respondent who has failed in her obligation
under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the
expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff
to effect such execution. In his letter of 23 June 1989,
counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute
sale. Parenthetically, this offer to pay, having been made
231
Sales – Chapter 3-12 Cases
prior to the demand for rescission, assuming for the sake
of argument that such a demand is proper under Article
159223 of the Civil Code, would likewise suffice to defeat
private respondent's prerogative to rescind thereunder.
There is no need to still belabor the question of whether
the P50,000.00 advance payment is reimbursable to
petitioner or forfeitable by private respondent, since, on
the basis of our foregoing conclusions, the matter has
ceased to be an issue. Suffice it to say that petitioner
having opted to proceed with the sale, neither may
petitioner demand its reimbursement from private
respondent nor may private respondent subject it to
forfeiture.
WHEREFORE, the questioned decision of the Court of
Appeals is hereby REVERSED AND SET ASIDE, and
another is entered ordering petitioner to pay private
respondent the balance of the purchase price and the
latter to execute the deed of absolute sale in favor of
petitioner. No costs.
SO ORDERED.
G.R. No. 130403 July 30, 2007
FRANCISCO GONZALES, Petitioner,
vs.
SEVERINO C. LIM and TOYOTA SHAW,
INC., Respondents.
DECISION
CORONA, J.:
At bar is an appeal by certiorari under Rule 45 of the
Rules of Court questioning the decision1 and resolution2 of
the Court of Appeals (CA) in CA-G.R. CV No. 41716
entitled Severino C. Lim and Toyota Shaw, Inc. v.
Francisco Gonzales and Carmen Gonzales.
The facts follow.
Petitioner Francisco Gonzales, Roque Ma. Gonzales and
Carmen Gonzales (Gonzaleses) were the owners of
Motown Vehicles, Inc. (Motown). Motown was the
licensed distributor of Ford vehicles in the country. Its
assets included two buildings standing on a 4,944 sq. m.
lot leased from Tanglaw Realty Inc. (Tanglaw).
In 1988, when Ford Philippines ceased operations, the
Gonzaleses sold Motown’s shares of stocks to
respondents Severino C. Lim and Toyota Shaw, Inc.
which was then putting up a Toyota car dealership. The
"Agreement" signed by the parties stated that the sale
included Motown’s two lease contracts with Tanglaw. It
read:
WHEREAS, Motown, which owns these fixed and
moveable improvements and equipments…does not own
the land on which these improvements and equipments
are located, but merely leases the bare land… from
Tanglaw Realty Corp. under 2 Lease Contracts both dated
June 17, 1978 both commencing Nov. 15, 1977 and
expiring Nov. 14, 2002.
xxx xxx xxx
232
Sales – Chapter 3-12 Cases
4. PAYMENT — The aforementioned price amounting to
₱6,746,000.00 shall be paid by [respondents] to the
[Gonzaleses] in two (2) installments payable simultaneous
to the occurrence of the following events:
1. ₱6,246,000 – [u]pon signing of this contract xxx
2. ₱500,000 – [u]pon receipt of official communication
from Tanglaw Realty Corporation to the effect that
Motown can have continuing and unhampered use of the
pieces of [the leased] land…covered by the 2 Lease
Contracts…[I]t is understood that the continuation of the
lease at a reasonable rate for the original term of the 2
lease agreements is a central, indivisible and very basic
part of this agreement, since the [bases] for the valuation
of Motown by [respondents are] its location and the
improvements and equipments contained therein.3
xxx xxx xxx
After paying the initial installment of ₱6,246,000 to the
Gonzaleses, respondents claimed they discovered that
one of Motown’s lease contracts had already been
terminated prior to the sale. As a result, they were
allegedly constrained to negotiate with Tanglaw for a new
lease contract (with a higher rental).
Subsequently, respondents filed a case in the Regional
Trial Court (RTC), Branch 65 of Makati,4 for declaratory
relief with damages against the Gonzaleses, seeking
release from their obligation to pay the ₱500,000 balance.
During the trial, respondents (as then plaintiffs) accused
the Gonzaleses of falsely representing to them that the
latter’s two lease contracts were still subsisting at the time
of the sale. They maintained that the Gonzaleses
guaranteed a "continuing and unhampered use" of the
premises but Tanglaw had nonetheless threatened to
evict them from one of the leased portions.
To support their claim, they presented in court a copy of
the "Agreement" indicating the Gonzaleses’ alleged
warranty that the two lease contracts with Tanglaw were
still good.
Petitioner (with his then co-defendants) countered that
respondents were well aware of the termination of one of
the two lease contracts at the time of sale. He denied
giving a warranty on both contracts and explained that he
only signed the "Agreement" (showing Motown’s two
lease contracts with Tanglaw) on prodding by respondents
that they needed it to convince Toyota Philippines they
were ready with their dealership site. According to
petitioner, respondents told him it was only "for show" and
amendments thereto would be made later on.
Petitioner added that his only undertaking was to help
respondents negotiate a new lease contract that would
have similar terms as his. As a counterclaim, petitioner
asked for the payment of respondents’ ₱500,000 balance.
After trial, the RTC dismissed respondents’ case but
granted petitioner’s counterclaim of ₱500,000. The court a
quo’s decision read:
...[T]he court finds that [petitioner] did not warrant the
existence of the lease on one of the premises. The court
believes that even before the ["Agreement"] has been
executed[,] [respondents were] already aware that one of
the leases has been terminated…[I]f [petitioner] warranted
anything at all, it was only that he will help [respondents]
procure a new lease contract under the old term.
xxx xxx xxx
…In view of the foregoing, the complaint is DISMISSED[.]
On the counterclaim, [respondents] are ordered to pay
[petitioner] ₱500,000, representing the outstanding
balance for the sale of Motown shares of stocks plus legal
interest from October 10, 1989, the date of the lease
between Tanglaw Realty and Toyota Shaw, Inc., when
[petitioner] was deemed to have fulfilled his promise.
xxx xxx xxx
SO ORDERED.5
Respondents appealed to the CA which affirmed with
modification the trial court’s decision. It agreed with the
RTC that respondents could not feign ignorance of
Motown’s terminated lease contract; however, it deleted
the order directing respondents to pay petitioner
₱500,000. The CA ruled that the payment was not due
since petitioner failed to obtain the required official
communication from Tanglaw. The CA decision read:
xxx xxx xxx
xxx. The phrase "continuation of the lease contract at a
reasonable rate" proves that [respondents] did not
contemplate stepping into the shoes of Motown as lessee
of the parcels of land because if what they truly expected
was to continue exactly the same lease agreement
between [Tanglaw] and Motown, there would have been
no need to include [said] phrase… Clearly, [respondents]
anticipated nay expected that if they continue the lease, it
would not be under the same terms and conditions as the
original contract, but rather at a new, reasonable rate.
Therefore, there was no warranty from [petitioner]…
…[W]ith regard to the question of whether [respondents]
are now obliged to pay [petitioner] the ₱500,000.00…, the
Court finds that [petitioner had] not been able to fulfill [his]
obligation to submit the required official communication
from Tanglaw Realty Corporation. Thus, [respondents]
are…freed from their obligation to pay the final installment
of ₱500,000.00.
xxx xxx xxx
WHEREFORE, judgment is hereby rendered MODIFYING
the lower court’s decision by deleting the portion ordering
[respondents] to pay [petitioner] ₱500,000 plus legal
interest. Instead, the Court hereby declares [petitioner’s]
counterclaim DISMISSED.6
Petitioner filed a motion for reconsideration (MR),
contending that the payment of the ₱500,000 balance was
already due because respondents themselves had
prevented him from fulfilling his undertaking in the
"Agreement." Petitioner insisted that since respondents
negotiated directly with Tanglaw for a new lease contract,
petitioner’s obligation should be deemed fulfilled.
The CA denied the MR.7 Hence, this petition.8
In this petition, the lone issue for resolution is whether
petitioner was still entitled to the payment of ₱500,000
despite failure to comply with the provision in the
"Agreement" requiring him to obtain an official
communication from Tanglaw regarding the continuation
of Motown’s lease contract.
At the outset, petitioner’s undertaking set forth in the
"Agreement" may be deemed a "condition," a future and
uncertain event upon which the existence of an obligation
is made to depend or that which subordinates the
existence of a liability under a contract to a certain future
event.9 It was a condition that was imposed on an
obligation after the consummation of the contract of sale,
not a condition on the perfection of the contract itself (non-
fulfillment of which could have prevented the juridical
relation from coming into existence).
Article 1545 of the Civil Code is pertinent:
Art. 1545. Where the obligation of either party to a
contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with
the contract or he may waive performance of the
condition. If the other party has promised that the
condition should happen or be performed, such first
mentioned party may also treat the nonperformance of the
condition as a breach of warranty. (emphasis supplied)
xxx xxx xxx
These options were echoed in Romero v. CA,10 where we
declared that if the condition was imposed on an
obligation of a party which was not complied with, the
233
Sales – Chapter 3-12 Cases
other party may either (1) refuse to proceed with the
agreement or (2) waive the fulfillment of the condition.
In the case at bar, respondents obviously did not choose
the first option as they proceeded with their contract with
petitioner despite the latter’s non-fulfillment of the
condition in the agreement. In fact, in their comment, they
stated that they "took possession of the properties and
caused extensive improvement and installed facilities and
equipment" thereon.11
Did respondents, however, waive fulfillment of the
condition? Yes.
The records reveal that respondents negotiated directly
with Tanglaw for a new lease contract even without the
required official communication that petitioner was
supposed to obtain for them, a condition in the
"Agreement" which they themselves imposed on the latter.
Although they had the right to require his compliance with
the condition or compel his performance of the
undertaking, they opted otherwise.
Respondents’ assertion that they were merely forced to
deal directly with Tanglaw because the latter had
threatened to evict them has no merit. As the RTC and the
CA both held, respondents, at the time of the sale, already
knew that one of Motown’s two lease contracts with
Tanglaw had been terminated. This being a finding of fact,
we shall not look into it, absent any compelling reason to
do so.12 Respondents therefore cannot invoke this
argument to justify their actions and evade their liability to
petitioner.1awphil
Moreover, respondents’ contention that the condition did
not preclude them from dealing with Tanglaw or that they
were "to refrain from negotiating directly"13 can only mean
that they did not really expect petitioner to comply strictly
and absolutely with it. Respondents’ conduct showed that
they did not only disregard the condition but also placed
petitioner in a position that his compliance was no longer
necessary. We are thus constrained to rule that they had
effectively waived compliance with the condition.
Finally, the condition was deemed waived when
respondents forged their new lease contract with
Tanglaw.14
WHEREFORE, the petition is hereby GRANTED. The
assailed decision and resolution of the Court of Appeals in
CA-G.R. CV No. 41716 are hereby SET ASIDE and the
decision of the Regional Trial Court REINSTATED.
SO ORDERED.

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Sales – Chapter 3-12 Cases
G.R. No. 146839 March 23, 2011
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR.,
CAROLYN T. CATUNGAL and ERLINDA CATUNGAL-
WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari,
assailing the following issuances of the Court of Appeals
in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP
No. 27565: (a) the August 8, 2000 Decision,1 which
affirmed the Decision2 dated May 30, 1992 of the
Regional Trial Court (RTC), Branch 27 of Lapu-lapu City,
Cebu in Civil Case No. 2365-L, and (b) the January 30,
2001 Resolution,3 denying herein petitioners’ motion for
reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this
case are as follows:
This controversy arose from a Complaint for Damages
and Injunction with Preliminary Injunction/Restraining
Order4filed on December 10, 1990 by herein respondent
Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27,
Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L
against the spouses Agapita and Jose Catungal (the
spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T.
Catungal (Agapita) owned a parcel of land (Lot 10963)
with an area of 65,246 square meters, covered by Original
Certificate of Title (OCT) No. 1055 in her name situated in
the Barrio of Talamban, Cebu City. The said property was
allegedly the exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her
husband Jose, entered into a Contract to Sell6 with
respondent Rodriguez. Subsequently, the Contract to Sell
was purportedly "upgraded" into a Conditional Deed of
Sale7 dated July 26, 1990 between the same parties. Both
the Contract to Sell and the Conditional Deed of Sale
were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent
to the present dispute are quoted below:
1. The VENDOR for and in consideration of the sum of
TWENTY[-]FIVE MILLION PESOS (₱25,000,000.00)
payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (₱500,000.00)
downpayment upon the signing of this agreement, receipt
of which sum is hereby acknowledged in full from the
VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE
HUNDRED THOUSAND PESOS (₱24,500,000.00) shall
be payable in five separate checks, made to the order of
JOSE Ch. CATUNGAL, the first check shall be for FOUR
MILLION FIVE HUNDRED THOUSAND PESOS
(₱4,500,000.00) and the remaining balance to be paid in
four checks in the amounts of FIVE MILLION PESOS
(₱5,000,000.00) each after the VENDEE have (sic)
successfully negotiated, secured and provided a Road
Right of Way consisting of 12 meters in width cutting
across Lot 10884 up to the national road, either by
widening the existing Road Right of Way or by securing a
new Road Right of Way of 12 meters in width. If however
said Road Right of Way could not be negotiated, the
VENDEE shall give notice to the VENDOR for them to
reassess and solve the problem by taking other options
and should the situation ultimately prove futile, he shall
take steps to rescind or cancel the herein Conditional
Deed of Sale.
c. That the access road or Road Right of Way leading to
Lot 10963 shall be the responsibility of the VENDEE to
secure and any or all cost relative to the acquisition
thereof shall be borne solely by the VENDEE. He shall,
however, be accorded with enough time necessary for the
success of his endeavor, granting him a free hand in
negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to
sell by way of herein CONDITIONAL DEED OF SALE to
VENDEE, his heirs, successors and assigns, the real
property described in the Original Certificate of Title No.
105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In
the event the VENDEE exercises his option to rescind the
herein Conditional Deed of Sale, the VENDEE shall notify
the VENDOR by way of a written notice relinquishing his
rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) representing the
downpayment, interest free, payable but contingent upon
the event that the VENDOR shall have been able to sell
the property to another party.8
In accordance with the Conditional Deed of Sale,
Rodriguez purportedly secured the necessary surveys and
plans and through his efforts, the property was reclassified
from agricultural land into residential land which he
claimed substantially increased the property’s value. He
likewise alleged that he actively negotiated for the road
right of way as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the
spouses Catungal requested an advance of
₱5,000,000.00 on the purchase price for personal
reasons. Rodriquez allegedly refused on the ground that
the amount was substantial and was not due under the
terms of their agreement. Shortly after his refusal to pay
the advance, he purportedly learned that the Catungals
were offering the property for sale to third parties.10
Thereafter, Rodriguez received letters dated October 22,
1990,11 October 24, 199012 and October 29, 1990,13 all
signed by Jose Catungal who was a lawyer, essentially
demanding that the former make up his mind about buying
the land or exercising his "option" to buy because the
spouses Catungal allegedly received other offers and they
needed money to pay for personal obligations and for
investing in other properties/business ventures. Should
Rodriguez fail to exercise his option to buy the land, the
Catungals warned that they would consider the contract
cancelled and that they were free to look for other buyers.
In a letter dated November 4, 1990,14 Rodriguez
registered his objections to what he termed the Catungals’
unwarranted demands in view of the terms of the
Conditional Deed of Sale which allowed him sufficient time
to negotiate a road right of way and granted him, the
vendee, the exclusive right to rescind the contract. Still, on
November 15, 1990, Rodriguez purportedly received a
letter dated November 9, 199015 from Atty. Catungal,
stating that the contract had been cancelled and
terminated.
Contending that the Catungals’ unilateral rescission of the
Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be
issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons
acting in their behalf from offering the property subject of
this case for sale to third persons; from entertaining offers
or proposals by third persons to purchase the said
property; and, in general, from performing acts in
furtherance or implementation of defendants’ rescission of
their Conditional Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued
upon such reasonable bond as may be fixed by the court
235
Sales – Chapter 3-12 Cases
enjoining defendants and other persons acting in their
behalf from performing any of the acts mentioned in the
next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and
solidarily:
Actual damages in the amount of ₱400,000.00 for their
unlawful rescission of the Agreement and their
performance of acts in violation or disregard of the said
Agreement;
Moral damages in the amount of ₱200,000.00;
Exemplary damages in the amount of ₱200,000.00;
Expenses of litigation and attorney’s fees in the amount of
₱100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court issued a temporary
restraining order and set the application for a writ of
preliminary injunction for hearing on December 21, 1990
with a directive to the spouses Catungal to show cause
within five days from notice why preliminary injunction
should not be granted. The trial court likewise ordered that
summons be served on them.17
Thereafter, the spouses Catungal filed their
opposition18 to the issuance of a writ of preliminary
injunction and later filed a motion to dismiss 19 on the
ground of improper venue. According to the Catungals,
the subject property was located in Cebu City and thus,
the complaint should have been filed in Cebu City, not
Lapu-lapu City. Rodriguez opposed the motion to dismiss
on the ground that his action was a personal action as its
subject was breach of a contract, the Conditional Deed of
Sale, and not title to, or possession of real property.20
In an Order dated January 17, 1991,21 the trial court
denied the motion to dismiss and ruled that the complaint
involved a personal action, being merely for damages with
a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered
the issuance of a writ of preliminary injunction upon
posting by Rodriguez of a bond in the amount of
₱100,000.00 to answer for damages that the defendants
may sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their
Answer with Counterclaim22 alleging that they had the
right to rescind the contract in view of (1) Rodriguez’s
failure to negotiate the road right of way despite the lapse
of several months since the signing of the contract, and
(2) his refusal to pay the additional amount of
₱5,000,000.00 asked by the Catungals, which to them
indicated his lack of funds to purchase the property. The
Catungals likewise contended that Rodriguez did not have
an exclusive right to rescind the contract and that the
contract, being reciprocal, meant both parties had the right
to rescind.23 The spouses Catungal further claimed that it
was Rodriguez who was in breach of their agreement and
guilty of bad faith which justified their rescission of the
contract.24 By way of counterclaim, the spouses Catungal
prayed for actual and consequential damages in the form
of unearned interests from the balance (of the purchase
price in the amount) of ₱24,500,000.00, moral and
exemplary damages in the amount of ₱2,000,000.00,
attorney’s fees in the amount of ₱200,000.00 and costs of
suits and litigation expenses in the amount of
₱10,000.00.25 The spouses Catungal prayed for the
dismissal of the complaint and the grant of their
counterclaim.
The Catungals amended their Answer twice,26 retaining
their basic allegations but amplifying their charges of
contractual breach and bad faith on the part of Rodriguez
and adding the argument that in view of Article 1191 of
the Civil Code, the power to rescind reciprocal obligations
is granted by the law itself to both parties and does not
need an express stipulation to grant the same to the
injured party. In the Second Amended Answer with
Counterclaim, the spouses Catungal added a prayer for
the trial court to order the Register of Deeds to cancel the
annotations of the two contracts at the back of their
OCT.27
On October 24, 1991, Rodriguez filed an Amended
Complaint,28 adding allegations to the effect that the
Catungals were guilty of several misrepresentations which
purportedly induced Rodriguez to buy the property at the
price of ₱25,000,000.00. Among others, it was alleged
that the spouses Catungal misrepresented that their Lot
10963 includes a flat portion of land which later turned out
to be a separate lot (Lot 10986) owned by Teodora
Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road
right of way will only traverse two lots owned by Anatolia
Tudtud and her daughter Sally who were their relatives
and who had already agreed to sell a portion of the said
lots for the road right of way at a price of ₱550.00 per
square meter. However, because of the Catungals’ acts of
offering the property to other buyers who offered to buy
the road lots for ₱2,500.00 per square meter, the adjacent
lot owners were no longer willing to sell the road lots to
Rodriguez at ₱550.00 per square meter but were asking
for a price of ₱3,500.00 per square meter. In other words,
instead of assisting Rodriguez in his efforts to negotiate
the road right of way, the spouses Catungal allegedly
intentionally and maliciously defeated Rodriguez’s
negotiations for a road right of way in order to justify
rescission of the said contract and enable them to offer
the property to other buyers.
Despite requesting the trial court for an extension of time
to file an amended Answer,29 the Catungals did not file an
amended Answer and instead filed an Urgent Motion to
Dismiss30 again invoking the ground of improper venue. In
the meantime, for failure to file an amended Answer within
the period allowed, the trial court set the case for pre-trial
on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial
court denied in open court the Catungals’ Urgent Motion
to Dismiss for violation of the rules and for being
repetitious and having been previously
denied.31 However, Atty. Catungal refused to enter into
pre-trial which prompted the trial court to declare the
defendants in default and to set the presentation of the
plaintiff’s evidence on February 14, 1992.32
On December 23, 1991, the Catungals filed a motion for
reconsideration33 of the December 20, 1991 Order
denying their Urgent Motion to Dismiss but the trial court
denied reconsideration in an Order dated February 3,
1992.34Undeterred, the Catungals subsequently filed a
Motion to Lift and to Set Aside Order of Default 35 but it
was likewise denied for being in violation of the rules and
for being not meritorious.36 On February 28, 1992, the
Catungals filed a Petition for Certiorari and
Prohibition37 with the Court of Appeals, questioning the
denial of their motion to dismiss and the order of default.
This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence
before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in
favor of Rodriguez, finding that: (a) under the contract it
was complainant (Rodriguez) that had the option to
rescind the sale; (b) Rodriguez’s obligation to pay the
balance of the purchase price arises only upon successful
negotiation of the road right of way; (c) he proved his
diligent efforts to negotiate the road right of way; (d) the
spouses Catungal were guilty of misrepresentation which
236
Sales – Chapter 3-12 Cases
defeated Rodriguez’s efforts to acquire the road right of
way; and (e) the Catungals’ rescission of the contract had
no basis and was in bad faith. Thus, the trial court made
the injunction permanent, ordered the Catungals to
reduce the purchase price by the amount of acquisition of
Lot 10963 which they misrepresented was part of the
property sold but was in fact owned by a third party and
ordered them to pay ₱100,000.00 as damages,
₱30,000.00 as attorney’s fees and costs.
The Catungals appealed the decision to the Court of
Appeals, asserting the commission of the following errors
by the trial court in their appellants’ brief38 dated February
9, 1994:
I SECOND DIVISION, AND THE COURT A QUO WAS
THE COURT A QUO ERRED IN NOT DISMISSING OF
(SIC) THE CASE ON THE GROUNDS OF IMPROPER
VENUE AND LACK OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE
CASE AS A PERSONAL AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS
PROPERLY LAID AND THE CASE IS A PERSONAL
ACTION, THE COURT A QUO ERRED IN DECLARING
THE DEFENDANTS IN DEFAULT DURING THE PRE-
TRIAL WHEN AT THAT TIME THE DEFENDANTS HAD
ALREADY FILED THEIR ANSWER TO THE
COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE
DEFENDANTS AS HAVING LOST THEIR LEGAL
STANDING IN COURT WHEN AT MOST THEY COULD
ONLY BE CONSIDERED AS IN DEFAULT AND STILL
ENTITLED TO NOTICES OF ALL FURTHER
PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED
THE MOTION TO LIFT THE ORDER OF DEFAULT.
V Court to File Citation of Authorities43 and a Citation of
THE COURT A QUO ERRED IN ISSUING THE WRIT
[OF] PRELIMINARY INJUNCTION RESTRAINING THE
EXERCISE OF ACTS OF OWNERSHIP AND OTHER
RIGHTS OVER REAL PROPERTY OUTSIDE OF THE
COURT’S TERRITORIAL JURISDICTION AND
INCLUDING PERSONS WHO WERE NOT BROUGHT
UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING
ITSELF MOTU PROP[R]IO FROM CONTINUING WITH
THE PROCEEDINGS IN THE CASE AND IN
RENDERING DECISION THEREIN IF ONLY FOR
REASON OF COURTESY AND FAIRNESS BEING
MANDATED AS DISPENSER OF FAIR AND EQUAL
JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR
FAVOR IT HAVING BEEN SERVED EARLIER WITH A
COPY OF THE PETITION FOR CERTIORARI
QUESTIONING ITS VENUE AND JURISDICTION IN CA-
G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING
OF COMMENT THERETO HAD ALREADY BEEN SENT
OUT BY THE HONORABLE COURT OF APPEALS,
FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE
IN FAVOR OF THE PLAINTIFF AND AGAINST THE
DEFENDANTS ON THE BASIS OF EVIDENCE WHICH
ARE IMAGINARY, FABRICATED, AND DEVOID OF
TRUTH, TO BE STATED IN DETAIL IN THE
DISCUSSION OF THIS PARTICULAR ERROR, AND,
THEREFORE, THE DECISION IS REVERSIBLE.39
On August 31, 1995, after being granted several
extensions, Rodriguez filed his appellee’s
brief,40 essentially arguing the correctness of the trial
court’s Decision regarding the foregoing issues raised by
the Catungals. Subsequently, the Catungals filed a Reply
Brief41 dated October 16, 1995.
From the filing of the appellants’ brief in 1994 up to the
filing of the Reply Brief, the spouses Catungal were
represented by appellant Jose Catungal himself.
However, a new counsel for the Catungals, Atty. Jesus N.
Borromeo (Atty. Borromeo), entered his appearance
before the Court of Appeals on September 2, 1997.42 On
the same date, Atty. Borromeo filed a Motion for Leave of
Authorities.44 This would be followed by Atty. Borromeo’s
filing of an Additional Citation of Authority and Second
Additional Citation of Authority both on November 17,
1997.45
During the pendency of the case with the Court of
Appeals, Agapita Catungal passed away and thus, her
husband, Jose, filed on February 17, 1999 a motion for
Agapita’s substitution by her surviving children.46
On August 8, 2000, the Court of Appeals rendered a
Decision in the consolidated cases CA-G.R. CV No.
40627 and CA-G.R. SP No. 27565,47 affirming the trial
court’s Decision.
In a Motion for Reconsideration dated August 21,
2000,48 counsel for the Catungals, Atty. Borromeo, argued
for the first time that paragraphs 1(b) and 549 of the
Conditional Deed of Sale, whether taken separately or
jointly, violated the principle of mutuality of contracts
under Article 1308 of the Civil Code and thus, said
contract was void ab initio. He adverted to the cases
mentioned in his various citations of authorities to support
his argument of nullity of the contract and his position that
this issue may be raised for the first time on appeal.
Meanwhile, a Second Motion for Substitution 50 was filed
by Atty. Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of
Appeals allowed the substitution of the deceased Agapita
and Jose Catungal by their surviving heirs and denied the
motion for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on
March 27, 2001 the present petition for review,51 which
essentially argued that the Court of Appeals erred in not
finding that paragraphs 1(b) and/or 5 of the Conditional
Deed of Sale, violated the principle of mutuality of
contracts under Article 1308 of the Civil Code. Thus, said
contract was supposedly void ab initio and the Catungals’
rescission thereof was superfluous.
In his Comment,52 Rodriguez highlighted that (a)
petitioners were raising new matters that cannot be
passed upon on appeal; (b) the validity of the Conditional
Deed of Sale was already admitted and petitioners cannot
be allowed to change theories on appeal; (c) the
questioned paragraphs of the Conditional Deed of Sale
were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not
entitled to relief for not having come to court with clean
hands.
The Court gave due course to the Petition53 and the
parties filed their respective Memoranda.
The issues to be resolved in the case at bar can be
summed into two questions:
I. Are petitioners allowed to raise their theory of nullity of
the Conditional Deed of Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of
Sale violate the principle of mutuality of contracts under
Article 1308 of the Civil Code?
On petitioners’ change of theory
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Sales – Chapter 3-12 Cases
Petitioners claimed that the Court of Appeals should have
reversed the trial courts’ Decision on the ground of the
alleged nullity of paragraphs 1(b) and 5 of the Conditional
Deed of Sale notwithstanding that the same was not
raised as an error in their appellants’ brief. Citing Catholic
Bishop of Balanga v. Court of Appeals,54 petitioners
argued in the Petition that this case falls under the
following exceptions:
(3) Matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve
the interest of justice or to avoid dispensing piecemeal
justice;
(4) Matters not specifically assigned as errors on appeal
but raised in the trial court and are matters of record
having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but closely
related to an error assigned; and
(6) Matters not assigned as errors but upon which the
determination of a question properly assigned is
dependent.55
We are not persuaded.
This is not an instance where a party merely failed to
assign an issue as an error in the brief nor failed to argue
a material point on appeal that was raised in the trial court
and supported by the record. Neither is this a case where
a party raised an error closely related to, nor dependent
on the resolution of, an error properly assigned in his brief.
This is a situation where a party completely changes his
theory of the case on appeal and abandons his previous
assignment of errors in his brief, which plainly should not
be allowed as anathema to due process.
Petitioners should be reminded that the object of
pleadings is to draw the lines of battle between the
litigants and to indicate fairly the nature of the claims or
defenses of both parties.56 In Philippine National
Construction Corporation v. Court of Appeals,57 we held
that "[w]hen a party adopts a certain theory in the trial
court, he will not be permitted to change his theory on
appeal, for to permit him to do so would not only be unfair
to the other party but it would also be offensive to the
basic rules of fair play, justice and due process." 58
We have also previously ruled that "courts of justice have
no jurisdiction or power to decide a question not in issue.
Thus, a judgment that goes beyond the issues and
purports to adjudicate something on which the court did
not hear the parties, is not only irregular but also
extrajudicial and invalid. The rule rests on the fundamental
tenets of fair play."59
During the proceedings before the trial court, the spouses
Catungal never claimed that the provisions in the
Conditional Deed of Sale, stipulating that the payment of
the balance of the purchase price was contingent upon
the successful negotiation of a road right of way
(paragraph 1[b]) and granting Rodriguez the option to
rescind (paragraph 5), were void for allegedly making the
fulfillment of the contract dependent solely on the will of
Rodriguez.
On the contrary, with respect to paragraph 1(b), the
Catungals did not aver in the Answer (and its amended
versions) that the payment of the purchase price was
subject to the will of Rodriguez but rather they claimed
that paragraph 1(b) in relation to 1(c) only presupposed a
reasonable time be given to Rodriguez to negotiate the
road right of way. However, it was petitioners’ theory that
more than sufficient time had already been given
Rodriguez to negotiate the road right of way.
Consequently, Rodriguez’s refusal/failure to pay the
balance of the purchase price, upon demand, was
allegedly indicative of lack of funds and a breach of the
contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale,
regarding Rodriguez’s option to rescind, it was petitioners’
theory in the court a quo that notwithstanding such
provision, they retained the right to rescind the contract for
Rodriguez’s breach of the same under Article 1191 of the
Civil Code.
Verily, the first time petitioners raised their theory of the
nullity of the Conditional Deed of Sale in view of the
questioned provisions was only in their Motion for
Reconsideration of the Court of Appeals’ Decision,
affirming the trial court’s judgment. The previous filing of
various citations of authorities by Atty. Borromeo and the
Court of Appeals’ resolutions noting such citations were of
no moment. The citations of authorities merely listed
cases and their main rulings without even any mention of
their relevance to the present case or any prayer for the
Court of Appeals to consider them.1âwphi1 In sum, the
Court of Appeals did not err in disregarding the citations of
authorities or in denying petitioners’ motion for
reconsideration of the assailed August 8, 2000 Decision in
view of the proscription against changing legal theories on
appeal.
Ruling on the questioned provisions of the Conditional
Deed of Sale
Even assuming for the sake of argument that this Court
may overlook the procedural misstep of petitioners, we
still cannot uphold their belatedly proffered arguments.
At the outset, it should be noted that what the parties
entered into is a Conditional Deed of Sale, whereby the
spouses Catungal agreed to sell and Rodriguez agreed to
buy Lot 10963 conditioned on the payment of a certain
price but the payment of the purchase price was
additionally made contingent on the successful
negotiation of a road right of way. It is elementary that "[i]n
conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which
constitutes the condition."60
Petitioners rely on Article 1308 of the Civil Code to
support their conclusion regarding the claimed nullity of
the aforementioned provisions. Article 1308 states that
"[t]he contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of
a third person, the obligation shall take effect in conformity
with the provisions of this Code.
In the past, this Court has distinguished between a
condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an
obligation. While failure to comply with the first condition
results in the failure of a contract, failure to comply with
the second merely gives the other party the option to
either refuse to proceed with the sale or to waive the
condition.61 This principle is evident in Article 1545 of the
Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a
contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the
contract or he may waive performance of the condition x x
x.
Paragraph 1(b) of the Conditional Deed of Sale, stating
that respondent shall pay the balance of the purchase
price when he has successfully negotiated and secured a
road right of way, is not a condition on the perfection of
the contract nor on the validity of the entire contract or its
238
Sales – Chapter 3-12 Cases
compliance as contemplated in Article 1308. It is a
condition imposed only on respondent’s obligation to pay
the remainder of the purchase price. In our view and
applying Article 1182, such a condition is not purely
potestative as petitioners contend. It is not dependent on
the sole will of the debtor but also on the will of third
persons who own the adjacent land and from whom the
road right of way shall be negotiated. In a manner of
speaking, such a condition is likewise dependent on
chance as there is no guarantee that respondent and the
third party-landowners would come to an agreement
regarding the road right of way. This type of mixed
condition is expressly allowed under Article 1182 of the
Civil Code.
Analogous to the present case is Romero v. Court of
Appeals,62 wherein the Court interpreted the legal effect of
a condition in a deed of sale that the balance of the
purchase price would be paid by the vendee when the
vendor has successfully ejected the informal settlers
occupying the property. In Romero, we found that such a
condition did not affect the perfection of the contract but
only imposed a condition on the fulfillment of the
obligation to pay the balance of the purchase price, to wit:
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.
We share the opinion of the appellate court that the
undertaking required of private respondent does not
constitute a "potestative condition dependent solely on his
will" that might, otherwise, be void in accordance with
Article 1182 of the Civil Code 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." We must hasten to add,
however, that where the so-called "potestative condition"
is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving
unaffected the obligation itself.63 (Emphases supplied.)
From the provisions of the Conditional Deed of Sale
subject matter of this case, it was the vendee (Rodriguez)
that had the obligation to successfully negotiate and
secure the road right of way. However, in the decision of
the trial court, which was affirmed by the Court of Appeals,
it was found that respondent Rodriguez diligently exerted
efforts to secure the road right of way but the spouses
Catungal, in bad faith, contributed to the collapse of the
negotiations for said road right of way. To quote from the
trial court’s decision:
It is therefore apparent that the vendee’s obligations (sic)
to pay the balance of the purchase price arises only when
the road-right-of-way to the property shall have been
successfully negotiated, secured and provided. In other
words, the obligation to pay the balance is conditioned
upon the acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181 of the New
Civil Code. Accordingly, "an obligation dependent upon a
suspensive condition cannot be demanded until after the
condition takes place because it is only after the fulfillment
of the condition that the obligation arises." (Javier v[s] CA
183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that
plaintiff [Rodriguez] indeed was diligent in his efforts to
negotiate for a road-right-of-way to the property. The
written offers, proposals and follow-up of his proposals
show that plaintiff [Rodriguez] went all out in his efforts to
immediately acquire an access road to the property, even
going to the extent of offering ₱3,000.00 per square meter
for the road lots (Exh. Q) from the original ₱550.00 per sq.
meter. This Court also notes that defendant (sic) [the
Catungals] made misrepresentation in the negotiation they
have entered into with plaintiff [Rodriguez]. (Exhs. F and
G) The misrepresentation of defendant (sic) [the
Catungals] as to the third lot (Lot 10986) to be part and
parcel of the subject property [(]Lot 10963) contributed in
defeating the plaintiff’s [Rodriguez’s] effort in acquiring the
road-right-of-way to the property. Defendants [the
Catungals] cannot now invoke the non-fulfillment of the
condition in the contract as a ground for rescission when
defendants [the Catungals] themselves are guilty of
preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view
that rescission of the conditional deed of sale by the
defendants is without any legal or factual basis. 64 x x x.
(Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing
factual findings of the trial court.
Furthermore, it is evident from the language of paragraph
1(b) that the condition precedent (for respondent’s
obligation to pay the balance of the purchase price to
arise) in itself partly involves an obligation to do, i.e., the
undertaking of respondent to negotiate and secure a road
right of way at his own expense.65 It does not escape our
notice as well, that far from disclaiming paragraph 1(b) as
void, it was the Catungals’ contention before the trial court
that said provision should be read in relation to paragraph
1(c) which stated:
c. That the access road or Road Right of Way leading to
Lot 10963 shall be the responsibility of the VENDEE to
secure and any or all cost relative to the acquisition
thereof shall be borne solely by the VENDEE. He shall,
however, be accorded with enough time necessary for the
success of his endeavor, granting him a free hand in
negotiating for the passage.66 (Emphasis supplied.)
The Catungals’ interpretation of the foregoing stipulation
was that Rodriguez’s obligation to negotiate and secure a
road right of way was one with a period and that period,
i.e., "enough time" to negotiate, had already lapsed by the
time they demanded the payment of ₱5,000,000.00 from
respondent. Even assuming arguendo that the Catungals
were correct that the respondent’s obligation to negotiate
a road right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still be
unwarranted. Based on their own theory, the Catungals
had a remedy under Article 1197 of the Civil Code, which
mandates:
Art. 1197. If the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a
period was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them.
What the Catungals should have done was to first file an
action in court to fix the period within which Rodriguez
should accomplish the successful negotiation of the road
right of way pursuant to the above quoted provision. Thus,
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Sales – Chapter 3-12 Cases
the Catungals’ demand for Rodriguez to make an
additional payment of ₱5,000,000.00 was premature and
Rodriguez’s failure to accede to such demand did not
justify the rescission of the contract.
With respect to petitioners’ argument that paragraph 5 of
the Conditional Deed of Sale likewise rendered the said
contract void, we find no merit to this theory. Paragraph 5
provides:
5. That the VENDEE has the option to rescind the sale. In
the event the VENDEE exercises his option to rescind the
herein Conditional Deed of Sale, the VENDEE shall notify
the VENDOR by way of a written notice relinquishing his
rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) representing the
downpayment, interest free, payable but contingent upon
the event that the VENDOR shall have been able to sell
the property to another party.67
Petitioners posited that the above stipulation was the
"deadliest" provision in the Conditional Deed of Sale for
violating the principle of mutuality of contracts since it
purportedly rendered the contract subject to the will of
respondent.
We do not agree.
It is petitioners’ strategy to insist that the Court examine
the first sentence of paragraph 5 alone and resist a
correlation of such sentence with other provisions of the
contract. Petitioners’ view, however, ignores a basic rule
in the interpretation of contracts – that the contract should
be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various
stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may
result from all of them taken jointly." The same Code
further sets down the rule that "[i]f some stipulation of any
contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate
to render it effectual."68
Similarly, under the Rules of Court it is prescribed that
"[i]n the construction of an instrument where there are
several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all" 69 and "for
the proper construction of an instrument, the
circumstances under which it was made, including the
situation of the subject thereof and of the parties to it, may
be shown, so that the judge may be placed in the position
of those whose language he is to interpret."70
Bearing in mind the aforementioned interpretative rules,
we find that the first sentence of paragraph 5 must be
taken in relation with the rest of paragraph 5 and with the
other provisions of the Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that
Rodriguez’s option to rescind the contract is not absolute
as it is subject to the requirement that there should be
written notice to the vendor and the vendor shall only
return Rodriguez’s downpayment of ₱500,000.00, without
interest, when the vendor shall have been able to sell the
property to another party. That what is stipulated to be
returned is only the downpayment of ₱500,000.00 in the
event that Rodriguez exercises his option to rescind is
significant. To recall, paragraph 1(b) of the contract clearly
states that the installments on the balance of the purchase
price shall only be paid upon successful negotiation and
procurement of a road right of way. It is clear from such
provision that the existence of a road right of way is a
material consideration for Rodriguez to purchase the
property. Thus, prior to him being able to procure the road
right of way, by express stipulation in the contract, he is
not bound to make additional payments to the Catungals.
It was further stipulated in paragraph 1(b) that: "[i]f
however said road right of way cannot be negotiated, the
VENDEE shall give notice to the VENDOR for them to
reassess and solve the problem by taking other options
and should the situation ultimately prove futile, he
[Rodriguez] shall take steps to rescind or [cancel] the
herein Conditional Deed of Sale." The intention of the
parties for providing subsequently in paragraph 5 that
Rodriguez has the option to rescind the sale is undeniably
only limited to the contingency that Rodriguez shall not be
able to secure the road right of way. Indeed, if the parties
intended to give Rodriguez the absolute option to rescind
the sale at any time, the contract would have provided for
the return of all payments made by Rodriguez and not
only the downpayment. To our mind, the reason only the
downpayment was stipulated to be returned is that the
vendee’s option to rescind can only be exercised in the
event that no road right of way is secured and, thus, the
vendee has not made any additional payments, other than
his downpayment.
In sum, Rodriguez’s option to rescind the contract is not
purely potestative but rather also subject to the same
mixed condition as his obligation to pay the balance of the
purchase price – i.e., the negotiation of a road right of
way. In the event the condition is fulfilled (or the
negotiation is successful), Rodriguez must pay the
balance of the purchase price. In the event the condition
is not fulfilled (or the negotiation fails), Rodriguez has the
choice either (a) to not proceed with the sale and demand
return of his downpayment or (b) considering that the
condition was imposed for his benefit, to waive the
condition and still pay the purchase price despite the lack
of road access. This is the most just interpretation of the
parties’ contract that gives effect to all its provisions.
In any event, even if we assume for the sake of argument
that the grant to Rodriguez of an option to rescind, in the
manner provided for in the contract, is tantamount to a
potestative condition, not being a condition affecting the
perfection of the contract, only the said condition would be
considered void and the rest of the contract will remain
valid. In Romero, the Court observed that "where the so-
called ‘potestative condition’ is imposed not on the birth of
the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself." 71
It cannot be gainsaid that "contracts have the force of law
between the contracting parties and should be complied
with in good faith."72 We have also previously ruled that
"[b]eing the primary law between the parties, the contract
governs the adjudication of their rights and obligations. A
court has no alternative but to enforce the contractual
stipulations in the manner they have been agreed upon
and written."73 We find no merit in petitioners’ contention
that their parents were merely "duped" into accepting the
questioned provisions in the Conditional Deed of Sale. We
note that although the contract was between Agapita
Catungal and Rodriguez, Jose Catungal nonetheless
signed thereon to signify his marital consent to the same.
We concur with the trial court’s finding that the spouses
Catungals’ claim of being misled into signing the contract
was contrary to human experience and conventional
wisdom since it was Jose Catungal who was a practicing
lawyer while Rodriquez was a non-lawyer.74 It can be
reasonably presumed that Atty. Catungal and his wife
reviewed the provisions of the contract, understood and
accepted its provisions before they affixed their signatures
thereon.
After thorough review of the records of this case, we have
come to the conclusion that petitioners failed to
demonstrate that the Court of Appeals committed any
reversible error in deciding the present controversy.
However, having made the observation that it was
desirable for the Catungals to file a separate action to fix
240
Sales – Chapter 3-12 Cases
the period for respondent Rodriguez’s obligation to
negotiate a road right of way, the Court finds it necessary
to fix said period in these proceedings. It is but equitable
for us to make a determination of the issue here to obviate
further delay and in line with the judicial policy of avoiding
multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30)
days from the finality of this decision to negotiate a road
right of way. In the event no road right of way is secured
by Rodriquez at the end of said period, the parties shall
reassess and discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of Sale and, for
this purpose, they are given a period of thirty (30) days to
agree on a course of action. Should the discussions of the
parties prove futile after the said thirty (30)-day period,
immediately upon the expiration of said period for
discussion, Rodriguez may (a) exercise his option to
rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of
paragraphs 1(b) and 5 of the Conditional Deed of Sale or
(b) waive the road right of way and pay the balance of the
deducted purchase price as determined in the RTC
Decision dated May 30, 1992.
WHEREFORE, the Decision dated August 8, 2000 and
the Resolution dated January 30, 2001 of the Court of
Appeals in CA-G.R. CV No. 40627 consolidated with CA-
G.R. SP No. 27565 are AFFIRMED with the following
modification:
If still warranted, respondent Angel S. Rodriguez is given
a period of thirty (30) days from the finality of this Decision
to negotiate a road right of way. In the event no road right
of way is secured by respondent at the end of said period,
the parties shall reassess and discuss other options as
stipulated in paragraph 1(b) of the Conditional Deed of
Sale and, for this purpose, they are given a period of thirty
(30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty
(30)-day period, immediately upon the expiration of said
period for discussion, Rodriguez may (a) exercise his
option to rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of
paragraphs 1(b) and 5 of the Conditional Deed of Sale or
(b) waive the road right of way and pay the balance of the
deducted purchase price as determined in the RTC
Decision dated May 30, 1992.
No pronouncement as to costs.
SO ORDERED.
241
Sales – Chapter 3-12 Cases
G.R. No. 132269 April 27, 2000
HARRISON MOTORS CORPORATION, petitioner,
vs.
RACHEL A. NAVARRO, respondent.
BELLOSILLO, J.:
This is a review on certiorari of the Decision of the Court
of Appeals affirming that of the Regional Trial Court of
Makati which ordered petitioner to pay private respondent
P32,943.00 as reimbursement for taxes paid, P7,500.00
as attorney's fees and the costs of suit. 1
Sometime in June of 1987 Harrison Motors Corporation
through its president, Renato Claros, sold two (2) Isuzu Elf
trucks to private respondent Rachel Navarro, owner of RN
Freight Lines, a franchise holder operating and
maintaining a fleet of cargo trucks all over Luzon.
Petitioner, a known importer, assembler and
manufacturer, assembled the two (2) trucks using
imported component parts. 2 Prior to the sale, Renato
Claros represented to private respondent that all the BIR
taxes and customs duties for the parts used on the two (2)
trucks had been paid for. 3
On 10 September 1987 the Bureau of Internal Revenue
(BIR) and the Land Transportation Office (LTO) entered
into a Memorandum of Agreement (MOA) which provided
that prior to registration in the LTO of any assembled or
re-assembled motor vehicle which used imported parts, a
Certificate of Payment should first be obtained from the
BIR to prove payment of all taxes required under existing
laws. 4
On 12 October 1987 the Bureau of Customs (BOC) issued
Customs Memorandum Order No. 44-87 promulgating
rules, regulations and procedure for the voluntary
payment of duties and taxes on imported motor vehicles
assembled by non-assemblers. 5
Pursuant to the 10 September 1987 MOA between the
BIR and the LTO, the BIR issued on 18 December 1987
Revenue Memorandum Order No. 44-87 which provided
the procedure governing the processing and issuance of
the Certificate of Payment of internal revenue taxes for
purposes of registering motor vehicles. 6
On 16 June 1988 the BIR, BOC and LTO entered into a
tripartite MOA which provided that prior to the registration
in the LTO of any locally assembled motor vehicle using
imported component parts, a Certificate of Payment
should first be obtained from the BIR and the BOC to
prove that all existing taxes and customs duties have
been paid. 7
In December of 1988 government agents seized and
detained the two (2) Elf trucks of respondent after
discovering that there were still unpaid BIR taxes and
customs duties thereon. The BIR and the BOC ordered
private respondent to pay the proper assessments or her
trucks would be impounded. 8 Private respondent went to
Claros to ask for the receipts evidencing payment of BIR
taxes and customs duties; however, Claros refused to
comply. 9 Private respondent then demanded from Claros
that he pay the assessed taxes and warned him that he
would have to reimburse her should she be forced to pay
for the assessments herself. Her demands were again
ignored.
But wanting to secure the immediate release of the trucks
to comply with her business commitments, private
respondent paid the assessed BIR taxes and customs
duties amounting to P32,943.00. 10 Consequently, she
returned to petitioner's office to ask for reimbursement,
but petitioner again refused, prompting her to send a
demand letter through her lawyer. 11 When petitioner still
ignored her letter, she filed a complaint for a sum of
money on 24 September 1990 with the Regional Trial
Court of Makati. 12
On 24 May 1991 private respondent filed a Motion to
Declare Defendant in Default which was granted by the
RTC on the same day.
On 18 November 1991 private respondent filed a
Manifestation and Motion praying for the scheduling of the
reception of her evidence ex-parte since petitioner had not
as yet filed a Motion to Lift Order of Default. Thus, on 22
November 1991 the trial court ordered the reception of
private respondent's evidence ex-parte.13
It was only on 2 December 1991 when petitioner finally
filed a Motion to Lift Order of Default. However, on 20
January 1992 the trial court denied petitioner's motion for
its failure to attach an affidavit of merit showing that it had
a valid and meritorious defense. 14
On 5 March 1992 the trial court rendered a decision
ordering petitioner to reimburse private respondent in the
amount of P32,943.00 for the customs duties and internal
revenue taxes the latter had to pay to discharge her two
(2) Elf trucks from government custody. Petitioner was
also required to pay P7,500.00 for attorney's fees plus the
costs. 15
The Court of Appeals subsequently sustained the lower
court, hence this recourse of petitioner. 16
Petitioner argues that it was no longer obliged to pay for
the additional taxes and customs duties imposed on the
imported component parts by the Memorandum Orders
and the two (2) Memoranda of Agreement since such
administrative regulations only took effect after the
execution of its contract of sale with private respondent.
Holding it liable for payment of the taxes specified in the
administrative regulations, which have the force and effect
of laws, would not only violate the non-impairment clause
of the Constitution but also the principle of non-
retroactivity of laws provided in Art. 4 of the Civil
Code. 17 Furthermore, petitioner claims that it did pay the
assessed taxes and duties otherwise it would not have
been able to secure the release of such spare parts from
the customs and to register the vehicles with the LTO
under its name.
The records however reveal that the Memorandum Orders
and Memoranda of Agreement do not impose any
additional BIR taxes or customs duties.
Customs Memorandum Order No. 44-87 is concerned
with the Rules, Regulations and Procedures in the
Payment of Duties and Taxes on Imported Vehicles
Locally Assembled by Non-Assemblers. 18 It does not
charge any new tax. It simply provides the procedure on
how owners/consignees or their purchasers could
voluntarily initiate payment for any unpaid customs duties
on locally assembled vehicles using imported component
parts.
Neither does BIR Revenue Memorandum Order No. 44-
87 19 exact any tax. It merely outlines the procedure which
governs the processing and issuance of the Certificate of
Payment of internal revenue taxes for purposes of
registering motor vehicles with the arms and telling her
she looked beautiful. The special treatment and sexual
advances continued during her employment for four (4)
years but she never reciprocated his flirtations, until
finally, she noticed that his attitude towards her changed.
He made her understand that if she would not give in to
his sexual advances he would cause her termination from
the service; and he made good his threat when he started
harassing her. She just found out one day that her table
which was equipped with telephone and intercom units
and containing her personal belongings was transferred
without her knowledge to a place with neither telephone
nor intercom, for which reason, an argument ensued when
242
Sales – Chapter 3-12 Cases
she confronted William Chua resulting in her being
charged with gross disrespect. 11
Respondent Cortez explains, as regards the second
charge, that the money entrusted to her for transmittal
was not lost; instead, she gave it to the company
personnel in-charge for proper transmittal as evidenced by
a receipt duly signed by the latter. 12
With respect to the third imputation, private respondent
admits that she asked someone to punch-in her time card
because at that time she was doing an errand for one of
the company's officers, Richard Tan, and that was with
the permission of William Chua. She maintains that she
did it in good faith believing that she was anyway only
accommodating the request of a company executive and
done for the benefit of the company with the
acquiescence of her boss, William Chua. Besides, the
practice was apparently tolerated as the employees were
not getting any the BIR which would then transmit the
Certificate to the LTO to prove that all the BIR taxes
required under existing laws have been paid.
The 16 June 1988 tripartite MOA among the BIR, LTO
and the BOC virtually contained the same provisions. The
MOA provided that prior to registration with the LTO of
any assembled motor vehicle using imported component
parts, a certificate of Payment should first be secured from
the BIR or the BOC which should then be duly forwarded
to LTO. The Certificate would serve as proof that all taxes
and customs duties required under existing laws, rules
and regulations had already been settled.
Clearly, petitioner's contention is unmeritorious. What
Sec. 10, Art. III, of the Constitution prohibits is the
passage of a law which enlarges, abridges or in any
manner changes the intention of the contracting
parties. 21 The Memorandum Orders and the two (2)
Memoranda of Agreement do not impose any additional
taxes which would unduly impair the contract of sale
between petitioner and private respondent. Instead, these
administrative regulations were passed to enforce
payment of existing BIR taxes and customs duties at the
time of importation.
But who should pay the BIR taxes and customs duties
which the administrative regulations sought to enforce?
Petitioner contends that private respondent should be the
one to pay the internal revenue taxes and customs duties.
It claims that at the time the Memorandum Orders and the
two (2) Memoranda of Agreement took effect the two (2)
Elf trucks were already sold to private respondent, thus, it
no longer owned the vehicles. Whatever payments private
respondent made to the government after the sale were
solely her concern and such burden should not be passed
on to petitioner. 22 Petitioner further argues that holding it
liable for payment of BIR taxes and customs duties
required under the administrative regulations violates the
principle of non-retroactivity of laws under the Civil Code.
Such contention deserves scant consideration. It is true
that administrative rulings and regulations are generally
prospective in nature.23 An inspection of the two (2)
Memoranda of Agreement however demonstrates that
their intent is to enforce payment of taxes on
assemblers/manufacturers who import component parts
without paying the correct assessments. The WHEREAS
clause of the 10 September 1987 MOA clearly illustrates
this —
WHEREAS, in order to avoid or evade the higher taxes on
imported motor vehicles, certain persons import parts and
assemble and re-assemble them into complete motor
vehicles, or assemble or re-assemble motor vehicles
using imported parts;
While the WHEREAS clause of the 16 June 1988 MOA
provides —
WHEREAS, in order to avoid or evade the higher taxes on
imported motor vehicles, certain persons, firms or
corporations who are non-BOI licensed assemblers of
imported motor vehicle component parts would assemble
or re-assemble them into whole unit motor vehicles;
It is also apparent in Par. 9 of the 16 June 1988 MOA that
the taxes to be enforced are designated as
assembler's/manufacturer's tax. It states —
9. The BIR shall collect the assembler's/manufacturer's
tax, while the BOC shall collect the duties and taxes
and ad valorem tax.
Thus, although private respondent is the one required by
the administrative regulations to secure the Certificate of
Payment for the purpose of registration, petitioner as the
importer and the assembler/manufacturer of the two (2)
Elf trucks is still the one liable for payment of revenue
taxes and customs duties. Petitioner's obligation to pay
does not arise from the administrative regulations but from
the tax laws existing at the time of importation. Hence,
even if private respondent already owned the two (2)
trucks when the Memorandum Orders and Memoranda of
Agreement took effect, the fact remains that petitioner was
still the one duty-bound to pay for the BIR taxes and
customs duties.
It is also quite obvious that as between petitioner, who is
the importer-assembler/manufacturer, and private
respondent, who is merely the buyer, it is petitioner which
has the obligation to pay taxes to the BIR and the BOC.
Petitioner would be unjustly enriched if private respondent
should be denied reimbursement. 24 It would inequitably
amass profits from selling assembled trucks even if it did
not pay the taxes due on its imported spare parts.
Imposing the tax burden on private respondent would only
encourage the proliferation of smugglers who scheme to
evade taxes by passing on their tax obligations to their
unsuspecting buyers.
In a last ditch effort to exempt itself from liability, petitioner
claims that it had paid the taxes due on the imported parts
otherwise it would not have been able to obtain their
release from the BOC and to register the vehicles with the
LTO.
Non-sequitur. The fact that petitioner was able to secure
the release of the parts from customs and to register the
assembled trucks with the LTO does not necessarily
mean that all taxes and customs duties were legally
settled. As a matter of fact, the provisions of the two (2)
Memoranda of Agreement clearly establish that the
government is aware of the widespread registration of
assembled motor vehicles with the LTO even if the taxes
due on their imported component parts remain unpaid.
Paragraph 1 of the 10 September 1987 MOA states —
The LTO shall make as one of the requirements for the
registration of motor vehicles that were assembled or re-
assembled using imported parts, the payment to the BIR
of the taxes required under existing laws.
The same requirement shall be imposed with respect to
the renewal of the registration of such motor vehicles had
they been registered or their registration been renewed in
the past without the payment of the required taxes.
While par. 1 of the 16 June 1988 MOA states —
The LTO shall make as one of the requirements for the
registration of motor vehicles that were assembled or re-
assembled by non-BOI licensed assemblers using
imported component parts, the payment to the BIR and
the BOC of taxes and duties required under existing laws,
rules and regulations;
The same requirement shall be imposed with respect to
the renewal of the registration of such motor vehicles even
if they were already registered or their registration had
been renewed in the past without the payment of the
required taxes.
243
Sales – Chapter 3-12 Cases
Obviously, the two (2) Memoranda of Agreement were needed for her business and filed a complaint for
executed to prevent the anomalous circumstance, as in damages, particularly seeking the reimbursement of the
the case at bar, where assembled vehicles are registered amount she paid to secure the release of her vehicles.
with the LTO even if taxes and customs duties remain WHEREFORE, the Decision of the Court of Appeals dated
unpaid. 22 January 1998 ordering petitioner HARRISON
Besides, petitioner's allegation that it already paid the BIR MOTORS CORPORATION to reimburse private
taxes and customs duties is highly doubtful. This entire respondent RACHEL A. NAVARRO for the taxes and
controversy would have been avoided had petitioner duties she paid in the amount of P32,943.00 and to pay
simply furnished private respondent with the receipts her attorney's fees in the amount of P7,500.00 is
evidencing payment of BIR taxes and customs duties. If AFFIRMED. In addition, the amount of P32,943.00 shall
only private respondent had the receipts to prove payment earn interest at the legal rate from 24 September 1990
of such assessments then she would have easily secured when private respondent filed her complaint with the trial
the release of her two (2) Elf trucks. But petitioner court until fully paid. Costs against petitioner.
arbitrarily and unjustly denied private respondent's SO ORDERED.1âwphi1.nêt
demands. Instead, petitioner obstinately insisted that it
was no longer concerned with the problem involving the
two (2) trucks since it no longer owned the vehicles after
the consummation of the sale.
It is true that the ownership of the trucks shifted to private
respondent after the sale. But petitioner must remember
that prior to its consummation it expressly intimated to her
that it had already paid the taxes and customs
duties.25Such representation shall be considered as a
seller's express warranty under Art. 1546 of the Civil Code
which covers any affirmation of fact or any promise by the
seller which induces the buyer to purchase the thing and
actually purchases it relying on such affirmation or
promise. 26 It includes all warranties which are derived
from express language, whether the language is in the
form of a promise or representation. 27 Presumably,
therefore, private respondent would not have purchased
the two (2) Elf trucks were it not for petitioner's assertion
and assurance that all taxes on its imported parts were
already settled.
This express warranty was breached the moment
petitioner refused to furnish private respondent with the
corresponding receipts since such documents were the
best evidence she could present to the government to
prove that all BIR taxes and customs duties on the
imported component parts were fully paid. Without
evidence of payment, she was powerless to prevent the
trucks from being impounded.
Under Art. 1599 of the Civil Code, once an express
warranty is breached the buyer can accept or keep the
goods and maintain an action against the seller for
damages. This was what private respondent did. She
opted to keep the two (2) trucks which she apparently
244
Sales – Chapter 3-12 Cases
G.R. No. 73913 January 31, 1989
JERRY T. MOLES, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and MARIANO
M. DIOLOSA, respondents.
Zoilo V. De la Cruz, Jr., Kenneth Barredo, Romeo Sabig
and Natalio V. Sitjao for petitioners.
Rolando N. Medalla and Jose G. Guinez, Jr., for private
respondents.
REGALADO, J.:
This petition for review on certiorari assails the decision of
the then Intermediate Appellate Court 1 dismissing the
complaint filed by herein petitioner against the herein
private respondent in the former Court of First Instance of
Negros Occidental in Civil Case No. 13821 thereof. 2
The factual backdrop of this controversy, as culled from
the records, 3 shows that on May 17, 1978, petitioner
Jerry T. Moles commenced a suit against private
respondent Mariano M. Diolosa in the aforesaid trial court,
Branch IV in Bacolod City, for rescission of contract with
damages. Private respondent moved to dismiss on the
ground of improper venue, invoking therefor Sales Invoice
No. 075A executed between petitioner and private
respondent on April 23, 1977 which provides that all
judicial actions arising from this contract shall be instituted
in the City of Iloilo. 4This was opposed by petitioner who
averred that there is no formal document evidencing the
sale which is substantially verbal in character. In an order
dated June 23, 1978, the trial court denied the motion to
dismiss, holding that the question of venue could not be
resolved at said stage of the case. The subsequent
motion for reconsideration was likewise denied.
Consequently, private respondent, invoking the aforesaid
venue stipulation, preceeded to this Court on a petition for
prohibition with preliminary injunction in G.R. No. 49078,
questioning the validity of the order denying his aforesaid
two motions and seeking to enjoin the trial court from
further proceeding with the case. This petition was
dismissed for lack of merit in a resolution of the Court,
dated February 7, 1979, and which became final on March
15, 1979. Thereafter, private respondent filed his answer
and proceeded to trial.
The aforecited records establish that sometime in 1977,
petitioner needed a linotype printing machine for his
printing business, The LM Press at Bacolod City, and
applied for an industrial loan with the Development Bank
of the Philippines. (hereinafter, DBP) for the purchase
thereof. An agent of Smith, Bell and Co. who is a friend of
petitioner introduced the latter to private respondent,
owner of the Diolosa Publishing House in Iloilo City, who
had two available machines. Thereafter, petitioner went to
Iloilo City to inspect the two machines offered for sale and
was informed that the same were secondhand but
functional.
On his second visit to the Diolosa Publishing House,
petitioner together with Rogelio Yusay, a letter press
machine operator, decided to buy the linotype machine,
Model 14. The transaction was basically verbal in nature
but to facilitate the loan application with the DBP, a pro
forma invoice, dated April 23, 1977 and reflecting the
amount of P50,000.00 as the consideration of the sale,
was signed by petitioner with an addendum that payment
had not yet been made but that he promised to pay the
full amount upon the release of his loan from the
aforementioned bank on or before the end of the
month. 5 Although the agreed selling price was only
P40,000.00, the amount on the invoice was increased by
P10,000.00, said increase being intended for the
purchase of new matrices for said machine.
Sometime between April and May, 1977, the machine was
delivered to petitioner's publishing house at Tangub,
Bacolod City where it was installed by one Crispino
Escurido, an employee of respondent Diolosa. Another
employee of the Diolosa Publishing House, Tomas
Plondaya, stayed at petitioners house for almost a month
to train the latter's cousin in operating the machine. 6
Under date of August 29, 1977, private respondent issued
a certification wherein he warranted that the machine sold
was in A-1 condition, together with other express
warranties. 7
Prior to the release of the loan, a representative from the
DBP, Bacolod, supposedly inspected the machine but he
merely looked at it to see that it was there .8 The
inspector's recommendation was favorable and,
thereafter, petitioner's loan of P50,000.00 was granted
and released. However, before payment was made to
private respondent, petitioner required the former, in a
letter dated September 30, 1977, to accomplish the
following, with the explanations indicated by him:
1.) Crossed check for P15,407.10 representing.
a) P 10,000.00-Overprice in the machine:
b) P203.00-Freight and handling of the machine;
c) P203.00-Share in the electric repair; and
d) P5,000.00- Insurance that Crispin will come back and
repair the linotype machine at seller's account as provided
in the contract; after Crispin has put everything in order
when he goes home on Sunday he will return the check of
P15,000.00.
2) Official receipt in the amount of P 50,000.00 as full
payment of the linotype machine.
These were immediately complied with by private
respondent and on the same day, September 30,1977, he
received the DBP check for P50,000.00. 9
It is to be noted that the aforesaid official receipt No. 0451,
dated September 30, 1977 and prepared and signed by
private respondent, expressly states that he received from
the petitioner the DBP check for P50,000.00 issued in our
favor in full payment of one (1) Unit Model 14 Linotype
Machine as per Pro forma Invoice dated April 23, 1977. 10
On November 29, 1977, petitioner wrote private
respondent that the machine was not functioning properly
as it needed a new distributor bar. In the same letter,
petitioner unburdened himself of his grievances and
sentiments in this wise.
We bought this machine in good faith because we trusted
you very much being our elder brother in printing and
publishing business. We did not hire anybody to look over
the machine, much more ask for a rebate in your price of
P40,000.00 and believed what your trusted two men,
Tomas and Crispin, said although they were hiding the
real and actual condition of the machine for your business
protection.
Until last week, we found out the worst ever to happen to
us. We have been cheated because the expert of the
Linotype machine from Manila says, that the most he will
buy your machine is at P5,000.00 only. ... 11
Private respondent made no reply to said letter, so
petitioner engaged the services of other technicians.
Later, after several telephone calls regarding the defects
in the machine, private respondent sent two technicians to
make the necessary repairs but they failed to put the
machine in running condition. In fact, since then petitioner
was never able to use the machine.12
On February 18, 1978, not having received from private
respondent the action requested in his preceding letter as
herein before stated, petitioner again wrote private
respondent, this time with the warning that he would be
forced to seek legal remedies to protect his interest. 13
Obviously in response to the foregoing letter, private
respondent decided to purchase a new distributor bar
245
Sales – Chapter 3-12 Cases
and, on March 16, 1978, private respondent delivered this
spare part to petitioner through one Pedro Candido.
However, when thereafter petitioner asked private
respondent to pay for the price of the distributor bar, the
latter asked petitioner to share the cost with him.
Petitioner thus finally decided to indorse the matter to his
lawyer.
An expert witness for the petitioner, one Gil Legaspina,
declared that he inspected the linotype machine involved
in this case at the instance of petitioner. In his inspection
thereof, he found the following defects: (1) the vertical
automatic stop lever in the casting division was worn out;
(2) the justification lever had a slight breach (balana in the
dialect); (3) the distributor bar was worn out; (4) the
partition at the entrance channel had a tear; (5) there was
no "pie stacker" tube entrance; and (6) the slouch arm
lever in the driving division was worn out.
It turned out that the said linotype machine was the same
machine that witness Legaspina had previously inspected
for Sy Brothers, a firm which also wanted to buy a linotype
machine for their printing establishment. Having found
defects in said machine, the witness informed Sy Brother
about his findings, hence the purchase was aborted. In his
opinion, major repairs were needed to put the machine
back in good running condition.14
After trial, the court a quo rendered a decision the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS,
judgment is hereby rendered as follows:
(1) Decreeing the rescission of the contract of sale
involving one linotype machine No. 14 between the
defendant as seller and the plaintiff as buyer;
(2) Ordering the plaintiff to return to the defendant at the
latter's place of business in Iloilo City the linotype machine
aforementioned together with all accessories that
originally were delivered to the plaintiff;
(3) Ordering the defendant to return to the plaintiff the sum
of Forty Thousand Pesos (P40,000.00) representing the
price of the linotype machine, plus interest at the legal rate
counted from May 17, 1978 when this action was
instituted, until fully paid;
(4) Ordering the defendant to indemnify the plaintiff the
sum of Four Thousand Five Hundred Pesos (P4,500.00)
representing unearned income or actual damages;
(5) Ordering the defendant to pay the plaintiff the sum of
One Thousand Pesos (Pl,000.00) for attorney's fees.
Costs against the defendant.15
From this decision, private respondent appealed to the
Intermediate Appellate Court which reversed the judgment
of the lower court and dismissed petitioner's complaint,
hence the present petition.
We find merit in petitioner's cause.
On the matter of venue, private respondent relies on the
aforementioned Sales Invoice No. 076A which allegedly
requires that the proper venue should be Iloilo City and
not Bacolod City. We agree with petitioner that said
document is not the contract evidencing the sale of the
linotype machine, it being merely a preliminary
memorandum of a proposal to buy one linotype machine,
using for such purpose a printed form used for printing job
orders in private respondent's printing business. As
hereinbefore explained, this issue on venue was brought
to Us by private respondent in a special civil action for
prohibition with preliminary injunction in G.R. No. 49078.
After considering the allegations contained, the issues
raised and the arguments adduced in said petition, as well
as the comments thereto, the Court dismissed the petition
for lack of merit. Respondent court erred in reopening the
same issue on appeal, with a contrary ruling.
Furthermore, it was error for the respondent court, after
adopting the factual findings of the lower court, to reverse
the latter's holding that the sales invoice is merely a pro
forma memorandum. The records do not show that this
finding is grounded entirely on speculation, surmises or
conjectures as to warrant a reversal thereof. 16 In fact, as
hereinbefore stated, private respondent expressly
admitted in his official receipt No. 0451, dated September
30, 1977, that the said sales invoice was merely a pro
forma invoice. Consequently, the printed provisions
therein, especially since the printed form used was for
purposes of other types of transactions, could not have
been intended by the parties to govern their transaction
on the printing machine. It is obvious that a venue
stipulation, in order to bind the parties, must have been
intelligently and deliberately intended by them to exclude
their case from the reglementary rules on venue. Yet,
even such intended variance may not necessarily be
given judicial approval, as, for instance, where there are
no restrictive or qualifying words in the agreement
indicating that venue cannot be laid in any place other
than that agreed upon by the parties, 17 and in contracts of
adhesion. 18
Now, when an article is sold as a secondhand item, a
question arises as to whether there is an implied warranty
of its quality or fitness. It is generally held that in the sale
of a designated and specific article sold as secondhand,
there is no implied warranty as to its quality or fitness for
the purpose intended, at least where it is subject to
inspection at the time of the sale. On the other hand, there
is also authority to the effect that in a sale of a
secondhand articles there may be, under some
circumstances, an implied warranty of fitness for the
ordinary purpose of the article sold or for the particular
purpose of the buyer. 19
In a line of decisions rendered by the United States
Supreme Court, it had theretofore been held that there is
no implied warranty as to the condition, adaptation,
fitness, or suitability for the purpose for which made, or
the quality, of an article sold as and for a secondhand
article. 20
Thus, in finding for private respondent, the respondent
court cited the ruling in Sison vs. Ago, et al. 21 to the effect
that unless goods are sold as to raise an implied warranty,
as a general rule there is no implied warranty in the sale
of secondhand articles.22
Said general rule, however, is not without exceptions.
Article 1562 of our Civil Code, which was taken from the
Uniform Sales Act, provides:
Art. 1562. In a sale of goods, there is an implied warranty
or condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which the
goods are acquired, and it appears that the buyer relies
on the seller's skill or judgment (whether he be the grower
or manufacturer or not), there is an implied warranty that
the goods shall be reasonably fit for such purpose;
xxx
In Drumar Mining Co. vs. Morris Ravine Mining Co., 23 the
District Court of Appeals, 3rd District, California, in
applying a similar provision of law, ruled:
'There is nothing in the Uniform Sales Act declaring there
is no implied warranty in the sale of secondhand goods.
Section 1735 of the Civil Code declares there is no
implied warranty or condition as to the quality or fitness for
any particular purpose, of goods supplied under a contract
to sell or a sale, except (this general statement is followed
by an enumeration of several exceptions). It would seem
that the legislature intended this section to apply to all
sales of goods, whether new or secondhand. In
subdivision 1 of this section, this language is used: where
246
Sales – Chapter 3-12 Cases
the buyer ... makes known to the seller the particular
purpose for which the goods are required, and it appears
that the buyer relies on the seller's skill or judgment ...
there is an implied warranty that the goods shall be
reasonably fit for such purpose.'
Furthermore, and of a more determinative role in this
case, a perusal of past American decisions 24 likewise
reveals a uniform pattern of rulings to the effect that an
express warranty can be made by and also be binding on
the seller even in the sale of a secondhand article.
In the aforecited case of Markman vs. Hallbeck, while
holding that there was an express warranty in the sale of a
secondhand engine, the court said that it was not error to
refuse an instruction that upon the sale of secondhand
goods no warranty was implied, since secondhand goods
might be sold under such circumstances as to raise an
implied warranty.
To repeat, in the case before Us, a certification to the
effect that the linotype machine bought by petitioner was
in A-1 condition was issued by private respondent in favor
of the former. This cannot but be considered as an
express warranty. However, it is private respondent's
submission, that the same is not binding on him, not being
a part of the contract of sale between them. This
contention is bereft of substance.
It must be remembered that the certification was a
condition sine qua non for the release of petitioner's loan
which was to be used as payment for the purchase price
of the machine. Private respondent failed to refute this
material fact. Neither does he explain why he made that
express warranty on the condition of the machine if he
had not intended to be bound by it. In fact, the respondent
court, in declaring that petitioner should have availed of
the remedy of requiring repairs as provided for in said
certification, thereby considered the same as part and
parcel of the verbal contract between the parties.
On the basis of the foregoing circumstances, the
inescapable conclusion is that private respondent is
indeed bound by the express warranty he executed in
favor of herein petitioner.
We disagree with respondent court that private
respondents express warranty as to the A-1 condition of
the machine was merely dealer's talk. Private respondent
was not a dealer of printing or linotype machines to whom
could be ascribed the supposed resort to the usual
exaggerations of trade in said items. His certification as to
the condition of the machine was not made to induce
petitioner to purchase it but to confirm in writing for and the decision of the court a quo is hereby
purposes of the financing aspect of the transaction his REINSTATED.
representations thereon. Ordinarily, what does not appear SO ORDERED.
on the face of the written instrument should be regarded
as dealer's or trader's talk; 25 conversely, what is
specifically represented as true in said document, as in
the instant case, cannot be considered as mere dealer's
talk.
On the question as to whether the hidden defects in the
machine is sufficient to warrant a rescission of the
contract between the parties, we have to consider the rule
on redhibitory defects contemplated in Article 1561 of the
Civil Code. A redhibitory defect must be an imperfection or
defect of such nature as to engender a certain degree of
importance. An imperfection or defect of little
consequence does not come within the category of being
redhibitory.26
As already narrated, an expert witness for the petitioner
categorically established that the machine required major
repairs before it could be used. This, plus the fact that
petitioner never made appropriate use of the machine
from the time of purchase until an action was filed, attest
to the major defects in said machine, by reason of which
the rescission of the contract of sale is sought. The factual
finding, therefore, of the trial court that the machine is not
reasonably fit for the particular purpose for which it was
intended must be upheld, there being ample evidence to
sustain the same.
At a belated stage of this appeal, private respondent
came up for the first time with the contention that the
action for rescission is barred by prescription. While it is
true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action a
cursory reading of the ten preceding articles to which it
refers will reveal that said rule may be applied only in case
of implied warranties. The present case involves one with
and express warranty. Consequently, the general rule on
rescission of contract, which is four years 27 shall apply.
Considering that the original case for rescission was filed
only one year after the delivery of the subject machine,
the same is well within the prescriptive period. This is
aside from the doctrinal rule that the defense of
prescription is waived and cannot be considered on
appeal if not raised in the trial court, 28 and this case does
not have the features for an exception to said rule.
WHEREFORE, the judgment of dismissal of the
respondent court is hereby REVERSED and SET ASIDE,
247
Sales – Chapter 3-12 Cases
G.R. No. 119745 June 20, 1997
POWER COMMERCIAL AND INDUSTRIAL
CORPORATION, petitioner,
vs.
COURT OF APPEALS, SPOUSES REYNALDO and
ANGELITA R. QUIAMBAO and PHILIPPINE NATIONAL
BANK, respondents.
PANGANIBAN, J.:
Is the seller's failure to eject the lessees from a lot that is
the subject of a contract of sale with assumption of
mortgage a ground (1) for rescission of such contract and
(2) for a return by the mortgagee of the amortization
payments made by the buyer who assumed such
mortgage?
Petitioner posits an affirmative answer to such question in
this petition for review on certiorari of the March 27, 1995
Decision1 of the Court of Appeals, Eighth Division, in CA-
G.R. CV Case No. 32298 upholding the validity of the
contract of sale with assumption of mortgage and
absolving the mortgagee from the liability of returning the
mortgage payments already made.2
The Facts
Petitioner Power Commercial & Industrial Development
Corporation, an industrial asbestos manufacturer, needed
a bigger office space and warehouse for its products. For
this purpose, on January 31, 1979, it entered into a
contract of sale with the spouses Reynaldo and Angelita
R. Quiambao, herein private respondents. The contract
involved a 612-sq. m. parcel of land covered by Transfer
Certificate of Title No. S-6686 located at the corner of
Bagtican and St. Paul Streets, San Antonio Village, Makati
City. The parties agreed that petitioner would pay private
respondents P108,000.00 as down payment, and the
balance of P295,000.00 upon the execution of the deed of
transfer of the title over the property. Further, petitioner
assumed, as part of the purchase price, the existing
mortgage on the land. In full satisfaction thereof, he paid
P79,145.77 to Respondent Philippine National Bank
("PNB" for brevity).
On June 1, 1979, respondent spouses mortgaged again
said land to PNB to guarantee a loan of P145,000.00,
P80,000.00 of which was paid to respondent spouses.
Petitioner agreed to assume payment of the loan.
On June 26, 1979, the parties executed a Deed of
Absolute Sale With Assumption of Mortgage which
contained the following terms and conditions:3
That for and in consideration of the sum of Two Hundred
Ninety-Five Thousand Pesos (P295,000.00) Philippine
Currency, to us in hand paid in cash, and which we
hereby acknowledge to be payment in full and received to
our entire satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION, a 100%
Filipino Corporation, organized and existing under and by
virtue of Philippine Laws with offices located at 252-C Vito
Cruz Extension, we hereby by these presents SELL,
TRANSFER and CONVEY by way of absolute sale the
above described property with all the improvements
existing thereon unto the said Power Commercial and
Industrial Development Corporation, its successors and
assigns, free from all liens and encumbrances.
We hereby certify that the aforesaid property is not subject
to nor covered by the provisions of the Land Reform Code
— the same having no agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and
absolute owners of the above described property, free
from any lien and/or encumbrance, and we hereby agree
and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and
Industrial Development Corporation, its successors and
assigns, against any claims whatsoever of any and all
third persons; subject, however, to the provisions
hereunder provided to wit:
That the above described property is mortgaged to the
Philippine National Bank, Cubao, Branch, Quezon City for
the amount of one hundred forty-five thousand pesos,
Philippine, evidenced by document No. 163, found on
page No. 34 of Book No. XV, Series of 1979 of Notary
Public Herita
L. Altamirano registered with the Register of Deeds of
Pasig (Makati), Rizal . . . ;
That the said Power Commercial and Industrial
Development Corporation assumes to pay in full the entire
amount of the said mortgage above described plus
interest and bank charges, to the said mortgagee bank,
thus holding the herein vendor free from all claims by the
said bank;
That both parties herein agree to seek and secure the
agreement and approval of the said Philippine National
Bank to the herein sale of this property, hereby agreeing
to abide by any and all requirements of the said bank,
agreeing that failure to do so shall give to the bank first
lieu (sic) over the herein described property.
On the same date, Mrs. C.D. Constantino, then General
Manager of petitioner-corporation, submitted to PNB said
deed with a formal application for assumption of
mortgage.4
On February 15, 1980, PNB informed respondent spouses
that, for petitioner's failure to submit the papers necessary
for approval pursuant to the former's letter dated January
15, 1980, the application for assumption of mortgage was
considered withdrawn; that the outstanding balance of
P145,000.00 was deemed fully due and demandable; and
that said loan was to be paid in full within fifteen (15) days
from notice.5
Petitioner paid PNB P41,880.45 on June 24, 1980 and
P20,283.14 on December 23, 1980, payments which were
to be applied to the outstanding loan. On December 23,
1980, PNB received a letter from petitioner which reads: 6
With regard to the presence of the people who are
currently in physical occupancy of the (l)ot . . . it is our
desire as buyers and new owners of this lot to make use
of this lot for our own purpose, which is why it is our desire
and intention that all the people who are currently
physically present and in occupation of said lot should be
removed immediately.
For this purpose we respectfully request that . . . our
assumption of mortgage be given favorable consideration,
and that the mortgage and title be transferred to our name
so that we may undertake the necessary procedures to
make use of this lot ourselves.
It was our understanding that this lot was free and clear of
problems of this nature, and that the previous owner
would be responsible for the removal of the people who
were there. Inasmuch as the previous owner has not been
able to keep his commitment, it will be necessary for us to
take legal possession of this lot inorder (sic) to take
physical possession.
On February 19, 1982, PNB sent petitioner a letter as
follows:7
(T)his refers to the loan granted to Mr. Reynaldo
Quiambao which was assumed by you on June 4, 1979
for P101,500.00. It was last renewed on December 24,
1980 to mature on June 4, 1981.
A review of our records show that it has been past due
from last maturity with interest arrearages amounting to
P25,826.08 as of February 19, 1982. The last payment
received by us was on December 24, 1980 for P20,283.
14. In order to place your account in current form, we
248
Sales – Chapter 3-12 Cases
request you to remit payments to cover interest, charges,
and at least part of the principal.
On March 17, 1982, petitioner filed Civil Case No. 45217
against respondent spouses for rescission and damages
before the Regional Trial Court of Pasig, Branch 159.
Then, in its reply to PNB's letter of February 19, 1982,
petitioner demanded the return of the payments it made
on the ground that its assumption of mortgage was never
approved. On May 31, 1983,8 while this case was
pending, the mortgage was foreclosed. The property was
subsequently bought by PNB during the public auction.
Thus, an amended complaint was filed impleading PNB as
party defendant.
On July 12, 1990, the trial court9 ruled that the failure of
respondent spouses to deliver actual possession to
petitioner entitled the latter to rescind the sale, and in view
of such failure and of the denial of the latter's assumption
of mortgage, PNB was obliged to return the payments
made by the latter. The dispositive portion of said decision
states: 10
IN VIEW OF ALL THE FOREGOING, the Court hereby
renders judgment in favor of plaintiff and against
defendants:
(1) Declaring the rescission of the Deed of Sale with
Assumption of Mortgage executed between plaintiff and
defendants Spouses Quiambao, dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to
plaintiff the amount of P187,144.77 (P108,000.00 plus
P79,145.77) with legal interest of 12% per annum from
date of filing of herein complaint, that is, March 17, 1982
until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the
amount of P62,163.59 (P41,880.45 and P20,283.14) with
12% interest thereon from date of herein judgment until
the same is fully paid.
No award of other damages and attorney's fees, the same
not being warranted under the facts and circumstances of
the case.
The counterclaim of both defendants spouses Quiambao
and PNB are dismissed for lack of merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent
Court of Appeals reversed the trial court. In the assailed
Decision, it held that the deed of sale between respondent
spouses and petitioner did not obligate the former to eject
the lessees from the land in question as a condition of the
sale, nor was the occupation thereof by said lessees a
violation of the warranty against eviction. Hence, there
was no substantial breach to justify the rescission of said
contract or the return of the payments made. The
dispositive portion of said Decision reads: 11
WHEREFORE, the Decision appealed from is hereby
REVERSED and the complaint filed by Power Commercial
and Industrial Development Corporation against the
spouses Reynaldo and Angelita Quiambao and the
Philippine National Bank is DISMISSED. No costs.
Hence, the recourse to this Court.
Issues
Petitioner contends that: (1) there was a substantial
breach of the contract between the parties warranting
rescission; and (2) there was a "mistake in payment"
made by petitioner, obligating PNB to return such
payments. In its Memorandum, it specifically assigns the
following errors of law on the part of Respondent Court: 12
A. Respondent Court of Appeals gravely erred in failing to
consider in its decision that a breach of implied warranty
under Article 1547 in relation to Article 1545 of the Civil
Code applies in the case-at-bar.
B. Respondent Court of Appeals gravely erred in failing to
consider in its decision that a mistake in payment giving
rise to a situation where the principle of solutio
indebiti applies is obtaining in the case-at-bar.
The Court's Ruling
The petition is devoid of merit. It fails to appreciate the
difference between a condition and a warranty and the
consequences of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged "failure" of respondent spouses to eject the
lessees from the lot in question and to deliver actual and
physical possession thereof cannot be considered a
substantial breach of a condition for two reasons: first,
such "failure" was not stipulated as a condition — whether
resolutory or suspensive — in the contract; and second,
its effects and consequences were not specified either. 13
The provision adverted to by petitioner does not impose a
condition or an obligation to eject the lessees from the lot.
The deed of sale provides in part: 14
We hereby also warrant that we are the lawful and
absolute owners of the above described property, free
from any lien and/or encumbrance, and we hereby agree
and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and
Industrial Development Corporation, its successors and
assigns, against any claims whatsoever of any and all
third persons; subject, however, to the provisions
hereunder provided to wit:
By his own admission, Anthony Powers, General Manager
of petitioner-corporation, did not ask the corporation's
lawyers to stipulate in the contract that Respondent
Reynaldo was guaranteeing the ejectment of the
occupants, because there was already a proviso in said
deed of sale that the sellers were guaranteeing the
peaceful possession by the buyer of the land in
question. 15 Any obscurity in a contract, if the above-
quoted provision can be so described, must be construed
against the party who caused it. 16 Petitioner itself caused
the obscurity because it omitted this alleged condition
when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses
the obligation to eject the tenants from the lot sold, it
should have included in the contract a provision similar to
that referred to in Romero vs. Court of Appeals, 17 where
the ejectment of the occupants of the lot sold by private
respondent was the operative act which set into motion
the period of petitioner's compliance with his own
obligation, i.e., to pay the balance of the purchase price.
Failure to remove the squatters within the stipulated
period gave the other party the right to either refuse to
proceed with the agreement or to waive that condition of
ejectment in consonance with Article 1545 of the Civil
Code. In the case cited, the contract specifically stipulated
that the ejectment was a condition to be fulfilled;
otherwise, the obligation to pay the balance would not
arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the
parties intended to make its nonfulfillment a ground for
rescission. If they did intend this, their contract should
have expressly stipulated so. In Ang vs. C.A.,18 rescission
was sought on the ground that the petitioners had failed to
fulfill their obligation "to remove and clear" the lot sold, the
performance of which would have given rise to the
payment of the consideration by private respondent.
Rescission was not allowed, however, because the
breach was not substantial and fundamental to the
fulfillment by the petitioners of the obligation to sell.
As stated, the provision adverted to in the contract
pertains to the usual warranty against eviction, and not to
a condition that was not met.
The terms of the contract are so clear as to leave no room
for any other interpretation. 19
249
Sales – Chapter 3-12 Cases
Furthermore, petitioner was well aware of the presence of
the tenants at the time it entered into the sales
transaction. As testified to by Reynaldo, 20 petitioner's
counsel during the sales negotiation even undertook the
job of ejecting the squatters. In fact, petitioner actually
filed suit to eject the occupants. Finally, petitioner in its
letter to PNB of December 23, 1980 admitted that it was
the "buyer(s) and new owner(s) of this lot."
Effective Symbolic Delivery
The Court disagrees with petitioner's allegation that the
respondent spouses failed to deliver the lot sold.
Petitioner asserts that the legal fiction of symbolic delivery
yielded to the truth that, at the execution of the deed of
sale, transfer of possession of said lot was impossible due
to the presence of occupants on the lot sold. We find this
misleading.
Although most authorities consider transfer of ownership
as the primary purpose of sale, delivery remains an
indispensable requisite as our law does not admit the
doctrine of transfer of property by mere consent. 21 The
Civil Code provides that delivery can either be (1) actual
(Article 1497) or (2) constructive (Articles 1498-1501).
Symbolic delivery (Article 1498), as a species of
constructive delivery, effects the transfer of ownership
through the execution of a public document. Its efficacy
can, however, be prevented if the vendor does not
possess control over the thing sold, 22 in which case this
legal fiction must yield to reality.
The key word is control, not possession, of the land as
petitioner would like us to believe. The Court has
consistently held that: 23
. . . (I)n order that this symbolic delivery may produce the
effect of tradition, it is necessary that the vendor shall
have had such control over the thing sold that . . . its
material delivery could have been made. It is not enough
to confer upon the purchaser the ownership and
the right of possession. The thing sold must be placed in
his control. When there is no impediment whatever to
prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient.
But if, notwithstanding the execution of the instrument, the
purchaser cannot have the enjoyment and material
tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will,
then fiction yields to reality — the delivery has not been
effected.
Considering that the deed of sale between the parties did
not stipulate or infer otherwise, delivery was effected
through the execution of said deed. The lot sold had been
placed under the control of petitioner; thus, the filing of the
ejectment suit was subsequently done. It signified that its
new owner intended to obtain for itself and to terminate
said occupants' actual possession thereof. Prior physical
delivery or possession is not legally required and the
execution of the deed of sale is deemed equivalent to
delivery. 24 This deed operates as a formal or symbolic
delivery of the property sold and authorizes the buyer to
use the document as proof of ownership. Nothing more is
required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its
failure to establish any breach of the warranty against
eviction. Despite its protestation that its acquisition of the
lot was to enable it to set up a warehouse for its asbestos
products and that failure to deliver actual possession
thereof defeated this purpose, still no breach of warranty
against eviction can be appreciated because the facts of
the case do not show that the requisites for such breach
have been satisfied. A breach of this warranty requires the
concurrence of the following circumstances:
(1) The purchaser has been deprived of the whole or part
of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale
made by the vendor; and
(4) The vendor has been summoned and made co-
defendant in the suit for eviction at the instance of the
vendee. 25
In the absence of these requisites, a breach of the
warranty against eviction under Article 1547 cannot be
declared.
Petitioner argues in its memorandum that it has not yet
ejected the occupants of said lot, and not that it has been
evicted therefrom. As correctly pointed out by Respondent
Court, the presence of lessees does not constitute an
encumbrance of the land, 26 nor does it deprive petitioner
of its control thereof.
We note, however, that petitioner's deprivation of
ownership and control finally occurred when it failed
and/or discontinued paying the amortizations on the
mortgage, causing the lot to be foreclosed and sold at
public auction. But this deprivation is due to petitioner's
fault, and not to any act attributable to the vendor-
spouses.
Because petitioner failed to impugn its integrity, the
contract is presumed, under the law, to be valid and
subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner that a return of the
payments it made to PNB is warranted under Article 2154
of the Code, solutio indebiti does not apply in this case.
This doctrine applies where: (1) a payment is made when
there exists no binding relation between the payor, who
has no duty to pay, and the person who received the
payment, and (2) the payment is made through mistake,
and not through liberality or some other cause. 27
In this case, petitioner was under obligation to pay the
amortizations on the mortgage under the contract of sale
and the deed of real estate mortgage. Under the deed of
sale (Exh. "2"), 28 both parties agreed to abide by any and
all the requirements of PNB in connection with the real
estate mortgage. Petitioner was aware that the deed of
mortgage (Exh. "C") made it solidarily and, therefore,
primarily 29 liable for the mortgage obligation: 30
(e) The Mortgagor shall neither lease the mortgaged
property. . . nor sell or dispose of the same in any manner,
without the written consent of the Mortgagee. However, if
not withstanding this stipulation and during the existence
of this mortgage, the property herein mortgaged, or any
portion thereof, is . . . sold, it shall be the obligation of the
Mortgagor to impose as a condition of the sale, alienation
or encumbrance that the vendee, or the party in whose
favor the alienation or encumbrance is to be made, should
take the property subject to the obligation of this mortgage
in the same terms and condition under which it is
constituted, it being understood that the Mortgagor is not
in any manner relieved of his obligation to the Mortgagee
under this mortgage by such sale, alienation or
encumbrance; on the contrary both the vendor and the
vendee, or the party in whose favor the alienation or
encumbrance is made shall be jointly and severally liable
for said mortgage obligations. . . .
Therefore, it cannot be said that it did not have a duty to
pay to PNB the amortization on the mortgage.
Also, petitioner insists that its payment of the amortization
was a mistake because PNB disapproved its assumption
of mortgage after it failed to submit the necessary papers
for the approval of such assumption.
250
Sales – Chapter 3-12 Cases
But even if petitioner was a third party in regard to the
mortgage of the land purchased, the payment of the loan
by petitioner was a condition clearly imposed by the
contract of sale. This fact alone disproves petitioner's
insistence that there was a "mistake" in payment. On the
contrary, such payments were necessary to protect its
interest as a "the buyer(s) and new owner(s) of the lot."
The quasi-contract of solutio indebiti is one of the concrete
manifestations of the ancient principle that no one shall
enrich himself unjustly at the expense of another. 31 But
as shown earlier, the payment of the mortgage was an
obligation petitioner assumed under the contract of sale.
There is no unjust enrichment where the transaction, as in
this case, is quid pro quo, value for value.
All told, respondent Court did not commit any reversible
error which would warrant the reversal of the assailed
Decision.
WHEREFORE, the petition is hereby DENIED, and the
assailed Decision is AFFIRMED.
SO ORDERED.

251
Sales – Chapter 3-12 Cases
G.R. No. L-42636 August 1, 1985
MARIA LUISA DE LEON ESCALER and ERNESTO
ESCALER, CECILIA J. ROXAS and PEDRO
ROXAS, petitioners,
vs.
COURT OF APPEALS, JOSE L. REYNOSO, now
deceased, to be substituted by his heirs or legal
representatives and AFRICA V.
REYNOSO, respondents.
Avanceña Law Office for petitioners.
Bauza, Ampil, Suarez, and Paredes Law Office for
respondent Africa V. Reynoso.
CUEVAS, J.:
This is a Petition for Review on certiorari of the Decision
of the then Court of Appeals (now the Intermediate
Appellate Court) and of its Resolution denying petitioners'
Motion for Reconsideration, in CA G.R. No. 41953-R,
which was an appeal from the judgment of the Court of
First Instance of Rizal in Civil Case No. 9014 entitled
"Maria Luisa de Leon Escaler, et al vs. Jose L. Reynoso
and Africa Reynoso."
The following are the pertinent background facts:
On March 7, 1958, the spouses Africa V. Reynoso and
Jose L, Reynoso sold to petitioners several others, a
parcel of land, situated in Antipolo, Rizal with an area of
239,479 square meters and covered by TCT No. 57400 of
the Register of Deeds of the Province of Rizal. The Deed
of Sale 1 contained the following covenant against
eviction, to wit:
That the VENDOR is the absolute owner of a parcel of
land ... the ownership thereof being evidenced by an
absolute deed of sale executed in her favor by registered
owner ANGELINA C. REYNOSO, ...;
That the VENDOR warrants valid title to and ownership of
said parcel of land and further, warrant to defend the
property herein sold and conveyed, unto the VENDEES,
their heirs, and assignees, from any and all claims of any
persons whatsoever.
On April 21, 1961, the Register of Deeds of Rizal and A.
Doronilla Resources Development, Inc. filed Case No.
4252 before the Court of First Instance of Rizal for the
cancellation of OCT No. 1526 issued in the name of
Angelina C. Reynoso (predecessor-in-interest of private
respondents-vendors) on February 26, 1958 under
Decree No. 62373, LRC Record No. N-13783, on the
ground that the property covered by said title is already
previously registered under Transfer Certificate of Title
No. 42999 issued in the name of A. Doronilla
Development, Inc. Petitioners as vendees filed their
opposition to the said petition.
On June 10, 1964, an Order 2 was issued in the said case,
the dispositive portion of which reads:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court
is constrained to set aside Decree No. 62373 issued in
LRC. Rec. No. N-13783 and the Register of Deeds of
Rizal is directed to cancel OCT No. 1526 of his office and
all Transfer Certificates of Title issued subsequently
thereafter to purchaser of said property or portions
thereof, the same being null and void, the expenses for
such cancellation to be charged to spouses Angelina
Reynoso and Floro Reynoso. The owner's duplicates in
the possession of the transferees of the property covered
by OCT No. 1526 are declared null and void and said
transferees are directed to surrender to the Register of
Deeds of Rizal, said owner's duplicates for cancellation.
The other reliefs sought for by the party oppositors are
denied the same not falling within the jurisdiction of this
Court under this proceeding.
SO ORDERED.
On August 31, 1965, herein petitioners, spouses Maria de
Leon Escaler and Ernesto Escaler and spouses Cecilia J.
Roxas and Pedro Roxas, filed Civil Case No. 9014 before
the Court of First Instance of Rizal against their vendors,
herein private respondents, spouses Jose L. Reynoso and
Africa Reynoso for the recovery of the value of the
property sold to them plus damages on the ground that
the latter have violated the vendors' "warranty against
eviction."
The complaint among others, alleged that the Order
issued in Case No. 4252 which cancelled the title of
Angelina C. Reynoso and all subsequent Transfer
Certificates of Title derived and/or emanating therefrom
and which includes the titles of petitioners, is now final,
and by reason thereof petitioners lost their right over the
property sold; and that in said Case No. 4252, the
respondents were summoned and/or given their day in
court at the instance of the petitioners. 3
The respondents, as defendants, filed their answer
alleging, among others, by way of affirmative defenses
that "the cause of action, if any, of plaintiffs against
defendants have been fully adjudicated in Case No. 4252
when plaintiffs failed to file a third-party complaint against
defendants." 4
On August 18, 1967, petitioners, as plaintiffs, filed a
Motion for Summary Judgment, alleging the facts already
averred in the complaint, and further alleging that the
defendants were summoned and were given their day in
court at the instance of plaintiffs in Case No. 4252. In
support of their said motion, the plaintiffs attached the
affidavit of Atty. Alberto R. Avanceña who had
represented the plaintiffs in Case No. 4252 and had filed a
joint opposition in behalf of all the vendees. The pertinent
portion of that affidavit, states—
4. That he has furnished a copy of said joint opposition to
Africa Reynoso, wife of Jose L. Reynoso, at her given
address at c/o Antipolo Enterprises, Antipolo, Rizal and
the latter had received the same, as evidenced by the
photostatic copy of the Registry Return Receipt thereto
affixed as Annex "C-l";
xxx xxx xxx
6. That he hereby executed this Affidavit to prove that said
defendants Africa Reynoso and Jose L. Reynoso were
given their day in Court and/or were afforded their
opportunity to be heard in Case No. 4252 aforecited.
On September 27, 1967, judgment was rendered by the
trial court, the pertinent portion of which reads—
Considering the foregoing motion for summary judgment
and it appearing that the defendants under a Deed of
Absolute Sale (Annex "C") have expressly warranted their
valid title and ownership of the said parcel of land and
further warranted to defend said property from any and all
claims of any persons whomever in favor of plaintiffs; that
the said warranties were violated when on June 10, 1964,
an Order was promulgated by the Court of First Instance
of Rizal in Case No. 4252 (Related to LRC Case No.
1559, LRC Record No. N13293). In Re: Petition for
Cancellation of Original Registration, etc., covering the
parcel of land in question; that said order of June 10, 1964
has become final and executory there being no appeal
interposed thereto and defendants were summoned and
were given a day in court at the instance of the plaintiffs in
Case No. 4252, the Court hereby grants the motion for
summary judgment, and hereby orders the defendants to
jointly and severally return to the plaintiffs Maria Luisa de
Leon Escaler and Ernesto Escaler, Cecilia J. Roxas and
Pedro Roxas, the value of the property sold to them at the
time of eviction which is not to be less than P5,500.00 to
reimburse to each one of the plaintiffs the expenses of
contract and litigation and the amount of P2,250.00 to pay
the attorney's fees of P1,000.00 plus the costs of suit.
252
Sales – Chapter 3-12 Cases
SO ORDERED. In the case at bar, the fourth requisite—that of being
Private respondents appealed the aforesaid decision to summoned in the suit for eviction (Case No. 4252) at the
the then Court of Appeals 5 assigning as sole error—that instance of the vendee—is not present. All that the
the lower court erred in finding that they were summoned petitioners did, per their very admission, was to furnish
and were given their day in court at the instance of respondents, by registered mail, with a copy of the
petitioners-plaintiffs in Case No. 4252. opposition they (petitioners filed in the eviction suit.
In reversing the decision of the trial court and dismissing Decidedly, this is not the kind of notice prescribed by the
the case, the then Court of Appeals found and so ruled aforequoted Articles 1558 and 1559 of the New Civil
that petitioners as vendees had not given private Code. The term "unless he is summoned in the suit for
respondents-vendors, formal notice of the eviction case as eviction at the instance of the vendee" means that the
mandated by Arts. 1558 and 1559 of the New Civil Code. respondents as vendor/s should be made parties to the
Hence, the instant recourse, petitioners contending — suit at the instance of petitioners-vendees, either by way
1) that the Court of Appeals erred in applying strictly to the of asking that the former be made a co-defendant or by
instant case the provisions of Articles 1558 and 1559 of the filing of a third-party complaint against said vendors.
the new Civil Code; and Nothing of that sort appeared to have been done by the
2) that the decision of the Court of First Instance of Rizal petitioners in the instant case.
should have been affirmed by the Court of Appeals or at IN VIEW OF THE FOREGOING CONSIDERATIONS, the
least, the, Court of Appeals should have remanded the petition is DISMISSED and the appealed decision of the
case to the trial court, for hearing on the merits. then Court of Appeals is AFFIRMED.
The petition is devoid of merit. Consequently, it must be No pronouncement as to costs.
dismissed. SO ORDERED.
Article 1548, in relation to Articles 1558. and 1559 of the Concepcion, Jr., Abad Santos, Plana, Escolin, Relova,
New Civil Code reads as follows: Gutierrez, Jr. and De la Fuente, JJ., concur
Art. 1548, Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the
whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though
nothing has been said in the contract on the subject.
The contracting parties, however, may increase, diminish,
or suppress this legal obligation of the vendor.
Art. 1558. The vendor shall not be obliged to make good
the proper warranty, unless he is summoned in the suit for
eviction at the instance of the vendee. (emphasis
supplied)
Art. 1559. The defendant vendee shall ask, within the time
fixed in the Rules of Court for answering the complaint
that the vendor be made as co-defendant.
In order that a vendor's liability for eviction may be
enforced, the following requisites must concur—a) there
must be a final judgment; b) the purchaser has been
deprived of the whole or part of the thing sold; c) said
deprivation was by virtue of a right prior to the sale made
by the vendor; and d) the vendor has been summoned
and made co-defendant in the suit for eviction at the
instance of the vendee. 6

253
Sales – Chapter 3-12 Cases
G.R. No. 152219 October 25, 2004 22054 July 27, 1993 45,246.00 consequently, dishonored because respondent Maura
NUTRIMIX FEEDS CORPORATION, petitioner, Evangelista had already closed her account. The
vs. 22186 August 2, 1993 84,900.00 petitioner made several demands for the respondents to
COURT OF APPEALS and SPOUSES EFREN AND settle their unpaid obligation, but the latter failed and
MAURA EVANGELISTA, respondents. refused to pay their remaining balance with the petitioner.
DECISION Total: ₱275,631.00 On December 15, 1993, the petitioner filed with the
CALLEJO, SR., J.: =========== Regional Trial Court of Malolos, Bulacan, a complaint,
For review on certiorari is the Decision1 of the Court of respondents incurred an aggregate unsettled account with docketed as Civil Case No. 1026-M-93, against the
Appeals in CA-G.R. CV No. 59615 modifying, on appeal, the petitioner in the amount of ₱766,151.00. The respondents for sum of money and damages with a prayer
the Joint Decision2 of the Regional Trial Court of Malolos, breakdown of the unpaid obligation is as follows: for issuance of writ of preliminary attachment. In their
Bulacan, Branch 9, in Civil Case No. 1026-M-933 for sum answer with counterclaim, the respondents admitted their
of money and damages with prayer for issuance of writ of Check unpaid obligation but impugned their liability to the
Bank Due Date Amount
preliminary attachment, and Civil Case No. 49-M-944 for Number petitioner. They asserted that the nine checks issued by
damages. The trial court dismissed the complaint of the United respondent Maura Evangelista were made to guarantee
respondents, ordering them to pay the petitioner the Coconu the payment of the purchases, which was previously
unpaid value of the assorted animal feeds delivered to the BTS05208 July 30, determined to be procured from the expected proceeds in
t ₱ 47,760.00
former by the latter, with legal interest thereon from the 4 1993 the sale of their broilers and hogs. They contended that
Planter
filing of the complaint, including attorney’s fees. s Bank inasmuch as the sudden and massive death of their
The Factual Antecedents animals was caused by the contaminated products of the
On April 5, 1993, the Spouses Efren and Maura BTS05208 July 30, petitioner, the nonpayment of their obligation was based
Evangelista, the respondents herein, started to directly -do- 131,340.00 on a just and legal ground.
7 1993
procure various kinds of animal feeds from petitioner On January 19, 1994, the respondents also lodged a
Nutrimix Feeds Corporation. The petitioner gave the BTS05209 July 30, complaint for damages against the petitioner, docketed as
-do- 59,700.00
respondents a credit period of thirty to forty-five days to 1 1993 Civil Case No. 49-M-94, for the untimely and unforeseen
postdate checks to be issued in payment for the delivery death of their animals supposedly effected by the
of the feeds. The accommodation was made apparently BTS06272 August 4, adulterated animal feeds the petitioner sold to them.
-do- 47,860.00
because of the company president’s close friendship with 1 1993 Within the period to file an answer, the petitioner moved to
Eugenio Evangelista, the brother of respondent Efren BTS06272 August 5, dismiss the respondents’ complaint on the ground of litis
Evangelista. The various animal feeds were paid and -do- 43,780.00 pendentia. The trial court denied the same in a
0 1993
covered by checks with due dates from July 1993 to Resolution5 dated April 26, 1994, and ordered the
September 1993. Initially, the respondents were good BTS06277 August 6, consolidation of the case with Civil Case No. 1026-M-93.
-do- 15,000.00
paying customers. In some instances, however, they 4 1993 On May 13, 1994, the petitioner filed its Answer with
failed to issue checks despite the deliveries of animal Counterclaim, alleging that the death of the respondents’
feeds which were appropriately covered by sales invoices. BTS06274 Septembe animals was due to the widespread pestilence in their
-do- 47,180.00
Consequently, the 8 r 11, 1993 farm. The petitioner, likewise, maintained that it received
Sales Invoice information that the respondents were in an unstable
BTS06276 Septembe
Date Amount -do- 48,440.00 financial condition and even sold their animals to settle
Number 3 r 11, 1993
their obligations from other enraged and insistent
21334 June 23, 1993 ₱ 7,260.00 BTS06276 Septembe creditors. It, moreover, theorized that it was the
-do- 49,460.00 respondents who mixed poison to its feeds to make it
6 r 18, 1993
21420 June 26, 1993 6,990.00 appear that the feeds were contaminated.
A joint trial thereafter ensued.
21437 June 28, 1993 41,510.00 ₱490,520.00 During the hearing, the petitioner presented Rufino
Total:
21722 July 12, 1993 45,185.00 ========= Arenas, Nutrimix Assistant Manager, as its lone witness.
= He testified that on the first week of August 1993, Nutrimix
22048 July 26, 1993 44,540.00 When the above-mentioned checks were deposited at the President Efren Bartolome met the respondents to discuss
petitioner’s depository bank, the same were, the possible settlement of their unpaid account. The said
254
Sales – Chapter 3-12 Cases
respondents still pleaded to the petitioner to continue to
supply them with animal feeds because their livestock
were supposedly suffering from a disease.6
For her part, respondent Maura Evangelista testified that
as direct buyers of animal feeds from the petitioner, Mr.
Bartolome, the company president, gave them a discount
of ₱12.00 per bag and a credit term of forty-five to
seventy-five days.7 For the operation of the respondents’
poultry and piggery farm, the assorted animal feeds sold
by the petitioner were delivered in their residence and
stored in an adjacent bodega made of concrete wall and
galvanized iron sheet roofing with monolithic flooring.8
It appears that in the morning of July 26, 1993, three
various kinds of animal feeds, numbering 130 bags, were
delivered to the residence of the respondents in Sta.
Rosa, Marilao, Bulacan. The deliveries came at about
10:00 a.m. and were fed to the animals at approximately
1:30 p.m. at the respondents’ farm in Balasing, Sta. Maria,
Bulacan. At about 8:30 p.m., respondent Maura
Evangelista received a radio message from a worker in
her farm, warning her that the chickens were dying at
rapid intervals. When the respondents arrived at their
farm, they witnessed the death of 18,000 broilers,
averaging 1.7 kilos in weight, approximately forty-one to
forty-five days old. The broilers then had a prevailing
market price of ₱46.00 per kilo.9
On July 27, 1993, the respondents received another
delivery of 160 bags of animal feeds from the petitioner,
some of which were distributed to the contract growers of
the respondents. At that time, respondent Maura
Evangelista requested the representative of the petitioner
to notify Mr. Bartolome of the fact that their broilers died
after having been fed with the animal feeds delivered by
the petitioner the previous day. She, likewise, asked that a
technician or veterinarian be sent to oversee the untoward
occurrence. Nevertheless, the various feeds delivered on
that day were still fed to the animals. On July 27, 1993,
the witness recounted that all of the chickens and hogs
died.10 Efren Evangelista suffered from a heart attack and
was hospitalized as a consequence of the massive death
of their animals in the farm. On August 2, 1993, another
set of animal feeds were delivered to the respondents, but
the same were not returned as the latter were not yet
cognizant of the fact that the cause of the death of their
animals was the polluted feeds of the petitioner.11
When respondent Maura Evangelista eventually met with
Mr. Bartolome on an undisclosed date, she attributed the
improbable incident to the animal feeds supplied by the
petitioner, and asked Mr. Bartolome for indemnity for the
massive death of her livestock. Mr. Bartolome disavowed
liability thereon and, thereafter, filed a case against the
respondents.12
After the meeting with Mr. Bartolome, respondent Maura
Evangelista requested Dr. Rolando Sanchez, a
veterinarian, to conduct an inspection in the respondents’
poultry. On October 20, 1993, the respondents took ample
amounts remaining from the feeds sold by the petitioner
and furnished the same to various government agencies
for laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and
the Supervising Agriculturist of the Bureau of Animal
Industry, testified that on October 20, 1993, sample feeds
for chickens contained in a pail were presented to her for
examination by respondent Efren Evangelista and a
certain veterinarian.13 The Clinical Laboratory Report
revealed that the feeds were negative of salmonella 14 and
that the very high aflatoxin level15 found therein would not
cause instantaneous death if taken orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren
at the Bureau of Animal Industry, testified that sometime
in October 1993, Efren sought for his advice regarding the
death of the respondents’ chickens. He suggested that the
remaining feeds from their warehouse be brought to a
laboratory for examination. The witness claimed that the
feeds brought to the laboratory came from one bag of
sealed Nutrimix feeds which was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist
Research Specialist of the Philippine Nuclear Research
Institute, informed the trial court that respondent Maura
Evangelista and Dr. Garcia brought sample feeds and four
live and healthy chickens to him for laboratory
examination. In his Cytogenetic Analysis,16 Dr. Medina
reported that he divided the chickens into two categories,
which he separately fed at 6:00 a.m. with the animal feeds
of a different commercial brand and with the sample feeds
supposedly supplied by the petitioner. At noon of the
same day, one of the chickens which had been fed with
the Nutrimix feeds died, and a second chicken died at
5:45 p.m. of the same day. Samples of blood and bone
marrow were taken for chromosome analysis, which
showed pulverized chromosomes both from bone marrow
and blood chromosomes. On cross-examination, the
witness admitted that the feeds brought to him were
merely placed in a small unmarked plastic bag and that he
had no way of ascertaining whether the feeds were
indeed manufactured by the petitioner.
Another witness for the respondents, Aida Viloria
Magsipoc, Forensic Chemist III of the Forensic Chemist
Division of the National Bureau of Investigation, affirmed
that she performed a chemical analysis17 of the animal
feeds, submitted to her by respondent Maura Evangelista
and Dr. Garcia in a sealed plastic bag, to determine the
presence of poison in the said specimen. The witness
verified that the sample feeds yielded positive results to
the tests for COUMATETRALYL Compound,18 the active
component of RACUMIN, a brand name for a
commercially known rat poison.19 According to the
witness, the presence of the compound in the chicken
feeds would be fatal to internal organs of the chickens, as
it would give a delayed blood clotting effect and eventually
lead to internal hemorrhage, culminating in their inevitable
death.
Paz Austria, the Chief of the Pesticide Analytical Section
of the Bureau of Plants Industry, conducted a laboratory
examination to determine the presence of pesticide
residue in the animal feeds submitted by respondent
Maura Evangelista and Dr. Garcia. The tests disclosed
that no pesticide residue was detected in the samples
received20but it was discovered that the animal feeds
were positive for Warfarin, a rodenticide (anticoagulant),
which is the chemical family of Coumarin.21
After due consideration of the evidence presented, the
trial court ruled in favor of the petitioner. The dispositive
portion of the decision reads:
WHEREFORE, in light of the evidence on record and the
laws/jurisprudence applicable thereon, judgment is hereby
rendered:
1) in Civil Case No. 1026-M-93, ordering defendant
spouses Efren and Maura Evangelista to pay unto plaintiff
Nutrimix Feeds Corporation the amount of ₱766,151.00
representing the unpaid value of assorted animal feeds
delivered by the latter to and received by the former, with
legal interest thereon from the filing of the complaint on
December 15, 1993 until the same shall have been paid in
full, and the amount of ₱50,000.00 as attorney’s fees.
Costs against the aforenamed defendants; and
2) dismissing the complaint as well as counterclaims
in Civil Case No. 49-M-94 for inadequacy of evidence to
sustain the same. No pronouncement as to costs.
SO ORDERED.22
255
Sales – Chapter 3-12 Cases
In finding for the petitioner, the trial court ratiocinated as
follows:
On the strength of the foregoing disquisition, the Court
cannot sustain the Evangelistas’ contention that Nutrimix
is liable under Articles 1561 and 1566 of the Civil Code
governing "hidden defects" of commodities sold. As
already explained, the Court is predisposed to believe that
the subject feeds were contaminated sometime between
their storage at the bodega of the Evangelistas and their
consumption by the poultry and hogs fed therewith, and
that the contamination was perpetrated by unidentified or
unidentifiable ill-meaning mischief-maker(s) over whom
Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy
of proof to the contrary, Nutrimix was not responsible at all
for the contamination or poisoning of the feeds supplied
by it to the Evangelistas which precipitated the mass
death of the latter’s chickens and hogs. By no means and
under no circumstance, therefore, may Nutrimix be held
liable for the sundry damages prayed for by the
Evangelistas in their complaint in Civil Case No. 49-M-94
and answer in Civil Case No. 1026-M-93. In fine, Civil
Case No. 49-M-94 deserves dismissal.
Parenthetically, vis-à-vis the fulminations of the
Evangelistas in this specific regard, the Court does not
perceive any act or omission on the part of Nutrimix
constitutive of "abuse of rights" as would render said
corporation liable for damages under Arts. 19 and 21 of
the Civil Code. The alleged "callous attitude and lack of
concern of Nutrimix" have not been established with more
definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand,
the Court is perfectly convinced that the deliveries of
animal feeds by Nutrimix to the Evangelistas constituted a
simple contract of sale, albeit on a continuing basis and
on terms or installment payments.23
Undaunted, the respondents sought a review of the trial
court’s decision to the Court of Appeals (CA), principally
arguing that the trial court erred in holding that they failed
to prove that their broilers and hogs died as a result of
consuming the petitioner’s feeds.
On February 12, 2002, the CA modified the decision of the
trial court. The fallo of the decision reads:
WHEREFORE, premises considered, the appealed
decision is hereby MODIFIED such that the complaint in
Civil Case No. 1026-M-93 is dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93,
the CA ruled that the respondents were not obligated to
pay their outstanding obligation to the petitioner in view of
its breach of warranty against hidden defects. The CA
gave much credence to the testimony of Dr. Rodrigo Diaz,
who attested that the sample feeds distributed to the
various governmental agencies for laboratory examination
were taken from a sealed sack bearing the brand name
Nutrimix. The CA further argued that the declarations of
Dr. Diaz were not effectively impugned during cross-
examination, nor was there any contrary evidence
adduced to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the
instant petition for review on the sole ground that –
THE HONORABLE COURT OF APPEALS ERRED IN
CONCLUDING THAT THE CLAIMS OF HEREIN
PETITIONER FOR COLLECTION OF SUM OF MONEY
AGAINST PRIVATE RESPONDENTS MUST BE DENIED
BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr.
Diaz can hardly be considered as conclusive evidence of
hidden defects that can be attributed to the petitioner.
Parenthetically, the petitioner asserts, assuming that the
sample feeds were taken from a sealed sack bearing the
brand name Nutrimix, it cannot decisively be presumed
that these were the same feeds brought to the
respondents’ farm and given to their chickens and hogs
for consumption.
It is the contention of the respondents that the appellate
court correctly ordered the dismissal of the complaint in
Civil Case No. 1026-M-93. They further add that there
was sufficient basis for the CA to hold the petitioner guilty
of breach of warranty thereby releasing the respondents
from paying their outstanding obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews
only errors of law in petitions for review on certiorari under
Rule 45. However, this rule is not absolute. The Court
may review the factual findings of the CA should they be
contrary to those of the trial court. Conformably, this Court
may review findings of facts when the judgment of the CA
is premised on a misapprehension of facts.25
The threshold issue is whether or not there is sufficient
evidence to hold the petitioner guilty of breach of warranty
due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are
found in Articles 1561 and 1566 of the New Civil Code of
the Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty
against hidden defects which the thing sold may have,
should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use
to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have
given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be
visible, or for those which are not visible if the vendee is
an expert who, by reason of his trade or profession,
should have known them.
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof.
This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold.
A hidden defect is one which is unknown or could not
have been known to the vendee.26 Under the law, the
requisites to recover on account of hidden defects are as
follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the
contract;
(d) the defect, must be important (renders thing UNFIT or
considerably decreases FITNESS);
(e) the action must be instituted within the statute of
limitations.27
In the sale of animal feeds, there is an implied warranty
that it is reasonably fit and suitable to be used for the
purpose which both parties contemplated.28 To be able to
prove liability on the basis of breach of implied warranty,
three things must be established by the respondents. The
first is that they sustained injury because of the product;
the second is that the injury occurred because the product
was defective or unreasonably unsafe; and finally, the
defect existed when the product left the hands of the
petitioner.29 A manufacturer or seller of a product cannot
be held liable for any damage allegedly caused by the
product in the absence of any proof that the product in
question was defective.30 The defect must be present
upon the delivery or manufacture of the product;31 or
when the product left the seller’s or manufacturer’s
256
Sales – Chapter 3-12 Cases
control;32 or when the product was sold to the
purchaser;33 or the product must have reached the user or
consumer without substantial change in the condition it
was sold. Tracing the defect to the petitioner requires
some evidence that there was no tampering with, or
changing of the animal feeds. The nature of the animal
feeds makes it necessarily difficult for the respondents to
prove that the defect was existing when the product left
the premises of the petitioner.
A review of the facts of the case would reveal that the
petitioner delivered the animal feeds, allegedly containing
rat poison, on July 26, 1993; but it is astonishing that the
respondents had the animal feeds examined only on
October 20, 1993, or barely three months after their
broilers and hogs had died. On cross-examination,
respondent Maura Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that
believing that the 250 bags of feeds delivered to (sic) the
Nutrimix Feeds Corporation on August 2, 1993 were
poison (sic), allegedly your husband Efren Evangelista
burned the same with the chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as
according to you, used (sic) any of these deliveries made
on August 2, 1993?
A We were able to feed (sic) some of those deliveries
because we did not know yet during that time that it is the
cause of the death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not
used by you because you believe (sic) that they were
poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the cause of
the death of the chickens.
Q And you stated that this last delivery on August 2 were
poison (sic) also and you did not use them, is that right?
Atty. Roxas:
That is misleading.
Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know yet of
the poisoning.
Court:
And when the chickens died, they stopped naturally
feeding it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you
believe (sic) that the chickens were allegedly poisoned,
you used the same for feeding your animals?
A We did not know yet during that time that the feeds
contained poison, only during that time when we learned
about the same after the analysis.
Q Therefore you have known only of the alleged poison in
the Nutrimix Feeds only after you have caused the
analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the
months of October to November, Sir.
Q So, before this analysis of about October and
November, you were not aware that the feeds of Nutrimix
Feeds Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we
were sure that the feeds were the cause of the death of
our animals.34
We find it difficult to believe that the feeds delivered on
July 26 and 27, 1993 and fed to the broilers and hogs
contained poison at the time they reached the
respondents. A difference of approximately three months
enfeebles the respondents’ theory that the petitioner is
guilty of breach of warranty by virtue of hidden defects. In
a span of three months, the feeds could have already
been contaminated by outside factors and subjected to
many conditions unquestionably beyond the control of the
petitioner. In fact, Dr. Garcia, one of the witnesses for the
respondents, testified that the animal feeds submitted to
her for laboratory examination contained very high level of
aflatoxin, possibly caused by mold (aspergillus
flavus).35 We agree with the contention of the petitioner
that there is no evidence on record to prove that the
animal feeds taken to the various governmental agencies
for laboratory examination were the same animal feeds
given to the respondents’ broilers and hogs for their
consumption. Moreover, Dr. Diaz even admitted that the
feeds that were submitted for analysis came from a sealed
bag. There is simply no evidence to show that the feeds
given to the animals on July 26 and 27, 1993 were
identical to those submitted to the expert witnesses in
October 1993.
It bears stressing, too, that the chickens brought to the
Philippine Nuclear Research Institute for laboratory tests
were healthy animals, and were not the ones that were
ostensibly poisoned. There was even no attempt to have
the dead fowls examined. Neither was there any analysis
of the stomach of the dead chickens to determine whether
the petitioner’s feeds really caused their sudden death.
Mere sickness and death of the chickens is not
satisfactory evidence in itself to establish a prima facie
case of breach of warranty.36
Likewise, there was evidence tending to show that the
respondents combined different kinds of animal feeds and
that the mixture was given to the animals. Respondent
Maura Evangelista testified that it was common practice
among chicken and hog raisers to mix animal feeds. The
testimonies of respondent Maura Evangelista may be thus
summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster
mash from Nutrimix Feeds Corporation because in July
1993 you were taking care of many chickens, as a matter
of fact, majority of the chickens you were taking care [of]
were chicks and not chickens which are marketable?
A What I can remember was that I ordered chicken
booster mash on that month of July 1993 because we
have some chicks which have to be fed with chicken
booster mash and I now remember that on the particular
month of July 1993 we ordered several bags of chicken
booster mash for the consumption also of our chicken in
our other poultry and at the same time they were also
used to be mixed with the feeds that were given to the
hogs.
Q You mean to say [that], as a practice, you are mixing
chicken booster mash which is specifically made for chick
feeds you are feeding the same to the hogs, is that what
you want the Court to believe?
A Yes, Sir, because when you mix chicken booster mash
in the feeds of hogs there is a better result, Sir, in raising
hogs.37
…
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27,
1993, various types of Nutrimix feeds were delivered to
you like chicks booster mash, broiler starter mash and hog
257
Sales – Chapter 3-12 Cases
finisher or hog grower mash. What is the reason for
simultaneous deliveries of various types of feeds?
A Because we used to mix all those together in one
feeding, Sir.
Q And what is the reason for mixing the chick booster
mash with broiler starter mash?
A So that the chickens will get fat, Sir.
… It must be stressed, however, that the remedy against
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these
feeds by you is your own concuction (sic) and without the
advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two
feeds, Sir.
Q By yourself, Madam Witness, who advised you to do
the mixing of these two types of feeds for feeding your
chickens?
A That is common practice of chicken raisers, Sir.38
Even more surprising is the fact that during the meeting
with Nutrimix President Mr. Bartolome, the respondents
claimed that their animals were plagued by disease, and
that they needed more time to settle their obligations with
the petitioner. It was only after a few months that the
respondents changed their justification for not paying their
unsettled accounts, claiming anew that their animals were
poisoned with the animal feeds supplied by the petitioner.
The volte-face of the respondents deserves scant
consideration for having been conjured as a mere
afterthought.
In essence, we hold that the respondents failed to prove
that the petitioner is guilty of breach of warranty due to
hidden defects. It is, likewise, rudimentary that common
law places upon the buyer of the product the burden of
proving that the seller of the product breached its
warranty.39 The bevy of expert evidence adduced by the
respondents is too shaky and utterly insufficient to prove
that the Nutrimix feeds caused the death of their animals.
For these reasons, the expert testimonies lack probative
weight. The respondents’ case of breach of implied
warranty was fundamentally based upon the
circumstantial evidence that the chickens and hogs
sickened, stunted, and died after eating Nutrimix feeds;
but this was not enough to raise a reasonable supposition
that the unwholesome feeds were the proximate cause of
the death with that degree of certainty and probability
required.40The rule is well-settled that if there be no
evidence, or if evidence be so slight as not reasonably to
warrant inference of the fact in issue or furnish more than
materials for a mere conjecture, the court will not hesitate
to strike down the evidence and rule in favor of the other
party.41 This rule is both fair and sound. Any other
interpretation of the law would unloose the courts to
meander aimlessly in the arena of speculation.42
violations of warranty against hidden defects is either to
withdraw from the contract (accion redhibitoria) or to
demand a proportionate reduction of the price (accion
quanti minoris), with damages in either case.43 In any
case, the respondents have already admitted, both in their
testimonies and pleadings submitted, that they are indeed
indebted to the petitioner for the unpaid animal feeds
delivered to them. For this reason alone, they should be
held liable for their unsettled obligations to the petitioner.
WHEREFORE, in light of all the foregoing, the petition
is GRANTED. The assailed Decision of the Court of
Appeals, dated February 12, 2002,
is REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Malolos, Bulacan, Branch 9, dated
January 12, 1998, is REINSTATED. No costs.
SO ORDERED.
G.R. No. 148173 December 10, 2004
SUPERCARS MANAGEMENT & DEVELOPMENT
CORPORATION, represented by its President Benigno
Chan, petitioner,
vs.
THE LATE FILEMON FLORES, substituted by his
surviving spouse, NORA C. FLORES,1 respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari assailing the
Decision2 dated November 29, 2000 and Resolution3dated
April 26, 2001, both issued by the Court of Appeals in CA-
G.R. CV No. 40419, entitled "Filemon Flores vs.
Supercars Management & Development Corporation,
Mamerto Catley, Pablito Marquez, and Rizal Commercial
Banking Corporation."
In the second week of December 1988, Filemon Flores,
respondent, purchased from Supercars Management and
Development Corporation, petitioner, an Isuzu Carter
Crew Cab for P212,000.00 payable monthly with a down
payment equivalent to 30% of the price or P63,600.00.
The balance was to be financed by the Rizal Commercial
Banking Corporation (RCBC). The sale was coursed
through Pablito Marquez, petitioner's salesman.
Upon delivery of the vehicle on December 27, 1988,
respondent paid petitioner the 30% down payment, plus
premium for the vehicle's comprehensive insurance policy
amounting to P7,374.80. The RCBC financed the balance
of the purchase price. Its payment was secured by a
chattel mortgage of the same vehicle.
A day after the vehicle was delivered, respondent used it
for his family's trip to Bauang, La Union. While traversing
the national highway in Tarlac, Tarlac, the fan belt of the
vehicle snapped. Then its brakes hardened after several
stops and did not function properly; the heater plug did not
also function; the engine could not start; and the fuel
consumption increased.4
Upon their return to Manila in the first week of January
1989, respondent complained to petitioner about the
defects of the vehicle. Marquez then had the vehicle
repaired and returned it to respondent that same day,
assuring the latter that it was already in good condition.
But after driving the vehicle for a few days, the same
defects resurfaced, prompting respondent to send
petitioner a letter dated January 30, 1989 rescinding the
contract of sale and returning the vehicle due to breach of
warranty against hidden defects. A copy of the letter was
furnished RCBC.
In response to respondent's letter, petitioner directed
Marquez to have the vehicle fixed. Thereafter, he returned
the vehicle to respondent with the assurance that it has no
more defects. However, when respondent drove it for a
few days, he found that the vehicle was still defective.
Hence, on February 7, 1989, respondent sent petitioner
another letter restating that he is rescinding the contract of
sale, a copy of which was furnished RCBC. On February
9, 1989, he returned the vehicle to petitioner. Later,
Marquez and Mamerto Catley, petitioner's salesman, tried
to convince respondent to accept the vehicle as it had
been completely repaired. But respondent refused.
On March 1, 1989, respondent sent petitioner a letter
demanding the refund of his down payment, plus the
premium he paid for the vehicle's insurance.
258
Sales – Chapter 3-12 Cases
Petitioner failed to comply with petitioner's demand.
Consequently, respondent stopped paying the monthly
amortization for the vehicle.
On March 21, 1989, RCBC sent respondent a letter
demanding that he settle his past overdue accounts for
February 15 and March 15, 1989. In reply, respondent,
through a letter dated March 31, 1989, informed RCBC
that he had rescinded the contract of sale and had
returned the vehicle to petitioner. This prompted RCBC to
file with the Office of the Clerk of Court and Ex-
Officio Sheriff, Regional Trial Court, Quezon City,
a Petition for Extra-judicial Foreclosure of Chattel
Mortgage.
On June 2, 1989, a Notice of Sheriff's Sale of the vehicle
was set.
On June 1, 1989, respondent filed with the same Office
a Manifestation/Motion asking for the postponement of the
scheduled auction sale until such time that petitioner
and/or RCBC shall have reimbursed him of the amount he
paid for the vehicle; and that should the auction sale be
conducted, the proceeds thereof equivalent to the amount
he spent be withheld and turned over to him.
The auction sale proceeded as scheduled. RCBC, being
the highest bidder, purchased the vehicle. Subsequently,
RCBC sold the vehicle to a third party.
On November 3, 1989, respondent filed with the Regional
Trial Court (RTC), Branch 150, Makati City a complaint5for
rescission of contract with damages against petitioner,
Marquez, Catley and RCBC, docketed as Civil Case No.
89-5566.
In their separate answers, petitioner, Marquez and Catley
denied having committed any breach of warranty against
hidden defects, claiming that the vehicle had only "minor
and inconsequential defects" which "were promptly and
satisfactorily repaired by petitioner Supercars pursuant to
its warranty as the seller."6 For its part, RCBC claimed that
it has no liability whatsoever against respondent because
it merely enforced its right under the chattel mortgage law.
All the defendants prayed for the dismissal of the
complaint.
On April 13, 1992, the RTC rendered its Decision in favor
of respondent and against the defendants, thus:
"WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendants, ordering the latter
to jointly and severally pay the plaintiff as follows:
1. the amount of P70,974.80 representing the 30% down
payment and premium paid for one year comprehensive
motor vehicle insurance plus interests at the rate of 14%
per annum from date of filing of this complaint on October
30, 1989 until fully paid;
2. the sum of P50,000.00 as moral damages;
3. the sum of P25,000.00 as exemplary damages;
4. the sum of P20,000.00 as attorney's fees; and
5. the costs of suit.
SO ORDERED."7
Upon motion for reconsideration by RCBC, the RTC, in an
Order dated December 21, 1992, modified its Decision by
absolving RCBC from any liability and dismissing the
complaint against it, thus:
xxx
"Going into the merits of defendant bank's contention that
it has valid and meritorious defense which should
ultimately exculpate it from any liability, jointly and
severally, with the other defendants, the Court, after a
careful review of the evidence on hand, reconsiders its
Decision insofar as the said bank is concerned. The valid
exercise by the plaintiff of its right to rescind the contract
of sale for the purchase of the motor vehicle in question
does not apply to defendant bank. Said contract is
effective only as against defendant Supercars
Management and Development Corporation, which must
principally suffer the consequence of its breach of the
contract.
This Court likewise takes notice of the fact that since the
motor vehicle was voluntarily surrendered by the plaintiff
and that defendant bank merely exercised its right under
the chattel mortgage law, no fault can be attributed to the
latter. The fact that the plaintiff sent a letter to the Office of
the City Sheriff of Quezon City, copy furnished the bank,
seeking the postponement of the auction sale of the
subject motor vehicle, will not and cannot be considered
as a valid ground to hold said bank liable for only
exercising its rights under the law. At most, the liability
must really be imputed only against defendants Supercars
Management and Development Corporation, Mamerto
Catley and Pablito Marquez.
"WHEREFORE, considering the foregoing premises, the
Decision of this Court dated April 13, 1992, insofar as it
holds defendant Rizal Commercial Banking Corporation
jointly and severally liable to the plaintiff, is hereby
MODIFIED and the case against said bank DISMISSED.
Similarly, the compulsory counterclaim against the plaintiff
is likewise dismissed.
The dispositive portion of the same Decision insofar as
the rest of the defendants are concerned is hereby
maintained and affirmed in toto.
SO ORDERED."8
From the above Decision and Order, petitioner, Marquez
and Catley interposed an appeal to the Court of Appeals,
docketed as CA-G.R. CV No. 40419. In a Decision dated
November 29, 2000, the Appellate Court affirmed the RTC
Decision with modification in the sense that the complaint
against Marquez and Catley was dismissed, thus:
xxx
"It is with respect to appellants Catley and Marquez'
liability that we are minded to modify the (appealed)
Decision. The two being mere employees (of appellant
Supercars Management and Development Corporation),
they cannot be held liable to refund the amount claimed
by Flores. Nor can they be made liable for damages and
attorney's fees, there being no clear evidence that they
had a hand in giving rise thereto.
WHEREFORE, the appealed Amended Decision is
AFFIRMED, with the MODIFICATION that the complaint
insofar as defendants-appellants Mamerto Catley and
Pablito Marquez is hereby DISMISSED.
SO ORDERED.9
Petitioner filed a motion for reconsideration but denied in a
Resolution dated April 26, 2001.10
Hence, the instant petition.
Petitioner contends that respondent has "no right to
rescind the contract of sale"11 because "the motor vehicle
in question, as found by the RTC and the Court of
Appeals, is already in the hands of a third party, one Mr.
Lim – an innocent purchaser for value."12 Thus, both
courts erred in ordering petitioner to refund respondent of
the amounts he paid for the vehicle.
The issue here is whether respondent has the right to
rescind the contract of sale and to claim damages as a
result thereof.
We rule for respondent.
Respondent's complaint filed with the RTC seeks to
recover from petitioner the money he paid for the vehicle
due to the latter's breach of his warranty against hidden
defects under Articles 1547,13 1561,14 and 156615 of the
Civil Code. The vehicle, after it was delivered to
respondent, malfunctioned despite repeated repairs by
petitioner. Obviously, the vehicle has hidden defects. A
hidden defect is one which is unknown or could not have
been known to the vendee.16
259
Sales – Chapter 3-12 Cases
The findings of both the RTC and Court of Appeals that
petitioner committed a breach of warranty against hidden
defects are fully supported by the records. The Appellate
Court correctly ruled:
"The evidence clearly shows that Flores [now respondent]
was justified in opting to rescind the sale given the hidden
defects of the vehicle, allowance for the repair of which he
patiently extended, but which repair did not turn out to be
satisfactory.
xxx
For when by letters of January 30, 1989 and February 7,
1989, which were followed up by another dated March 1,
1989, Flores declared his rescission of the sale, which
rescission was not impugned or opposed by appellants as
in fact they accepted the return of the vehicle on February
9, 1989, such extra-judicial rescission x x x produced legal
effect (UP vs. de los Angeles, 35 SCRA 102
[1970]; Tolentino Commentaries and Jurisprudence on the
Civil Code, citing Magdalena Estate v. Myrick, 71 Phil. 344
[1940-1941]).
x x x"17
It is well within respondent's right to recover damages
from petitioner who committed a breach of warranty
against hidden defects. Article 1599 of the Civil Code
partly provides:
"Article 1599. Where there is a breach of warranty by the
seller, the buyer may, at his election:
xxx
(4) Rescind the contract of sale and refuse to receive the
goods, or if the goods have already been received, return
them or offer to return them to the seller and recover the
price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy
in anyone of these ways, no other remedy can thereafter
be granted, without prejudice to the provisions of the
second paragraph of Article 1191.
x x x." (Underscoring supplied)
Petitioner's contention that under Article 1191 of the Civil
Code, rescission can no longer be availed of as the
vehicle was already in the hands of an innocent purchaser
for value lacks merit. Rescission is proper if one of the
parties to a contract commits a substantial breach of its
provisions. It creates an obligation to return the object of
the contract. It can be carried out only when the one who
demands rescission can return whatever he may be
obliged to restore. Rescission abrogates the contract from
its inception and requires a mutual restitution of the
benefits received.18Petitioner is thus mandated by law to are eliminated.21 Moreover, the trial court did not give any
give back to respondent the purchase price upon his justification for granting it in its decision. It is now settled
return of the vehicle. Records show that at the time that awards of attorney's fees must be based on findings
respondent opted to rescind the contract, the vehicle was of fact and law, stated in the decision of the trial court. 22
still in his possession. He returned it to petitioner who, WHEREFORE, the petition is DENIED. The assailed
without objection, accepted it. Accordingly, the 30% down Decision dated September 20, 1999 and Resolution dated
payment equivalent to P63,600.00, plus the premium for February 1, 2000 of the Court of Appeals in CA-G.R. CV
the comprehensive insurance amounting to P7,374.80 No. 52177 are AFFIRMED with MODIFICATION. The
paid by respondent should be returned by petitioner. award of moral and exemplary damages and attorney's
As further stated by the Court of Appeals: fees are DELETED. Costs against petitioner.
"Appellant's invocation of Article 1191 of the Civil Code in SO ORDERED.
support of his argument that as the vehicle had been sold
to a third party, rescission can no longer ensue is
misplaced.
For, Flores is asking for the refund of the downpayment
and payment for insurance premiums. This brings us to
appellant's final argument.
Appellant's professed excuse from their inability to give
refund – that refund would necessitate the return of the
subject motor vehicle which is impossible because it is
now in the hands of an innocent purchaser for value –
miserably fails.
x x x appellant Supercars was paid the balance of the
purchase price by RCBC and, therefore, in addition to the
downpayment given by Flores, it had been fully paid for
the vehicle.
Ergo, Supercars had nothing more to do with the
vehicle."19
However, the lower court's award of P50,000.00 as moral
damages and P25,000.00 as exemplary damages to
respondent is erroneous. While no proof of pecuniary loss
is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the
discretion of the court, it is nevertheless essential that the
claimant satisfactorily prove the existence of the factual
basis of the damage and its causal relation to defendant's
acts. Moral damages are in the category of an award
designed to compensate the claimant for actual
injurysuffered and not to impose a penalty to the
wrongdoer. This has not been proved by respondent.
In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent
manner.20 Likewise, respondent failed to establish that
petitioner acted in such manner.
As to the award of attorney's fees, the same must be
deleted since the award of moral and exemplary damages
260
Sales – Chapter 3-12 Cases
G.R. No. 162365 January 15, 2014
ROBERTO R. DAVID, Petitioner,
vs.
EDUARDO C. DAVID, Respondent.
DECISION
BERSAMIN, J.:
In a sale with right to repurchase, title and ownership of
the property sold are immediately vested in the vendee,
subject to the resolutory condition of repurchase by the
vendor within the stipulated period.
The Case
Under review at the defendant's instance is the decision
promulgated on October 10, 2003,1 whereby the Court of
Appeals (CA) affirmed the judgment rendered on
December 5, 2001 by the Regional Trial Court (RTC),
Branch 61, in Baguio City ordering him to return to the
plaintiff the motor vehicle and trailer subject of the
complaint, or to pay their value of ₱500,000.00 should the
return not be effected, and to pay the plaintiff ₱20,000.00
as litigation expenses, ₱50,000.00 as attorney's fees, and
the costs of suit.2
Antecedents
Respondent Eduardo C. David (Eduardo) initiated this
replevin suit against Roberto R. David (Roberto), his first
cousin and former business partner, to recover the
possession of one unit of International CO 9670 Truck
Tractor and Mi-Bed Trailer.
It appears that on July 7, 1995, Eduardo and his brother
Edwin C. David (Edwin), acting on their own and in behalf
of their co-heirs, sold their inherited properties to Roberto,
specifically: (a) a parcel of land with an area of 1,231
square meters, together with all the improvements existing
thereon, located in Baguio City and covered by Transfer
Certificate of Title No. T-22983 of the Registry of Deeds of
Baguio City (Baguio City lot); and (b) two units
International CO 9670 Truck Tractor with two Mi-Bed
Trailers.3 A deed of sale with assumption of mortgage
(deed of sale)4 embodied the terms of their agreement,
stipulating that the consideration for the sale was
₱6,000,000.00, of which ₱2,000,000 was to be paid to
Eduardo and Edwin, and the remaining ₱4,000,000.00 to
be paid to Development Bank of the Philippines (DBP) in
Baguio City to settle the outstanding obligation secured by
a mortgage on such properties. The parties further agreed
to give Eduardo and Edwin the right to repurchase the
properties within a period of three years from the
execution of the deed of sale based on the purchase price
agreed upon, plus 12% interest per annum.
In April 1997, Roberto and Edwin executed a
memorandum of agreement (MOA)5 with the Spouses
Marquez and Soledad Go (Spouses Go), by which they
agreed to sell the Baguio City lot to the latter for a
consideration of ₱10,000,000.00. The MOA stipulated that
"in order to save payment of high and multiple taxes
considering that the x x x subject matter of this sale is
mortgaged with DBP, Baguio City, and sold [to Roberto],
Edwin will execute the necessary Deed of Absolute Sale
in favor of [the Spouses Go], in lieu of [Roberto]." 6 The
Spouses Go then deposited the amount of
₱10,000,000.00 to Roberto’s account.7
After the execution of the MOA, Roberto gave Eduardo
₱2,800,000.00 and returned to him one of the truck
tractors and trailers subject of the deed of sale. Eduardo
demanded for the return of the other truck tractor and
trailer, but Roberto refused to heed the demand.
Thus, Eduardo initiated this replevin suit against Roberto,
alleging that he was exercising the right to repurchase
under the deed of sale; and that he was entitled to the
possession of the other motor vehicle and trailer.
In his answer, Roberto denied that Eduardo could
repurchase the properties in question; and insisted that
the MOA had extinguished their deed of sale by novation.
Judgment of the RTC
On December 5, 2001,8 the RTC rendered judgment in
favor of Eduardo, holding that the stipulation giving
Eduardo the right to repurchase had made the deed of
sale a conditional sale; that Eduardo had fulfilled the
conditions for the exercise of the right to repurchase; that
the ownership of the properties in question had reverted to
Eduardo; that Roberto’s defense of novation had no merit;
and that due to Roberto’s bad faith in refusing to satisfy
Eduardo’s claim, Eduardo should be awarded litigation
expenses and attorney’s fees. The dispositive portion of
the judgment reads:
WHEREFORE, premises considered, judgment is hereby
rendered for the plaintiff and against the defendant
ORDERING the latter to return to the former the motor
vehicle and trailer subject matter of the case or to pay its
value in the amount of ₱500,000 in case manual delivery
can not be effected; to pay plaintiff the amount of ₱20,000
as litigation expenses; the amount of ₱50,000 as
attorney's fees and the costs of this suit.
SO ORDERED.9
Roberto appealed to the CA.
Ruling of the CA
On October 10, 2003,10 the CA promulgated its decision
affirming the RTC. It opined that although there was no
express exercise of the right to repurchase, the sum of all
the relevant circumstances indicated that there was an
exercise of the right to repurchase pursuant to the deed of
sale, that the findings of the RTC to the effect that the
conditions for the exercise of the right to repurchase had
been adequately satisfied by Eduardo, and that no
novation as claimed by Roberto had intervened.
On February 16, 2004,11 the CA denied Roberto’s motion
for reconsideration.12
Hence, this petition for review on certiorari.
Issues
Roberto seeks a reversal, claiming that the CA erred:
x x x IN HOLDING THAT THE RESPONDENT HAS
EXERCISED THEIR RIGHT TO REPURCHASE;
x x x IN HOLDING THAT THERE WAS NO NOVATION
OF THE DEED OF SALE WITH ASSUMPTION OF
MORTGAGE WHEN THE PARTIES EXECUTED A
MEMORANDUM OF AGREEMENT FOR THE SALE OF
THE SUBJECT HOUSE AND LOT AND, THEREAFTER
SOLD THE SAID PROPERTY TO THIRD PERSONS;
x x x IN RESOLVING THE INSTANT CASE IN FAVOR
OF RESPO[N]DENT.13
Ruling of the Court
The petition for review has no merit.
A sale with right to repurchase is governed by Article 1601
of the Civil Code, which provides that: "Conventional
redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to
comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon."
Conformably with Article 1616,14 the seller given the right
to repurchase may exercise his right of redemption by
paying the buyer: (a) the price of the sale, (b) the
expenses of the contract, (c) legitimate payments made
by reason of the sale, and (d) the necessary and useful
expenses made on the thing sold.
The deed of sale entered into by Eduardo and Roberto
contained the following stipulation on the right to
repurchase, to wit:
x x x the Vendors are given the right to repurchase the
aforesaid described real property, together with the
improvements thereon, and the two (2) motor vehicles,
together with their respective trailers from the Vendee
261
Sales – Chapter 3-12 Cases
within a period of three (3) years from the execution of this
document on the purchase price agreed upon by the
parties after considering the amount previously paid to the
Vendors in the amount of TWO MILLION PESOS
(₱2,000,000.00), Philippine Currency, with an interest of
twelve percent (12%) per annum and the amount paid
with the Development Bank of the Philippines with an
interest of twelve percent (12%) per annum.15
The CA and the RTC both found and held that Eduardo
had complied with the conditions stipulated in the deed of
sale and prescribed by Article 1616 of the Civil Code.
Pertinently, the CA stated:
It should be noted that the alleged repurchase was
exercised within the stipulated period of three (3) years
from the time the Deed of Sale with Assumption of
Mortgage was executed. The only question now,
therefore, which remains to be resolved is whether or not
the conditions set forth in the Deed of Sale with
Assumption of Mortgage, i.e. the tender of the purchase
price previously agreed upon, which is Php2.0 Million,
plus 12% interest per annum, and the amount paid by the
defendant to DBP, had been satisfied.
From the testimony of the defendant himself, these
preconditions for the exercise of plaintiff's right to
repurchase were adequately satisfied by the latter. Thus,
as stated, from the Php10 Million purchase price which
was directly paid to the defendant, the latter deducted his
expenses plus interests and the loan, and the remaining
amount he turned over to the plaintiff. This testimony is an
unequivocal acknowledgement from defendant that
plaintiff and his co-heirs exercised their right to
repurchase the property within the agreed period by
satisfying all the conditions stipulated in the Deed of Sale
with Assumption of Mortgage. Moreover, defendant
returned to plaintiff the amount of Php2.8 Million from the
total purchase price of Php10.0 Million. This only means
that this is the excess amount pertaining to plaintiff and
co-heirs after the defendant deducted the repurchase
price of Php2.0 Million plus interests and his expenses.
Add to that is the fact that defendant returned one of the
trucks and trailers subject of the Deed of Sale with
Assumption of Mortgage to the plaintiff. This is, at best, a
tacit acknowledgement of the defendant that plaintiff and
his co-heirs had in fact exercised their right to
repurchase.16 x x x
Considering that the factual findings of the trial court,
when affirmed by the CA, are binding on the Court,17 the
Court affirms the judgment of the CA upholding Eduardo’s the vendee, subject to the resolutory condition of
exercise of the right of repurchase. Roberto could no repurchase by the vendor within the stipulated
longer assail the factual findings because his petition for period.23 Accordingly, the ownership of the affected
review on certiorari was limited to the review and properties reverted to Eduardo once he complied with the
determination of questions of law only. A question of law condition for the repurchase, thereby entitling him to the
exists when the doubt centers on what the law is on a possession of the other motor vehicle with trailer.
certain set of undisputed facts, while a question of fact WHEREFORE, the Court AFFIRMS the decision
exists when the doubt centers on the truth or falsity of the promulgated on October 10, 2003; and ORDERS the
alleged facts.18Whether the conditions for the right to petitioner to pay the costs of suit.
repurchase were complied with, or whether there was a SO ORDERED.
tender of payment, is a question of fact. With both the
RTC and the CA finding and holding that Eduardo had
fulfilled the conditions for the exercise of the right to
repurchase, therefore, we conclude that Eduardo had
effectively repurchased the properties subject of the deed
of sale.
In Metropolitan Bank and Trust Company v. Tan,19 the
Court ruled that a redemption within the period allowed by
law is not a matter of intent but of payment or valid tender
of the full redemption price within the period. Verily, the
tender of payment is the seller’s manifestation of his
desire to repurchase the property with the offer of
immediate performance.20 As we stated in Legaspi v.
Court of Appeals,21 a sincere tender of payment is
sufficient to show the exercise of the right to repurchase.
Here, Eduardo paid the repurchase price to Roberto by
depositing the proceeds of the sale of the Baguio City lot
in the latter’s account. Such payment was an effective
exercise of the right to repurchase.
On the other hand, the Court dismisses as devoid of merit
Roberto’s insistence that the MOA had extinguished the
obligations established under the deed of sale by
novation.
The issue of novation involves a question of fact, as it
necessarily requires the factual determination of the
existence of the various requisites of novation, namely: (a)
there must be a previous valid obligation; (b) the parties
concerned must agree to a new contract; (c) the old
contract must be extinguished; and (d) there must be a
valid new contract.22 With both the RTC and the CA
concluding that the MOA was consistent with the deed of
sale, novation whereby the deed of sale was extinguished
did not occur. In that regard, it is worth repeating that the
factual findings of the lower courts are binding on the
Court.
In sales with the right to repurchase, the title and
ownership of the property sold are immediately vested in
262
Sales – Chapter 3-12 Cases
G.R. No. 92248 December 9, 1992
VICENCIO T. TORRES and SOCORRO S.
TORRES, petitioners,
vs.
COURT OF APPEALS, CEFERINO ILLUSCUPIDES,
ARACELI ILLUSCUPIDES and EMILIO
OLORES, respondents.
G.R. No. 93390 December 9, 1992
CEFERINO ILLUSCUPIDES and ARACELI CAMACHO-
ILLUSCUPIDES, petitioners,
vs.
COURT OF APPEALS, VICENCIO T. TORRES and
SOCORRO S. TORRES, respondents.
NOCON. J.:
Before Us is the petition for review on certiorari of
petitioners Ceferino Illuscupides and Araceli Camacho-
Illuscupides in G.R. No. 93390 from the decision of the
Court of Appeals dated January 18, 1990. The petition for
review on certiorari in G.R. No. 92248, Vivencio T. Torres,
et al. vs. Court of Appeals, et al., was dismissed by the
Court on June 18, 1990 1 for failure to show that a
reversible error was committed by the Court of Appeals,
and no motion for reconsideration was taken therefrom.
The facts are undisputed: the Illuscupideses are the
owners of two (2) adjoining parcels of lands located in the
Tapuac District, Dagupan City. The parcels are covered
by TCT Nos. 14874 and 15167, and have a combined
area of 465 square meters. The said properties were
mortgaged to the Government Service Insurance System
(GSIS).
Sometime in 1965, the Illuscupideses contracted Emilio
Olores for the construction of a nine (9) door apartment on
the parcels of land for the sum of P79,400.00. While
construction was going on, another door was added,
thereby increasing the cost of the construction to
P97,000.00. However, the Illuscupideses could only pay
Olores P54,390.51, thus compelling the latter to sue them
for the balance before the Court of First Instance of
Pangasinan in Civil Case No. D-1955. On November
1969, judgment was rendered in favor of Olores for the
unpaid balance with interests and costs. The
Illuscupideses then appealed the decision to the Court of
Appeals.
Meanwhile, the Illuscupideses received a notice from the
GSIS that it was going to foreclosure the mortgage for
their failure to pay the loan when the same became due.
To stave off the foreclosure, the Illuscupideses sold the WHEREFORE, premises considered, by preponderance
properties to Vivencio Torres and Socorro Torres of evidence, judgment is hereby rendered:
(petitioners in G.R. No. 92248), as evidenced by the Deed 1. Dismissing the complaint for rescission filed by plaintiff;
of Sale dated October 19, 1973 2 for P130,000.00, of 2. Ordering the dismissal of the cross-claim and
which the vendees paid the vendors P10,000.00, counterclaims of defendants Illuscupides against
P6,000.00 and P3,000.00. The vendees likewise paid defendants Torres and plaintiff;
P51,498.97 to the GSIS. The aforesaid payments were in 3. Ordering defendants Illuscupides and/or Torres to
accordance to the schedule found in the promissory note deliver the P41,000.00 withheld by them as part of the
executed by the parties on October 19, 1973, 3 which purchase price of the lots and apartments for the
provided — satisfaction of the claim of plaintiff;
Downpayment (paid on October 1973) .......... P10,000.00 4. Ordering defendants Illuscupides to pay plaintiff and
Payment to the GSIS defendants Torres the sum of P5,000.00 as attorney's
(assumption of mortgage) .......... 51,000.00 fees each; (and)
Cash payment upon issuance of 5. Ordering the defendants Illuscupides to pay the costs.
title in the name of vendee ......... 25,000.00 Olores and the Illuscupides then appealed to the Court of
Balance payable as follows: Appeals, where the case was docketed as CA-G.R. CV
Dec. 30, 1974 .................... 11,000.00 No. 14779. On January 18, 1990, the appellate court
Dec. 30, 1975 .................... 11,000.00 rendered a decision, 6 the dispositive portion of which
Dec. 30, 1976 .................... 11,000.00 reads as follows:
Dec. 30, 1977 .................... 11,000.00 WHEREFORE, the decision dated October 7, 1986 is
Provided that no installment hereby AFFIRMED insofar as the dismissal of the
shall be paid until after the complaint of plaintiff-appellant Olores, the cross-claim and
final adjudication of claim of counter-claim of defendants-appellants Illuscupides, and
Engr. E. Olores against vendor .................... 44,000.00 the counter-claim of defendant-appellees Torres;
————— REVERSED insofar as Nos. 3, 4 and 5 of the dispositve
P130,000.00 portion of the Decision are concerned; and the
The parties also executed on the same day an defendants-appellees spouses Vivencio Torres and
agreement 4 whereby the Torreses would "RESELL, Socorro Torres are ordered to reconvey in favor of the
RETRANSFER, and RECONVEY" to the Illuscupideses defendants-cross-claimants spouses Ceferino Illuscupides
"that certain building, more particularly designated as a and Socorro Illuscupides "that certain building more
ten-door concrete apartment." particularly designated as a ten-door apartment in the
Olores found out about the transaction and, fearing that Deed of Sale executed by and between the above-named
he would not be able to collect from the Illuscupideses, in parties on October 19, 1973." Without pronouncement as
case the Court of Appeals would uphold the decision of to costs.
the trial court in his favor, filed a new case for rescission With regard to the appeal of the Illuscupideses, the Court
of the sale against the Illuscupideses and the Torreses. of Appeals did not agree with their contention that the sale
The Illuscupideses filed a counter-claim against Olores, of the properties to the Torreses was actually a pacto de
and a cross-claim against the Torreses, alleging that the retro sale, since the terms of the Deed of Sale did not
Deed of Sale was a pacto de retro sale. provide for the redemption of the property by the vendors.
In 1977, the Court of Appeals upheld the decision in the However, the appellate court discovered that the land and
collection case for the unpaid balance of the construction the apartment were sold separately, and only the land
costs in favor of Olores. When said judgment became final appears to have been fully paid. And since the Agreement
and executory. Olores tried to execute the same but was (Annex "F") provided that the apartment should be resold
unable to do so. to the Illuscupideses, the appellate court held that the
Meanwhile, trial in the rescission case continued until Torreses should reconvey the apartment to the
judgment was rendered on October 7, 1986, 5 the Illuscupideses.
dispositive portion of which provided:
263
Sales – Chapter 3-12 Cases
The Illuscupideses filed a motion asking that the Court of WHEREFORE, the decision appealed from is hereby
Appeals rule upon the apartment rentals collected by AFFIRMED in toto. Costs against petitioners
Torreses, since it had ruled that the apartment be Illuscupideses.
reconveyed to them. The appellate court denied the SO ORDERED.
motion on the ground that the matter of the rentals was
not raised as assignment of error in their brief.
From said resolution, the Illuscupideses elevated the case
to this Court on a petition for review for certiorari. The
Torreses filed a separate petition for review on certiorari,
but the same was dismissed by this Court on June 18,
1990. The dismissal of the Torreses' petition is now final
in view of their failure to file a timely motion for
reconsideration.
In their petition, the Illuscupideses allege that the Court of
Appeals erred in (1) not construing the Deed of Sale of
October 19, 1973 to be a pacto de retro sale; and (2) in
not ruling upon the rentals collected by the Torreses from
the apartment after it had ordered the reconveyance of the
apartment to the Illuscupides.
The petition is totally devoid of merit.
The Court of Appeals was correct in construing the Deed
of Sale as an absolute sale inasmuch as the terms thereof
are clear on the matter. The Illuscupideses argue,
however, that the appellate court should have taken into
account the circumstances surrounding the execution of
the deed, particularly the fact that an Agreement to resell
the apartment was executed on the very same day as the
deed of sale.
The argument is unavailing. Even if this Court were to
agree with the Illuscupideses that parole evidence may be
allowed to add to the terms of the deed of sale, this Court
has held in the case of Villarica, et al. vs. Court of
Appeals, et al., 7 that —
[t]he right of repurchase is not a right granted the vendor
by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate
instrument cannot be a right to repurchase but some other
right like an option to buy in the instant case. 8
As with regard to the Illuscupideses' second contention,
the Court of Appeals acted correctly in not passing upon
the rentals collected by the Torreses since the
Illuscupideses did not ask for the same in their original
cross-claim.
264
Sales – Chapter 3-12 Cases
G.R. No. 171250 July 4, 2007
SPS. CARLOS AND EULALIA RAYMUNDO and SPS.
ANGELITO AND JOCELYN BUENAOBRA, Petitioners,
vs.
SPS. DOMINADOR and ROSALIA
BANDONG, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court, filed by petitioners Spouses
Carlos and Eulalia Raymundo and Spouses Angelito and
Jocelyn Buenaobra seeking the reversal and setting aside
of the Decision1 of the Court of Appeals dated 26
September 2005 and its Resolution2 dated 24 January
2006 in CA-G.R. CV No. 59557. The Court of Appeals, in
its assailed Decision and Resolution, reversed the
Decision3 of the Regional Trial Court (RTC) dated 28
January 1998, in Civil Case No. C-14980, declaring the
Deed of Sale executed by respondent Dominador
Bandong (Dominador) in favor of petitioner Eulalia
Raymundo (Eulalia) as valid and binding. The dispositive
portion of the asailed Court of Appeals Decision reads:
WHEREFORE, premises considered, we hereby GRANT
the appeal. The January 28, 1998 decision of the RTC,
Branch 126, Caloocan City is hereby REVERSED and
SET ASIDE and a new one entered:
1. ANNULLING the Deed of Absolute Sale dated February
3, 1989 as a deed of sale, and considering it instead as a
real estate mortgage of the disputed property to secure
the payment of the ₱70,000.00 the plaintiffs-appellants
spouses Bandong owe the defendants-appellees spouses
Raymundo. The spouses Bandong are given one (1) year
from the finality of this Decision within which to pay the
₱70,000.00 owed to the spouses Raymundo, at 12%
interest per annum computed from July 17, 1991 until its
full payment.
2. ANNULLING the Deed of Absolute Sale dated
September 25, 1990, between the spouses Raymundo as
vendors and the spouses Buenaobra as vendees.
3. ORDERING the Register of Deeds of Caloocan City to
issue a new Transfer Certificate of Title covering Lot 18,
Block 2 of the subdivision plan PSD 16599, a portion of
Lot 1073 of the Cadastral Survey of Caloocan, in the
names of the spouses Dominador and Rosalia Bandong,
after the cancellation pursuant to this Decision of TCT No.
222871 currently in the names of the spouses Angelito
and Jocelyn Buenaobra; and FURTHER ORDERING the
said Register of Deeds to annotate in the new Transfer
Certificate of Title in the names of the spouses Bandong a
real estate mortgage in favor of the spouses Carlos and
Eulalia Raymundo reflecting the terms of this Decision.
4. AWARDING – moral damages in the amount of
₱50,000.00; exemplary damages of ₱20,000.00; and
attorney’s fees and expenses of litigation of ₱20,000.00,
plus ₱500.00 per proven appearance of the plaintiffs-
appellants’ counsel in court – all solidarily payable by the
spouses Carlos and Eulalia Raymundo and the spouses
Angelito and Jocelyn Buenaobra, to the spouses
Dominador and Rosalia Bandong.
5. ORDERING the payment of the costs of the suit,
payable by the spouses Carlos and Eulalia Raymundo
and the spouses Angelito and Jocelyn Buenaobra.4
The factual and procedural backdrop of this case are as
follows:
Eulalia was engaged in the business of buying and selling
large cattle from different provinces within the Philippines.
For this purpose, she employed "biyaheros" whose
primary task involved the procuring of large cattle with the
financial capital provided by Eulalia and delivering the
procured cattle to her for further disposal. In order to
secure the financial capital she advanced for the
"biyaheros," Eulalia required them to surrender the
Transfer Certificates of Title (TCTs) of their properties and
to execute the corresponding Deeds of Sale in her favor.
Dominador had been working for Eulalia as one of her
biyaheros for three decades. Considering his long years of
service without any previous derogatory record, Eulalia no
longer required Dominador to post any security in the
performance of his duties.5
However, in 1989, Eulalia found that Dominador incurred
shortage in his cattle procurement operation in the amount
of ₱70,000.00. Dominador and his wife Rosalia Bandong
(Rosalia) then executed a Deed of Sale6 in favor of Eulalia
on 3 February 1989, covering a parcel of land with an
area of 96 square meters, more or less, located at
Caloocan City and registered under TCT No. 1421
(subject property), in the name of the Spouses Bandong.
On the strength of the aforesaid deed, the subject
property was registered in the names of Eulalia and her
husband Carlos Raymundo (Carlos). The subject property
was thereafter sold by the Spouses Raymundo to Eulalia’s
grandniece and herein co-petitioner, Jocelyn Buenaobra
(Jocelyn). Thus, the subject property came to be
registered in the name of Jocelyn and her husband
Angelito Buenaobra (Angelito).
After the TCT of the subject property was transferred to
their names, the Spouses Buenaobra instituted before the
Metropolitan Trial Court (MeTC) of Caloocan City, an
action for ejectment against the Spouses Bandong,
docketed as Civil Case No. 20053, seeking the eviction of
the latter from the subject property, which the Spouses
Bandong opposed on the ground that they are the rightful
owners and possessors thereof. The MeTC ruled in favor
of the Spouses Buenaobra which, on appeal, was affirmed
in toto by the RTC7 and subsequently, by the Court of
Appeals.8 Finally, when the case was raised on appeal
before us in G.R. No. 109422, we issued a
Resolution9dated 12 July 1993, finding that no substantial
arguments were raised therein to warrant the reversal of
the appealed decision.
To assert their right to the subject property, the Spouses
Bandong instituted an action for annulment of sale before
the RTC against Eulalia and Jocelyn on the ground that
their consent to the sale of the subject property was
vitiated by Eulalia after they were served by Jocelyn’s
counsel with the demand to vacate. This was docketed as
Civil Case No. C-14980. The Spouses Bandong alleged
that there was no sale intended but only equitable
mortgage for the purpose of securing the shortage
incurred by Dominador in the amount of ₱70,000 while
employed as "biyahero" by Eulalia.
Eulalia countered that Dominador received from her a
significant sum of money, either as cash advances for the
purpose of procuring large cattle or as personal loan, and
when he could no longer pay his obligations, the Spouses
Bandong voluntarily ceded the subject property to her by
executing the corresponding deed of sale in her favor.
Indeed, the Spouses Bandong personally appeared
before the Notary Public and manifested that the deed
was their own voluntary act and deed.
For her part, Jocelyn maintained that she was a buyer in
good faith and for value for she personally inquired from
the Register of Deeds of the presence of any liens and
encumbrances on the TCT of the subject property and
found that the same was completely free therefrom. While
she admitted that she had previous notice that Dominador
and a certain Lourdes Santos (Lourdes) were in
possession of the subject property, Jocelyn claimed that
the said possessors already acknowledged her ownership
265
Sales – Chapter 3-12 Cases
thereof and even asked for time to vacate. In the end,
though, they refused to leave the premises.
On 28 June 1998, the RTC rendered a Decision 10 in Civil
Case No. C-14980 in favor of Eulalia and Jocelyn by
declaring that the Deed of Sale between Dominador and
Eulalia was valid and binding and, consequently, the
subsequent sale between Eulalia and Jocelyn was also
lawful absent any showing that Jocelyn was a buyer in
bad faith. The dispositive portion of the said decision
reads:
WHEREFORE, judgment is hereby rendered
DISMISSING the complaint filed by the [Spouses
Bandong] and ordering said [Spouses Bandong] to pay
[herein petitioners] spouses Raymundo and Buenaobra
the amount of ₱50,000 and ₱30,000, respectively, as
attorney’s fees and costs of the suit.
On appeal in CA-G.R. SP No. 59557, the Court of
Appeals reversed the RTC Decision and found that the
transaction entered into by Dominador and Eulalia was
not one of sale but an equitable mortgage considering that
the purchase price was grossly inadequate and the
Spouses Bandong remained as possessors of the subject
property after Eulalia’s alleged purchase thereof. The
appellate court likewise charged Jocelyn with knowledge
that the Spouses Raymundo were not the absolute
owners of the subject property negating the presumption
that she was an innocent purchaser for value.
The Court of Appeals found the Motion for
Reconsideration filed by petitioners unmeritorious and
denied the same in its Resolution11 dated 24 January
2006.
Hence, this instant Petition for Review on Certiorari filed
by the petitioners assailing the Decision dated 26
September 2005 and the Resolution dated 24 January
2006 rendered by the Court of Appeals. For the resolution
of this Court are the following issues:
I.
WHETHER OR NOT THE DEED OF SALE BETWEEN
DOMINADOR AND EULALIA IS VALID AND BINDING.
II.
WHETHER OR NOT JOCELYN IS A BUYER IN GOOD
FAITH.
In arguing that the sale between Dominador and Eulalia is
valid, petitioners posit that gross inadequacy of the price
is not sufficient to invalidate the sale, and granting
arguendo that insufficient consideration may void a sale, it
has not been proven that the consideration of sale
between Dominador and Eulalia was grossly inadequate.
Elaborating, petitioners maintain that the amount of
₱110,000.00 (which they claimed they have given to
Dominador), or even the sum of ₱70,000.00 (which
respondents admitted receiving), was a substantial
consideration, sufficient to support a sale contract. Mere
inadequacy of the price is not sufficient to invalidate a
sale; the price must be grossly inadequate or utterly
shocking to the conscience in order to avoid a contract of
sale.
Petitioners further aver that the alleged market value of
the subject property as submitted by the appraiser, one of
respondents’ witnesses, would not serve as an objective
basis in determining the actual value of the subject
property, much less the supposed amount of its purchase
price, in the absence of any logical and valid basis for its
determination.
Finally, petitioners contend that so long as the contract
was voluntarily entered into by the parties and in the
absence of a clear showing that their consent thereto was
vitiated by fraud, mistake, violence or undue influence,
such as in the case at bar, the said contract should be
upheld.
We do not agree.
An equitable mortgage is one that - although lacking in
some formality, forms and words, or other requisites
demanded by a statute - nevertheless reveals the
intention of the parties to charge a real property as
security for a debt and contains nothing impossible or
contrary to law.12
The instances when a contract - regardless of its
nomenclature - may be presumed to be an equitable
mortgage are enumerated in the Civil Code as follows:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on the
thing sold.
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation.
Art. 1604. The provisions of Article 1602 shall also apply
to a contract purporting to be an absolute sale.
For Articles 1602 and 1604 to apply, two requisites must
concur: one, the parties entered into a contract
denominated as a contract of sale; and two, their intention
was to secure an existing debt by way of an equitable
mortgage.13
There is no question that Dominador and Eulalia entered
into a contract of sale as evidenced by the document
denominated as Deed of Sale14 signed by them. As to
whether the parties intended to transfer ownership of the
subject property or merely to constitute a security for an
existing debt is an issue that needs to be addressed by
this Court.
In resolving this kind of controversy, the doctrine in Reyes
v. Court of Appeals15 directs us to give utmost
consideration to the intention of the parties in light of the
relative situation of each and the circumstances
surrounding the execution of the contract, thus:
In determining whether a deed absolute in form is a
mortgage, the court is not limited to the written memorials
of the transaction. The decisive factor in evaluating
such agreement is the intention of the parties, as
shown not necessarily by the terminology used in the
contract but by all the surrounding circumstances,
such as the relative situation of the parties at that
time, the attitude acts, conduct, declarations of the
parties, the negotiations between them leading to the
deed, and generally, all pertinent facts having a tendency
to fix and determine the real nature of their design and
understanding. x x x16 (Emphasis supplied.)
By applying the aforestated principle to the case at bar,
we are constrained to rule that in executing the said Deed
of Sale, Dominador and Eulalia never intended the
transfer of ownership of the subject property but to burden
the same with an encumbrance to secure the
indebtedness incurred by Dominador on the occasion of
his employment with Eulalia.
By Eulalia’s own admission,17 it was her customary
business practice to require her biyaheros to deliver to her
the titles to their real properties and to execute in her favor
the corresponding deeds of sale over the said properties
as security for the money she provided for their cattle
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Sales – Chapter 3-12 Cases
procurement task, and since Dominador worked for
Eulalia’s business for years, he was allowed to advance
the money without any security. Significantly, it was only
after he incurred a shortage that the sale contract was
executed.
We are not inclined to believe the contention of the
petitioners that Dominador ceded his property to Eulalia
as payment for his obligation for it is contrary to human
experience that a person would easily part with his
property after sustaining a debt. Rather, he would first
look for means to settle his obligation, and the selling of a
property on which the house that shelters him and his
family stands, would be his last resort. The only
reasonable conclusion that may be derived from
Dominador’s act of executing a Deed of Sale in favor of
Eulalia is that the latter required him to do so in order to
ensure that he will subsequently pay his obligation to her.
This conclusion is in accord with the doctrine we
enunciated in Aguirre v. Court of Appeals,18 that:
The explicit provision of Article 1602 that any of those
circumstances would suffice to construe a contract of
sale to be one of equitable mortgage is in consonance
with the rule that the law favors the least transmission
of property rights. To stress, the existence of any one of
the conditions under Article 1602, not a concurrence, or
an overwhelming number of such circumstances, suffices
to give rise to the presumption that the contract is an
equitable mortgage.
While we agree in the petitioners’ insistence that
inadequacy of the price is not sufficient to nullify the
contract of sale, their persistence is, however, misplaced.
It is worthy to note that the factual circumstances
attendant in the case at bar call not for the application of
the legal and jurisprudential principles on annulment of
contract per se, but more aptly, of the provisions of
Articles 1602 and 1604 of the Civil Code on the
construction of the contract of sale as an equitable
mortgage.
Consequently, the agreement between Dominador and
Eulalia was not avoided in its entirety so as to prevent it
from producing any legal effect at all. Instead, we construe
that said transaction is an equitable mortgage, thereby
merely altering the relationship of the parties from seller
and buyer, to mortgagor and mortgagee, while the subject
property is not transferred but subjected to a lien in favor
of the latter.
Moreover, granting that the purchase price is adequate,
the fact that respondents remain in possession of the
subject property after its supposed sale is sufficient to
support our finding that the contract is one of equitable
mortgage and not of sale. To reiterate, the existence of
any one of the conditions under Article 1602, not a
concurrence, or an overwhelming number of such
circumstances, suffices to give rise to the
presumption that the contract is an equitable
mortgage.19
Having threshed the issue that there was no sale in
favor of Eulalia but an equitable mortgage leads us to
an inevitable conclusion that she has no right to
subsequently transfer ownership of the subject
property, in consonance with the principle that
nobody can dispose of what he does not have.20 One
of the exceptions21 to this rule, however, can be found
in Article 1506 of the Civil Code, wherein the seller
has voidable title to a property but his title has not yet
been nullified at the time of the sale, and the
subsequent buyer of the property was in good faith.
An innocent purchaser for value is one who buys the
property of another, without notice that some other person
has a right or interest in the property, for which a full and
fair price is paid by the buyer at the time of the purchase
or before receipt of any notice of claims or interest of
some other person in the property.22
Petitioners are harping on the contention that Jocelyn was
an innocent purchaser for value. Invoking the
indefeasibility of a Torrens title, they assert that there is
nothing in the subject property’s TCT that should arouse
Jocelyn’s suspicion as to put her on guard that there is a
defect in Eulalia’s title.
Again, we are not persuaded. The burden of proving the
purchaser’s good faith lies in the one who asserts the
same. In discharging the burden, it is not enough to
invoke the ordinary presumption of good faith.23 In Arrofo
v. Quiño,24 we have elucidated that:
[A] person dealing with registered land, [is not required] to
inquire further that what the Torrens title on its face
indicates. This rule, however, is not absolute but admits of
exceptions.
Thus, while it is true x x x that a person dealing with
registered lands need not go beyond the certificate of
title, it is likewise a well-settled rule that a purchaser
or mortgagee cannot close his eyes to facts which
should put a reasonable man on his guard, and then
claim that he acted in good faith under the belief that
there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up to the fact that
such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in the vendor’s or
mortgagor’s title, will not make him an innocent purchaser
for value, if it afterwards develops that the title was in fact
defective, and it appears that he had such notice of the
defect as would have led to its discovery had he acted
with the measure of precaution which may be required of
a prudent man in a like situation.
In the present case, we are not convinced by the
petitioners’ incessant assertion that Jocelyn is an innocent
purchaser for value. To begin with, she is a grandniece of
Eulalia and resides in the same locality where the latter
lives and conducts her principal business. It is therefore
impossible for her not to acquire knowledge of her grand
aunt’s business practice of requiring her biyaheros to
surrender the titles to their properties and to sign the
corresponding deeds of sale over said properties in her
favor, as security. This alone should have put Jocelyn on
guard for any possible abuses that Eulalia may commit
with the titles and the deeds of sale in her possession.
The glaring lack of good faith of Jocelyn is more apparent
in her own admission that she was aware that Dominador
and a certain Lourdes were in possession of the subject
property. A buyer of real property that is in the possession
of a person other than the seller must be wary. A buyer
who does not investigate the rights of the one in
possession can hardly be regarded as a buyer in good
faith.25 Jocelyn’s self-serving statement that she
personally talked to Dominador and Lourdes about her
acquisition of the subject property and intention to take
possession of the same, and that Dominador and Lourdes
even pleaded for time to vacate the subject property
cannot be given credence in light of the prompt filing by
the Spouses Bandong of an action for the annulment of
the sale contract between Dominador and Eulalia after
they received the demand to vacate from Jocelyn’s
lawyer.
In the last analysis, good faith, or the lack of it, is a
question of intention.1awphi1 But in ascertaining the
intention that impels one on a given occasion, the courts
are necessarily controlled by the evidence as to the
conduct and other outward acts by which the motive may
be safely determined.26
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Sales – Chapter 3-12 Cases
Petitioners question further the belated filing by the
Spouses Bandong of an action for the annulment of sale,
since the Spouses Bandong filed the same only after they
received the notice to vacate, and not immediately after
the execution of the assailed Deed of Sale. We have
repeatedly held that the one who is in actual possession
of a piece of land claiming to be the owner thereof may
await to vindicate his right. His undisturbed possession
gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the
adverse claim of a third party and its effect on his own
title, which right can be claimed only by one who is in
possession.27
Finally, we agree with the Court of Appeals that the
ejectment case which had been litigated to finality by the
Spouses Buenaobra and the respondents need not alter
our conclusion in the present case. Well entrenched is the
doctrine that in ejectment cases, the sole question for
resolution is the physical or material possession of the
property in question, so that neither the claim of juridical
possession nor an averment of ownership can outrightly
prevent the court from taking cognizance of the case.28 In
ejectment cases, all the court may do is to resolve who is
entitled to its possession although, in doing so, it may
make a determination of who is the owner of the property
in order to resolve the issue of possession. But such
determination of ownership is not clothed with finality.
Neither will it affect ownership of the property or constitute
a binding and conclusive adjudication on the merits with
respect to the issue of ownership.29
WHEREFORE, IN VIEW OF THE FOREGOING, the
instant Petition is DENIED. The Decision dated 26
September 2005, and the Resolution dated 24 January
2006, rendered by the Court of Appeals in CA-G.R. SP
No. 59957, are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.

268
Sales – Chapter 3-12 Cases
G.R. No. 158377 August 13, 2010
HEIRS OF JOSE REYES, JR., namely: MAGDALENA C.
REYES, OSCAR C. REYES, GAMALIEL C. REYES,
NENITA R. DELA CRUZ, RODOLFO C. REYES, and
RODRIGO C. REYES, Petitioners,
vs.
AMANDA S. REYES, CONSOLACION S. REYES,
EUGENIA R. ELVAMBUENA, LUCINA R. MENDOZA,
PEDRITO S. REYES, MERLINDA R. FAMODULAN,
EDUARDO S. REYES, and JUNE S.
REYES, Respondents.
DECISION
BERSAMIN, J.:
The petitioners1 assail the decision dated July 31, 2002
rendered in C.A.-G.R. CV No. 53039,2 by which the Court
of Appeals (CA) affirmed the decision dated May 21, 1996
of the Regional Trial Court (RTC), Branch 9, in Malolos,
Bulacan.3
Antecedents
Antonio Reyes and his wife, Leoncia Mag-isa Reyes
(Leoncia), were owners of a parcel of residential land with
an area of 442 square meters, more or less, located in
Pulilan, Bulacan and covered by Tax Declaration No.
7590. On that land they constructed their dwelling. The
couple had four children, namely: Jose Reyes, Sr. (Jose,
Sr.), Teofilo Reyes (Teofilo), Jose Reyes, Jr. (Jose, Jr.)
and Potenciana Reyes-Valenzuela (Potenciana). Antonio
Reyes died intestate, and was survived by Leoncia and
their three sons, Potenciana having predeceased her
father. Potenciana also died intestate, survived by her
children, namely: Gloria ReyesValenzuela, Maria Reyes
Valenzuela, and Alfredo Reyes Valenzuela. Jose, Jr., and
his family resided in the house of the parents, but Teofilo
constructed on the property his own house, where he and
his family resided.
On July 9, 1955, Leoncia and her three sons executed a
deed denominated Kasulatan ng Biling Mabibiling
Muli,4whereby they sold the land and its existing
improvements to the Spouses Benedicto Francia and
Monica Ajoco (Spouses Francia) for ₱500.00, subject to
the vendors' right to repurchase for the same amount sa
oras na sila'y makinabang. Potenciana's heirs did not
assent to that deed. Nonetheless, Teofilo and Jose, Jr.
and their respective families remained in possession of
the property and paid the realty taxes thereon.
Leoncia and her children did not repay the amount of
₱500.00.
The Spouses Francia both died intestate (i.e., Monica and Amado Reyes dela Cruz
Ajoco on September 16, 1963, and Benedicto Francia on
January 13, 1964). Jose, Sr. Alejandro Reyes (respondents'
Alejandro Reyes (Alejandro), the son of Jose, Sr., first predecessor)12
partially paid to the Spouses Francia the amount of
On September 2, 1993, Alejandro also died
₱265.00 for the obligation of Leoncia, his uncles and his
intestate.13 Surviving him were his wife, Amanda Reyes,
father. Alejandro later paid the balance of ₱235.00. Thus,
and their children, namely: Consolacion Reyes, Eugenia
on August 11, 1970, the heirs of Spouses Francia
Reyes-Elvambuena, Luciana Reyes-Mendoza, Pedrito S.
executed a deed entitled Pagsasa-ayos ng Pag-aari at
Reyes, Merlinda Reyes-Famodulan, Eduardo Reyes and
Pagsasalin,5whereby they transferred and conveyed to
June S. Reyes (respondents herein).
Alejandro all their rights and interests in the property for
In 1994, respondent Amanda Reyes asked the heirs of
₱500.00.
Teofilo and Jose, Jr., to vacate the property because she
On August 21, 1970, Alejandro executed a Kasulatan ng
and her children already needed it. After the petitioners
Pagmeme-ari,6 wherein he declared that he had acquired
refused to comply, she filed a complaint against the
all the rights and interests of the heirs of the Spouses
petitioners in the barangay, seeking their eviction from the
Francia, including the ownership of the property, after the
property. When no amicable settlement was reached, the
vendors had failed to repurchase within the given period.
Barangay Lupon issued a certification to file action to the
On the basis of the Kasulatan ng Pagmeme-ari, Tax
respondents on September 26, 1994.14
Declaration No. 3703 covering the property7 was canceled
In the interim, petitioner Nenita R. de la Cruz and her
by Tax Declaration No. 8715,8 effective 1971, issued to
brother Romeo Reyes also constructed their respective
Alejandro. From then on, he had paid the realty taxes for
houses on the property.15
the property.
RTC Proceedings and Ruling
Nevertheless, on October 17, 1970, Alejandro, his
On September 28, 1994, the respondents initiated this suit
grandmother (Leoncia), and his father (Jose, Sr.)
for quieting of title and reconveyance in the RTC. 16 The
executed a Magkakalakip na Salaysay,9 by which
complaint, docketed as Civil Case No. 817-M-94 and
Alejandro acknowledged the right of Leoncia, Jose, Jr.,
entitled Amanda Reyes, et al. v. Heirs of Jose Reyes, Jr.,
and Jose, Sr. to repurchase the property at any time for
et al., was later amended.17 They alleged that their
the same amount of ₱500.00.
predecessor Alejandro had acquired ownership of the
On October 22, 1970, Leoncia died intestate.10 She was
property by virtue of the deed Pagsasa-ayos ng Pag-aari
survived by Jose, Sr., Teofilo, Jose, Jr. and the heirs of
at Pagsasalin executed on August 11, 1970 by the heirs
Potenciana. Even after Leonica's death, Teofilo and Jose,
of the Spouses Francia; that on the basis of such deed of
Jr., with their respective families, continued to reside in
assignment, Alejandro had consolidated his ownership of
the property.
the property via his Kasulatan ng Pagmeme-ari; and that
Subsequently, Tax Declaration 1228,11 under the name of
under the Magkasanib na Salaysay, Alejandro had
Alejandro, was issued effective 1980. All of Leoncia's
granted to Leoncia, his father Jose, Sr., and his uncles,
sons eventually died intestate, survived by their respective
Teofilo and Jose, Jr. the right to repurchase the property,
heirs, namely:
but they had failed to do so.
Name of Surviving Heirs The respondents prayed for judgment in their favor, as
Decedent follows:
WHEREFORE, it is respectfully prayed that judgment be
Teofilo Romeo Reyes, Leonardo Reyes, rendered:
Jose, Sr. and Leonora C. Reyes Rodrigo 1. Quieting the title to the property by declaring the
Reyes, Nenita Reyes- dela Cruz, plaintiffs (respondents herein) as the rightful and lawful
Rodolfo Reyes, Oscar Reyes, owners thereof;
Gamaliel Reyes, Magdalena Reyes
(petitioners herein), Efren Reyes
269
Sales – Chapter 3-12 Cases
2. Ordering the defendants (petitioners herein) to vacate
subject premises and reconvey and or surrender
possession thereof to the plaintiffs;
3. Ordering the defendants to recognize the right of the
plaintiffs as the lawful owners of subject property;
4. Ordering the defendants to pay plaintiffs the following:
a. Moral damages in the amount of P50,000.00;
b. Exemplary damages in the amount of P20,000.00;
c. Attorney's fees of P20,000.00, acceptance fee of
P10,000.00 and P500.00 per recorded Court appearance
of counsel;
d. The costs of this suit.
Plaintiffs further pray for such other relief which the
Honorable Court may deem just and equitable under the
premises.18
In their answer,19 the petitioners averred that
the Kasulatan ng Biling Mabibiling Muli was an equitable
mortgage, not a pacto de retro sale; that the mortgagors
had retained ownership of the property; that the heirs of
the Spouses Francia could not have validly sold the
property to Alejandro through the Pagsasaayos ng Pag-
aari at Pagsasalin; that Alejandro's right was only to seek
reimbursement of the ₱500.00 he had paid from the co-
owners, namely: Leoncia, Teofilo, Jose, Jr. and Jose, Sr.
and the heirs of Potenciana; and that Alejandro could not
have also validly consolidated ownership through
the Kasulatan ng Pagmeme-ari, because a consolidation
of ownership could only be effected via a court order.
The petitioners interposed a counterclaim for the
declaration of the transaction as an equitable mortgage,
and of their property as owned in common by all the heirs
of Leoncia, Teofilo, Jose, Jr. and Jose, Sr.
On May 21, 1996, the RTC ruled in favor of the
respondents, declaring that Alejandro had acquired
ownership of the property in 1965 by operation of law
upon the failure of the petitioners' predecessors to
repurchase the property; that the joint affidavit executed
by Alejandro, Leoncia and Jose, Jr. and Jose, Sr., to
extend the period of redemption was inefficacious,
because there was no more period to extend due to the
redemption period having long lapsed by the time of its
execution; and that the action should be dismissed insofar
as the heirs of Potenciana were concerned, considering
that Potenciana, who had predeceased her parents, had
no successional rights in the property.
Accordingly, the RTC decreed as follows:
WHEREFORE, on the basis of the evidence adduced and
the law/jurisprudence applicable thereon, judgment is
hereby rendered:
a) sustaining the validity of the "Kasulatan ng Biling
Mabibiling Muli" (Exh. B/Exh. 1) executed on July 9, 1955
by Leoncia Mag-isa and her sons Teofilo, Jose, Sr. and
Jose, Jr., all surnamed Reyes, in favor of Spouses
Benedicto Francia and Monica Ajoco as well as
the "Pagsasa-ayos ng Pag-aari at Pagsasalin" (Settlement
of Estate and Assignment) [Exh. C/Exh. 4] executed on
August 11, 1970 by the heirs of spouses Benedicto
Francia and Monica Ajoco in favor of the spouses
Alejandro Reyes and Amanda Salonga;
b) declaring the aforementioned "Kasulatan Ng Biling
Mabibili Muli" (Exh. B/ Exh. 1) to be a contract of sale with
right to repurchase and not an equitable mortgage;
c) confirming the consolidation of ownership, by operation
of law, of spouses Alejandro M. Reyes and Amanda
Salonga over the residential lot mentioned and referred to
in Exhibit B/Exhibit 1 and Exhibit C/Exhibit 4;
d) allowing the registration with the Registry of Deeds for
the Province of Bulacan of the "Kasulatan ng Pagmeme-
ari" (Document of Ownership) [Exh. E/Exh. 5] executed by
Alejandro M. Reyes on August 21, 1970 or of any
appropriate deed of consolidation of ownership over the
residential lot covered by Exhibit E/Exhibit 5 which the
plaintiffs, as eventual owners by succession of the
aforementioned proeprty, may deem proper to execute;
e) ordering the defendants and all persons claiming rights
under them to vacate the residential lot subject of the
above-entitled case and to restore possession thereof
unto the plaintiffs;
f) directing the defendants (except the heirs of Potenciana
Reyes-Valenzuela) to pay unto the plaintiffs the amount of
P20,000.00 as attorney's fees; and
g) dismissing the complaint in so far as the defendant
heirs of Potenciana Reyes-Valenzuela are concerned as
well as their counterclaim for damages and attorney's
fees.1avvphi1
No pronouncement as to costs.
SO ORDERED. 20
Aggrieved, the petitioners appealed to the CA.
CA Ruling
In the CA, the petitioners assailed the RTC's dispositions,
except the dismissal of the complaint as against
Potenciana's heirs.
In its decision dated July 31, 2002, the CA ruled that the
transaction covered by the Kasulatan ng Biling Mabibiling
Muli was not a pacto de retro sale but an equitable
mortgage under Article 1602 of the Civil Code; that even
after the deed's execution, Leoncia, Teofilo, Jose, Jr. and
their families had remained in possession of the property
and continued paying realty taxes for the property; that the
purported vendees had not declared the property for
taxation purposes under their own names; and that such
circumstances proved that the parties envisaged an
equitable mortgage in the Kasulatan ng Biling Mabibiling
Muli.
The CA observed that the heirs of the Spouses Francia
had themselves admitted in paragraph 5 of the Pagsasa-
ayos ng Pag-aari at Pagsasalin that the property had
been mortgaged to their predecessors-in-interest, viz:
Na, sa oras ng kamatayan ay nakaiwan sila ng isang
lagay na lupang nakasanla sa kanila na makikilala sa
kasulatang kalakip nito sa halagang LIMANG DAANG
PISO (P500.00). Ngunit nuong nabubuhay pa ang
magasawang Benedicto Francia at Monica Ajoco ay
nakatanggap na ng halagang P265.00 kay Alejandro
Reyes - Filipino, kasal kay Amanda Salonga, may sapat
na gulang at naninirahan sa Pulilan, Bulacan.21
However, the CA held that the appellants' (petitioners
herein) failure to file an action for the reformation of
the Kasulatan ng Biling Mabibiling Muli to reflect the true
intention of the parties within ten years from the deed's
execution on July 9, 1955, pursuant to Article 1144 of the
Civil Code,22 already barred them from claiming that the
transaction executed between Leoncia and her children,
on one hand, and the Spouses Francia, on the other
hand, was an equitable mortgage. The CA agreed with the
RTC that the Magkakalakip na Salaysay did not effectively
extend the period for Leoncia and her children to
repurchase the property, considering that the period to
repurchase had long lapsed by the time the agreement to
extend it was executed on October 17, 1970.
Issues
In this appeal, therefore, the petitioners insist that:23
I.
The Honorable Court of Appeals erred in finding that
respondents (were) already barred from claiming that the
transaction entered into by their predecessors-in-interest
was an equitable mortgage and not a pacto de retro sale;
II.
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Sales – Chapter 3-12 Cases
The Honorable Court of Appeals erred in affirming the
findings of the court a quo that the Magkasanib na
Salaysay (Joint Affidavit), executed by Alejandro, Leoncia
and Jose, Jr., wherein Leoncia and her children were
granted by Alejandro the right to repurchase the property
at anytime for the amount of P500.00, was of no legal
significance.
Ruling of the Court
The petition is meritorious.
A.
The CA correctly concluded that the true agreement of the
parties vis-à-vis the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage, not a pacto de retro sale.
There was no dispute that the purported vendors had
continued in the possession of the property even after the
execution of the agreement; and that the property had
remained declared for taxation purposes under Leoncia's
name, with the realty taxes due being paid by Leoncia,
despite the execution of the agreement. Such established
circumstances are among the badges of an equitable
mortgage enumerated in Article 1602, paragraphs 2 and 5
of the Civil Code, to wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
xxx
(2) When the vendor remains in possession as lessee or
otherwise;
xxx
(5) When the vendor binds himself to pay the taxes on the
thing sold;
xxx
The existence of any one of the conditions enumerated
under Article 1602 of the Civil Code, not a concurrence of
all or of a majority thereof, suffices to give rise to the
presumption that the contract is an equitable
mortgage.24 Consequently, the contract between the
vendors and vendees (Spouses Francia) was an equitable
mortgage.
B.
Are the petitioners now barred from claiming that the
transaction under the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage by their failure to redeem
the property for a long period of time?
The petitioners contend that prescription, if it must apply
to them, should as well be applied to the respondents,
who had similarly failed to enforce their right under the
equitable mortgage within ten years from its execution on
July 9, 1955. Consequently, they urge the upholding of
the original intention of the parties to the Kasulatan ng
Biling Mabibiling Muli, without taking prescription into
account, because both parties did not enforce their
respective rights within the ten-year prescriptive period, is
more in keeping with fairness and equity.
We agree with the petitioners.
Considering that sa oras na sila'y makinabang, the period
of redemption stated in the Kasulatan ng Biling Mabibiling
Muli, signified that no definite period had been stated, the
period to redeem should be ten years from the execution
of the contract, pursuant to Articles 1142 and 1144 of the
Civil Code.25 Thus, the full redemption price should have
been paid by July 9, 1955; and upon the expiration of said
10-year period, mortgagees Spouses Francia or their
heirs should have foreclosed the mortgage, but they did
not do so. Instead, they accepted Alejandro's payments,
until the debt was fully satisfied by August 11, 1970.
The acceptance of the payments even beyond the 10-
year period of redemption estopped the mortgagees' heirs
from insisting that the period to redeem the property had
already expired. Their actions impliedly recognized the
continued existence of the equitable mortgage. The
conduct of the original parties as well as of their
successors-in-interest manifested that the parties to
the Kasulatan ng Biling Mabibiling Muli really intended
their transaction to be an equitable mortgage, not a pacto
de retro sale.
In Cuyugan v. Santos,26 the purported buyer under a so-
called contract to sell with right to repurchase also
accepted partial payments from the purported seller. We
held that the acceptance of partial payments was
absolutely incompatible with the idea of irrevocability of
the title of ownership of the purchaser upon the expiration
of the term stipulated in the original contract for the
exercise of the right of redemption. Thereby, the conduct
of the parties manifested that they had intended the
contract to be a mortgage, not a pacto de retro sale.
C.
When Alejandro redeemed the property on August 11,
1970, he did not thereby become a co-owner thereof,
because his father Jose, Sr. was then still alive. Alejandro
merely became the assignee of the mortgage, and the
property continued to be co-owned by Leoncia and her
sons Jose, Sr., Jose Jr., and Teofilo. As an assignee of
the mortgage and the mortgage credit, Alejandro acquired
only the rights of his assignors, nothing more. He himself
confirmed so in the Magkasanib na Salaysay, whereby he
acknowledged the co-owners' right to redeem the property
from him at any time (sa ano mang oras) for the same
redemption price of ₱500.00.
It is worthy to note that Alejandro's confirmation in
the Magkasanib na Salaysay of the co-owners' right to
redeem was made despite 15 years having meanwhile
elapsed from the execution of the original Kasulatan ng
Biling Mabibiling Muli (July 9, 1955) until the execution of
the Magkasanib na Salaysay (August 21, 1970).
D.
Neither did the petitioners' failure to initiate an action for
reformation within ten years from the execution of
the Kasulatan ng Biling Mabibiling Muli bar them from
insisting on their rights in the property. The records show
that the parties in the Kasulatan ng Biling Mabibiling
Muli had abided by their true agreement under the deed,
to the extent that they and their successors-in-interest still
deemed the agreement as an equitable mortgage despite
the lapse of 15 years from the execution of the
purported pacto de retro sale. Hence, an action for
reformation of the Kasulatan ng Biling Mabibiling Muli was
unnecessary, if not superfluous, considering that the
reason underlying the requirement for an action for
reformation of instrument has been to ensure that the
parties to a contract abide by their true intended
agreement.
The Kasulatan ng Pagmeme-ari executed by Alejandro on
August 21, 1970 was ineffectual to predicate the exclusion
of the petitioners and their predecessors in interest from
insisting on their claim to the property. Alejandro's being
an assignee of the mortgage did not authorize him or his
heirs to appropriate the mortgaged property for himself
without violating the prohibition against pactum
commissorium contained in Article 2088 of the Civil Code,
to the effect that "[t]he creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose of
them[;] [a]ny stipulation to the contrary is null and void."
Aptly did the Court hold in Montevirgen v. Court of
Appeals:27
The declaration, therefore, in the decision of July 1, 1971
to the effect that absolute ownership over the subject
premises has become consolidated in the respondents
upon failure of the petitioners to pay their obligation within
the specified period, is a nullity, for consolidation of
ownership is an improper and inappropriate remedy to
enforce a transaction declared to be one of mortgage. It is
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Sales – Chapter 3-12 Cases
the duty of respondents, as mortgagees, to foreclose the
mortgage if he wishes to secure a perfect title to the
mortgaged property if he buys it in the foreclosure sale.
Moreover, the respondents, as Alejandro's heirs, were
entirely bound by his previous acts as their predecessors-
in-interest. Thus, Alejandro's acknowledgment of the
effectivity of the equitable mortgage agreement precluded
the respondents from claiming that the property had been
sold to him with right to repurchase.28
E.
What was the effect of the Magkasanib na Salaysay?
Both the trial court and the CA declared that
the Magkasanib na Salaysay, which extended the
redemption period of the mortgaged property, was
inefficacious, because the period to redeem could no
longer be extended after the original redemption period
had already expired.
In contrast, the petitioners submit that disregarding
the Magkasanib na Salaysay made no sense,considering
that the respondents' predecessors-in-interest admitted
therein that the petitioners had a right to redeem the
property.
The respondents counter, however, that the Magkasanib
na Salaysay, which acknowledged the other co-owners'
right to redeem the property, was void; that the petitioners
could no longer claim to be co-owners entitled to redeem
the property, because the co-ownership had come to an
end by Alejandro having openly repudiated the co-
ownership; that Alejandro's acts of repudiation had
consisted of: (a) redeeming the property from the Spouses
Francia; (b) acquiring the property from the heirs of
Spouses Francia by virtue of a deed of assignment
denominated as Pag-aayos ng Pag-aari at Pagsasalin; (c)
executing an affidavit of consolidation of ownership over
the property (Kasulatan ng Pagmeme-ari); (d) applying for
the cancellation of the tax declaration of property in the
name of Leoncia, and the subsequent issuance of a new
tax declaration in his name; (e) his continuous possession
of the property from 1955, which possession the
respondents as his heirs had continued up to the present
time, or for a period of almost 50 years already; and (f) the
payment of the taxes by Alejandro and the respondents
for more than 30 years without any contribution from the
petitioners; and that such repudiation established that
Alejandro and his successors-in-interest had already
acquired sole title over the property through acquisitive
prescription.
The respondents' and the lower courts' positions cannot
be sustained.
The provisions of the Civil Code governing equitable
mortgages disguised as sale contracts, like the one
herein, are primarily designed to curtail the evils brought
about by contracts of sale with right to repurchase,
particularly the circumvention of the usury law and pactum
commissorium.29 Courts have taken judicial notice of the
well-known fact that contracts of sale with right to
repurchase have been frequently resorted to in order to
conceal the true nature of a contract, that is, a loan
secured by a mortgage. It is a reality that grave financial
distress renders persons hard-pressed to meet even their
basic needs or to respond to an emergency, leaving no
choice to them but to sign deeds of absolute sale of
property or deeds of sale with pacto de retro if only to
obtain the much-needed loan from unscrupulous money
lenders.30 This reality precisely explains why the pertinent
provision of the Civil Code includes a peculiar rule
concerning the period of redemption, to wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
xxx
(3)When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
xxx
Ostensibly, the law allows a new period of redemption to
be agreed upon or granted even after the expiration of the
equitable mortgagor's right to repurchase, and treats such
extension as one of the indicators that the true agreement
between the parties is an equitable mortgage, not a sale
with right to repurchase. It was indubitable, therefore, that
the Magkasanib na Salaysay effectively afforded to
Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period
within which to pay to Alejandro the redemption price of
₱500.00.
F.
Did Alejandro and his heirs (respondents herein) acquire
the mortgaged property through prescription?
It is true that Alejandro became a co-owner of the property
by right of representation upon the death of his father,
Jose Sr.31 As a co-owner, however, his possession was
like that of a trustee and was not regarded as adverse to
his co-owners but in fact beneficial to all of them.32
Yet, the respondents except to the general rule, asserting
that Alejandro, having earlier repudiated the co-
ownership, acquired ownership of the property through
prescription.
The Court cannot accept the respondents' posture.
In order that a co-owner's possession may be deemed
adverse to that of the cestui que trust or the other co-
owners, the following elements must concur:
1. The co-owner has performed unequivocal acts of
repudiation of the co-ownership amounting to an ouster of
the cestui que trust or the other co-owners;
2. Such positive acts of repudiation have been made
known to the cestui que trust or the other co-owners;
3. The evidence on the repudiation is clear and
conclusive; and
4. His possession is open, continuous, exclusive, and
notorious.33
The concurrence of the foregoing elements was not
established herein. For one, Alejandro did not have
adverse and exclusive possession of the property, as, in
fact, the other co-owners had continued to possess it, with
Alejandro and his heirs occupying only a portion of it.
Neither did the cancellation of the previous tax
declarations in the name of Leoncia, the previous co-
owner, and the issuance of a new one in Alejandro's
name, and Alejandro's payment of the realty taxes
constitute repudiation of the co-ownership. The sole fact
of a co-owner declaring the land in question in his name
for taxation purposes and paying the land taxes did not
constitute an unequivocal act of repudiation amounting to
an ouster of the other co-owner and could not constitute
adverse possession as basis for title by
prescription.34Moreover, according to Blatero v.
Intermediate Appellate Court,35 if a sale a retro is
construed as an equitable mortgage, then the execution of
an affidavit of consolidation by the purported buyer to
consolidate ownership of the parcel of land is of no
consequence and the "constructive possession" of the
parcel of land will not ripen into ownership, because only
possession acquired and enjoyed in the concept of owner
can serve as title for acquiring dominion.36
In fine, the respondents did not present proof showing that
Alejandro had effectively repudiated the co-ownership.
Their bare claim that Alejandro had made oral demands to
vacate to his co-owners was self-serving and insufficient.
Alejandro's execution of the affidavit of consolidation of
ownership on August 21, 197037 and his subsequent
execution on October 17, 1970 of the joint affidavit 38 were
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Sales – Chapter 3-12 Cases
really equivocal and ambivalent acts that did not manifest c) Finding the Magkakalakip na Salaysay executed on
his desire to repudiate the co-ownership. October 17, 1970 by and among Leoncia Mag-isa Reyes,
The only unequivocal act of repudiation was done by the Jose Reyes, Sr. and Alejandro Reyes valid and effective;
respondents when they filed the instant action for quieting c) Nullifying the Kasulatan ng Pagmeme-ari executed by
of title on September 28, 1994, nearly a year after Alejandro M. Reyes on August 21, 1970; and
Alejandro's death on September 2, 1993. However, their d) Dismissing the petitioners' counterclaim.
possession could not ripen into ownership considering Costs of suit to be paid by the respondents.
that their act of repudiation was not coupled with their SO ORDERED.
exclusive possession of the property.
G.
The respondents can only demand from the petitioners
the partition of the co-owned property and the
reimbursement from their co-owners of the amount
advanced by Alejandro to repay the obligation. They may
also seek from their co-owners the proportional
reimbursement of the realty taxes paid for the property,
pursuant to Article 488 of the Civil Code.39 In the
alternative, they may opt to foreclose the equitable
mortgage, considering that the petitioners' period to
redeem the mortgaged property, which was ten years
from the execution on October 17, 1970 of
the Magkakasanib na Salaysay, had already long lapsed.
We clarify, however, that the respondents may take these
recourses only through the appropriate actions
commenced in court.
H.
The petitioners' counterclaim for damages is dismissed for
their failure to prove their entitlement to it.40
WHEREFORE, we grant the petition for review on
certiorari.
The decision dated July 31, 2002 rendered by the Court of
Appeals is reversed and set aside, and another judgment
is rendered:
a) Upholding the validity of the Kasulatan ng Biling
Mabibiling Muli (Deed of Sale with Right of Repurchase)
executed on July 9, 1955 by Leoncia Mag-isa Reyes and
her sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed
Reyes, in favor of the late Spouses Benedicto Francia and
Monica Ajoco as well as the Pagsasa-ayos ng Pag-aari at
Pagsasalin (Settlement of Estate and Assignment)
executed on August 11, 1970 by the heirs of the late
Spouses Benedicto Francia and Monica Ajoco in favor of
the spouses Alejandro Reyes and Amanda Salonga;
b) Declaring the Kasulatan ng Biling Mabibili Muli to be an
equitable mortgage, not a contract of sale with right to
repurchase;1avvphi1

273
Sales – Chapter 3-12 Cases
G.R. No. 170023 November 27, 2009
KINGS PROPERTIES CORPORATION, Petitioner,
vs.
CANUTO A. GALIDO, Respondent.
DECISION
CARPIO, J.:
The Case
Kings Properties Corporation (petitioner) filed this Petition
for Review on Certiorari 1 assailing the Court of Appeals’
Decision 2 dated 20 December 2004 in CA-G.R. CV No.
68828 as well as the Resolution 3 dated 10 October 2005
denying the Motion for Reconsideration. In the assailed
decision, the Court of Appeals reversed the Regional Trial
Court’s Decision 4 dated 4 July 2000. This case involves
an action for cancellation of certificates of title, registration
of deed of sale and issuance of certificates of title filed by
Canuto A. Galido (respondent) before Branch 71 of the
Regional Trial Court of Antipolo City (trial court).
The Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely
Rufina Eniceo and Maria Eniceo, were awarded with
Homestead Patent No. 112947 consisting of four parcels
of land located in San Isidro, Antipolo, Rizal (Antipolo
property) and particularly described as follows:
1. Lot No. 1 containing an area of 96,297 square meters;
Lot No. 3 containing an area of 25,170 square meters;
Lot No. 4 containing an area of 26,812 square meters;
and
Lot No. 5 containing an area of 603 square meters.
The Antipolo property with a total area of 14.8882
hectares was registered under Original Certificate of Title
(OCT) No. 535. 5 The issuance of the homestead patent
was subject to the following conditions:
To have and to hold the said tract of land, with the
appurtenances thereunto of right belonging unto the said
Heirs of Domingo Eniceo and to his heir or heirs and
assigns forever, subject to the provisions of sections 118,
121, 122 and 124 of Commonwealth Act No. 141, as
amended, which provide that except in favor of the
Government or any of its branches, units or institutions,
the land hereby acquired shall be inalienable and shall not
be subject to incumbrance for a period of five (5) years
next following the date of this patent, and shall not be
liable for the satisfaction of any debt contracted prior to
the expiration of that period; that it shall not be alienated,
transferred or conveyed after five (5) years and before
twenty-five (25) years next following the issuance of title,
without the approval of the Secretary of Agriculture and
Natural Resources; that it shall not be incumbered,
alienated, or transferred to any person, corporation,
association, or partnership not qualified to acquire public
lands under the said Act and its amendments; x x x 6
On 10 September 1973, a deed of sale covering the
Antipolo property was executed between Rufina Eniceo
and Maria Eniceo as vendors and respondent as vendee.
Rufina Eniceo and Maria Eniceo sold the Antipolo
property to respondent for ₱250,000. 7 A certain Carmen
Aldana delivered the owner’s duplicate copy of OCT No.
535 to respondent. 8
Petitioner alleges that when Maria Eniceo died in June
1975, Rufina Eniceo and the heirs of Maria Eniceo
(Eniceo heirs), 9 who continued to occupy the Antipolo
property as owners, thought that the owner’s duplicate
copy of OCT No. 535 was lost. 10
On 5 April 1988, the Eniceo heirs registered with the
Registry of Deeds of Marikina City (Registry of Deeds) a
Notice of Loss dated 2 April 1988 of the owner’s copy of
OCT No. 535. The Eniceo heirs also filed a petition for the
issuance of a new owner’s duplicate copy of OCT No. 535
with Branch 72 of the Regional Trial Court (RTC) of
Antipolo, Rizal. The case was docketed as LRC Case No.
584-A. 11
On 31 January 1989, the RTC rendered a decision finding
that the certified true copy of OCT No. 535 contained no
annotation in favor of any person, corporation or entity.
The RTC ordered the Registry of Deeds to issue a second
owner’s copy of OCT No. 535 in favor of the Eniceo heirs
and declared the original owner’s copy of OCT NO. 535
cancelled and considered of no further value. 12
On 6 April 1989, the Registry of Deeds issued a second
owner’s copy of OCT No. 535 in favor of the Eniceo
heirs.13
Petitioner states that as early as 1991, respondent knew
of the RTC decision in LRC Case No. 584-A because
respondent filed a criminal case against Rufina Eniceo
and Leonila Bolinas (Bolinas) for giving false testimony
upon a material fact during the trial of LRC Case No. 584-
A. 14
Petitioner alleges that sometime in February 1995,
Bolinas came to the office of Alberto Tronio Jr. (Tronio),
petitioner’s general manager, and offered to sell the
Antipolo property. During an on-site inspection, Tronio
saw a house and ascertained that the occupants were
Bolinas’ relatives. Tronio also went to the Registry of
Deeds to verify the records on file. Tronio ascertained that
OCT No. 535 was clean and had no lien and
encumbrances. After the necessary verification, petitioner
decided to buy the Antipolo property. 15
On 14 March 1995, respondent caused the annotation of
his adverse claim in OCT No. 535. 16
On 20 March 1995, the Eniceo heirs executed a deed of
absolute sale in favor of petitioner covering lots 3 and 4 of
the Antipolo property for ₱500,000. 17
On the same date, Transfer Certificate of Title (TCT) Nos.
277747 and 277120 were issued. TCT No. 277747
covering lots 1 and 5 of the Antipolo property was
registered in the names of Rufina Eniceo, Ambrosio
Eniceo, Rodolfo Calove, Fernando Calove and Leonila
Calove Bolinas. 18 TCT No. 277120 covering lots 3 and 4
of the Antipolo property was registered in the name of
petitioner. 19
On 5 April 1995, the Eniceo heirs executed another deed
of sale in favor of petitioner covering lots 1 and 5 of the
Antipolo property for ₱1,000,000. TCT No. 278588 was
issued in the name of petitioner and TCT No. 277120 was
cancelled. 20
On 17 August 1995, the Secretary of the Department of
Environment and Natural Resources (DENR Secretary)
approved the deed of sale between the Eniceo heirs and
respondent. 21
On 16 January 1996, respondent filed a civil complaint
with the trial court against the Eniceo heirs and petitioner.
Respondent prayed for the cancellation of the certificates
of title issued in favor of petitioner, and the registration of
the deed of sale and issuance of a new transfer certificate
of title in favor of respondent. 22
On 4 July 2000, the trial court rendered its decision
dismissing the case for lack of legal and factual basis. 23
Respondent appealed to the Court of Appeals (CA). On
20 December 2004, the CA rendered a decision reversing
the trial court’s decision. 24 Respondent filed a motion for
reconsideration, which the CA denied in its Resolution
dated 10 October 2005.
Aggrieved by the CA’s decision and resolution, petitioner
elevated the case before this Court.
The Ruling of the Trial Court
The trial court stated that although respondent claims that
the Eniceo heirs sold to him the Antipolo property,
respondent did not testify in court as to the existence,
validity and genuineness of the purported deed of sale
and his possession of the duplicate owner’s copy of OCT
274
Sales – Chapter 3-12 Cases
No. 535. The trial court stated that as owner of a property
consisting of hectares of land, respondent should have
come to court to substantiate his claim and show that the
allegations of the Eniceo heirs and petitioner are mere
fabrications. 25
The trial court noticed that respondent did not register the
deed of sale with the Register of Deeds immediately after
its alleged execution on 10 September 1973. Further,
respondent waited for 22 long years before he had the
sale approved by the DENR Secretary. The trial court
declared that respondent slept on his rights. The trial court
concluded that respondent’s failure to register the sale
and secure the cancellation of OCT No. 535 militates
against his claim of ownership. The trial court believed
that respondent has not established the preponderance of
evidence necessary to justify the relief prayed for in his
complaint. 26
The trial court stated that Bolinas was able to prove that
the Eniceo heirs have remained in actual possession of
the land. The filing of a petition for the issuance of a new
owner’s duplicate copy requires the posting of the petition
in three different places which serves as a notice to the
whole world. Respondent’s failure to oppose this petition
can be deemed as a waiver of his right, which is fatal to
his cause. 27
The trial court noted that petitioner is a buyer in good faith
and for value because petitioner has exercised due
diligence in inspecting the property and verifying the title
with the Register of Deeds. 28
The trial court held that even if the court were to believe
that the deed of sale in favor of respondent were genuine,
still it could not be considered a legitimate disposition of
property, but merely an equitable mortgage. The trial court
stated that respondent never obtained possession of the
Antipolo property at any given time and a buyer who does
not take possession of a property sold to him is presumed
to be a mortgagee only and not a vendee. 29
The Ruling of the Court of Appeals
The CA ruled that the deed of sale in favor of respondent,
being a notarized document, has in its favor the
presumption of regularity and carries the evidentiary
weight conferred upon it with respect to its due execution.
The CA added that whoever asserts forgery has the
burden of proving it by clear, positive and convincing
evidence because forgery can never be presumed. The
CA found that petitioner and the Eniceo heirs have not
substantiated the allegation of forgery. 30
The CA pointed out that laches has not set in. One of the
requisites of laches, which is injury or prejudice to the
defendant in the event relief is accorded to the
complainant or the suit is not held to be barred, is wanting
in the instant case. The CA added that unrecorded sales
of land brought under the Torrens system are valid
between parties because registration of the instrument is
merely intended to bind third persons. 31
The CA declared that petitioner’s contention regarding the
validity of the questioned deed on the ground that it was
executed without the approval of the DENR Secretary is
untenable. The DENR Secretary approved the deed of
sale on 17 August 1995. However, even supposing that
the sale was not approved, the requirement for the DENR
Secretary’s approval is merely directory and its absence
does not invalidate any alienation, transfer or conveyance
of the homestead after 5 years and before 25 years from
the issuance of the title which can be complied with at any
time in the future. 32
The CA ruled that petitioner is a buyer in bad faith
because it purchased the disputed properties from the
Eniceo heirs after respondent had caused the inscription
on OCT No. 535 of an adverse claim. Registration of the
adverse claim serves as a constructive notice to the whole
world. Petitioner cannot feign ignorance of facts which
should have put it on guard and then claim that it acted
under the honest belief that there was no defect in the title
of the vendors. Knowing that an adverse claim was
annotated in the certificates of title of the Eniceo heirs,
petitioner was forewarned that someone is claiming an
interest in the disputed properties. 33
The CA found no merit in petitioner’s contention that the
questioned deed of sale is an equitable mortgage. The CA
stated that for the presumption of an equitable mortgage
to arise, one must first satisfy the requirement that the
parties entered into a contract denominated as a contract
of sale and that their intention was to secure an existing
debt by way of mortgage. 34
The CA stated that the execution of the notarized deed of
sale, even without actual delivery of the disputed
properties, transferred ownership from the Eniceo heirs to
respondent. The CA held that respondent’s possession of
the owner’s duplicate copy of OCT No. 535 bolsters the
contention that the Eniceo heirs sold the disputed
properties to him by virtue of the questioned deed. 35
The CA reversed the trial court’s decision. The dispositive
portion of the CA decision reads:
WHEREFORE, the appealed decision of the Regional
Trial Court of Rizal (Antipolo, Branch 71) is REVERSED
and SET ASIDE and another rendered as follows:
1. Declaring null and void Transfer Certificates of Titles
Nos. 277747, 277120 and 278588 of the Registry of
Deeds of Marikina City (the last two in the name of
defendant-appellee Kings Properties Corporation), the
derivative titles thereof and the instruments which were
the bases of the issuance of said certificates of title; and
2. Declaring plaintiff-appellant Canuto A. Galido the owner
of fee simple of Lot Nos. 1, 3, 4, 5 formerly registered
under Original Certificate of Title No. 535 in the name of
the Heirs of Domingo Eniceo, represented by Rufina
Eniceo, and ordering the Register of Deeds of Marikina
City to issue new transfer certificates of title for said
parcels of land in the name of plaintiff-appellant Canuto A.
Galido, upon payment of the proper fees and presentation
of the deed of sale dated September 10, 1973 executed
by Rufina Eniceo and Maria Eniceo, as sole heirs of the
late Domingo Eniceo, in favor of the latter. 36
The Issues
Petitioner raises two issues in this petition:
1. Whether the adverse claim of respondent over the
Antipolo property should be barred by laches; 37 and
2. Whether the deed of sale delivered to respondent
should be presumed an equitable mortgage pursuant to
Article 1602(2) and 1604 of the Civil Code. 38
The Ruling of the Court
Validity of the deed of sale to respondent
The contract between the Eniceo heirs and respondent
executed on 10 September 1973 was a perfected contract
of sale. A contract is perfected once there is consent of
the contracting parties on the object certain and on the
cause of the obligation. 39 In the present case, the object
of the sale is the Antipolo property and the price certain is
₱250,000.
The contract of sale has also been consummated
because the vendors and vendee have performed their
respective obligations under the contract. In a contract of
sale, the seller obligates himself to transfer the ownership
of the determinate thing sold, and to deliver the same to
the buyer, who obligates himself to pay a price certain to
the seller. 40 The execution of the notarized deed of sale
and the delivery of the owner’s duplicate copy of OCT No.
535 to respondent is tantamount to a constructive delivery
of the object of the sale. In Navera v. Court of Appeals,
the Court ruled that since the sale was made in a public
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instrument, it was clearly tantamount to a delivery of the
land resulting in the symbolic possession thereof being
transferred to the buyer. 41
Petitioner alleges that the deed of sale is a forgery. The
Eniceo heirs also claimed in their answer that the deed of
sale is fake and spurious. 42 However, as correctly held by
the CA, forgery can never be presumed. The party
alleging forgery is mandated to prove it with clear and
convincing evidence. 43 Whoever alleges forgery has the
burden of proving it. In this case, petitioner and the Eniceo
heirs failed to discharge this burden.
Petitioner invokes the belated approval by the DENR
Secretary, made within 25 years from the issuance of the
homestead, to nullify the sale of the Antipolo property. The
sale of the Antipolo property cannot be annulled on the
ground that the DENR Secretary gave his approval after
21 years from the date the deed of sale in favor of
respondent was executed. Section 118 of Commonwealth
Act No. 141 or the Public Land Act (CA 141), as amended
by Commonwealth Act No. 456, 44 reads:
SEC. 118. Except in favor of the Government or any of its
branches, units, or institutions, or legally constituted
banking corporations, lands acquired under free patent or
homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval
of the application and for a term of five years from and
after the date of the issuance of the patent or grant x x x
No alienation, transfer, or conveyance of any homestead
after five years and before twenty-five years after the
issuance of title shall be valid without the approval of the
Secretary of Agriculture and Natural Resources, 45 which
approval shall not be denied except on constitutional and
legal grounds.
In Spouses Alfredo v. Spouses Borras, 46 the Court
explained the implications of Section 118 of CA 141.
Thus:
A grantee or homesteader is prohibited from alienating to
a private individual a land grant within five years from the
time that the patent or grant is issued. A violation of this
prohibition renders a sale void. This , however, expires on
the fifth year. From then on until the next 20 years, the
land grant may be alienated provided the Secretary of
Agriculture and Natural Resources approves the
alienation. The Secretary is required to approve the
alienation unless there are "constitutional and legal
grounds" to deny the approval. In this case, there are no
apparent or legal grounds for the Secretary to disapprove
the sale of the Subject Land.
The failure to secure the approval of the Secretary does
not ipso factomake a sale void. The absence of approval
by the Secretary does not a sale made after the expiration
of the 5-year period, for in such event the requirement of
Section 118 of the Public Land Act becomes merely
directory or a formality. The approval may be secured
later, producing the effect of ratifying and adopting the
transaction as if the sale had been previously authorized.
(Underscoring supplied)
Equitable Mortgage
Petitioner contends that the deed of sale in favor of
respondent is an equitable mortgage because the Eniceo
heirs remained in possession of the Antipolo property
despite the execution of the deed of sale.
An equitable mortgage is "one which although lacking in
some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention
of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to
law." 47 The essential requisites of an equitable mortgage
are:
1. The parties entered into a contract denominated as a
contract of sale; and
2. Their intention was to secure existing debt by way of a
mortgage. 48
In Lim v. Calaguas, 49 the Court held that in order for the
presumption of equitable mortgage to apply, there must
be: (1) something in the language of the contract; or (2) in
the conduct of the parties which shows clearly and beyond
doubt that they intended the contract to be a mortgage
and not a pacto de retro sale. 50 Proof by parol evidence
should be presented in court. Parol evidence is admissible
to support the allegation that an instrument in writing,
purporting on its face to transfer the absolute title to
property, was in truth and in fact given merely as security
for the payment of a loan. The presumption of equitable
mortgage under Article 1602 of the Civil Code is not
conclusive. It may be rebutted by competent and
satisfactory proof of the contrary. 51
Petitioner claims that an equitable mortgage can be
presumed because the Eniceo heirs remained in
possession of the Antipolo property. Apart from the fact
that the Eniceo heirs remained in possession of the
Antipolo property, petitioner has failed to substantiate its
claim that the contract of sale was intended to secure an
existing debt by way of mortgage. In fact, mere tolerated
possession is not enough to prove that the transaction
was an equitable mortgage. 52
Furthermore, petitioner has not shown any proof that the
Eniceo heirs were indebted to respondent. On the
contrary, the deed of sale executed in favor of respondent
was drafted clearly to convey that the Eniceo heirs sold
and transferred the Antipolo property to respondent. The
deed of sale even inserted a provision about defrayment
of registration expenses to effect the transfer of title to
respondent.
In any event, as pointed out by respondent in his
Memorandum, this defense of equitable mortgage is
available only to petitioner’s predecessors-in-interest who
should have demanded, but did not, for the reformation of
the deed of sale. 53 A perusal of the records shows that
the Eniceo heirs never presented the defense of equitable
mortgage before the trial court. In their Answer 54 and
Memorandum 55 filed before the trial court, the Eniceo
heirs claimed that the alleged deed of sale dated 10
September 1973 between Rufina Eniceo and Maria
Eniceo was fake and spurious. The Eniceo heirs
contended that even assuming there was a contract, no
consideration was involved. It was only in the Appellees’
Brief 56 filed before the CA that the Eniceo heirs claimed
as an alternative defense that the deed should be
presumed as an equitable mortgage.
In Philippine Ports Authority v. City of Iloilo, 57 we ruled
that a party who adopts a certain theory upon which the
case is tried and decided by the lower court will not be
permitted to change the theory on appeal. A theory of the
case not brought to the attention of the lower court will not
be considered by a reviewing court, as a new theory
cannot be raised for the first time at such late stage.
Although petitioner raised the defense of equitable
mortgage in the lower court, he cannot claim that the deed
was an equitable mortgage because petitioner was not a
privy to the deed of sale dated 10 September 1973.
Petitioner merely stepped into the shoes of the Eniceo
heirs. Petitioner, who merely acquired all the rights of its
predecessors, cannot espouse a theory that is contrary to
the theory of the case claimed by the Eniceo heirs.
The Court notes that the Eniceo heirs have not appealed
the CA’s decision, hence, as to the Eniceo heirs, the CA’s
decision that the contract was a sale and not an equitable
mortgage is now final. Since petitioner merely assumed
the rights of the Eniceo heirs, petitioner is now estopped
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Sales – Chapter 3-12 Cases
from questioning the deed of sale dated 10 September
1973.
Petitioner is not a buyer in good faith
Petitioner maintains that the subsequent sale must be
upheld because petitioner is a buyer in good faith, having
exercised due diligence by inspecting the property and the
title sometime in February 1995.
In Agricultural and Home Extension Development Group
v. Court of Appeals, 58 a buyer in good faith is defined as
"one who buys the property of another without notice that
some other person has a right to or interest in such
property and pays a full and fair price for the same at the
time of such purchase or before he has notice of the claim
or interest of some other person in the property."
In Balatbat v. Court of Appeals, 59 the Court held that in
the realm of double sales, the registration of an adverse
claim places any subsequent buyer of the registered land
in bad faith because such annotation was made in the title
of the property before the Register of Deeds and he could
have discovered that the subject property was already
sold. 60 The Court explained further, thus:
A purchaser of a valued piece of property cannot just
close his eyes to facts which should put a reasonable man
upon his guard and then claim that he acted in good faith
and under the belief that there were no defect in the title
of the vendor. One who purchases real estate with
knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as
against the true owner of the land or of an interest therein;
and the same rule must be applied to one who has
knowledge of facts which should have put him upon such
inquiry and investigation as be necessary to acquaint him
with the defects in the title of his vendor. 61
Petitioner does not dispute that respondent registered his
adverse claim with the Registry of Deeds on 14 March
1995. The registration of the adverse claim constituted, by
operation of law, notice to the whole world. 62 From that
date onwards, subsequent buyers were deemed to have
constructive notice of respondent’s adverse claim.
Petitioner purchased the Antipolo property only on 20
March 1995 and 5 April 1995 as shown by the dates in the
deeds of sale. On the same dates, the Registry of Deeds
issued new TCTs in favor of petitioner with the annotated
adverse claim. Consequently, the adverse claim
registered prior to the second sale charged petitioner with
constructive notice of the defect in the title of Eniceo heirs.
Therefore, petitioner cannot be deemed as a purchaser in
good faith when they bought and registered the Antipolo
property.
In Carbonell v. Court of Appeals, 63 this Court ruled that in
double sales, the first buyer always has priority rights over
subsequent buyers of the same property. Being the first
buyer, he is necessarily in good faith compared to
subsequent buyers. The good faith of the first buyer
remains all throughout despite his subsequent acquisition
of knowledge of the subsequent sale. On the other hand,
the subsequent buyer, who may have entered into a
contract of sale in good faith, would become a buyer in
bad faith by his subsequent acquisition of actual or
constructive knowledge of the first sale. 64 The separate
opinion of then Justice Teehankee is instructive, thus:
The governing principle here is prius tempore, potior
jure(first in time, stronger in right). Knowledge gained by
the first buyer of the second sale cannot defeat the first
buyer’s rights except only as provided by the Code and
that is where the second buyer first registers in good faith
the second sale ahead of the first. Such knowledge of the
first buyer does bar her from availing of her rights under
the law, among them, to first her purchase as against the
second buyer. But in converso knowledge gained by the
second buyer of the first sale defeats his rights even if he
is first to register the second sale, since such knowledge
taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code
for the second buyer being able to displace the first buyer:
that before the second buyer can obtain priority over the
first, he must show that he acted in good faith throughout
(i.e., in ignorance of the first sale and of the first buyer’s
rights) – from the time of acquisition until the title is
transferred to him by registration or failing registration, by
delivery of possession. The second buyer must show
continuing good faith and innocence or lack of knowledge
of the first sale until his contract ripens into full ownership
through prior registration as provided by law. 65
Laches
Petitioner contends that respondent is guilty of laches
because he slept on his rights by failing to register the
sale of the Antipolo property at the earliest possible time.
Petitioner claims that despite respondent’s knowledge of
the subsequent sale in 1991, respondent still failed to
have the deed of sale registered with the Registry of
Deeds.
The essence of laches is the failure or neglect, for an
unreasonable and unexplained length of time, to do that
which, through due diligence, could have been done
earlier, thus giving rise to a presumption that the party
entitled to assert it had either abandoned or declined to
assert it. 66
Respondent discovered in 1991 that a new owner’s copy
of OCT No. 535 was issued to the Eniceo heirs.
Respondent filed a criminal case against the Eniceo heirs
for false testimony. When respondent learned that the
Eniceo heirs were planning to sell the Antipolo property,
respondent caused the annotation of an adverse claim.
On 16 January 1996, when respondent learned that OCT
No. 535 was cancelled and new TCTs were issued,
respondent filed a civil complaint with the trial court
against the Eniceo heirs and petitioner. Respondent’s
actions negate petitioner’s argument that respondent is
guilty of laches.
True, unrecorded sales of land brought under Presidential
Decree No. 1529 or the Property Registration Decree (PD
1529) are effective between and binding only upon the
immediate parties. The registration required in Section 51
of PD 1529 is intended to protect innocent third persons,
that is, persons who, without knowledge of the sale and in
good faith, acquire rights to the property. 67 Petitioner,
however, is not an innocent purchaser for value.
WHEREFORE, we DENY the petition. We AFFIRM the 20
December 2004 Decision and 10 October 2005
Resolution of the Court of Appeals in CA-G.R. CV No.
68828.
SO ORDERED.
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G.R. No. 152168 December 10, 2004
HEIRS OF THE LATE SPOUSES AURELIO AND
ESPERANZA BALITE; Namely, ANTONIO T. BALITE,
FLOR T. BALITE-ZAMAR, VISITACION T. BALITE-
DIFUNTORUM, PEDRO T. BALITE, PABLO T. BALITE,
GASPAR T. BALITE, CRISTETA T. BALITE and
AURELIO T. BALITE JR., All Represented by GASPAR
T. BALITE,petitioners,
vs.
RODRIGO N. LIM, respondent.
DECISION
PANGANIBAN, J.:
A deed of sale that allegedly states a price lower than the
true consideration is nonetheless binding between the
parties and their successors in interest. Furthermore, a
deed of sale in which the parties clearly intended to
transfer ownership of the property cannot be presumed to
be an equitable mortgage under Article 1602 of the Civil
Code. Finally, an agreement that purports to sell in metes
and bounds a specific portion of an unpartitioned co-
owned property is not void; it shall effectively transfer the
seller’s ideal share in the co-ownership.
The Case
Before us is a Petition for Review1 under Rule 45 of the
Rules of Court, assailing the February 11, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV No.
65395. The decretal portion of the Decision reads as
follows:
"IN THE LIGHT OF ALL THE FOREGOING, the Decision
of the Court a quo subject of the appeal is hereby SET
ASIDE AND REVERSED and another Decision is hereby
rendered as follows:
1. The "Deed of Absolute Sale" (Exhibit "A") is valid
only insofar as the pro indiviso share of Esperanza Balite
over the property covered by Original Certificate of Title
No. 10824 is concerned;
2. The Register of Deeds is hereby ordered to cancel
Transfer Certificate of Title No. 6683 and to issue another
over the entirety of the property covered by Original
Certificate of Title No. 10824, upon the payment of the
capital gains tax due, as provided for by law, (based on
the purchase price of the property in the amount
of P1,000,000.00), with the following as co-owners, over
the property described therein:
a) Each of the [petitioners] over an undivided portion of
975 square meters;
b) The [respondent], with an undivided portion of 9,751
square meters.
3. The [respondent] is hereby ordered to pay to the
[petitioners] the amount of P120,000.00, within a period of
five (5) months from the finality of the Decision of this
Court;
4. In the event that the [respondent] refuses or fails to
remit the said amount to the [petitioner] within the period
therefor, the rights and obligations of the parties shall be
governed by Republic 6552 (Maceda Law)."3
The Facts
The CA summarized the facts in this manner:
"The spouses Aurelio x x x and Esperanza Balite were the
owners of a parcel of land, located [at] Poblacion
(Barangay Molave), Catarman, Northern Samar, with an
area of seventeen thousand five hundred fifty-one
(17,551) square meters, [and] covered by Original
Certificate of Title [OCT] No. 10824. When Aurelio died
intestate [in 1985, his wife], Esperanza Balite, and their
children, x x x [petitioners] Antonio Balite, Flor Balite-
Zamar, Visitacion Balite-Difuntorum, Pedro Balite, Pablo
Balite, Gaspar Balite, Cristeta (Tita) Balite and Aurelio
Balite, Jr., inherited the [subject] property and became co-
owners thereof, with Esperanza x x x inheriting an
undivided [share] of [9,751] square meters.
"In the meantime, Esperanza x x x [became] ill and was in
dire need of money for her hospital expenses x x x. She,
through her daughter, Cristeta, offered to sell to Rodrigo
Lim, [her] undivided share x x x for the price
of P1,000,000.00. x x x Esperanza x x x and Rodrigo x x x
agreed that, under the "Deed of Absolute Sale", to be
executed by Esperanza x x x over the property, it will be
made to appear that the purchase price of the property
would be P150,000.00, although the actual price agreed
upon by them for the property was P1,000,000.00.
"On April 16, 1996, Esperanza x x x executed a "Deed of
Absolute Sale" in favor of Rodrigo N. Lim over a portion of
the property, covered by [OCT] No. 10824, with an area of
10,000 square meters, for the price of P150,000.00 x x x.
[They] also executed, on the same day, a "Joint Affidavit"
under which they declared that the real price of the
property was P1,000,000.00, payable to Esperanza x x x,
by installments, as follows:
1. P30,000.00 – upon signing today of the document of
sale.
2. P170,000.00 – payable upon completion of the actual
relocation survey of the land sold by a Geodetic Engineer.
3. P200,000.00 – payable on or before May 15, 1996.
4. P200,000.00 – payable on or before July 15, 1996.
5. P200,000.00 – payable on or before September 15,
1996.
6. P200,000.00 – payable on or before December 15,
1996.
"Only Esperanza and two of her children, namely, Antonio
x x x and Cristeta x x x, knew about the said transaction. x
x x Geodetic Engineer Bonifacio G. Tasic conducted a
subdivision survey of the property and prepared a "Sketch
Plan" showing a portion of the property, identified as Lot
243 with an area of 10,000 square meters, under the
name Rodrigo N. Lim.
"The "Sketch Plan" was signed by Rodrigo x x x and
Esperanza. Thereafter, Rodrigo x x x took actual
possession of the property and introduced improvements
thereon. He remitted to Esperanza x x x and Cristeta x x x
sums of money in partial payments of the x x x property
for which he signed "Receipts".
"Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. x x x
learned of the sale, and on August 21, 1996, they wrote a
letter to the Register of Deeds [RD] of Northern Samar,
[saying] that they [were] not x x x informed of the sale of a
portion of the said property by their mother x x x nor did
they give their consent thereto, and requested the [RD] to:
"x x x hold in abeyance any processal or approval of any
application for registration of title of ownership in the name
of the buyer of said lot, which has not yet been partitioned
judicially or extrajudicially, until the issue of the
legality/validity of the above sale has been cleared."
"On August 24, 1996, Antonio x x x received from Rodrigo
x x x, the amount of P30,000.00 in partial payment of [the]
property and signed a "Receipt" for the said amount,
declaring therein that "the remaining balance
of P350,000.00 shall personally and directly be released
to my mother, Esperanza Balite, only." However, Rodrigo
x x x drew and issued RCBC Check No. 309171, dated
August 26, 1996, [payable] to the order of Antonio Balite
in the amount of P30,000.00 in partial payment of the
property.
"On October 1, 1996, Esperanza x x x executed a
"Special Power of Attorney" appointing her son, Antonio,
to collect and receive, from Rodrigo, the balance of the
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Sales – Chapter 3-12 Cases
purchase price of the x x x property and to sign the
appropriate documents therefor.
"On October 23, 1996, Esperanza signed a letter
addressed to Rodrigo informing the latter that her children
did not agree to the sale of the property to him and that
she was withdrawing all her commitments until the validity
of the sale is finally resolved:
xxx xxx xxx
"On October 31, 1996, Esperanza died intestate and was
survived by her aforenamed children.
"[Meanwhile], Rodrigo caused to be published, in the
Samar Reporter, on November 14, 21 and 28, 1996, the
aforesaid "Deed of Absolute Sale". Earlier, on November
21, 1996, Antonio received the amount of P10,000.00
from Rodrigo for the payment of the estate tax due from
the estate of Esperanza.
"Also, the capital gains tax, in the amount of P14,506.25,
based on the purchase price of P150,000.00 appearing on
the "Deed of Absolute Sale", was paid to the Bureau of
Internal Revenue which issued a "Certification" of said
payments, on March 5, 1997, authorizing the registration
of the "Deed of Absolute Sale" x x x. However, the [RD]
refused to issue a title over the property to and under the
name of Rodrigo unless and until the owner’s duplicate of
OCT No. 10824 was presented to [it]. Rodrigo filed a
"Petition for Mandamus" against the RD with the Regional
Trial Court of Northern Samar (Rodrigo Lim versus
Fernando Abella, Special Civil Case No. 48). x x x. On
June 13, 1997, the court issued an Order to the RD to
cancel OCT No. 10824 and to issue a certificate of title
over Lot 243 under the name of Rodrigo.
"On June 27, 1997, [petitioners] filed a complaint against
Rodrigo with the Regional Trial Court of Northern Samar,
entitled and docketed as "Heirs of the Spouses Aurelio
Balite, et al. versus Rodrigo Lim, Civil Case No. 920,
for "Annulment of Sale, Quieting of Title, Injunction
and Damages x x x, [the origin of the instant case.]
xxx xxx xxx
"The [petitioners] had a "Notice of Lis Pendens", dated
June 23, 1997, annotated, on June 27, 1997, at the dorsal
portion of OCT No. 10824.
"In the meantime, the RD cancelled, on July 10, 1997,
OCT No. 10824 and issued Transfer Certificate of Title
[TCT] No. 6683 to and under the name of Rodrigo over
Lot 243. The "Notice of Lis Pendens" x x x was carried
over in TCT No. 6683.
"Subsequently, Rodrigo secured a loan from the Rizal
Commercial Banking Corporation in the amount
of P2,000,000.00 and executed a "Real Estate Mortgage"
over the [subject] property as security therefor.
"On motion of the [petitioners], they were granted x x x
leave to file an "Amended Complaint" impleading the bank
as [additional] party-defendant. On November 26, 1997,
[petitioners] filed their "Amended Complaint".
The [respondent] opposed the "Amended Complaint" x x x
contending that it was improper for [petitioners] to join, in
their complaint, an ordinary civil action for the nullification
of the "Real Estate Mortgage" executed by the respondent
in favor of the Bank as the action of the petitioners before
the court was a special civil action.
"On March 30, 1998, the court issued an Order rejecting
the "Amended Complaint" of the petitioners on the
grounds that: (a) the Bank cannot be impleaded as party-
defendant under Rule 63, Section 1 of the 1997 Rules of
Civil Procedure; (b) the "Amended Complaint" constituted
a collateral attack on TCT No. 6683. The [petitioners] did
not file any motion for the reconsideration of the order of
the court."4
The trial court dismissed the Complaint and ordered the
cancellation of the lis pendens annotated at the back of
TCT No. 6683. It held that, pursuant to Article 493 of the
Civil Code, a co-owner has the right to sell his/her
undivided share. The sale made by a co-owner is not
invalidated by the absence of the consent of the other co-
owners. Hence, the sale by Esperanza of the 10,000-
square-meter portion of the property was valid; the excess
from her undivided share should be taken from the
undivided shares of Cristeta and Antonio, who expressly
agreed to and benefited from the sale.
Ruling of the Court of Appeals
The CA held that the sale was valid and binding insofar as
Esperanza Balite’s undivided share of the property was
concerned. It affirmed the trial court’s ruling that the lack
of consent of the co-owners did not nullify the sale. The
buyer, respondent herein, became a co-owner of the
property to the extent of the pro indiviso share of the
vendor, subject to the portion that may be allotted to him
upon the termination of the co-ownership. The appellate
court disagreed with the averment of petitioners that the
registration of the sale and the issuance of TCT No. 6683
was ineffective and that they became the owners of the
share of Esperanza upon the latter’s death.
The CA likewise rejected petitioners’ claim that the sale
was void allegedly because the actual purchase price of
the property was not stated in the Deed of Absolute Sale.
It found that the true and correct consideration for the sale
was P1,000,000 as declared by Esperanza and
respondent in their Joint Affidavit. Applying Article 13535 of
the Civil Code, it held that the falsity of the price or
consideration stated in the Deed did not render it void.
The CA pointed out, however, that the State retained the
right to recover the capital gains tax based on the true
price of P1,000,000.
The appellate court rejected petitioners’ contention that,
because of the allegedly unconscionably low and
inadequate consideration involved, the transaction
covered by the Deed was an equitable mortgage under
Article 1602 of the Civil Code. Observing that the
argument had never been raised in the court a quo, it
ruled that petitioners were proscribed from making this
claim, for the first time, on appeal.
The CA further held that the remaining liability of
respondent was P120,000. It relied on the Receipt dated
August 24, 1996, which stated that his outstanding
balance for the consideration was P350,000. It deducted
therefrom the amounts of P30,000 received by Antonio on
August 27, 1996; and P200,000, which was the amount of
the check dated September 15, 1996, issued by
respondent payable to Esperanza.
Finally, the appellate court noted that the mortgage over
the property had been executed after the filing of the
Complaint. What petitioners should have filed was a
supplemental complaint instead of an amended complaint.
Contrary to respondent’s argument, it also held that the
bank was not an indispensable party to the case; but was
merely a proper party. Thus, there is no necessity to
implead it as party-defendant, although the court a
quo had the option to do so. And even if it were not
impleaded, the appellate court ruled that the bank would
still have been bound by the outcome of the case, as the
latter was a mortgagee pendente lite over real estate that
was covered by a certificate of title with an annotated lis
pendens.
Hence, this Petition.6
Issues
In their Memorandum, petitioners present the following
issues:
"A
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Sales – Chapter 3-12 Cases
"Whether or not the [CA] seriously erred in not deciding
that the Deed of Absolute Sale dated April 16, 1996 is null
and void on the grounds that it is falsified; it has an
unlawful cause; and it is contrary to law and/or public
policy.
"B
"Whether or not the [CA] gravely erred in not finding that
the amount paid by [respondent] is only three hundred
twenty thousand (P320,000.00) pesos and that
respondent’s claim that he has paid one million pesos
except P44,000.00 as balance, is fraudulent and false.
"C
"Whether or not the [CA] seriously erred in not deciding
that at the time the Deed of Sale was registered x x x on
May 30, 1997, said Deed of Sale can no longer bind the
property covered by OCT No. 10824 because said land
had already become the property of all the petitioners
upon the death of their mother on October 31, 1996 and
therefore such registration is functus of[f]icio involving a
null and void document.
"D
"Whether or not the [CA] seriously erred in not ruling that
petitioners’ amended complaint dated November 27, 1997
was proper and admissible and deemed admitted to
conform to evidence presented.
"E
"Whether or not the [CA] seriously erred in not declaring
that TCT No. T-6683 in the name of Respondent Rodrigo
N. Lim is null and void and all dealings involving the same
are likewise null and void and/or subject to the decision of
the case at bar in view of the notice of lis pendens
annotated therein.
"F
"Even assuming but without admitting that the Deed of
Sale is enforceable, the respondent court seriously erred
in not deciding that the consideration is unconscionably
low and inadequate and therefore the transaction between
the executing parties constitutes an equitable mortgage.
"G
"The [CA] greatly erred in not rendering judgment
awarding damages and attorney’s fee[s] in favor of
petitioners among others."7
In sum, the issues raised by petitioners center on the
following: 1) whether the Deed of Absolute Sale is valid,
and 2) whether there is still any sum for which respondent
is liable.
The Court’s Ruling
The Petition has no merit.
First Issue:
Validity of the Sale
Petitioners contend that the Deed of Absolute Sale is null
and void, because the undervalued consideration
indicated therein was intended for an unlawful purpose --
to avoid the payment of higher capital gains taxes on the
transaction. According to them, the appellate court’s
reliance on Article 1353 of the Civil Code was erroneous.
They further contend that the Joint Affidavit is not proof of
a true and lawful cause, but an integral part of a scheme
to evade paying lawful taxes and registration fees to the
government.
We have before us an example of a simulated contract.
Article 1345 of the Civil Code provides that the simulation
of a contract may either be absolute or relative. In
absolute simulation, there is a colorable contract but
without any substance, because the parties have no
intention to be bound by it. An absolutely simulated
contract is void, and the parties may recover from each
other what they may have given under the "contract."8 On
the other hand, if the parties state a false cause in the
contract to conceal their real agreement, such a contract
is relatively simulated. Here, the parties’ real agreement
binds them.9
In the present case, the parties intended to be bound by
the Contract, even if it did not reflect the actual purchase
price of the property. That the parties intended the
agreement to produce legal effect is revealed by the letter
of Esperanza Balite to respondent dated October 23,
199610 and petitioners’ admission that there was a partial
payment of P320,000 made on the basis of the Deed of
Absolute Sale. There was an intention to transfer the
ownership of over 10,000 square meters of the property .
Clear from the letter is the fact that the objections of her
children prompted Esperanza to unilaterally withdraw from
the transaction.
Since the Deed of Absolute Sale was merely relatively
simulated, it remains valid and enforceable. All the
essential requisites prescribed by law for the validity and
perfection of contracts are present. However, the parties
shall be bound by their real agreement for a consideration
of P1,000,000 as reflected in their Joint Affidavit.11
The juridical nature of the Contract remained the same.
What was concealed was merely the actual price. Where
the essential requisites are present and the simulation
refers only to the content or terms of the contract, the
agreement is absolutely binding and
enforceable12 between the parties and their successors in
interest.
Petitioners cannot be permitted to unmake the Contract
voluntarily entered into by their predecessor, even if the
stated consideration was included therein for an unlawful
purpose. "The binding force of a contract must be
recognized as far as it is legally possible to do
so."13 However, as properly held by the appellate court,
the government has the right to collect the proper taxes
based on the correct purchase price.
Being onerous, the Contract had for its cause or
consideration the price of P1,000,000. Both this
consideration as well as the subject matter of the contract
-- Esperanza’s share in the property covered by OCT No.
10824 -- are lawful. The motives of the contracting parties
for lowering the price of the sale -- in the present case, the
reduction of capital gains tax liability -- should not be
confused with the consideration.14 Although illegal, the
motives neither determine nor take the place of the
consideration. 15
Deed of Sale not an
Equitable Mortgage
Petitioner further posits that even assuming that the deed
of sale is valid it should only be deemed an equitable
mortgage pursuant to Articles 1602 and 1604 of the Civil
Code, because the price was clearly inadequate. They
add that the presence of only one of the circumstances
enumerated under Article 1602 would be sufficient to
consider the Contract an equitable mortgage. We
disagree.
For Articles 1602 and 1604 to apply, two requisites must
concur: one, the parties entered into a contract
denominated as a contract of sale; and, two, their
intention was to secure an existing debt by way of
mortgage.16
Indeed, the existence of any of the circumstances
enumerated in Article 1602, not a concurrence or an
overwhelming number thereof, suffices to give rise to the
presumption that a contract purporting to be an absolute
sale is actually an equitable mortgage. 17 In the present
case, however, the Contract does not merely purport to be
an absolute sale. The records and the documentary
evidence introduced by the parties indubitably show that
the Contract is, indeed, one of absolute sale. There is no
clear and convincing evidence that the parties agreed
upon a mortgage of the subject property.
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Sales – Chapter 3-12 Cases
Furthermore, the voluntary, written and unconditional
acceptance of contractual commitments negates the
theory of equitable mortgage. There is nothing doubtful
about the terms of, or the circumstances surrounding, the
Deed of Sale that would call for the application of Article
1602. The Joint Affidavit indisputably confirmed that the
transaction between the parties was a sale.
When the words of a contract are clear and readily
understandable, there is no room for construction.
Contracts are to be interpreted according to their literal
meaning and should not be interpreted beyond their
obvious intendment.18The contract is the law between the
parties.
Notably, petitioners never raised as an issue before the
trial court the fact that the document did not express the
true intent and agreement of the contracting parties. They
raised mere suppositions on the inadequacy of the price,
in support of their argument that the Contract should be
considered as an equitable mortgage.
We find no basis to conclude that the purchase price of
the property was grossly inadequate. Petitioners did not
present any witness to testify as to the market values of
real estate in the subject’s locale. They made their claim
on the basis alone of the P2,000,000 loan that respondent
had been able to obtain from the Rizal Commercial
Banking Corporation. This move did not sufficiently show
the alleged inadequacy of the purchase price. A mortgage
is a mere security for a loan. There was no showing that
the property was the only security relied upon by the bank;
or that the borrowers had no credit worthiness, other than
the property offered as collateral.
Co-Ownership
The appellate court was correct in affirming the validity of
the sale of the property insofar as the pro indiviso share of
Esperanza Balite was concerned.
Article 493 of the Civil Code19 gives the owner of an
undivided interest in the property the right to freely sell
and dispose of such interest. The co-owner, however, has
no right to sell or alienate a specific or determinate part of
the thing owned in common, because such right over the
thing is represented by an aliquot or ideal portion without
any physical division. Nonetheless, the mere fact that the
deed purports to transfer a concrete portion does not per
se render the sale void.20 The sale is valid, but only with
respect to the aliquot share of the selling co-owner.
Furthermore, the sale is subject to the results of the
partition upon the termination of the co-ownership.
Hence, the transaction between Esperanza Balite and Although the factual findings of the two lower courts were
respondent could be legally recognized only in respect to not identical, we hold that in the present case, the findings
the former’s pro indiviso share in the co-ownership. As a of the CA are in accord with the documents on record.
matter of fact, the Deed of Absolute Sale executed The trial court admitted in evidence the August 24, 1996
between the parties expressly referred to the 10,000- Receipt signed by Antonio Balite. Interestingly, he was
square-meter portion of the land sold to respondent as the never presented in the lower court to dispute the veracity
share of Esperanza in the conjugal property. Her clear of the contents of that Receipt, particularly the second
intention was to sell merely her ideal or undivided share in paragraph that had categorically stated the outstanding
it. No valid objection can be made against that intent. balance of respondent as of August 24, 1996, to
Clearly then, the sale can be given effect to the extent of be P350,000. Furthermore, the evidence shows that
9,751 square meters, her ideal share in the property as subsequent payments of P30,000 and P200,000 were
found by both the trial and the appellate courts. made by the latter. Thus, we affirm the CA’s Decision
Transfer of Property holding that the remaining unpaid balance of the price
During her lifetime, Esperanza had already sold to was P120,000.
respondent her share in the subject parcel; hence her WHEREFORE, the Petition is DENIED and the assailed
heirs could no longer inherit it. The property she had Decision AFFIRMED. Costs against the petitioners.
transferred or conveyed no longer formed part of her SO ORDERED.
estate to which her heirs may lay claim at the time of her
death. The transfer took effect on April 16, 1996 (the date
the Deed of Absolute Sale was executed), and not on May
30, 1997, when the Deed of Absolute Sale was registered.
Thus, petitioners’ claim that the property became theirs
upon the death of their mother is untenable.
Second Issue:
Respondent’s Liability
Petitioners insist that the appellate court erred in holding
that respondent’s outstanding liability on the Deed of Sale
was P120,000, when the Receipts on record show
payments in the total amount of P320,000 only. They
argue that the August 24, 1996 Receipt, on which the
appellate court based its conclusion, was unreliable.
To begin with, this Court is not a trier of facts. 21 It is not its
function to examine and determine the weight of the
evidence. Well-entrenched is the doctrine that only errors
of law,22 and not of facts, are reviewable by this Court in a
petition for review on certiorari under Rule 45 of the
Revised Rules of Court. Philippine Airlines, Inc. v. Court of
Appeals23 has held that factual findings of the Court of
Appeals are binding and conclusive upon the Supreme
Court. These findings may be reviewed24 only under
exceptional circumstances such as, among others, when
the inference is manifestly mistaken;25 the judgment is
based on a misapprehension of facts;26 findings of the trial
court contradict those of the CA;27 or the CA manifestly
overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion. 28
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G.R. No. 170509 June 27, 2012
VIEGELY SAMELO, represented by Attorney-in-Fact
CRISTINA SAMELO, Petitioner,
vs.
MANOTOK SERVICES, INC., allegedly represented by
PERPETUA BOCANEGRA (deceased), Respondent.
DECISION
BRION, J.:
Before us is the petition for review on certiorari 1 filed by
Viegely Samelo (petitioner), represented by her attorney-
in-fact Cristina Samelo, to challenge the decision dated
June 21, 20052 and the resolution dated November 10,
20053of the Court of Appeals (CA) in CA-G.R. SP No.
85664.
Background Facts
Manotok Services, Inc. (respondent) alleged that it is the
administrator of a parcel of land known as Lot 9-A, Block
2913, situated at 2882 Dagupan Extension, Tondo,
Manila. On January 31, 1997, the respondent entered into
a contract with the petitioner for the lease of a portion of
Lot 9-A, Block 2913, described as Lot 4, Block 15 (subject
premises). The lease contract was for a period of one (1)
year, with a monthly rental of ₱3,960.00. After the
expiration of the lease contract on December 31, 1997,
the petitioner continued occupying the subject premises
without paying the rent.4 On August 5, 1998, the
respondent, thru its President Rosa Manotok, sent a letter
to the petitioner demanding that she vacate the subject
premises and pay compensation for its use and
occupancy.5 The petitioner, however, refused to heed
these demands.
On November 18, 1998, the respondent filed a complaint
for unlawful detainer against the petitioner before the
Metropolitan Trial Court (MeTC), Branch 3, Manila.6 The
case was docketed as Civil Case No. 161588-CV. The
respondent prayed, among others, that the petitioner and
those claiming rights under her be ordered to vacate the
subject premises, and to pay compensation for its use and
occupancy.
In her answer, the petitioner alleged that the respondent
had no right to collect rentals because the subject
premises are located inside the property of the Philippine
National Railways (PNR). She also added that the
respondent had no certificate of title over the subject
premises. The petitioner further claimed that her signature
in the contract of lease was obtained through the
respondent’s misrepresentation. She likewise maintained
that she is now the owner of the subject premises as she
had been in possession since 1944.7
The MeTC Ruling
The MeTC, in its judgment8 of March 28, 2002, decided in
favor of the respondent, and ordered the petitioner to
vacate the subject premises and to deliver their peaceful
possession to the respondent. The MeTC held that the
only issue to be resolved in an unlawful detainer case is
physical possession or possession de facto, and that the
respondent had established its right of possession over
the subject premises. It added that the petitioner’s right
under the lease contract already ceased upon the
expiration of the said contract. It further ruled that the
petitioner is already estopped from questioning the right of
the respondent over the subject premises when she
entered into a contract of lease with the respondent. The
dispositive portion of the MeTC judgment reads:
WHEREFORE, premises considered, judgment is hereby
rendered for the plaintiff and against defendant, ordering
the latter and all persons claiming rights under her:
1. To vacate the premises located at 2882 Dagupan
Extension, Tondo, Manila, and deliver the peaceful
possession thereof to the plaintiff[;]
2. To pay plaintiff the sum of ₱40,075.20 as compensation
for the use and occupancy of the premises from January
1, 1998 to August 30, 1998, plus ₱4,554.00 a month
starting September 1, 1998, until defendant and all
person[s] claiming rights under her to finally vacate the
premises[;]
3. To pay plaintiff the sum of ₱5,000.00 for and as
attorney’s fees; and
4. To pay the cost of suit.9
The RTC Decision
The petitioner filed an appeal10 with the Regional Trial
Court (RTC), Branch 50, Manila. The RTC, in its
decision11 of July 1, 2004, set aside the MeTC’s decision,
and dismissed the complaint for unlawful detainer. The
RTC held, among others, that the respondent had no right
to collect rentals as it failed to show that it had authority to
administer the subject premises and to enter into a
contract of lease with the petitioner. It also ruled that the
subject premises, which were formerly owned by the PNR,
are now owned by the petitioner by virtue of her
possession and stay in the premises since 1944.
The CA Decision
Aggrieved by the reversal, the respondent filed a petition
for review with the CA, docketed as CA-G.R. SP No.
85664.12 The CA, in its decision of June 21, 2005,
reversed and set aside the RTC decision, and reinstated
the MeTC judgment. The CA held that the petitioner is
now estopped from questioning the right of the
respondent over the subject property. It explained that in
an action involving the possession of the subject
premises, a tenant cannot controvert the title of his
landlord or assert any rights adverse to that title, without
first delivering to the landlord the premises acquired by
virtue of the agreement between themselves. The
appellate court added that the petitioner cannot claim that
she repudiated the lease contract, in the absence of any
unequivocal acts of repudiation.
The CA further held that the only issue in an ejectment
suit is physical or material possession, although the trial
courts may provisionally resolve the issue of ownership for
the sole purpose of determining the issue of possession. It
explained that the issue of ownership is not required to
determine the issue of possession since the petitioner
tacitly admitted that she is a lessee of the subject
premises.13
The petitioner moved to reconsider this decision, but the
CA denied her motion in its resolution dated November
10, 2005.14
In presenting her case before this Court, the petitioner
argued that the CA erred in ruling that a tenant is not
permitted to deny the title of his landlord. She maintained
that the respondent is not the owner or administrator of
the subject premises, and insisted that she had been in
possession of the land in question since 1944. She further
added that she repudiated the lease contract by filing a
case for fraudulent misrepresentation, intimidation,
annulment of lease contract, and quieting of title with
injunction before another court.15
The Court’s Ruling
We find the petition unmeritorious.
Respondent has a better right of possession over the
subject premises
"An action for unlawful detainer exists when a person
unlawfully withholds possession of any land or building
against or from a lessor, vendor, vendee or other persons,
after the expiration or termination of the right to hold
possession, by virtue of any contract, express or
implied."16 "The only issue to be resolved in an unlawful
detainer case is physical or material possession of the
property involved, independent of any claim of ownership
by any of the parties involved."17 "Thus, when the
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Sales – Chapter 3-12 Cases
relationship of lessor and lessee is established in an
unlawful detainer case, any attempt of the parties to inject
the question of ownership into the case is futile, except
insofar as it might throw light on the right of possession."18
In the present case, it is undisputed that the petitioner and
the respondent entered into a contract of lease. We note
in this regard that in her answer with affirmative defenses
and counterclaim before the MeTC, the petitioner did not
deny that she signed the lease contract (although she
maintained that her signature was obtained through the
respondent’s misrepresentations). Under the lease
contract, the petitioner obligated herself to pay a monthly
rental to the respondent in the amount of ₱3,960.00. The
lease period was for one year, commencing on January 1,
1997 and expiring on December 31, 1997. It bears
emphasis that the respondent did not give the petitioner a
notice to vacate upon the expiration of the lease contract
in December 1997 (the notice to vacate was sent only on
August 5, 1998), and the latter continued enjoying the
subject premises for more than 15 days, without objection
from the respondent. By the inaction of the respondent as
lessor, there can be no inference that it intended to
discontinue the lease contract.19 An implied new lease
was therefore created pursuant to Article 1670 of the Civil
Code, which expressly provides:
Article 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the
contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the
period of the original contract, but for the time established
in Articles 1682 and 1687. The other terms of the original
contract shall be revived.
"An implied new lease or tacita reconduccion will set in
when the following requisites are found to exist: a) the
term of the original contract of lease has expired; b) the
lessor has not given the lessee a notice to vacate; and c)
the lessee continued enjoying the thing leased for fifteen
days with the acquiescence of the lessor."20 As earlier
discussed, all these requisites have been fulfilled in the
present case.
Article 1687 of the Civil Code on implied new lease
provides:
Article 1687. If the period for the lease has not been fixed,
it is understood to be from year to year, if the rent agreed
upon is annual; from month to month, if it is monthly; from
week to week, if the rent is weekly; and from day to day, if
the rent is to be paid daily.
Since the rent was paid on a monthly basis, the period of
lease is considered to be from month to month, in
accordance with Article 1687 of the Civil Code. "[A] lease
from month to month is considered to be one with a
definite period which expires at the end of each month
upon a demand to vacate by the lessor." 21 When the
respondent sent a notice to vacate to the petitioner on
August 5, 1998, the tacita reconduccion was aborted, and
the contract is deemed to have expired at the end of that
month. "[A] notice to vacate constitutes an express act on
the part of the lessor that it no longer consents to the
continued occupation by the lessee of its property." 22 After
such notice, the lessee’s right to continue in possession
ceases and her possession becomes one of detainer.23
Estoppel of tenant
We find no merit in the petitioner’s allegation that the
respondent had no authority to lease the subject premises
because the latter failed to prove that it is its owner or
administrator.
The Rules of Court protects the respondent, as lessor,
from being questioned by the petitioner, as lessee,
regarding its title or better right of possession over the
subject premises. Section 2(b), Rule 131 of the Rules of
Court states that the tenant is not permitted to deny the
title of his landlord at the time of the commencement of
the relation of landlord and tenant between them. Article
1436 of the Civil Code likewise states that a lessee or a
bailee is estopped from asserting title to the thing leased
or received, as against the lessor or bailor.
These provisions bar the petitioner from contesting the
respondent’s title over the subject premises. "The juridical
relationship between x x x [a] lessor and x x x [a lessee]
carries with it a recognition of the lessor's title. As [lessee,
the petitioner is] estopped [from denying the] landlord's
title, or to assert a better title not only in [herself], but also
in some third person while [she remains] in possession of
the subject premises and until [she surrenders]
possession to the landlord. This estoppel applies even
though the lessor had no title at the time the relation of
[the] lessor and [the] lessee was created, and may be
asserted not only by the original lessor, but also by those
who succeed to his title."24 Once a contact of lease is
shown to exist between the parties, the lessee cannot by
any proof, however strong, overturn the conclusive
presumption that the lessor has a valid title to or a better
right of possession to the subject premises than the
lessee.
The Court thus explained in Tamio v. Ticson:25
Indeed, the relation of lessor and lessee does not depend
on the former’s title but on the agreement between the
parties, followed by the possession of the premises by the
lessee under such agreement. As long as the latter
remains in undisturbed possession, it is immaterial
whether the lessor has a valid title – or any title at all – at
the time the relationship was entered into. [citations
omitted]
The issue of ownership
We are likewise unpersuaded by the petitioner’s claim that
she has "acquired possessory rights leading to
ownership"26 over the subject premises, having been in
possession thereof since 1944. We emphasize that aside
from her self-serving allegation, the petitioner did not
present any documentary evidence to substantiate her
claim that she stayed on the subject premises since 1944.
That the petitioner presented certificates of title of the
Manila Railroad Company over certain properties in
Tondo, Manila, which allegedly cover the subject
premises, is of no moment. One cannot recognize the
right of another, and at the same time claim adverse
possession which can ripen to ownership, thru acquisitive
prescription. "For prescription to set in, the possession
must be adverse, continuous, public, and to the exclusion
of [others]."27 Significantly, the RTC decision failed to state
its basis for concluding that the petitioner stayed in the
subject premises since 1944.
At any rate, we hold that no need exists to resolve the
issue of ownership in this case, since it is not required to
determine the issue of possession; the execution of the
lease contract between the petitioner, as lessee, and the
respondent, as lessor, belies the former’s claim of
ownership.1âwphi1 We reiterate that the fact of the lease
and the expiration of its term are the only elements in an
action for unlawful detainer. "The defense of ownership
does not change the summary nature of [this] action. x x
x. Although a wrongful possessor may at times be upheld
by the courts, this is merely temporary and solely for the
maintenance of public order. The question of ownership is
to be settled in the proper court and in a proper action." 28
Interest on rentals due
Additionally, the petitioner is liable to pay interest by way
of damages for her failure to pay the rentals due for the
use of the subject premises.29 We reiterate that the
283
Sales – Chapter 3-12 Cases
respondent’s extrajudicial demand on the petitioner was
made on August 5, 1998. Thus, from this date, the rentals
due from the petitioner shall earn interest at 6% per
annum, until the judgment in this case becomes final and
executory. After the finality of judgment, and until full
payment of the rentals and interests due, the legal rate of
interest to be imposed shall be 12%.
WHEREFORE, in light of all the foregoing, we DENY the
petition. The decision and the resolution of the Court of
Appeals dated June 21, 2005 and November 10, 2005,
respectively, in CA-G.R. SP No. 85664 are AFFIRMED
with the MODIFICATION that the unpaid rentals shall earn
a corresponding interest of six percent (6%) per annum, to
be computed from August 5, 1998 until the finality of this
decision. After this decision becomes final and executory,
the rate of legal interest shall be computed at twelve
percent (12%) per annum from such finality until its
satisfaction.
SO ORDERED.

284
Sales – Chapter 3-12 Cases
G.R. No. 122544 January 28, 2003
REGINA P. DIZON, AMPARO D. BARTOLOME,
FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON and JOSE A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS
LINES, INC., respondents.
x---------------------------------------------------------x
G.R. No. 124741 January 28, 2003
REGINA P. DIZON, AMPARO D. BARTOLOME,
FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON and JOSE A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS HON. MAXIMIANO C.
ASUNCION and OVERLAND EXPRESS LINES,
INC., respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
On January 28, 1999, this Court rendered judgment in
these consolidated cases as follows:
WHEREFORE, in view of the foregoing, both petitions
are GRANTED. The decision dated March 29, 1994 and
the resolution dated October 19, 1995 in CA-G.R. CV
Nos. 25153-54, as well as the decision dated December
11, 1995 and the resolution dated April 23, 1997 in CA-
G.R. SP No. 33113 of the Court of Appeals are
hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court
for immediate execution of the judgment dated November
22, 1982 in Civil Case No. VIII-29155 of the then City
Court (now Metropolitan Trial Court) of Quezon City,
Branch III as affirmed in the decision dated September 26,
1984 of the then Intermediate Appellate Court (now Court
of Appeals) and in the resolution dated June 19, 1985 of
this Court.
However, petitioners are ordered to REFUND to private
respondent the amount of P300,000.00 which they
received through Alice A. Dizon on June 20, 1975.
SO ORDERED.
Private respondent filed a Motion for Reconsideration,
Second Motion for Reconsideration, and Motion to
Suspend Procedural Rules in the Higher Interest of
Substantial Justice, all of which have been denied by this
Court. This notwithstanding, the cases were set for oral
argument on March 21, 2001, on the following issues:
1. WHETHER THERE ARE CIRCUMSTANCES THAT
WOULD JUSTIFY SUSPENSION OF THE RULES OF
COURT;
2. WHETHER THE SUM OF P300,000.00 RECEIVED BY
ALICE DIZON FROM PRIVATE RESPONDENT WAS
INTENDED AS PARTIAL PAYMENT OF THE
PURCHASE PRICE OF THE PROPERTY, OR AS
PAYMENT OF BACK RENTALS ON THE PROPERTY;
3. WHETHER ALICE DIZON WAS AUTHORIZED TO
RECEIVE THE SUM OF P300,000.00 ON BEHALF OF
PETITIONERS;
4. (A) IF SO, WHETHER PETITIONERS ARE
ESTOPPED FROM QUESTIONING THE BELATED
EXERCISE BY PRIVATE RESPONDENT OF ITS
OPTION TO BUY WHEN THEY ACCEPTED THE SAID
PARTIAL PAYMENT;
(B) IF SO, WHETHER ALICE DIZON CAN VALIDLY BIND
PETITIONERS IN THE ABSENCE OF A WRITTEN
POWER OF ATTORNEY;
5. (A) WHETHER THERE WAS A PERFECTED
CONTRACT OF SALE BETWEEN THE PARTIES;
(B) WHETHER THERE WAS A CONTRACT OF SALE AT
LEAST WITH RESPECT TO THE SHARES OF FIDELA
AND ALICE DIZON; AND
6. WHETHER PRIVATE RESPONDENT'S ACTION FOR
SPECIFIC PERFORMANCE HAS PRESCRIBED.
In order to resolve the first issue, it is necessary to pass
upon the other questions which relate to the merits of the
case. It is only where there exist strong compelling
reasons, such as serving the ends of justice and
preventing a miscarriage thereof, that this Court can
suspend the rules.1
After reviewing the records, we find that, despite all of
private respondent's protestations, there is absolutely no
written proof of Alice Dizon's authority to bind petitioners.
First of all, she was not even a co-owner of the property.
Neither was she empowered by the co-owners to act on
their behalf.
The acceptance of the amount of P300,000.00,
purportedly as partial payment of the purchase price of the
land, was an act integral to the sale of the land. As a
matter of fact, private respondent invokes such receipt of
payment as giving rise to a perfected contract of sale. In
this connection, Article 1874 of the Civil Code is explicit
that: "When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void."
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. Thus the
authority of an agent to execute a contract for the sale of
real estate must be conferred in writing and must give him
specific authority, either to conduct the general business
of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did
execute. A special power of attorney is necessary to enter
into any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a
valuable consideration. The express mandate required by
law to enable an appointee of an agency (couched) in
general terms to sell must be one that expressly mentions
a sale or that includes a sale as a necessary ingredient of
the act mentioned. For the principal to confer the right
upon an agent to sell real estate, a power of attorney must
so express the powers of the agent in clear and
unmistakable language. When there is any reasonable
doubt that the language so used conveys such power, no
such construction shall be given the document. 2
It necessarily follows, therefore, that petitioners cannot be
deemed to have received partial payment of the supposed
purchase price for the land through Alice Dizon. It cannot
even be said that Alice Dizon's acceptance of the money
bound at least the share of Fidela Dizon, in the absence
of a written power of attorney from the latter. It should be
borne in mind that the Receipt dated June 20, 1975, while
made out in the name of Fidela Dizon, was signed by
Alice Dizon alone.
Moreover, there could not have been a perfected contract
of sale. As we held in our Decision dated January 28,
1999, the implied renewal of the contract of lease between
the parties affected only those terms and conditions which
are germane to the lessee's right of continued enjoyment
of the property. The option to purchase afforded private
respondent expired after the one-year period granted in
the contract. Otherwise stated, the implied renewal of the
lease did not include the option to purchase. We see no
reason to disturb our ruling on this point, viz:
In this case, there was a contract of lease for one (1) year
with option to purchase. The contract of lease expired
without the private respondent, as lessee, purchasing the
property but remained in possession thereof. Hence, there
was an implicit renewal of the contract of lease on a
285
Sales – Chapter 3-12 Cases
monthly basis. The other terms of the original contract of as they are to put an end to controversies, courts should
lease which are revived in the implied new lease under frown upon any attempt to prolong them.5
Article 1670 of the New Civil Code are only those terms ACCORDINGLY, the Motion to Suspend Procedural
which are germane to the lessee's right of continued Rules in the Higher Interest of Substantial Justice filed by
enjoyment of the property leased. Therefore, an implied private respondent is DENIED WITH FINALITY. No further
new lease does not ipso facto carry with it any implied pleadings will be entertained in these cases.
revival of private respondent's option to purchase (as SO ORDERED.
lessee thereof) the leased premises. The provision Davide, Jr., C .J ., see separate opinion.
entitling the lessee the option to purchase the leased Puno, J., concur.
premises is not deemed incorporated in the impliedly
renewed contract because it is alien to the possession of
the lessee. Private respondent's right to exercise the
option to purchase expired with the termination of the
original contract of lease for one year. The rationale of this
Court is that:
"This is a reasonable construction of the provision, which
is based on the presumption that when the lessor allows
the lessee to continue enjoying possession of the property
for fifteen days after the expiration of the contract he is
willing that such enjoyment shall be for the entire period
corresponding to the rent which is customarily paid — in
this case up to the end of the month because the rent was
paid monthly. Necessarily, if the presumed will of the
parties refers to the enjoyment of possession the
presumption covers the other terms of the contract related
to such possession, such as the amount of rental, the date
when it must be paid, the care of the property, the
responsibility for repairs, etc. But no such presumption
may be indulged in with respect to special agreements
which by nature are foreign to the right of occupancy or
enjoyment inherent in a contract of lease."3
There being no merit in the arguments advanced by
private respondent, there is no need to suspend the Rules
of Court and to admit the motion for reconsideration.
While it is within the power of the Court to suspend its own
rules, or to except a particular case from its operation,
whenever the interest of justice require it, however, the
movant must show strong compelling reasons such as
serving the ends of justice and preventing a grave
miscarriage thereof,4 none of which obtains in this case.
Litigation must end sometime and somewhere. An
effective and efficient administration of justice requires
that, once a judgment has become final, the winning party
be not, through a mere subterfuge, deprived of the fruits of
the verdict. Courts must, therefore, guard against any
scheme calculated to bring about that result. Constituted

286
Sales – Chapter 3-12 Cases
G.R. No. 174376 September 12, 2012
ZOSIMA IN CORPORA TED, Petitioner,
vs.
LILIA SALIMBAGAT and all persons claiming rights
under her, Respondents.
DECISION
BRION, J.:
Before us is the petition for review on certiorari, 1 filed by
Zosima Incorporated (Zosima) under Rule 45 of the Rules
of Court, assailing the Decision2 dated June 26, 2006 of
the Court of Appeals (CA) in CA-G.R. SP No. 92475. The
CA reversed and set aside the decision 3 dated October 5,
2005 of the Regional Trial Court (RTC), Branch 20,
Manila. The RTC affirmed the decision4 dated May 4,
2005 of the Metropolitan Trial Court premises and to pay
Zosima rental arrearages, attorney’s fees and costs of
suit.
The Antecedent Facts
Zosima, a domestic corporation, has been the registered
owner of an office building situated at 2414 Legarda
Street, Sampaloc, Manila. Sometime in April 1993,
Zosima entered into a contract with Salimbagat for the
lease of the office building. The lease was on a yearly
basis with the initial monthly rate of ₱ 8,000.00 that is
subject to an annual increase. In 1999, the monthly rental
fee reached ₱ 14,621.00. In March 2000, no monthly fee
was paid because the contract of lease was allegedly not
renewed.
On June 20, 2003, Zosima, through counsel, sent a formal
letter of demand to Salimbagat, requiring her to pay her
arrears within fifteen (15) days from receipt of the demand
letter and to vacate the property. Despite the receipt of the
demand letter, Salimbagat refused to vacate the property
and to pay her alleged rental obligations.
On November 5, 2003, Zosima filed a case for unlawful
detainer against Salimbagat. Zosima alleged that from
April 2000 to October 2003, Salimbagat had accumulated
arrears in her rental payments amounting to ₱
628,703.00.
On March 26, 2004, Salimbagat filed her answer alleging
that she was not occupying the property of Zosima.
Salimbagat alleged that although she was occupying a
property using the same address denominated as "2414
Legarda Street, Sampaloc, Manila," it was not the same
office building that Zosima owned, but a warehouse on a
dried estero located at the back of the office building.
Salimbagat argued that the office building which belonged
to Zosima was demolished to pave the way for the
construction of the Light Rail Transit (LRT) Line II Project.
She further alleged that she bought the warehouse for ₱
300,000.00 as evidenced by a Deed of Conditional Sale,
and she had declared the property for taxation purposes.
On July 6, 2004, after the submission of the parties’
position papers, the MeTC set the case for clarificatory
hearing. It sought to resolve the following factual issues:
1. Whether the office building subject of the expired
contract of lease is still existing vis-à-vis Salimbagat’s
claim that it had already been demolished;
2. Presuming it still exists, whether Salimbagat is
presently occupying the office building; and,
3. Whether the warehouse/factory erected on a dried
estero that Salimbagat now claims to occupy is part and
parcel of the land registered in the name of Zosima under
Transfer Certificate of Title No. 262637.
Zosima filed a motion to reset the clarificatory hearing,
prompting Salimbagat’s counsel to submit the case for
decision solely on the basis of the position papers that the
parties had submitted.
On May 4, 2005, the MeTC rendered a decision whose
dispositive portion reads:
WHEREFORE, judgment is hereby rendered ordering
defendant Lilia Salimbagat and all other persons claiming
rights under her:
1) To vacate the office building subject of the expired
Contract of Lease located at No. 2414 Legarda Street,
Sampaloc, Manila covered by Transfer Certificate of Title
No. 262637 and peacefully surrender possession thereof
to the plaintiff;
2) To pay plaintiff rental arrearages in the amount of ₱
14,621.00 per month counted from April 2000 until the
time the office building was fully vacated by said
defendant;
3) To pay attorney’s fees fixed in the reasonable amount
of ₱ 7,000.00; and
4) To pay the costs of suit.5
Salimbagat appealed the MeTC decision to the RTC. In its
decision dated October 5, 2005, the RTC fully affirmed the
MeTC decision. Salimbagat elevated the case to the CA
which reversed the RTC’s decision on June 26, 2006, and
dismissed the case for unlawful detainer.
The CA did not dispute the findings of both lower courts
on the existence of a contractual relationship between the
parties, nor that the lease had been annually renewed
from April 1993 to March 1997. The CA also agreed that
upon the termination of the lease contract in March 1997,
an implied new lease or tacita reconduccion was created
by operation of law between the parties, 6 and that from
March 1997 to March 2000, Salimbagat continued to pay
Zosima the monthly rentals. Notwithstanding this finding,
the CA was not convinced that Salimbagat had unlawfully
possessed the property from April 2000 to June 2003.
According to the CA, the records do not support this
conclusion and Zosima failed to introduce any evidence to
prove its allegations.7
Zosima moved for reconsideration of the CA decision but
the CA denied the motion in a resolution 8 dated August
25, 2006.
The Petition
Zosima now questions the CA’s ruling before us. Zosima
posits that the CA erred in ruling on factual matters that
were not part of the proceedings in the lower courts.
Zosima also insists that the subject matter of the unlawful
detainer complaint is the office building owned by Zosima,
not the warehouse on the dried estero.
For her part, Salimbagat argues that the appellate court
may review factual matters on appeal, to determine
whether these factual findings are just and equitable in
accordance with the aim of justice. Salimbagat further
argues that Zosima has no cause of action to file the
complaint for unlawful detainer, since the office building
she had lease had already been demolished and she
presently occupies a warehouse that does not belong to
Zosima.
The Court’s Ruling
We deny the petition for lack of merit.
The complaint for unlawful detainer
The present petition is an action for unlawful detainer
governed by Section 1, Rule 70 of the Rules of Court. 9 As
the principal issue in an unlawful detainer case is the right
to possess a real property, the subject matter must refer
to a particular property. In an unlawful detainer, the
defendant’s possession of the plaintiff’s property is based
on the plaintiff’s permission expressed through an express
or implied contract between them. The defendant’s
possession becomes illegal only when the plaintiff
demands the return of the property, either because of the
expiration of the right to possess it or the termination of
their contract, and the defendant refuses to heed the
demand.10
Zosima’s complaint for unlawful detainer referred to the
office building located at "2414 Legarda Street, Sampaloc,
287
Sales – Chapter 3-12 Cases
Manila;" hence, we confine our ruling to the question of
whether Salimbagat should be held liable for unlawfully
occupying the office building that was the subject of their
lease agreement.
It is not disputed that Salimbagat had been in possession
of the leased property from April 1993 to March 1997 and
had been diligently paying the monthly rentals. There is
also no issue that at the time the lease contract expired in
March 1997, no new contract of lease was executed
between the parties for the period of March 1997 to March
2000. Salimbagat, however, continued to pay Zosima the
monthly rentals during that period. Beginning April 2000,
Salimbagat stopped the payment of monthly rentals,
alleging that she was no longer in possession of the
property. Despite this claim, Salimbagat still used the
address of the property, alleging this time that she was
occupying not the office building itself that she used to
lease, but the warehouse on the dried estero behind the
office building.
The evidence on record does not contain any information
supporting the allegation that Salimbagat has been in
actual possession of Zosima’s property from April 2000,
but neither does it confirm Zosima’s allegation that
Salimbagat then occupied the office building. This was
precisely the reason why the MeTC set the case for a
clarificatory hearing. Unfortunately, the hearing was
cancelled due to Zosima’s failure to appear, and the case
was submitted for decision solely on the basis of the
parties’ position papers. The CA decision in fact noted
that:
These issues were not at all resolved due to the
unavailability of the respondent’s counsel despite due
notice. These matters are essential to establish its case
by preponderance of evidence for the burden of proof is
on the respondent as plaintiff in the original action for the
ejectment case. It leads us to conclude, therefore, that the
respondent, as plaintiff in the unlawful detainer case,
failed to prove its case by preponderance of evidence
since the burden of proof rests on its side. 11 (emphasis
and underscoring ours)
In civil cases, the rule is that the party carrying the burden
of proof must establish his case by a preponderance of
evidence,12 i.e., by evidence that is of greater weight, or
more convincing, than that which is offered in opposition
to it.13
In the present case, Zosima, as plaintiff, bears the burden
of proving that Salimbagat has been in actual possession
of the property between April 2000 and June 2003 when a
demand to vacate was made. Zosima cannot reason out
that Salimbagat was likewise not able to prove that she
had not been in possession of the property as the burden
of adducing proof arises only after Zosima, as plaintiff,
had proven that Salimbagat had been in possession
during the relevant time. Additionally, the party carrying
the burden of proof must rely on the strength of his own
evidence and not upon the weakness of the
defendant’s.14 For us to justify a judgment in Zosima’s
favor, it must in the first place establish through
preponderance of evidence the case it alleged – that
Salimbagat possessed its property after Salimbagat’s right
of possession had lapsed or expired.
In this light, Zosima’s contention – that although the lease
contract had already expired, the principle of implied new
lease or tacita reconduccion existed by operation of law
between the periods of April 2000 and June 2003 – is not
correct. An implied new lease will set in if it is shown that:
(a) the term of the original contract of lease has expired;
(b) the lessor has not given the lessee a notice to vacate;
and (c) the lessee continued enjoying the thing leased for
15 days with the acquiescence of the lessor. This
acquiescence may be inferred from the failure of the
lessor to serve notice to vacate upon the lessee. 15 This
principle is provided for under Article 1670 of the Civil
Code:
Article 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the
contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the
period of the original contract, but for the time established
in Articles 1682 and 1687. The other terms of the original
contract shall be revived. [emphasis and underscoring
ours]
The cited Article 1687, on the other hand, provides:
Article 1687. If the period for the lease has not been fixed,
it is understood to be from year to year, if the rent agreed
upon is annual; from month to month, if it is monthly; from
week to week, if the rent is weekly; and from day to day, if
the rent is to be paid daily. However, even though a
monthly rent is paid, and no period for the lease has been
set, the courts may fix a longer term for the lease after the
lessee has occupied the premises for over one year. If the
rent is weekly, the courts may likewise determine a longer
period after the lessee has been in possession for over six
months. In case of daily rent, the courts may also fix a
longer period after the lessee has stayed in the place for
over one month. [emphasis ours]
Thus, after the expiration of the contract of lease, the
implied new lease should have only been in a monthly
basis. In this regard, we find it significant that it was only
on June 20, 2003, or three (3) years after the last payment
of the monthly rentals, that Zosima filed the complaint for
unlawful detainer against Salimbagat. It does not help that
Zosima failed to adduce any additional evidence to rebut
the allegation that by April 2000, no office building stood
to be leased because it had been demolished to pave way
for the construction of the LRT Line II Project.16
We further note that Salimbagat was able to produce tax
declarations and a copy of the Deed of Conditional Sale
as proof of her right to possess the warehouse located on
a dried estero and adjoining the demolished building she
used to lease.17 While tax receipts and declarations are
not incontrovertible proof of ownership, they constitute, at
least, proof that the holder has a claim of title over the
property.18 In practical terms under the circumstances of
this case, we see it absurd for Salimbagat to be occupying
a property and paying monthly rentals on it when she
owns and occupies the property just behind it.1âwphi1
Under the existing evidentiary situation, we see no
evidence supporting Zosima's allegations and, thus,
cannot rule in its favor.
WHEREFORE, premises considered, we hereby DENY
the petition for lack of merit. Accordingly, we AFFIRM the
decision of the Court of Appeals in CA-G.R. SP No.
92475.
SO ORDERED.
288
Sales – Chapter 3-12 Cases
G.R. No. 179382 January 14, 2013
SPOUSES BENJAMIN C. MAMARIL AND SONIA P.
MAMARIL, Petitioners,
vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB
SECURITY AGENCY, INC., CESARIO PEÑA,* AND
VICENTE GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari assailing the
May 31, 2007 Decision1 and August 16, 2007
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV
No. 75978. The dispositive portion of the said Decision
reads:
WHEREFORE, the Decision dated November 28, 2001
and the Order dated June 11, 2002 rendered by the
Regional Trial Court of Manila, Branch 39 is hereby
MODIFIED to the effect that only defendants AIB Security
Agency, Inc., Cesario Peña and Vicente Gaddi are held
jointly and severally liable to pay plaintiffs-appellees
Spouses Benjamin C. Mamaril and Sonia P. Mamaril the
amount of Two Hundred Thousand Pesos (₱200,000.00)
representing the cost of the lost vehicle, and to pay the
cost of suit. The other monetary awards are DELETED for
lack of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is
absolved from any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril
(Sps. Mamaril) are jeepney operators since 1971. They
would park their six (6) passenger jeepneys every night at
the Boy Scout of the Philippines' (BSP) compound located
at 181 Concepcion Street, Malate, Manila for a fee of
₱300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked
inside the BSP compound. The following morning,
however, one of the vehicles with Plate No. DCG 392 was
missing and was never recovered.4 According to the
security guards Cesario Peña (Peña) and Vicente Gaddi
(Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP
had contracted5 for its security and protection, a male
person who looked familiar to them took the subject
vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a
complaint6 for damages before the Regional Trial Court
(RTC) of Manila, Branch 39, against BSP, AIB, Peña and
Gaddi. In support thereof, Sps. Mamaril averred that the
loss of the subject vehicle was due to the gross
negligence of the above-named security guards on-duty
who allowed the subject vehicle to be driven out by a
stranger despite their agreement that only authorized
drivers duly endorsed by the owners could do so. Peña
and Gaddi even admitted their negligence during the
ensuing investigation. Notwithstanding, BSP and AIB did
not heed Sps. Mamaril's demands for a conference to
settle the matter. They therefore prayed that Peña and
Gaddi, together with AIB and BSP, be held liable for: (a)
the value of the subject vehicle and its accessories in the
aggregate amount of ₱300,000.00; (b) ₱275.00
representing daily loss of income/boundary reckoned from
the day the vehicle was lost; (c) exemplary damages; (d)
moral damages; (e) attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability contending that
not only did Sps. Mamaril directly deal with AIB with
respect to the manner by which the parked vehicles would
be handled, but the parking ticket8 itself expressly stated
that the "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein." It
also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties
thereto, its provisions cover only the protection of BSP's
properties, its officers, and employees.
In addition to the foregoing defenses, AIB alleged that it
has observed due diligence in the selection, training and
supervision of its security guards while Peña and Gaddi
claimed that the person who drove out the lost vehicle
from the BSP compound represented himself as the
owners' authorized driver and had with him a key to the
subject vehicle. Thus, they contended that Sps. Mamaril
have no cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a
Decision9 dated November 28, 2001 in favor of Sps.
Mamaril. The dispositive portion of the RTC decision
reads:
WHEREFORE, judgment is hereby rendered ordering the
defendants Boy Scout of the Philippines and AIB Security
Agency, with security guards Cesario Pena and Vicente
Gaddi: -
1. To pay the plaintiffs jointly and severally the cost of the
vehicle which is ₱250,000.00 plus accessories of
₱50,000.00;
2. To pay jointly and severally to the plaintiffs the daily
loss of the income/boundary of the said jeepney to be
reckoned fromits loss up to the final adjudication of the
case, which is ₱275.00 a day;
3. To pay jointly and severally to the plaintiffs moral
damages in the amount of ₱50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary
damages in the amount of ₱50,000.00;
5. To pay jointly and severally the attorney's fees of
₱50,000.00 and appearances in court the amount of
₱1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Peña and Gaddi in allowing
the entry of an unidentified person and letting him drive
out the subject vehicle in violation of their internal
agreement with Sps. Mamaril constituted gross
negligence, rendering AIB and its security guards liable for
the former's loss. BSP was also adjudged liable because
the Guard Service Contract it entered into with AIB offered
protection to all properties inside the BSP premises, which
necessarily included Sps. Mamaril's vehicles. Moreover,
the said contract stipulated AIB's obligation to indemnify
BSP for all losses or damages that may be caused by any
act or negligence of its security guards. Accordingly, the
BSP, AIB, and security guards Peña and Gaddi were held
jointly and severally liable for the loss suffered by Sps.
Mamaril.
On June 11, 2002, the RTC modified its decision reducing
the cost of the stolen vehicle from ₱250,000.00 to
₱200,000.00.11
Only BSP appealed the foregoing disquisition before the
CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of
negligence on the part of security guards Peña and
Gaddi. However, it absolved BSP from any liability,
holding that the Guard Service Contract is purely between
BSP and AIB and that there was nothing therein that
would indicate any obligation and/or liability on the part of
BSP in favor of third persons, such as Sps. Mamaril. Nor
was there evidence sufficient to establish that BSP was
negligent.
It further ruled that the agreement between Sps. Mamaril
and BSP was substantially a contract of lease whereby
the former paid parking fees to the latter for the lease of
parking slots. As such, the lessor, BSP, was not an
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Sales – Chapter 3-12 Cases
insurer nor bound to take care and/or protect the lessees'
vehicles.
On the matter of damages, the CA deleted the award of
₱50,000.00 representing the value of the accessories
inside the lost vehicle and the ₱275.00 a day for loss of
income in the absence of proof to support them. It also
deleted the award of moral and exemplary damages and
attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was
denied in the August 16, 2007 Resolution.13
Issues Before the Court
Hence, the instant petition based on the following
assignment of errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN ABSOLVING RESPONDENT BOY SCOUT
OF THE PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS MISTAKE WHEN IT RULED THAT THE
GUARD SERVICE CONTRACT IS PURELY BETWEEN
BOY SCOUT OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND
IN HOLDING THAT THERE IS ABSOLUTELY NOTHING
IN THE SAID CONTRACT THAT WOULD INDICATE
ANY OBLIGATION AND/OR LIABILITY ON THE PART
OF THE PARTIES THEREIN IN FAVOR OF THIRD
PERSONS, SUCH AS PETITIONERS HEREIN.
III.
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR IN THE INTERPRETATION OF LAW
WHEN IT CONSIDERED THE AGREEMENT BETWEEN
BOY SCOUT OF THE PHILIPPINES AND PETITIONERS
A CONTRACT OF LEASE, WHEREBY THE BOY SCOUT
IS NOT DUTY BOUND TO PROTECT OR TAKE CARE
OF PETITIONERS' VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED WHEN IT RULED THAT PETITIONERS ARE
NOT ENTITLED TO DAMAGES AND ATTORNEY'S
FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP should be
held liable for the loss of their vehicle based on the Guard
Service Contract and the parking ticket it issued; and (2)
the CA erred in deleting the RTC awards of damages and
attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person,
who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Similarly, Article 2176 of the Civil Code states:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is
no preexisting contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of
this Chapter.
In this case, it is undisputed that the proximate cause of
the loss of Sps. Mamaril's vehicle was the negligent act of
security guards Peña and Gaddi in allowing an
unidentified person to drive out the subject vehicle.
Proximate cause has been defined as that cause, which,
in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury or loss,
and without which the result would not have occurred.15
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's
contention16 that they readily admitted being at fault
during the investigation that ensued.
On the other hand, the records are bereft of any finding of
negligence on the part of BSP. Hence, no reversible error
was committed by the CA in absolving it from any liability
for the loss of the subject vehicle based on fault or
negligence.
Neither will the vicarious liability of an employer under
Article 218017 of the Civil Code apply in this case. It is
uncontested that Peña and Gaddi were assigned as
security guards by AIB to BSP pursuant to the Guard
Service Contract. Clearly, therefore, no employer-
employee relationship existed between BSP and the
security guards assigned in its premises. Consequently,
the latter's negligence cannot be imputed against BSP but
should be attributed to AIB, the true employer of Peña and
Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court
enunciated thus:
It is settled that where the security agency, as here,
recruits, hires and assigns the work of its watchmen or
security guards, the agency is the employer of such
guards and watchmen. Liability for illegal or harmful acts
committed by the security guards attaches to the
employer agency, and not to the clients or customers of
such agency. As a general rule, a client or customer of a
security agency has no hand in selecting who among the
pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the
diligence of a good father of a family in the selection of the
guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are
protected by the security guards. The fact that a client
company may give instructions or directions to the
security guards assigned to it, does not, by itself, render
the client responsible as an employer of the security
guards concerned and liable for their wrongful acts or
omissions. Those instructions or directions are ordinarily
no more than requests commonly envisaged in the
contract for services entered into with the security
agency.20
Nor can it be said that a principal-agent relationship
existed between BSP and the security guards Peña and
Gaddi as to make the former liable for the latter's
complained act. Article 1868 of the Civil Code states that
"by the contract of agency, a person binds himself to
render some service or to do something in representation
or on behalf of another, with the consent or authority of
the latter." The basis for agency therefore is
representation,21 which element is absent in the instant
case. Records show that BSP merely hired the services of
AIB, which, in turn, assigned security guards, solely for
the protection of its properties and premises. Nowhere
can it be inferred in the Guard Service Contract that AIB
was appointed as an agent of BSP. Instead, what the
parties intended was a pure principal-client relationship
whereby for a consideration, AIB rendered its security
services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP
should be held liable for their loss on the basis of the
Guard Service Contract that the latter entered into with
AIB and their parking agreement with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights
and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of
the property he received from the decedent.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a
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person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third
person.
Thus, in order that a third person benefited by the second
paragraph of Article 1311, referred to as a stipulation pour
autrui, may demand its fulfillment, the following requisites
must concur: (1) There is a stipulation in favor of a third
person; (2) The stipulation is a part, not the whole, of the
contract; (3) The contracting parties clearly and
deliberately conferred a favor to the third person - the
favor is not merely incidental; (4) The favor is
unconditional and uncompensated; (5) The third person
communicated his or her acceptance of the favor before
its revocation; and (6) The contracting parties do not
represent, or are not authorized, by the third
party.22 However, none of the foregoing elements obtains
in this case.
It is undisputed that Sps. Mamaril are not parties to the
Guard Service Contract.1âwphi1 Neither did the subject
agreement contain any stipulation pour autrui. And even if
there was, Sps. Mamaril did not convey any acceptance
thereof. Thus, under the principle of relativity of contracts,
they cannot validly claim any rights or favor under the said
agreement.23 As correctly found by the CA:
First, the Guard Service Contract between defendant-
appellant BSP and defendant AIB Security Agency is
purely between the parties therein. It may be observed
that although the whereas clause of the said agreement
provides that defendant-appellant desires security and
protection for its compound and all properties therein, as
well as for its officers and employees, while inside the
premises, the same should be correlated with paragraph
3(a) thereof which provides that the security agency shall
indemnify defendant-appellant for all losses and damages
suffered by it attributable to any act or negligence of the
former's guards.
Otherwise stated, defendant-appellant sought the services
of defendant AIB Security Agency for the purpose of the
security and protection of its properties, as well as that of
its officers and employees, so much so that in case of loss
of [sic] damage suffered by it as a result of any act or
negligence of the guards, the security agency would then
be held responsible therefor. There is absolutely nothing
in the said contract that would indicate any obligation
and/or liability on the part of the parties therein in favor of
third persons such as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding of the CA
that the contract between the parties herein was one of
lease25 as defined under Article 164326 of the Civil Code.
It has been held that the act of parking a vehicle in a
garage, upon payment of a fixed amount, is a
lease.27 Even in a majority of American cases, it has been
ruled that where a customer simply pays a fee, parks his
car in any available space in the lot, locks the car and
takes the key with him, the possession and control of the
car, necessary elements in bailment, do not pass to the
parking lot operator, hence, the contractual relationship
between the parties is one of lease.28
In the instant case, the owners parked their six (6)
passenger jeepneys inside the BSP compound for a
monthly fee of ₱300.00 for each unit and took the keys
home with them. Hence, a lessor-lessee relationship
indubitably existed between them and BSP. On this score,
Article 1654 of the Civil Code provides that "the lessor
(BSP) is obliged: (1) to deliver the thing which is the object
of the contract in such a condition as to render it fit for the
use intended; (2) to make on the same during the lease all
the necessary repairs in order to keep it suitable for the
use to which it has been devoted, unless there is a
stipulation to the contrary; and (3) to maintain the lessee
in the peaceful and adequate enjoyment of the lease for
the entire duration of the contract." In relation thereto,
Article 1664 of the same Code states that "the lessor is
not obliged to answer for a mere act of trespass which a
third person may cause on the use of the thing leased; but
the lessee shall have a direct action against the intruder."
Here, BSP was not remiss in its obligation to provide Sps.
Mamaril a suitable parking space for their jeepneys as it
even hired security guards to secure the premises; hence,
it should not be held liable for the loss suffered by Sps.
Mamaril.
It bears to reiterate that the subject loss was caused by
the negligence of the security guards in allowing a
stranger to drive out plaintiffs-appellants' vehicle despite
the latter's instructions that only their authorized drivers
may do so. Moreover, the agreement with respect to the
ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security
guards,29 without the knowledge and consent of BSP.
Accordingly, the mishandling of the parked vehicles that
resulted in herein complained loss should be recovered
only from the tort feasors (Peña and Gaddi) and their
employer, AIB; and not against the lessor, BSP.30
Anent Sps. Mamaril's claim that the exculpatory clause:
"Management shall not be responsible for loss of vehicle
or any of its accessories or article left therein"31 contained
in the BSP issued parking ticket was void for being a
contract of adhesion and against public policy, suffice it to
state that contracts of adhesion are not void per se. It is
binding as any other ordinary contract and a party who
enters into it is free to reject the stipulations in its entirety.
If the terms thereof are accepted without objection, as in
this case, where plaintiffs-appellants have been leasing
BSP's parking space for more or less 20 years,32 then the
contract serves as the law between them.33 Besides, the
parking fee of ₱300.00 per month or ₱10.00 a day for
each unit is too minimal an amount to even create an
inference that BSP undertook to be an insurer of the
safety of plaintiffs-appellants' vehicles.
On the matter of damages, the Court noted that while
Sonia P. Mamaril testified that the subject vehicle had
accessories worth around !J50,000.00, she failed to
present any receipt to substantiate her claim. 34 Neither did
she submit any record or journal that would have
established the purported ₱275.0035 daily earnings of their
jeepney. It is axiomatic that actual damages must be
proved with reasonable degree of certainty and a party is
entitled only to such compensation for the pecuniary loss
that was duly proven. Thus, absent any competent proof
of the amount of damages sustained, the CA properly
deleted the said awards.36
Similarly, the awards of moral and exemplary damages
and attorney's fees were properly disallowed by the CA for
lack of factual and legal bases. While the RTC granted
these awards in the dispositive portion of its November
28, 2001 decision, it failed to provide sufficient justification
therefor.37
WHEREFORE premises considered, the instant petition is
DENIED. The May 31, 2007 Decision and August 16,
2007 Resolution of the Court of Appeals in CA-G.R. CV
No. 75978 are AFFIRMFED.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR
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