Sales – Chapter 3 Cases
HERMINIO TAYAG, petitioner, respondents, with the concurrence of the defendants-
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
In his complaint, the petitioner alleged, inter alia, the
tenants, agreed to sell the property. In the interim, the following:
petitioner gave varied sums of money to the tenants
as partial payments, and the latter issued receipts for 4. That defendants Julio Tiamson, Renato Gozun,
the said amounts. Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose
On July 24, 1996, the petitioner called a meeting of Sosa, Francisco Tolentino, Sr., Emiliano Laxamana,
the defendants-tenants to work out the Ruben Torres, Meliton Allanigue, Dominga
implementation of the terms of their separate Laxamana, Felicencia de Leon, Emiliano Ramos are
agreements.7 However, on August 8, 1996, the original farmers or direct tillers of landholdings over
defendants-tenants, through Joven Mariano, wrote parcels of lands covered by Transfer Certificate of
the petitioner stating that they were not attending the Title Nos. 35922-R, 35923-R and 35925-R which are
meeting and instead gave notice of their collective registered in the names of defendants LACSONS;
decision to sell all their rights and interests, as while defendants Felino G. Tolentino, Rica Gozun,
tenants/lessees, over the landholding to the Perla Gozun, Benigno Tolentino, Rodolfo Quiambao,
respondents.8 Explaining their reasons for their Roman Laxamana, Eddie San Luis, Alfredo Gozun,
collective decision, they wrote as follows: Jose Tiamson, Augusto Tolentino, Sixto Hernandez,
Alex Quiambao, Isidro Tolentino, Ceferino de Leon,
Kami ay nagtiwala sa inyo, naging tapat at nanindigan Alberto Hernandez, and Aurelio Flores are sub-
sa lahat ng ating napagkasunduan, hindi tumanggap tenants over the same parcel of land.
ng ibang buyer o ahente, pero sinira ninyo ang aming
pagtitiwala sa pamamagitan ng demanda ninyo at 5. That on March 17, 1996 the defendants TIAMSON,
pagbibigay ng problema sa amin na hindi naman et al., entered into Deeds of Assignment with the
nagbenta ng lupa. plaintiff by which the defendants assigned all their
rights and interests on their landholdings to the
Kaya kami ay nagpulong at nagpasya na ibenta na plaintiff and that on the same date (March 17, 1996),
lang ang aming karapatan o ang aming lupang the defendants received from the plaintiff partial
sinasaka sa landowner o sa mga pamilyang Lacson, payments in the amounts corresponding to their
dahil ayaw naming magkaroon ng problema. names. Subsequent payments were also received:
Kaya kung ang sasabihin ninyong ito’y katangahan,
lalo sigurong magiging katangahan kung ibebenta pa 1st PAYMENT 2nd PAYMENT CHECK NO.
namin sa inyo ang aming lupang sinasaka, kaya TOTAL
pasensya na lang Mister Tayag. Dahil sinira ninyo 1.Julio Tiamson - - - - - - P 20,000 P
ang aming pagtitiwala at katapatan.9 10,621.54 231281 P 30,621.54
2. Renato Gozun - - - - - -
On August 19, 1996, the petitioner filed a complaint [son of Felix Gozun (deceased)] P 10,000
with the Regional Trial Court of San Fernando, 96,000 106,000.00
Pampanga, Branch 44, against the defendants- 3. Rosita Hernandez - - - - P 5,000 14,374.24
tenants, as well as the respondents, for the court to fix 231274 P 19,374.24
a period within which to pay the agreed purchase 4. Bienvenido Tongol - - -
price of P50.00 per square meter to the defendants, [Son of Abundio Tongol (deceased)] P
as provided for in the Deeds of Assignment. The 10,000 14,465.90 231285 24,465.90
petitioner also prayed for a writ of preliminary 5. Alfonso Flores - - - - - - P 30,000
injunction against the defendants and the 26,648.40 231271 56,648.40
respondents therein.10 The case was docketed as 6. Norma Quiambao - - - - P 10,000
Civil Case No. 10910. 41,501.10 231279 51,501.10
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Sales – Chapter 3 Cases
7. Rosita Tolentino - - - - - P 10,000 33. Alberto Hernandez 10,000 ------ ------ covered by TCT No. 35922-R, 35923-R and TCT No.
22,126.08 231284 32,126.08 ------ 35925-R, Registry of Deeds of San Fernando,
8. Jose Sosa - - - - - - - - - P 10,000 34. Orlando Florez 10,000 ------ ------ Pampanga;
14,861.31 231291 24,861.31 ------
9. Francisco Tolentino, Sr. P 10,000 35. Aurelio Flores 10,000 ------ ------ ------ 12. That the defendants TIAMSON, et al., threaten to
24,237.62 231283 34,237.62 6. That on July 24, 1996, the plaintiff wrote the rescind their contracts with the plaintiff and are also
10. Emiliano Laxamana - - P 10,000 ------ defendants TIAMSON, et al., inviting them for a bent on selling/alienating their rights and interests
------ ------ meeting regarding the negotiations/implementations over the subject properties to their co-defendants
11. Ruben Torres - - - - - - of the terms of their Deeds of Assignment; (LACSONS) or any other persons to the damage and
[Son of Mariano Torres (deceased)] P 10,000 prejudice of the plaintiff who already invested much
P 33,587.31 ------ P 43,587.31 7. That on August 8, 1996, the defendants TIAMSON, money, efforts and time in the said transactions;
12. Meliton Allanigue P 10,000 et al., through Joven Mariano, replied that they are no
12,944.77 231269 P 22,944.77 longer willing to pursue with the negotiations, and 13. That the plaintiff is entitled to the reliefs being
13. Dominga Laxamana P 5,000 22,269.02 instead they gave notice to the plaintiff that they will demanded in the complaint;
231275 27,269.02 sell all their rights and interests to the registered
14. Felicencia de Leon 10,000 ------ ------ owners (defendants LACSONS). 14. That to prevent irreparable damages and
------ prejudice to the plaintiff, as the latter has no speedy
15. Emiliano Ramos 5,000 18,869.60 A copy of the letter is hereto attached as Annex "A" and adequate remedy under the ordinary course of
231280 23,869.60 etc.; law, it is essential that a Writ of Preliminary Injunction
16. Felino G. Tolentino 10,000 ------ ------ be issued enjoining and restraining the defendants
------ 8. That the defendants TIAMSON, et. al., have no TIAMSON, et al., from rescinding their contracts with
17. Rica Gozun 5,000 ------ ------ ------ right to deal with the defendants LACSON or with any the plaintiff and from selling/alienating their properties
18. Perla Gozun 10,000 ------ ------ ------ third persons while their contracts with the plaintiff are to the LACSONS or other persons;
19. Benigno Tolentino 10,000 ------ ------ subsisting; defendants LACSONS are inducing or
------ have induced the defendants TIAMSON, et. al., to 15. That the plaintiff is willing and able to put up a
20. Rodolfo Quiambao 10,000 ------ ------ violate their contracts with the plaintiff; reasonable bond to answer for the damages which
------ the defendants would suffer should the injunction
21. Roman Laxamana 10,000 ------ ------ 9. That by reason of the malicious acts of all the prayed for and granted be found without basis.12
------ defendants, plaintiff suffered moral damages in the
22. Eddie San Luis 10,000 ------ ------ forms of mental anguish, mental torture and serious The petitioner prayed, that after the proceedings,
------ anxiety which in the sum of P500,000.00 for which judgment be rendered as follows:
23. Ricardo Hernandez 10,000 ------ ------ defendants should be held liable jointly and
------ severally.11 1. Pending the hearing, a Writ of Preliminary
24. Nicenciana Miranda 10,000 ------ ------ Injunction be issued prohibiting, enjoining and
------ In support of his plea for injunctive relief, the restraining defendants Julio Tiamson, Renato Gozun,
25. Jose Gozun 10,000 ------ ------ ------ petitioner, as plaintiff, also alleged the following in his Rosita Hernandez, Bienvenido Tongol, Alfonso
26. Alfredo Sosa 5,000 ------ ------ ------ complaint: Flores, Norma Quiambao, Rosita Tolentino, Jose
27. Jose Tiamson 10,000 ------ ------ ------ Sosa, Francisco Tolentino Sr., Emiliano Laxamana,
28. Augusto Tolentino 5,000 ------ ------ 11. That to maintain the status quo, the defendants Ruben Torres, Meliton Allanigue, Dominga
------ TIAMSON, et al., should be restrained from Laxamana, Felicencia de Leon, Emiliano Ramos,
29. Sixto Hernandez 10,000 ------ ------ rescinding their contracts with the plaintiff, and the Felino G. Tolentino, Rica Gozun, Perla Gozun,
------ defendants LACSONS should also be restrained from Benigno Tolentino, Rodolfo Quiambao, Roman
30. Alex Quiambao 10,000 ------ ------ accepting any offer of sale or alienation with the Laxamana, Eddie San Luis, Ricardo Hernandez,
------ defendants TIAMSON, et al., in whatever form, the Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
31. Isidro Tolentino 10,000 ------ ------ latter’s rights and interests in the properties Tiamson, Augusto Tolentino, Ceferino de Leon,
------ mentioned in paragraph 4 hereof; further, the Alberto Hernandez, Orlando Flores, and Aurelio
32. Ceferino de Leon ------ 11,378.70 LACSONS should be restrained from Flores from rescinding their contracts with the plaintiff
231270 ------ encumbering/alienating the subject properties and from alienating their rights and interest over the

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Sales – Chapter 3 Cases
aforementioned properties in favor of defendants
LACSONS or any other third persons; and prohibiting
the defendants LACSONS from
encumbering/alienating TCT Nos. 35922-R, 35923-R
and 35925-R of the Registry of Deeds of San
Fernando, Pampanga.
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.
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Sales – Chapter 3 Cases
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 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
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Sales – Chapter 3 Cases
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 respondents’ motion even without the latter’s
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 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
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;
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Sales – Chapter 3 Cases
(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:
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
6
Sales – Chapter 3 Cases
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 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
7
Sales – Chapter 3 Cases
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:
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
8
Sales – Chapter 3 Cases
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.
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.

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 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

9
Sales – Chapter 3 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
10
Sales – Chapter 3 Cases
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.
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
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
11
Sales – Chapter 3 Cases
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 implied stipulation to that effect is
considered valid and, 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 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
12
Sales – Chapter 3 Cases
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 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
13
Sales – Chapter 3 Cases
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
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.
14
Sales – Chapter 3 Cases
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.
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.

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

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

15
Sales – Chapter 3 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
16
Sales – Chapter 3 Cases
square meter portion of the lot but the Reyeses had been
ignoring them. Thus, on July 13, 1987, after conciliation
proceedings in the barangay level failed, they filed a
complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial
court in favor of the Villamor spouses, the dispositive
portion of which states:
WHEREFORE, and (sic) in view of the foregoing,
judgment is hereby rendered in favor of the plaintiffs and
against the defendants ordering the defendant MACARIA
LABING-ISA REYES and ROBERTO REYES, to sell
unto the plaintiffs the land covered by T.C.T No. 39934 of
the Register of Deeds of Caloocan City, to pay the
plaintiffs the sum of P3,000.00 as and for attorney's fees
and to pay the cost of suit.
The counterclaim is hereby DISMISSED, for LACK OF
MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes
spouses appealed to the Court of Appeals on the
following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION
EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE
PLAINTIFF-APPELLEES AND DEFENDANT-
APPELLANTS IS STILL VALID AND BINDING DESPITE
THE LAPSE OF MORE THAN THIRTEEN (13) YEARS
FROM THE EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF
OPTION CONTAINS OBSCURE WORDS AND
STIPULATIONS WHICH SHOULD BE RESOLVED
AGAINST THE PLAINTIFF-APPELLEES WHO
UNILATERALLY DRAFTED AND PREPARED THE
SAME;
3. HOLDING THAT THE DEED OF OPTION
EXPRESSED THE TRUE INTENTION AND PURPOSE
OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF
THE PLAINTIFF-APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-
APPELLANTS ON ACCOUNT OF THEIR IGNORANCE
PLACING THEM AT A DISADVANTAGE IN THE DEED
OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE
CONSIDERATION TILT IN FAVOR OF THE
DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS
LIABLE TO PAY PLAINTIFF-APPELLEES THE
AMOUNT OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a
decision reversing the decision of the trial court and
dismissing the complaint. The reversal of the trial court's
decision was premised on the finding of respondent court
that the Deed of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for
review on certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED
IN FINDING THAT THE PHRASE WHENEVER THE
NEED FOR SUCH SALE ARISES ON OUR (PRIVATE
RESPONDENT) PART OR ON THE PART OF THE
SPOUSES JULIO D. VILLAMOR AND MARINA V.
VILLAMOR' CONTAINED IN THE DEED OF OPTION
DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED IN
NOT FINDING, THAT THE SAID CONDITION HAD
ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE
CONTRACT OF SALE DESPITE THE EXPRESS
OFFER AND ACCEPTANCE CONTAINED IN THE
DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN
FINDING THAT THE DEED OF OPTION IS VOID FOR
LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN
HOLDING THAT A DISTINCT CONSIDERATION IS
NECESSARY TO 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:
17
Sales – Chapter 3 Cases
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 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
18
Sales – Chapter 3 Cases
unreasonable length of time renders the contract SO ORDERED.
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 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.

19
Sales – Chapter 3 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:
20
Sales – Chapter 3 Cases
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.
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
21
Sales – Chapter 3 Cases
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
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 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
23
Sales – Chapter 3 Cases
dismissing petitioner's 11 December 1963 letter-
complaint had already become final.
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
24
Sales – Chapter 3 Cases
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 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
25
Sales – Chapter 3 Cases
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."
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
26
Sales – Chapter 3 Cases
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.

27
Sales – Chapter 3 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.
28
Sales – Chapter 3 Cases
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 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
29
Sales – Chapter 3 Cases
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 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:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs' application for writ of injunction;
2) That defendant cannot be compelled to sell to
plaintiffs the leased premises in accordance with par.
8 of the contract of lease;
3) Defendant is hereby ordered to reimburse plaintiffs
the sum of P15, 919.75 plus 12% interest
representing real estate taxes, plaintiffs paid the City
Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal
consignation to the Court of the initial amount of
P18,634.00 for the month of November and
December 1990 and every month thereafter.
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 conditions of the agreement, the aggrieved party
can collect reasonable attorney's fees.23
In view of this Court's finding that the option contract
is not enforceable for being without consideration, the
respondents Villanueva spouses' refusal to comply
with it cannot be the basis of a claim for attorney's
fees.
Hence, this Court agrees with as the Court of
Appeals, which affirmed the findings of the Regional
Trial Court, that such claim is to be dismissed for lack
of factual and legal basis.
WHEREFORE, the Decision and Resolution of the
Court of Appeals subject of the petition are hereby
AFFIRMED.
No costs.
SO ORDERED.
30
Sales – Chapter 3 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.
31
Sales – Chapter 3 Cases
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 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 is not the conventional but the legal interest that is
greater reason if it does not), a third person may be in demandable.
possession of the same thing; wherefore, though, as
a general rule, he who purchases by means of a It is therefore held that the contract of purchase and
public instrument should be deemed . . . to be the sale entered into by and between the plaintiff and the
possessor in fact, yet this presumption gives way defendant on June 11, 1914, is rescinded, and the
before proof to the contrary." plaintiff is ordered to make restitution of the sum of
P3,000 received by him on account of the price of the
It is evident, then, in the case at bar, that the mere sale, together with interest thereon at the legal rate of
execution of the instrument was not a fulfillment of the 6 per annum from the date of the filing of the
vendors' obligation to deliver the thing sold, and that complaint until payment, with the costs of both
from such non-fulfillment arises the purchaser's right instances against the appellant. So ordered.
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
32
Sales – Chapter 3 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
33
Sales – Chapter 3 Cases
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.
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,
34
Sales – Chapter 3 Cases
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;
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.
35
Sales – Chapter 3 Cases
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 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 ALTERNATIVE, THAT THE SUBJECT LEASE
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
CONTRACTS WERE RENDERED RESCINDED BY
REASON OF 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
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
36
Sales – Chapter 3 Cases
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 decision; hence, it filed the instant petition for review
on 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 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 years. …38
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)
37
Sales – Chapter 3 Cases
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, 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
38
Sales – Chapter 3 Cases
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
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
… executed in favor of the petitioner were fraudulent.50
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
In her answer to the amended complaint in the court a
quo, 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.
39
Sales – Chapter 3 Cases
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.
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 case. Moreover, the dismissal of the complaint, and,
and distinct contract from the time the parties may enter consequently, the respondents’ complaint-in-intervention
into upon the construction of the option.55 In Carceller v. was upon motion of plaintiff Carmen Cruz and without
Court of Appeals,56 the Court held that an option prejudice.
contract is a preparatory contract in which one party
grants to the other, for a fixed period and under specified IN LIGHT OF ALL THE FOREGOING, the petition is
conditions, the power to decide, whether or not to enter DENIED for lack of merit. The Decision of the Court of
into a principal contract. The Court further stated that: Appeals in CA-G.R. CV No. 69818 is AFFIRMED. Costs
against the petitioner.
… It binds the party who has given the option, not to
enter into the principal contract with any other person SO ORDERED.
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
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.
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
40
Sales – Chapter 3 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
41
Sales – Chapter 3 Cases
PNOC additionally contends the illegality of the option
contract for lack of a separate consideration, as
required by Article 1479 of the Civil Code.37 It claims
that the option contract is distinct from the main
contract of lease and must be supported by a
consideration other than the rental fees provided in
the agreement.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
42
Sales – Chapter 3 Cases
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 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
43
Sales – Chapter 3 Cases
In the present case, none of the above rules were
observed. We find nothing in paragraph 5 of the
Agreement indicating that the grant to Lusteveco of
the option to convert the purchase price for Keppel
shares was intended by the parties as the
consideration for Keppel's option to buy the land;
Keppel itself as the offeree presented no evidence to
support this finding. On the contrary, the option to
convert the purchase price for shares should be
deemed part of the consideration for the contract of
sale itself, since the shares are merely an alternative
to the actual cash price.
There are, however cases where, despite the
absence of an express intent in the parties'
agreements, the Court considered the additional
concessions stipulated in an agreement to constitute
a sufficient separate consideration for the option
contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who
was given the option to buy the land assumed .the
obligation to pay not only her rent as sub-lessee, but
also the rent of the sub-lessor (Ariola) to the primary
lessor (Manila Railroad Company).85 In other words,
Teodoro paid an amount over and above the amount
due for her own occupation of the property, and this
amount was found by the Court as sufficient
consideration for the option contract.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
44
Sales – Chapter 3 Cases
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 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
45
Sales – Chapter 3 Cases
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.

SO ORDERED.

46
Sales – Chapter 3 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.
47
Sales – Chapter 3 Cases
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 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
48
Sales – Chapter 3 Cases
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.
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:
49
Sales – Chapter 3 Cases
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.
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
50
Sales – Chapter 3 Cases
never raised this as an issue, while on the other hand it WHEREFORE, the petitions are DENIED. The Decision
admitted that the value of the property stood at dated November 25, 2004 of the Regional Trial Court of
P1,500.00 per square meter, then we see no compelling Makati City, Branch 144 in Civil Case No. 88-2238, as
reason to modify the holdings of the courts a quo that the affirmed by the Court of Appeals in its Decision dated
leased premises be sold at that price.[39] [EMPHASIS June 25, 2008 in CA-G.R. CV No. 84399, is hereby
SUPPLIED] 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
In the light of the foregoing, we hold that respondent, Lease Contract Nos. C-33-77 and C-12-78 is hereby
which did not offer any amount to petitioner NDC, and increased to P1,500.00 per square meter.
neither disputed the P1,500.00 per square meter actual No pronouncement as to costs.
value of NDCs property at that time it was sold to PUP at SO ORDERED.
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]
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.

51
Sales – Chapter 3 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
52
Sales – Chapter 3 Cases
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.
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:
53
Sales – Chapter 3 Cases
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 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.
54
Sales – Chapter 3 Cases
The final judgment in Civil Case No. 87-41058, it must be SO ORDERED.
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 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.

55
Sales – Chapter 3 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".
56
Sales – Chapter 3 Cases
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
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,
reckless, oppressive or malevolent manner and as a
deterrent to the commission of similar acts, they should
be made to answer for exemplary damages, the amount
left to the discretion of the Court.
25. Plaintiff demanded from the defendants to
rectify their unlawful acts that they committed, but
defendants refused and failed to comply with plaintiffs
just and valid and (sic) demands. Xerox copies of the
demand letters are hereto attached as Annexes "KK" to
"LL", respectively.
26. Despite repeated demands, defendants failed
and refused without justifiable cause to satisfy plaintiff's
claim, and was constrained to engaged (sic) the services
of undersigned counsel to institute this action at a
contract fee of P200,000.00, as and for attorney's fees,
exclusive of cost and expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be
rendered in favor of the plaintiff and against defendants
and ordering that:
a. The Deed of Sale between defendants dated
May 15, 1989, be annulled and the leased properties be
sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of
P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as
moral damages;
d. Defendants pay exemplary damages left to the
discretion of the Court;
e. Defendants pay the sum of not less than
P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable reliefs
plus cost of suit.
Instead of filing their respective answers, respondents
filed motions to dismiss anchored on the grounds of lack
of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order
dismissing the complaint for lack of a valid cause of
action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it
therefore indubitably appears that the defendant Santos
had verily complied with paragraph 9 of the Lease
Agreement by twice offering the properties for sale to the
plaintiff for ~1 5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said offer as
"RIDICULOUS". There was therefore a definite refusal on
the part of the plaintiff to accept the offer of defendant
Santos. For in acquiring the said properties back to her
name, and in so making the offers to sell both by herself
(attorney-in-fact) and through her counsel, defendant
Santos was indeed conscientiously complying with her
obligation under paragraph 9 of the Lease Agreement. . .
..
xxx xxx xxx
This is indeed one instance where a Complaint, after
barely commencing to create a cause of action,
neutralized itself by its subsequent averments which
erased or extinguished its earlier allegations of an
impending wrong. Consequently, absent any actionable
wrong in the very face of the Complaint itself, the
plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. . . . .
The inescapable result of the foregoing considerations
point to no other conclusion than that the Complaint
actually does not contain any valid cause of action and
should therefore be as it is hereby ordered DISMISSED.
The Court finds no further need to consider the other
grounds of estoppel and laches inasmuch as this
resolution is sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which
affirmed in toto the ruling of the trial court, and further
reasoned that:
. . . . Appellant's protestations that the P15 million price
quoted by appellee Santos was reduced to P9 million
when she later resold the leased properties to Raymundo
has no valid legal moorings because appellant, as a
57
Sales – Chapter 3 Cases
prospective buyer, cannot dictate its own price and
forcibly ram it against appellee Santos, as owner, to buy
off her leased properties considering the total absence of
any stipulation or agreement as to the price or as to how
the price should be computed under paragraph 9 of the
lease contract, . . . . 7
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
58
Sales – Chapter 3 Cases
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 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;
59
Sales – Chapter 3 Cases
. . . . 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.
Respondent Raymundo privy
to the Contract of Lease
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.
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 REVERSED and SET ASIDE. The case is
REMANDED to the Regional Trial Court of Makati for
further proceedings.
SO ORDERED.

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

60
Sales – Chapter 3 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
61
Sales – Chapter 3 Cases
monthly rental of P1,000.00 per month reckoned from
May 1990 up to the time they leave the premises. No
costs.
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;
62
Sales – Chapter 3 Cases
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 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
63
Sales – Chapter 3 Cases
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 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 properties for the amount of P9,000,000.00, the price
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
64
Sales – Chapter 3 Cases
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.
X X X includes the consideration for the right of first refusal.
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
L&R Corporation is in effect stating 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
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
65
Sales – Chapter 3 Cases
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
things which are the object of the contract are legally
in 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 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 Leon was aware of the
existence of the oral right of first refusal. It does not
show that petitioners were likewise aware of the
existence of the said right. Moreover, the letter was
made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between
petitioner Rosencor and the heirs of the spouses
Tiangco. There is no showing that prior to the date of
the execution of the said Deed, petitioners were put
on notice of the 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 SET ASIDE. The Decision dated
May 13, 1996 of the Quezon City Regional Trial
Court, Branch 217 is hereby REINSTATED insofar as
it dismisses the action for rescission of the Deed of
Absolute Sale dated September 4, 1990 and orders
the payment of monthly rentals of P1,000.00 per
month reckoned from May 1990 up to the time
respondents leave the premises.
SO ORDERED.
66
Sales – Chapter 3 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.
67
Sales – Chapter 3 Cases
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."
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
68
Sales – Chapter 3 Cases
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 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
69
Sales – Chapter 3 Cases
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;
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:
70
Sales – Chapter 3 Cases
… Subdivision, and that it intends to complete the first
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 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
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.
71
Sales – Chapter 3 Cases
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 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
72
Sales – Chapter 3 Cases
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 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 of P460.00/square meter, petitioners rejected the offer.
with another but also on terms, including the price, that Ayala Corporation reduced the price to P5,000.00/square
are yet to be firmed up.45 meter but again, petitioners rejected the offer and instead
made a counter-offer in the amount of P2,000.00/square
Applied to the instant case, paragraph 5.15 is obviously a meter.49 Ayala Corporation rejected petitioners' counter-
mere right of first refusal and not an option contract. offer. With this rejection, petitioners lost their right to
Although the paragraph has a definite object, i.e., the purchase the subject lots.
sale of subject lots, the period within which they will be
offered for sale to petitioners and, necessarily, the price It cannot, therefore, be said that Ayala Corporation
for which the subject lots will be sold are not specified. breached petitioners' right of first refusal and should be
The phrase "at the prevailing market price at the time of compelled by an action for specific performance to sell
the purchase" connotes that there is no definite period the subject lots to petitioners at the prevailing market
within which Ayala Corporation is bound to reserve the price in 1984.
subject lots for petitioners to exercise their privilege to
purchase. Neither is there a fixed or determinable price WHEREFORE, the instant petition is DENIED. No
at which the subject lots will be offered for sale. The price pronouncement as to costs.
is considered certain if it may be determined with
reference to another thing certain or if the determination SO ORDERED.
thereof is left to the judgment of a specified person or
persons.46
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.
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
73
Sales – Chapter 3 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
74
Sales – Chapter 3 Cases
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 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
75
Sales – Chapter 3 Cases
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 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
76
Sales – Chapter 3 Cases
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 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
77
Sales – Chapter 3 Cases
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 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.
78
Sales – Chapter 3 Cases
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.
WHEREFORE, the instant Petition for Review is
PARTIALLY GRANTED. The Court of Appeals
Decision dated June 14, 1999 in CA-G.R. CV No.
43770 is MODIFIED as follows:
(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.
SO ORDERED.

(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;

79
Sales – Chapter 3 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
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Sales – Chapter 3 Cases
Roberto claims that Lourdes violated his right to buy
subject property under
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,
81
Sales – Chapter 3 Cases
I received with great joy and happiness the big box of
sweet grapes and ham, fit for a king’s party. Thanks
very much.
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.
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Sales – Chapter 3 Cases
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 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 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
84
Sales – Chapter 3 Cases
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
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.
85
Sales – Chapter 3 Cases
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.
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,
86
Sales – Chapter 3 Cases
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 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.
87
Sales – Chapter 3 Cases

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
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.

88
Sales – Chapter 3 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
89
Sales – Chapter 3 Cases
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
V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines
March 4, 1964
Mr. Francisco Cervantes.
Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal
Dear Mr. Cervantes:
In reference to the letter of Miss E. Perez de Tagle
dated February 12th and 26, 1964 in respect to the
terms and conditions on the purchase of your property
located at Buendia Ave., Makati, Rizal, with a total
area of 3,500 sq. meters., we hereby revise our offer,
as follows:
1. That the price of the property shall be
P400.00 per sq. m., including the improvements
thereon;
2. That a deposit of P100,000.00 shall be given
to you as earnest money which will become as part
payment in the event the sale is consummated;
3. This sale shall be cancelled, only if your deal
with another property in Sta. Ana shall not be
consummated and in such case, the P100,000-00
earnest money will be returned to us with a 10%
interest p.a. However, if our deal with you is finalized,
said P100,000.00 will become as part payment for the
purchase of your property without interest:
4. The manner of payment shall be as follows:
a. P100,000.00 earnest money and
650,000.00 as part of the down payment, or
P750,000.00 as total down payment
b. The balance is payable as follows:
P100,000.00 after 3 months
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total
As regards to the other conditions which we have
discussed during our last conference on February 27,
1964, the same shall be finalized upon preparation of
the contract to sell.*
If the above terms and conditions are acceptable to
you, kindly sign your conformity hereunder. Enclosed
is our check for ONE HUNDRED THOUSAND
(P100,000.00) PESOS, MBTC Check No. 448314, as
earnest money.
Very truly yours,
VILLONCO REALTY COMPANY
(Sgd.) TEOFILO VILLONCO
CONFORME:
BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES
That this sale shall be subject to favorable
consummation of a property in Sta. Ana we are
negotiating.
(Sgd.) FRANCISCO CERVANTES
The check for P100,000 (Exh. E) mentioned in the
foregoing letter-contract was delivered by Edith Perez
de Tagle to Bormaheco, Inc. on March 4, 1964 and
was received by Cervantes. In the voucher-receipt
evidencing the delivery the broker indicated in her
handwriting that the earnest money was "subject to
the terms and conditions embodied in Bormaheco's
letter" of February 12 and Villonco Realty Company's
letter of March 4, 1964 (Exh. E-1; 14 tsn).
Then, unexpectedly, in a letter dated March 30, 1964,
or twenty-six days after the signing of the contract of
sale, Exhibit D, Cervantes returned the earnest
money, with interest amounting to P694.24 (at ten
percent per annum). Cervantes cited as an excuse
the circumstance that "despite the lapse of 45 days
from February 12, 1964 there is no certainty yet" for
the acquisition of the Punta property (Exh. F; F-I and
F-2). Villonco Realty Company refused to accept the
letter and the checks of Bormaheco, Inc. Cervantes
sent them by registered mail. When he rescinded the
contract, he was already aware that the Punta lot had
been awarded to Bormaheco, Inc. (25-26 tsn).
Edith Perez de Tagle, the broker, in a letter to
Cervantes dated March 31, 1964 articulated her
shock and surprise at Bormaheco's turnabout. She
reviewed the history of the deal and explained why
Romeo Villonco could not agree to the rescission of
the sale (Exh. G).**
Cervantes in his letter of April 6, 1964, a reply to Miss
Tagle's letter, alleged that the forty-five day period
had already expired and the sale to Bormaheco, Inc.
of the Punta property had not been consummated.
Cervantes said that his letter was a "manifestation
that we are no longer interested to sell" the Buendia
Avenue property to Villonco Realty Company (Annex I
of Stipulation of Facts). The latter was furnished with
a copy of that letter.
In a letter dated April 7, 1964 Villonco Realty
Company returned the two checks to Bormaheco,
Inc., stating that the condition for the cancellation of
the contract had not arisen and at the same time
announcing that an action for breach of contract
would be filed against Bormaheco, Inc. (Annex G of
Stipulation of Facts).1äwphï1.ñët
On that same date, April 7, 1964 Villonco Realty
Company filed the complaint (dated April 6) for
specific performance against Bormaheco, Inc. Also on
that same date, April 7, at eight-forty-five in the
morning, a notice of lis pendens was annotated on the
titles of the said lots.
Bormaheco, Inc. in its answers dated May 5 and 25,
1964 pleaded the defense that the perfection of the
contract of sale was subject to the conditions (a) "that
final acceptance or not shall be made after 45 days"
(sic) and (b) that Bormaheco, Inc. "acquires the Sta.
Ana property".
90
Sales – Chapter 3 Cases
On June 2, 1964 or during the pendency of this case,
the Nassco Acting General Manager wrote to
Bormaheco, Inc., advising it that the Board of
Directors and the Economic Coordinator had
approved the sale of the Punta lot to Bormaheco, Inc.
and requesting the latter to send its duly authorized
representative to the Nassco for the signing of the
deed of sale (Exh. 1).
The deed of sale for the Punta land was executed on
June 26, 1964. Bormaheco, Inc. was represented by
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.
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Sales – Chapter 3 Cases
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 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
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Sales – Chapter 3 Cases
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.
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
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Sales – Chapter 3 Cases
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, 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
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Sales – Chapter 3 Cases
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 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).
The appellants in their eighth assignment of error
impugn the trial court's adjudication of forty-two
thousand pesos as three percent broker's commission
to Miss Tagle. They allege that there is no evidence
that Bormaheco, Inc. engaged her services as a
broker in the projected sale of the three lots and the
improvements thereon. That 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).
4. Bormaheco, Inc. is ordered (a) to pay
Villonco Realty Company twenty thousand pesos
(P20,000) as attorney's fees and (b) to pay Edith
Perez de Tagle the sum of forty-two thousand pesos
(P42,000) as commission. Costs against the
defendants-appellants.
95
Sales – Chapter 3 Cases

SO ORDERED.

96
Sales – Chapter 3 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
97
Sales – Chapter 3 Cases
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.
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.
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Sales – Chapter 3 Cases
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 Consequently, there was no perfected contract of sale,
THE LOWER COURT ERRED IN DISREGARDING THE
FACT THAT THERE WAS NO VALID RESCISSION OR
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.
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.
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Sales – Chapter 3 Cases
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 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]
100
Sales – Chapter 3 Cases
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:
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.
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Sales – Chapter 3 Cases
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:
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.
SO ORDERED.
102
Sales – Chapter 3 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
103
Sales – Chapter 3 Cases
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 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
104
Sales – Chapter 3 Cases
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 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 corresponding official receipt as noted in Provisional
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
Receipt No. 33430; that respondent intentionally
delivered the letter and check in the manner that it did in
order to bind petitioner to the supposed sale with or
105
Sales – Chapter 3 Cases
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
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
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Sales – Chapter 3 Cases
Eleazar’s previous meeting with Young, that it could only Nor will respondent's supposed payment be 'treated as a
effectively deal with her; more than that, it should know deposit or guarantee; its actions will not be dignified and
that corporations work only through the proper channels. must be called for what they are: they were done
By acting the way it did – coursing the February 4, 2005 irregularly and with a view to acquiring the subject
letter and check through petitioner’s mere receiving clerk property against petitioner's consent.
or receptionist instead of directly with Young’s office,
respondent placed itself under grave suspicion of putting Finally, since there is nothing in legal contemplation
into effect a premeditated plan to unduly bind petitioner which petitioner must perform particularly for the
to its rejected offer, in a manner which it could not respondent, it should follow that Civil Case No. 06-0492
achieve through negotiation and employing normal CFM for specific performance with damages is left with
business practices. It impresses the Court that no leg. to stand on; it must be dismissed.
respondent attempted to secure the consent needed for
the sale by depositing part of the purchase price and With the foregoing view, there is no need to resolve the
under the false pretense that an agreement was already other specific issues and arguments raised by the
arrived at, even though there was none. Respondent petitioner, as they do not materially affect the rights and
achieved the desired effect up to this point, but the Court obligations of the parties - the Court having declared that
will not be fooled. no agreement exists between them; nor do they have the
effect of altering the outcome of the case.
Thus, as between respondent’s irregular and improper
actions and petitioner’s failure to timely return the WHEREFORE, the Petition is GRANTED. The
₱100,000.00 purported earnest money, this Court sides September 30, 2011 Decision and December 9, 2011
with petitioner. In a manner of speaking, respondent Resolution of the Court of Appeals in CA-G.R. CV No.
cannot fault petitioner for not making a refund since it is 93715, as well as the February 16, 2009 Decision of the
equally to blame for making such payment under false Regional Trial Court of Pasay City, Branch 115 in Civil
pretenses and irregular circumstances, and with Case No. 06-0492 CFM are REVERSED and SET
improper motives. Parties must come to court with clean ASIDE. Civil Case No. 06-0492 CFM is ordered
hands, as it were. DISMISSED. , Petitioner First Optima Realty Corporation
is ordered to REFUND the amount of ₱100,000.00 to
In a potential sale transaction, the prior payment of respondent Securitron Security Services, Inc. without
earnest money even before the property owner can interest, unless petitioner has done so during the course
agree to sell his property is irregular, and cannot be used of the proceedings.
to bind the owner to the obligations of a seller under an
otherwise perfected contract of sale; to cite a well-worn SO ORDERED.
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

107
Sales – Chapter 3 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)
108
Sales – Chapter 3 Cases
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 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.
109
Sales – Chapter 3 Cases
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, 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.
110
Sales – Chapter 3 Cases
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 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,
111
Sales – Chapter 3 Cases
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]
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.

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) 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.

112
Sales – Chapter 3 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]
113
Sales – Chapter 3 Cases
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
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
114
Sales – Chapter 3 Cases
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 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]
115
Sales – Chapter 3 Cases
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.

SO ORDERED.

116
Sales – Chapter 3 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:
117
Sales – Chapter 3 Cases
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, 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)
118
Sales – Chapter 3 Cases
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.

119
Sales – Chapter 3 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
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Sales – Chapter 3 Cases
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;
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.
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Sales – Chapter 3 Cases
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 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
122
Sales – Chapter 3 Cases
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 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.

123
Sales – Chapter 3 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.
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Sales – Chapter 3 Cases
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.
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
125
Sales – Chapter 3 Cases
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 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.
126
Sales – Chapter 3 Cases
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 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.

127
Sales – Chapter 3 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.
128
Sales – Chapter 3 Cases
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;
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
129
Sales – Chapter 3 Cases
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.
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
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 Court reviews only errors of law and not errors of
facts.[9] 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
130
Sales – Chapter 3 Cases
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 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
131
Sales – Chapter 3 Cases
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.
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
132
Sales – Chapter 3 Cases
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 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,
133
Sales – Chapter 3 Cases
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 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 faith.[55] Such second
buyer cannot defeat the first buyers title.[56] In case a
title is issued to the second buyer, the first buyer may
seek reconveyance of the property subject of the
sale.[57]
Thus, to merit protection under the second paragraph
of Article 1544[58] of the Civil Code, the second buyer
must act in good faith in registering the deed.[59] In
this case, the Subsequent Buyers good faith hinges
on whether they had knowledge of the previous sale.
Petitioners do not dispute that Armando and Adelia
registered their adverse claim with the Registry of
Deeds of Bataan on 8 February 1994. The
Subsequent Buyers purchased their respective lots
only on 22 February 1994 as shown by the date of
their deeds of sale. Consequently, the adverse claim
registered prior to the second sale charged the
Subsequent Buyers with constructive notice of the
defect in the title of the sellers,[60] Godofredo and
Carmen.
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
We sustain the award of attorneys fees. The decision
of the court must state the grounds for the award of
attorneys fees. The trial court complied with this
requirement.[65] We agree with the trial court that if it
134
Sales – Chapter 3 Cases
were not for petitioners unjustified refusal to heed the
just and valid demands of Armando and Adelia, the
latter would not have been compelled to file this
action.

The Court of Appeals echoed the trial courts

condemnation of petitioners fraudulent maneuverings
in securing the second sale of the Subject Land to the
Subsequent Buyers. We will also not turn a blind eye
on petitioners brazen tactics. Thus, we uphold the
treble costs imposed by the Court of Appeals on
petitioners.

WHEREFORE, the petition is DENIED and the

appealed decision is AFFIRMED. Treble costs against
petitioners.

SO ORDERED.

135
Sales – Chapter 3 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.
136
Sales – Chapter 3 Cases
"SO ORDERED."4
Said judgment of dismissal is mainly based on the
trial court's finding that:
"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?
137
Sales – Chapter 3 Cases
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. 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
contract to sell. In contracts to sell, ownership is
reserved the by the vendor and is not to pass until full
payment of the purchase price. This we find fully
applicable and understandable in this case, given that
the property involved is a titled realty under mortgage
to a bank and would require notarial and other
formalities of law before transfer thereof could be
validly effected.
In view of our finding in the present case that the
agreement between the parties is a contract to sell, it
follows that the appellate court erred when it decreed
that a judicial rescission of said agreement was
necessary. This is because there was no rescission to
speak of in the first place. As we earlier pointed, in a
contract to sell, title remains with the vendor and does
not pass on to the 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.
As to the last issue, we need not tarry to make a
determination of whether the breach of contract by
private respondents is so substantial as to defeat the
purpose of the parties in entering into the agreement
and thus entitle petitioners to rescission. Having ruled
that there is no rescission to speak of in this case, the
question is moot.
WHEREFORE, the instant petition is GRANTED and
the assailed decision of the Court of Appeals in CA-
G.R. CV No. 30955 is REVERSED and SET ASIDE.
The judgment of the Regional Trial Court of Makati,
Branch 133, with respect to the DISMISSAL of the
complaint in Civil Case No. 89-4759, is hereby
REINSTATED. No pronouncement as to
costs.1âwphi1.nêt
SO ORDERED.
138
Sales – Chapter 3 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.
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Sales – Chapter 3 Cases
III
...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.
140
Sales – Chapter 3 Cases
Neither is their action barred by laches. The elements of counsel for a petitioner cross-examines a private
laches are: 1) conduct on the part of the defendant, or of respondent on matters occurring during the deceaseds
one under whom he claims, giving rise to the situation of lifetime. The Court of Appeals cannot be faulted in
which the complaint seeks a remedy; 2) delay in ignoring petitioner on Rosas disqualification.
asserting the complainants rights, the complainant
having had knowledge or notice of the defendants WHEREFORE, the instant petition is DENIED. The
conduct as having been afforded an opportunity to assailed decision dated March 10, 1998 of the Court of
institute a suit; 3) lack of knowledge or notice on the part Appeals, which sustained the judgment of the Regional
of the defendant that the complainant would assert the Trial Court dated March 17, 1993, in favor of herein
right in which he bases his suit; and 4) injury or prejudice private respondents, is AFFIRMED. Costs against
to the defendant in the event relief is accorded to the petitioner.
complainant, or the suit is not held barred.[18] These SO ORDERED.
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

141
Sales – Chapter 3 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
142
Sales – Chapter 3 Cases
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 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.

143
Sales – Chapter 3 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.
144
Sales – Chapter 3 Cases
THE PETITION
The petitioners argue that the spouses Villamor, Sr.’s
execution of the July 21, 1994 deed of sale in the
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
145
Sales – Chapter 3 Cases
the Regional Trial Court of San Jacinto, Masbate,
Branch 50.

Costs against the petitioners.

SO ORDERED.

146
Sales – Chapter 3 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
147
Sales – Chapter 3 Cases
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.
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
148
Sales – Chapter 3 Cases
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.

149
Sales – Chapter 3 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
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2 November 2004,31 the appellate court held that the
extrajudicial foreclosure was valid, since the Real
Estate Mortgage 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
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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.
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
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Sales – Chapter 3 Cases
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
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.
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Sales – Chapter 3 Cases
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 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
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Sales – Chapter 3 Cases
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 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.
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Sales – Chapter 3 Cases
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
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 Petitioners raised the issue only after obtaining an
Overriding considerations of fair play, justice and due unfavorable judgment from the CA. Undoubtedly, if
process dictate this recognized rule.90 This Court we allow a change of theory late in the game, so to
cannot even receive evidence on this matter. speak, we will unjustifiably close our eyes to the
fundamental right of petitioners to procedural due
Petitioners' original theory of the case is the nullity of process. They will lose the opportunity to meet the
the mortgage on the grounds previously discussed. If challenge, because trial has already ended.
petitioners are allowed to introduce their new theory, Ultimately, we will be throwing the Constitutional
respondents would have no more opportunity to rebut rulebook out the window.
the new claim with contrary evidence, as the trial
stage has already been terminated. In the interest of WHEREFORE, premises considered, the Petitions
fair play and justice, the introduction of the new are DENIED, and the Court of Appeals Decision
argument must be barred.91 dated 2 November 2004 and Resolution dated 10
May 2005 in CA-G.R. CV No. 47421 are hereby
Exceptions Not Applicable AFFIRMED.
The Court is aware that the foregoing is merely a SO ORDERED.
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 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.
156
Sales – Chapter 3 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.
157
Sales – Chapter 3 Cases
Upon hearing, the Court of First Instance, under date
of September 26, 1923, entered an order, the
dispositive part of which reads as follows:
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
158
Sales – Chapter 3 Cases
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.

159
Sales – Chapter 3 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
160
Sales – Chapter 3 Cases
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
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,
161
Sales – Chapter 3 Cases
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 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
162
Sales – Chapter 3 Cases
That being said, the Court now comes to David’s prayer WHEREFORE, the petition Is GRANTED. The July 8,
that MOELCI be made to pay the total sum of ₱ 2010 Decision of the Court of Appeals Is REVERSED
5,472,722.27 plus the stipulated interest at 24% per and SET ASIDE. Respondent Misamis Occidental II
annum from the filing of the complaint. Although the Electric Cooperative, Inc. is ordered to pay petitioner
Court agrees that MOELCI should pay interest, the Virgilio S. David the total sum of P5,472,722.27 with
stipulated rate is, however, unconscionable and should interest at the rate of 12o/o per annum reckoned from the
be equitably reduced. While there is no question that filing of the complaint until fully paid.
parties to a loan agreement have wide latitude to
stipulate on any interest rate in view of the Central Bank SO ORDERED.
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.

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.

163
Sales – Chapter 3 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
164
Sales – Chapter 3 Cases
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 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
165
Sales – Chapter 3 Cases
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.
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
166
Sales – Chapter 3 Cases
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)
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.

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

167
Sales – Chapter 3 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 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.
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Sales – Chapter 3 Cases
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 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
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Sales – Chapter 3 Cases
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
[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
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Sales – Chapter 3 Cases
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 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
172
Sales – Chapter 3 Cases
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 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
173
Sales – Chapter 3 Cases
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 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.
174
Sales – Chapter 3 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
175
Sales – Chapter 3 Cases
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.
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
176
Sales – Chapter 3 Cases
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]

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.

177
Sales – Chapter 3 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.
178
Sales – Chapter 3 Cases
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.
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:
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Sales – Chapter 3 Cases
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.
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
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Sales – Chapter 3 Cases
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 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:
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Sales – Chapter 3 Cases
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 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
182
Sales – Chapter 3 Cases
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).
(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
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Sales – Chapter 3 Cases
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 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)
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Sales – Chapter 3 Cases
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.

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Sales – Chapter 3 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
186
Sales – Chapter 3 Cases
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 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
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Sales – Chapter 3 Cases
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
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
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Sales – Chapter 3 Cases
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 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
189
Sales – Chapter 3 Cases
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
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 to exercise the due diligence
required by law of purchasers in acquiring a piece of
land in the possession of person or persons other
than the seller.
In this regard, great weight is accorded to the findings
of fact of the RTC. Basic is the rule that the trial court
is in a better position to examine real evidence as well
as to observe the demeanor of witnesses who testify
in the case.40
WHEREFORE, the petition is GRANTED. The
December 4, 2009 Decision and the November 18,
201 0 Resolution of the Court of Appeals, in CA-G.R.
CV No. 00351, are REVERSED and SET ASIDE. The
July 30, 2004 Decision of the Regional Trial Court,
Branch 8, 7th Judicial Region, Cebu City, in Civil
Case No. CEB-16957, is hereby REINSTATED.
SO ORDERED.
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G.R. No. 92989 July 8, 1991
PERFECTO DY, JR. petitioner,
vs.
COURT OF APPEALS, GELAC TRADING INC., and
ANTONIO V. GONZALES, respondents.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading,
Inc.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari seeking the
reversal of the March 23, 1990 decision of the Court
of Appeals which ruled that the petitioner's purchase
of a farm tractor was not validly consummated and
ordered a complaint for its recovery dismissed.
The facts as established by the records are as
follows:
The petitioner, Perfecto Dy and Wilfredo Dy are
brothers. Sometime in 1979, Wilfredo Dy purchased a
truck and a farm tractor through financing extended
by Libra Finance and Investment Corporation (Libra).
Both truck and tractor were mortgaged to Libra as
security for the loan.
The petitioner wanted to buy the tractor from his
brother so on August 20, 1979, he wrote a letter to
Libra requesting that he be allowed to purchase from
Wilfredo Dy the said tractor and assume the mortgage
debt of the latter.
In a letter dated August 27, 1979, Libra thru its
manager, Cipriano Ares approved the petitioner's
request.
Thus, on September 4, 1979, Wilfredo Dy executed a
deed of absolute sale in favor of the petitioner over
the tractor in question.
At this time, the subject tractor was in the possession
of Libra Finance due to Wilfredo Dy's failure to pay
the amortizations.
Despite the offer of full payment by the petitioner to
Libra for the tractor, the immediate release could not
be effected because Wilfredo Dy had obtained
financing not only for said tractor but also for a truck
and Libra insisted on full payment for both.
The petitioner was able to convince his sister, Carol
Dy-Seno, to purchase the truck so that full payment
could be made for both. On November 22, 1979, a
PNB check was issued in the amount of P22,000.00
in favor of Libra, thus settling in full the indebtedness
of Wilfredo Dy with the financing firm. Payment having
been effected through an out-of-town check, Libra
insisted that it be cleared first before Libra could
release the chattels in question.
Meanwhile, Civil Case No. R-16646 entitled "Gelac
Trading, Inc. v. Wilfredo Dy", a collection case to
recover the sum of P12,269.80 was pending in
another court in Cebu.
On the strength of an alias writ of execution issued on
December 27, 1979, the provincial sheriff was able to
seize and levy on the tractor which was in the
premises of Libra in Carmen, Cebu. The tractor was
subsequently sold at public auction where Gelac
Trading was the lone bidder. Later, Gelac sold the
tractor to one of its stockholders, Antonio Gonzales.
It was only when the check was cleared on January
17, 1980 that the petitioner learned about GELAC
having already taken custody of the subject tractor.
Consequently, the petitioner filed an action to recover
the subject tractor against GELAC Trading with the
Regional Trial Court of Cebu City.
On April 8, 1988, the RTC rendered judgment in favor
of the petitioner. The dispositive portion of the
decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiff and against the defendant, pronouncing
that the plaintiff is the owner of the tractor, subject
matter of this case, and directing the defendants
Gelac Trading Corporation and Antonio Gonzales to
return the same to the plaintiff herein; directing the
defendants jointly and severally to pay to the plaintiff
the amount of P1,541.00 as expenses for hiring a
tractor; P50,000 for moral damages; P50,000 for
exemplary damages; and to pay the cost. (Rollo, pp.
35-36)
On appeal, the Court of Appeals reversed the
decision of the RTC and dismissed the complaint with
costs against the petitioner. The Court of Appeals
held that the tractor in question still belonged to
Wilfredo Dy when it was seized and levied by the
sheriff by virtue of the alias writ of execution issued in
Civil Case No. R-16646.
The petitioner now comes to the Court raising the
following questions:
A.
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS MISAPPREHENDED THE FACTS AND
ERRED IN NOT AFFIRMING THE TRIAL COURT'S
FINDING THAT OWNERSHIP OF THE FARM
TRACTOR HAD ALREADY PASSED TO HEREIN
PETITIONER WHEN SAID TRACTOR WAS LEVIED
ON BY THE SHERIFF PURSUANT TO AN ALIAS
WRIT OF EXECUTION ISSUED IN ANOTHER CASE
IN FAVOR OF RESPONDENT GELAC TRADING
INC.
B.
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS EMBARKED ON MERE CONJECTURE
AND SURMISE IN HOLDING THAT THE SALE OF
THE AFORESAID TRACTOR TO PETITIONER WAS
DONE IN FRAUD OF WILFREDO DY'S
CREDITORS, THERE BEING NO EVIDENCE OF
SUCH FRAUD AS FOUND BY THE TRIAL COURT.
C.
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS MISAPPREHENDED THE FACTS AND
ERRED IN NOT SUSTAINING THE FINDING OF
THE TRIAL COURT THAT THE SALE OF THE
TRACTOR BY RESPONDENT GELAC TRADING TO
ITS CO-RESPONDENT ANTONIO V. GONZALES
ON AUGUST 2, 1980 AT WHICH TIME BOTH
RESPONDENTS ALREADY KNEW OF THE FILING
OF THE INSTANT CASE WAS VIOLATIVE OF THE
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Sales – Chapter 3 Cases
HUMAN RELATIONS PROVISIONS OF THE CIVIL
CODE AND RENDERED THEM LIABLE FOR THE
MORAL AND EXEMPLARY DAMAGES SLAPPED
AGAINST THEM BY THE TRIAL COURT. (Rollo, p.
13)
The respondents claim that at the time of the
execution of the deed of sale, no constructive delivery
was effected since the consummation of the sale
depended upon the clearance and encashment of the
check which was issued in payment of the subject
tractor.
In the case of Servicewide Specialists Inc. v.
Intermediate Appellate Court. (174 SCRA 80 [1989]),
we stated that:
xxx xxx xxx
The rule is settled that the chattel mortgagor
continues to be the owner of the property, and
therefore, has the power to alienate the same;
however, he is obliged under pain of penal liability, to
secure the written consent of the mortgagee.
(Francisco, Vicente, Jr., Revised Rules of Court in the
Philippines, (1972), Volume IV-B Part 1, p. 525).
Thus, the instruments of mortgage are binding, while
they subsist, not only upon the parties executing them
but also upon those who later, by purchase or
otherwise, acquire the properties referred to therein.
The absence of the written consent of the mortgagee
to the sale of the mortgaged property in favor of a
third person, therefore, affects not the validity of the
sale but only the penal liability of the mortgagor under
the Revised Penal Code and the binding effect of
such sale on the mortgagee under the Deed of
Chattel Mortgage.
xxx xxx xxx
The mortgagor who gave the property as security
under a chattel mortgage did not part with the
ownership over the same. He had the right to sell it
although he was under the obligation to secure the
written consent of the mortgagee or he lays himself
open to criminal prosecution under the provision of
Article 319 par. 2 of the Revised Penal Code. And
even if no consent was obtained from the mortgagee,
the validity of the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the
chattel mortgagor can not sell the subject tractor.
There is no dispute that the consent of Libra Finance
was obtained in the instant case. In a letter dated
August 27, 1979, Libra allowed the petitioner to
purchase the tractor and assume the mortgage debt
of his brother. The sale between the brothers was
therefore valid and binding as between them and to
the mortgagee, as well.
Article 1496 of the Civil Code states that the
ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the
ways specified in Articles 1497 to 1501 or in any other
manner signing an agreement that the possession is
transferred from the vendor to the vendee. We agree
with the petitioner that Articles 1498 and 1499 are
applicable in the case at bar.
Article 1498 states:
Art. 1498. When the sale is made through a public
instrument, the execution thereof 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.
xxx xxx xxx
Article 1499 provides:
Article 1499. The delivery of movable property may
likewise be made by the mere consent or agreement
of the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the
time of the sale, or if the latter already had it in his
possession for any other reason. (1463a)
In the instant case, actual delivery of the subject
tractor could not be made. However, there was
constructive delivery already upon the execution of
the public instrument pursuant to Article 1498 and
upon the consent or agreement of the parties when
the thing sold cannot be immediately transferred to
the possession of the vendee. (Art. 1499)
The respondent court avers that the vendor must first
have control and possession of the thing before he
could transfer ownership by constructive delivery.
Here, it was Libra Finance which was in possession of
the subject tractor due to Wilfredo's failure to pay the
amortization as a preliminary step to foreclosure. As
mortgagee, he has the right of foreclosure upon
default by the mortgagor in the performance of the
conditions mentioned in the contract of mortgage. The
law implies that the mortgagee is entitled to possess
the mortgaged property because possession is
necessary in order to enable him to have the property
sold.
While it is true that Wilfredo Dy was not in actual
possession and control of the subject tractor, his right
of ownership was not divested from him upon his
default. Neither could it be said that Libra was the
owner of the subject tractor because the mortgagee
can not become the owner of or convert and
appropriate to himself the property mortgaged. (Article
2088, Civil Code) Said property continues to belong to
the mortgagor. The only remedy given to the
mortgagee is to have said property sold at public
auction and the proceeds of the sale applied to the
payment of the obligation secured by the mortgagee.
(See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There
is no showing that Libra Finance has already
foreclosed the mortgage and that it was the new
owner of the subject tractor. Undeniably, Libra gave
its consent to the sale of the subject tractor to the
petitioner. It was aware of the transfer of rights to the
petitioner.
Where a third person purchases the mortgaged
property, he automatically steps into the shoes of the
original mortgagor. (See Industrial Finance Corp. v.
Apostol, 177 SCRA 521 [1989]). His right of
ownership shall be subject to the mortgage of the
thing sold to him. In the case at bar, the petitioner was
fully aware of the existing mortgage of the subject
tractor to Libra. In fact, when he was obtaining Libra's
consent to the sale, he volunteered to assume the
remaining balance of the mortgage debt of Wilfredo
Dy which Libra undeniably agreed to.
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Sales – Chapter 3 Cases
The payment of the check was actually intended to
extinguish the mortgage obligation so that the tractor
could be released to the petitioner. It was never
intended nor could it be considered as payment of the
purchase price because the relationship between
Libra and the petitioner is not one of sale but still a
mortgage. The clearing or encashment of the check
which produced the effect of payment determined the
full payment of the money obligation and the release
of the chattel mortgage. It was not determinative of
the consummation of the sale. The transaction
between the brothers is distinct and apart from the
transaction between Libra and the petitioner. The
contention, therefore, that the consummation of the
sale depended upon the encashment of the check is
untenable.
The sale of the subject tractor was consummated
upon the execution of the public instrument on
September 4, 1979. At this time constructive delivery
was already effected. Hence, the subject tractor was
no longer owned by Wilfredo Dy when it was levied
upon by the sheriff in December, 1979. Well settled is
the rule that only properties unquestionably owned by
the judgment debtor and which are not exempt by law
from execution should be levied upon or sought to be
levied upon. For the power of the court in the
execution of its judgment extends only over properties
belonging to the judgment debtor. (Consolidated Bank
and Trust Corp. v. Court of Appeals, G.R. No. 78771,
January 23, 1991).
The respondents further claim that at that time the
sheriff levied on the tractor and took legal custody
thereof no one ever protested or filed a third party
claim.
It is inconsequential whether a third party claim has
been filed or not by the petitioner during the time the
sheriff levied on the subject tractor. A person other
than the judgment debtor who claims ownership or
right over levied properties is not precluded, however,
from taking other legal remedies to prosecute his
claim. (Consolidated Bank and Trust Corp. v. Court of
Appeals, supra) This is precisely what the petitioner
did when he filed the action for replevin with the RTC.
Anent the second and third issues raised, the Court
accords great respect and weight to the findings of
fact of the trial court.1âwphi1 There is no sufficient
evidence to show that the sale of the tractor was in
fraud of Wilfredo and creditors. While it is true that
Wilfredo and Perfecto are brothers, this fact alone
does not give rise to the presumption that the sale
was fraudulent. Relationship is not a badge of fraud
(Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover,
fraud can not be presumed; it must be established by
clear convincing evidence.
We agree with the trial court's findings that the
actuations of GELAC Trading were indeed violative of
the provisions on human relations. As found by the
trial court, GELAC knew very well of the transfer of
the property to the petitioners on July 14, 1980 when
it received summons based on the complaint for
replevin filed with the RTC by the petitioner.
Notwithstanding said summons, it continued to sell
the subject tractor to one of its stockholders on
August 2, 1980.
WHEREFORE, the petition is hereby GRANTED. The
decision of the Court of Appeals promulgated on
March 23, 1990 is SET ASIDE and the decision of the
Regional Trial Court dated April 8, 1988 is
REINSTATED.
SO ORDERED.
193