SALES

1.) Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:
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 P5million; 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 quois 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
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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 abovedescribed property with all the improvements found therein including all the
rights and interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees
for the transfer of title in his favor and other expenses incidental to the sale of
above-described property including capital gains tax and accrued real estate
taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu
Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was
issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case
No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in
CA-G.R. CV No. 21123.
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.

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On September 22, 1991 respondent Judge issued another order, the
dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to implement
said Writ of Execution ordering the defendants among others to comply with
the aforesaid Order of this Court within a period of one (1) week from receipt
of this Order and for defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation which was previously
executed between the latter and defendants and to register the new title in
favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty
can be held bound by the writ of execution by virtue of the notice of lis
pendens, carried over on TCT No. 195816 issued in the name of Buen Realty,
at the time of the latter's purchase of the property on 15 November 1991 from
the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of
such arrangements as the right of first refusal, a purchase option and a
contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156,
Civil Code). The obligation is constituted upon the concurrence of the
essential elements thereof, viz: (a) The vinculum juris or juridical tie which is
the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to
do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code),

which is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service (Art. 1305, Civil Code). A contract undergoes various stages that
include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is
concluded (perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of
minds, i.e., the concurrence of offer and acceptance, on the object and on the
cause thereof. A contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance
with certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of consummation begins
when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. 2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although denominated a "Deed
of Conditional Sale," a sale is 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
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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 ofoption. 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
Paraaque, 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 optionerofferor, however, renders himself liable for damages for breach of the option.
In these cases, care should be taken of the real nature of
theconsideration 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 1319 9 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.
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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 19 12 of
the Civil Code, can warrant a recovery for damages.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting

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

The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate proceedings.
Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ of execution issued by respondent Judge, let alone
ousted from the ownership and possession of the property, without first being
duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has
erred in holding that the writ of execution varies 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.

2.) Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent
appellate court analyzed and interpreted particular provisions of our laws on
contracts and sales. In its assailed decision, the respondent court reversed the
trial court 3 which, in dismissing the complaint for specific performance with
damages and annulment of contract, 4 found the option clause in the lease
contracts entered into by private respondent Mayfair Theater, Inc. (hereafter,
Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to
be impossible of performance and unsupported by a consideration and the
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subsequent sale of the subject property to petitioner Equatorial Realty
Development, Inc. (hereafter, Equatorial) to have been made without any
breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which
narration, we note, is almost verbatim the basis of the statement of facts as
rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila, and covered
by TCT No. 18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for
the latter's lease of a portion of Carmelo's property particularly described, to
wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated
at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
meters.
for use by Mayfair as a motion picture theater and for a term of twenty (20)
years. Mayfair thereafter constructed on the leased property a movie house
known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second contract
of lease with Carmelo for the lease of another portion of Carmelo's property,
to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated
at C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a floor area of 300 square meters and bearing street numbers
1871 and 1875,
for similar use as a movie theater and for a similar term of twenty (20) years.
Mayfair put up another movie house known as "Miramar Theatre" on this
leased property.
Both contracts of lease provides (sic) identically worded paragraph 8, which
reads:

That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than
the LESSEE, the LESSOR is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry
Yang, President of Mayfair, through a telephone conversation that Carmelo
was desirous of selling the entire Claro M. Recto property. Mr. Pascal told
Mr. Yang that a certain Jose Araneta was offering to buy the whole property
for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was
willing to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On
August 23, 1974, Mayfair replied through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed our
client's Mr. Henry Yang through the telephone that your company desires to
sell your above-mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our client, it is uniformly
provided:
8. That if the LESSOR should desire to sell the leased premises the LESSEE
shall be given 30-days exclusive option to purchase the same. In the event,
however, that the leased premises is sold to someone other than the LESSEE,
the LESSOR is bound and obligated, as it is (sic) herebinds (sic) and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all the terms and conditions hereof
(sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting to
express interest in acquiring not only the leased premises but "the entire
building and other improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing the
"Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of
Absolute Sale, for the total sum of P11,300,000.00.

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In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to Equatorial.
In its Answer, Carmelo alleged as special and affirmative defense (a) that it
had informed Mayfair of its desire to sell the entire C.M. Recto Avenue
property and offered the same to Mayfair, but the latter answered that it was
interested only in buying the areas under lease, which was impossible since
the property was not a condominium; and (b) that the option to purchase
invoked by Mayfair is null and void for lack of consideration. Equatorial, in
its Answer, pleaded as special and affirmative defense that the option is void
for lack of consideration (sic) and is unenforceable by reason of its
impossibility of performance because the leased premises could not be sold
separately from the other portions of the land and building. It counterclaimed
for cancellation of the contracts of lease, and for increase of rentals in view
of alleged supervening extraordinary devaluation of the currency. Equatorial
likewise cross-claimed against co-defendant Carmelo for indemnification in
respect of Mayfair's claims.

8. That the leased premises constitute only the portions actually occupied by
the theaters; and

During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:

(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per

month as reasonable compensation for the use of areas not covered by the
contract (sic) of lease from July 31, 1979 until plaintiff vacates said area (sic)
plus legal interest from July 31, 1978; P70,000 00 per month as reasonable
compensation for the use of the premises covered by the contracts (sic) of
lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the
premises plus legal interest from June 1, 1987; P55,000.00 per month as
reasonable compensation for the use of the premises covered by the contract
of lease dated March 31, 1969 from March 30, 1989 until plaintiff vacates
the premises plus legal interest from March 30, 1989; and P40,000.00 as
attorney's fees;

1. That there was a deed of sale of the contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation granting
the plaintiff exclusive option to purchase the leased premises should the
lessor desire to sell the same (admitted subject to the contention that the
stipulation is null and void);
3. That the two buildings erected on this land are not of the condominium
plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of
the contracts of lease constitute the consideration for the plaintiff's
occupancy of the leased premises, subject of the same contracts of lease,
Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy embodied in
the contract;
7. That Carmelo & Bauermann owned the land and the two buildings erected
thereon;

9. That what was sold by Carmelo & Bauermann to defendant Equatorial

Realty is the land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision,
the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by
way of attorney's fees on its counterclaim;

(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo

& Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared
expired and all persons claiming rights under these contracts are directed to
vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found in both
aforecited lease contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct consideration
therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the
option in the contract of lease is not supported by a separate consideration.
7

SALES
Without a consideration, the option is therefore not binding on defendant
Carmelo & Bauermann to sell the C.M. Recto property to the former. The
option invoked by the plaintiff appears in the contracts of lease . . . in effect
there is no option, on the ground that there is no consideration. Article 1352
of the Civil Code, provides:
Contracts without cause or with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, morals, good custom, public
order or public policy.
Contracts therefore without consideration produce no effect whatsoever.
Article 1324 provides:
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 consideration, as
something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is reciprocally
demandable.

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 promissor,
Article 1479 requires the concurrence of a condition, namely, that the
promise be supported by a consideration distinct from the price.
Accordingly, the promisee cannot compel the promissor 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. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to
sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground
shifted to the respondent Court of Appeals. Respondent appellate court
reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;

An accepted unilateral promise to buy or to sell a determine thing for a price

certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.

2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to

Equatorial the amount of P11,300,000.00 within fifteen (15) days from notice
of this Decision, and ordering Equatorial Realty Development, Inc. to accept
such payment;

The plaintiff cannot compel defendant Carmelo to comply with the promise
unless the former establishes the existence of a distinct consideration. In
other words, the promisee has the burden of proving the consideration. The
consideration cannot be presumed as in Article 1354:

3. Upon payment of the sum of P11,300,000, directing Equatorial Realty

Development, Inc. to execute the deeds and documents necessary for the
issuance and transfer of ownership to Mayfair of the lot registered under TCT
Nos. 17350, 118612, 60936, and 52571; and

Although the cause is not stated in the contract, it is presumed that it exists
and is lawful unless the debtor proves the contrary.

4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the

amount as adjudged, declaring the Deed of Absolute Sale between the
defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding upon all the parties. 8

where consideration is legally presumed to exists. Article 1354 applies to

contracts in general, whereas when it comes to an option it is governed
particularly and more specifically by Article 1479 whereby the promisee has
the burden of proving the existence of consideration distinct from the price.
Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court
said:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to sales in particular, and, more specifically,

Rereading the law on the matter of sales and option contracts, respondent
Court of Appeals differentiated between Article 1324 and Article 1479 of the
Civil Code, analyzed their application to the facts of this case, and concluded
that since paragraph 8 of the two lease contracts does not state a fixed price
for the purchase of the leased premises, which is an essential element for a
contract of sale to be perfected, what paragraph 8 is, must be a right of first
refusal and not an option contract. It explicated:

SALES
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479,
second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree may
or may not accept within a certain period. Under this article, the offer may be
withdrawn by the offeror before the expiration of the period and while the
offeree has not yet accepted the offer. However, the offer cannot be
withdrawn by the offeror within the period if a consideration has been
promised or given by the offeree in exchange for the privilege of being given
that period within which to accept the offer. The consideration is distinct
from the price which is part of the offer. The contract that arises is known as
option. In the case ofBeaumont vs. Prieto, 41 Phil. 670, the Supreme court,
citing Bouvier, defined an option as follows: "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," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an
"accepted unilateral promise to buy or to sell a determinate thing for a price
within (which) is binding upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral promise to buy or to
sell a determinate thing for a price certain" is called an offer. An "offer", in
laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil.
217). To constitute a legal offer, the proposal must be certain as to the object,
the price and other essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting
Mayfair "30-days exclusive option to purchase" the leased premises is NOT
AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the
Civil Code. Although the provision is certain as to the object (the sale of the
leased premises) the price for which the object is to be sold is not stated in
the provision Otherwise stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause does not specify the price
for the subject property.
Although the provision giving Mayfair "30-days exclusive option to
purchase" cannot be legally categorized as an option, it is, nevertheless, a
valid and binding stipulation. What the trial court failed to appreciate was the
intention of the parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found in a
contract of lease. Even appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the initiative and behest of

Mayfair. Evidently, the stipulation was intended to benefit and protect

Mayfair in its rights as lessee in case Carmelo should decide, during the term
of the lease, to sell the leased property. This intention of the parties is
achieved in two ways in accordance with the stipulation. The first is by
giving Mayfair "30-days exclusive option to purchase" the leased property.
The second is, in case Mayfair would opt not to purchase the leased property,
"that the purchaser (the new owner of the leased property) shall recognize the
lease and be bound by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly the
stipulation giving Mayfair "30-days exclusive option to purchase the (leased
premises)," was meant to provide Mayfair the opportunity to purchase and
acquire the leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the implicit
obligation of Carmelo once it had decided to sell the leased property, was not
only to notify Mayfair of such decision to sell the property, but, more
importantly, to make an offer to sell the leased premises to Mayfair, giving
the latter a fair and reasonable opportunity to accept or reject the offer, before
offering to sell or selling the leased property to third parties. The right vested
in Mayfair is analogous to the right of first refusal, which means that
Carmelo should have offered the sale of the leased premises to Mayfair
before offering it to other parties, or, if Carmelo should receive any offer
from third parties to purchase the leased premises, then Carmelo must first
give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first
refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal thus
testified:
Q Can you tell this Honorable Court how you made the offer to Mr. Henry
Yang by telephone?
A I have an offer from another party to buy the property and having the offer
we decided to make an offer to Henry Yang on a first-refusal basis. (TSN
November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember exactly
what you have told him in connection with that matter, Mr. Pascal?
A More or less, I told him that I received an offer from another party to buy
the property and I was offering him first choice of the enter property. (TSN,
November 29, 1983, p. 18).

SALES
We rule, therefore, that the foregoing interpretation best renders effectual the
intention of the parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal
as to which the requirement of distinct consideration indispensable in an
option contract, has no application, respondent appellate court also addressed
the claim of Carmelo and Equatorial that assuming arguendo that the option
is valid and effective, it is impossible of performance because it covered only
the leased premises and not the entire Claro M. Recto property, while
Carmelo's offer to sell pertained to the entire property in question. The Court
of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-appellees. It is to
be noted that the Deed of Absolute Sale between Carmelo and Equatorial
covering the whole Claro M. Recto property, made reference to four titles:
TCT Nos. 17350, 118612, 60936 and 52571. Based on the information
submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not
been controverted by the appellees, and which We, therefore, take judicial
notice of the two theaters stand on the parcels of land covered by TCT No.
17350 with an area of 622.10 sq. m and TCT No. 118612 with an area of
2,100.10 sq. m. The existence of four separate parcels of land covering the
whole Recto property demonstrates the legal and physical possibility that
each parcel of land, together with the buildings and improvements thereof,
could have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the theaters were
to be constructed in relation to the remainder of the whole Recto property.
The peculiar language of the stipulation would tend to limit Mayfair's right
under paragraph 8 of the Contract of Lease to the acquisition of the leased
areas only. Indeed, what is being contemplated by the questioned stipulation
is a departure from the customary situation wherein the buildings and
improvements are included in and form part of the sale of the subjacent land.
Although this situation is not common, especially considering the noncondominium nature of the buildings, the sale would be valid and capable of
being performed. A sale limited to the leased premises only, if hypothetically
assumed, would have brought into operation the provisions of co-ownership
under which Mayfair would have become the exclusive owner of the leased
premises and at the same time a co-owner with Carmelo of the subjacent land
in proportion to Mayfair's interest over the premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the correctness
and legal basis for the decision of respondent Court of Appeals on the basis
of the following assigned errors:

I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT
THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO
THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF
LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN
OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION
IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT
OF APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A
DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO
EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE
EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS
FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS
NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN
THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE
SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA,
TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS"
AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE
"DECISION STAGE". 11

We shall first dispose of the fourth assigned error respecting alleged

irregularities in the raffle of this case in the Court of Appeals. Suffice it to
say that in our Resolution, 12 dated December 9, 1992, we already took note
of this matter and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging certain
irregularities and infractions committed by certain lawyers, and Justices of
10

SALES
the Court of Appeals and of this Court in connection with case CA-G.R. CV
No. 32918 (now G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of the judiciary.
While the letter-complaint arose as an incident in case CA-G.R. CV No.
32918 (now G.R. No. 106063), the disposition thereof should be separate and
independent from Case G.R. No. 106063. However, for purposes of receiving
the requisite pleadings necessary in disposing of the administrative
complaint, this Division shall continue to have control of the case. Upon
completion thereof, the same shall be referred to the Court En Banc for
proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth
assigned error of Carmelo and Equatorial, to be an independent and separate
subject for an administrative complaint based on misconduct by the lawyers
and justices implicated therein, it is the correct, prudent and consistent course
of action not to pre-empt the administrative proceedings to be undertaken
respecting the said irregularities. Certainly, a discussion thereupon by us in
this case would entail a finding on the merits as to the real nature of the
questioned procedures and the true intentions and motives of the players
therein.
In essence, our task is two-fold: (1) to define the true nature, scope and
efficacy of paragraph 8 stipulated in the two contracts of lease between
Carmelo and Mayfair in the face of conflicting findings by the trial court and
the Court of Appeals; and (2) to determine the rights and obligations of
Carmelo and Mayfair, as well as Equatorial, in the aftermath of the sale by
Carmelo of the entire Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph
8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than
the LESSEE, the LESSOR is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all the terms and conditions
thereof. 14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract of a
right of first refusal.

As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our
characterization of an option contract as one necessarily involving the choice
granted to another for a distinct and separate consideration as to whether or
not to purchase a determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit, the
letter of December 4, 1911, quoted at the beginning of this decision, the
defendant Valdes granted to the plaintiff Borck the right to purchase the
Nagtajan Hacienda belonging to Benito Legarda, during the period of three
months and for its assessed valuation, a grant which necessarily implied the
offer or obligation on the part of the defendant Valdes to sell to Borck the
said hacienda during the period and for the price mentioned . . . There was,
therefore, a meeting of minds on the part of the one and the other, with regard
to the stipulations made in the said document. But it is not shown that there
was any cause or consideration for that agreement, and this omission is a bar
which precludes our holding that the stipulations contained in Exhibit E is a
contract of option, for, . . . there can be no contract without the requisite,
among others, of the cause for the obligation to be established.
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 timeat 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.

11

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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, the subject of the agreement made by the
parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option or
the option clause in a contract, in order to be valid and enforceable, must,
among other things, indicate the definite price at which the person granting
the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the
purchase within the time specified; 17 in one other case we freed the
landowner from her promise to sell her land if the prospective buyer could
raise P4,500.00 in three weeks because such option was not supported by a
distinct consideration; 18 in the same vein in yet one other case, we also
invalidated an instrument entitled, "Option to Purchase" a parcel of land for
the sum of P1,510.00 because of lack of consideration; 19 and as an exception
to the doctrine enumerated in the two preceding cases, in another case, we
ruled that the option to buy the leased premises for P12,000.00 as stipulated
in the lease contract, is not without consideration for in reciprocal contracts,
like lease, the obligation or promise of each party is the consideration for that
of the other. 20 In all these cases, the selling price of the object thereof is
always predetermined and specified in the option clause in the contract or in
the separate deed of option. We elucidated, thus, in the very recent case
of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold in 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. . . .

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.
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 promisor if the promise is supported by a
consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.
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 Paraaque,
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
12

SALES
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" 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 opinion. . .
In the light of the foregoing disquisition and in view of the wording of the
questioned provision in the two lease contracts involved in the instant case,
we so hold that no option to purchase in contemplation of the second
paragraph of Article 1479 of the Civil Code, has been granted to Mayfair
under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants
the right of first refusal to Mayfair and is not an option contract. It also
correctly reasoned that as such, the requirement of a separate consideration
for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and
March 31, 1969 contracts which would bring them into the ambit of the usual
offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed
time and at a determined price. 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. 22 In the instant case, the right of first
refusal is an integral part of the contracts of lease. The consideration is built
into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the
contracts is governed by Article 1324 on withdrawal of the offer or Article
1479 on promise to buy and sell would render in effectual or "inutile" the
provisions on right of first refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct in stating that Paragraph 8
was incorporated into the contracts of lease for the benefit of Mayfair which
wanted to be assured that it shall be given the first crack or the first option to
buy the property at the price which Carmelo is willing to accept. It is not also

correct to say that there is no consideration in an agreement of right of first

refusal. The stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right of first
refusal. Thus, Mayfair 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, Mayfair shall be given the right
to match the offered purchase price and to buy the property at that price. As
stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the obligation
or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature
of the aforecited paragraph 8 to be that of a contractual grant of the right of
first refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities
of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification of
the precedent in Ang Yu Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
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 counteroffers 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 to be a purchaser in good faith, and,
therefore, rescission lies.

13

SALES
. . . 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.

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.

According to Tolentino, rescission is a remedy granted by law to the

contracting parties and even to third persons, to secure reparation 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.

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,

which includes Par. 20 on priority right given to the Bonnevies, it had only
itself to blame. Having known that the property it was buying was under
lease, it behooved it as a prudent person to have required Reynoso or the
broker to show to it the Contract of Lease in which Par. 20 is contained. 25

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 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 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 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 petitioner insists that it was not aware of the right of first priority granted
by the Contract of Lease. Assuming this to be true, we nevertheless agree
with the observation of the respondent court that:

Petitioners assert the alleged impossibility of performance because the entire

property is indivisible property. It was petitioner Carmelo which fixed the
limits of the property it was leasing out. Common sense and fairness dictate
that instead of nullifying the agreement on that basis, the stipulation should
be given effect by including the indivisible appurtenances in the sale of the
dominant portion under the right of first refusal. A valid and legal contract
where the ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being nullified on a
selfish pretext posited by the owner. Following the arguments of petitioners
and the participation of the owner in the attempt to strip Mayfair of its rights,
the right of first refusal should include not only the property specified in the
contracts of lease but also the appurtenant portions sold to Equatorial which
are claimed by petitioners to be indivisible. Carmelo acted in bad faith when
it sold the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of letters
evidencing the offer and counter-offers between the parties, Carmelo
abandoned the negotiations without giving Mayfair full opportunity to
negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court should
also order that Mayfair be authorized to exercise its right of first refusal
under the contract to include the entirety of the indivisible property. The
boundaries of the property sold should be the boundaries of the offer under
the right of first refusal. As to the remedy to enforce Mayfair's right, the
Court disagrees to a certain extent with the concluding part of the dissenting
opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion
vs.Court of Appeals should be modified, if not amplified under the peculiar
facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into in
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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 of 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 has 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. 26 The sale of the subject real property by Carmelo to Equatorial
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 stipulated period. 27
This Court has always been against multiplicity of suits where all remedies
according to the facts and the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the price at which Mayfair could
have purchased the property is, therefore, fixed. It can neither be more nor
less. There is no dispute over it. The damages which Mayfair suffered are in
terms of actual injury and lost opportunities. The fairest solution would be to
allow Mayfair to exercise its right of first refusal at the price which it was
entitled to accept or reject which is P11,300,000.00. This is clear from the
records.
To follow an alternative solution that Carmelo and Mayfair may resume
negotiations for the sale to the latter of the disputed property would be unjust
and unkind to Mayfair because it is once more compelled to litigate to
enforce its right. It is not proper to give it an empty or vacuous victory in this
case. From the viewpoint of Carmelo, it is like asking a fish if it would
accept the choice of being thrown back into the river. Why should Carmelo
be rewarded for and allowed to profit from, its wrongdoing? Prices of real
estate have skyrocketed. After having sold the property for P11,300,000.00,
why should it be given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated
that there was nothing to execute because a contract over the right of first
refusal belongs to a class of preparatory juridical relations governed not by

the law on contracts but by the codal provisions on human relations. This
may apply here if the contract is limited to the buying and selling of the real
property. However, the obligation of Carmelo to first offer the property to
Mayfair is embodied in a contract. It is Paragraph 8 on the right of first
refusal which created the obligation. It should be enforced according to the
law on contracts instead of the panoramic and indefinite rule on human
relations. The latter remedy encourages multiplicity of suits. There is
something to execute and that is for Carmelo to comply with its obligation to
the property under the right of the first refusal according to the terms at
which they should have been offered then to Mayfair, at the price when that
offer should have been made. Also, Mayfair has to accept the offer. This
juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8
of the two leases can be executed according to their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial
acted in bad faith. Carmelo knowingly and deliberately broke a contract
entered into with Mayfair. It sold the property to Equatorial with purpose and
intend to withhold any notice or knowledge of the sale coming to the
attention of Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought
the property with notice and full knowledge that Mayfair had a right to or
interest in the property superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity
which might warrant the grant of interests. The vendor received as payment
from the vendee what, at the time, was a full and fair price for the property. It
has used the P11,300,000.00 all these years earning income or interest from
the amount. Equatorial, on the other hand, has received rents and otherwise
profited from the use of the property turned over to it by Carmelo. In fact,
during all the years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to purchase the
property. Mayfair is under no obligation to pay any interests arising from this
judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter is directed to
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execute the deeds and documents necessary to return ownership to Carmelo
and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and
Francisco, JJ., concur.
Narvasa, C.J., took no part.

Separate Opinions

PADILLA, J., concurring:

I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court
in this case should categorically recognize Mayfair's right of first refusal
under its contract of lease with Carmelo and Bauermann, Inc. (hereafter,
Carmelo) and, because of Carmelo's and Equatorial's bad faith in riding
"roughshod" over Mayfair's right of first refusal, the Court should order the
rescission of the sale of the Claro M. Recto property by the latter to
Equatorial (Art. 1380-1381[3], Civil Code). The Court should, in this same
case, to avoid multiplicity of suits, likewise allow Mayfair to effectively
exercise said right of first refusal, by paying Carmelo the sum of
P11,300,000.00 for the entire subject property, without any need of
instituting a separate action for damages against Carmelo and/or Equatorial.
I do not agree with the proposition that, in addition to the aforesaid purchase
price, Mayfair should be required to pay a compounded interest of 12% per
annum of said amount computed from 1 August 1978. Under the Civil Code,
a party to a contract may recover interest as indemnity for damages in the
following instances:
Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.

Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract.
There appears to be no basis in law for adding 12% per annum compounded
interest to the purchase price of P11,300,000.00 payable by Mayfair to
Carmelo since there was no such stipulation in writing between the parties
(Mayfair and Carmelo) but, more importantly, because Mayfair neither
incurred in delay in the performance of its obligation nor committed any
breach of contract. Indeed, why should Mayfair be penalized by way of
making it pay 12% per annum compounded interest when it was Carmelo
which violated Mayfair's right of first refusal under the contract?
The equities of the case support the foregoing legal disposition. During the
intervening years between 1 August 1978 and this date, Equatorial (after
acquiring the C.M. Recto property for the price of P11,300,000.00) had been
leasing the property and deriving rental income therefrom. In fact, one of the
lessees in the property was Mayfair. Carmelo had, in turn, been using the
proceeds of the sale, investment-wise and/or operation-wise in its own
business.
It may appear, at first blush, that Mayfair is unduly favored by the solution
submitted by this opinion, because the price of P11,300,000.00 which it has
to pay Carmelo in the exercise of its right of first refusal, has been subjected
to the inroads of inflation so that its purchasing power today is less than
when the same amount was paid by Equatorial to Carmelo. But then it cannot
be overlooked that it was Carmelo's breach of Mayfair's right of first refusal
that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo
at about the same time the amount was paid by Equatorial to Carmelo.
Moreover, it cannot be ignored that Mayfair had also incurred consequential
or "opportunity" losses by reason of its failure to acquire and use the property
under its right of first refusal. In fine, any loss in purchasing power of the
price of P11,300,000.00 is for Carmelo to incur or absorb on account of its
bad faith in breaching Mayfair's contractual right of first refusal to the
subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale
between Carmelo and Equatorial of the Claro M. Recto property in question,
so that within thirty (30) days from the finality of the Court's decision, the
property should be retransferred and delivered by Equatorial to Carmelo with
the latter simultaneously returning to Equatorial the sum of P11,300, 000.00.
I also vote to allow Mayfair to exercise its right of first refusal, by paying to
Carmelo the sum of P11,300,000.00 without interest for the entire subject
property, within thirty (30) days from re-acquisition by Carmelo of the titles
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to the property, with the corresponding obligation of Carmelo to sell and
transfer the property to Mayfair within the same period of thirty (30) days.

PANGANIBAN, J., concurring:

In the main, I concur with the ponencia of my esteemed colleague, Mr.
Justice Regino C. Hermosisima, Jr., especially with the following doctrinal
pronouncements:
1. That while no option to purchase within the meaning of the second
paragraph of Article 1479 of the Civil Code was given to Mayfair Theater,
Inc. ("Mayfair"), under the two lease contracts a right of first refusal was in
fact granted, for which no separate consideration is required by law to be
paid or given so as to make it binding upon Carmelo & Bauermann, Inc.
("Carmelo");
2. That such right was violated by the latter when it sold the entire property
to Equatorial Realty Development, Inc. ("Equatorial") on July 30, 1978, for
the sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease
contracts, its own lawyers having studied said contracts prior to the sale; and
4. That, consequently, the contract of sale is rescissible.
5. That, finally, under the proven facts, the right of first refusal may be
enforced by an action for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above
are concerned. It is in items 4 and 5 that there is a marked divergence of
opinion. Hence, I shall limit the discussion in this Separate Concurring
Opinion to such issues, namely: Is the contract of sale between Carmelo and
Equatorial rescissible, and corollarily, may the right of first refusal granted
to Mayfair be enforced by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the
legal proposition espoused by two equally well-respected colleagues, Mme.
Justice Flerida Ruth P. Romero and Mr. Justice Jose C. Vitug who are both
acknowledged authorities on Civil Law that a breach of the covenanted
right of first refusal, while warranting a suit for damages under Article 19 of
the Civil Code, cannot sanction an action for specific performance without
thereby negating the indispensable element of con-sensuality in the
perfection of contracts.

Ang Yu Asuncion Not In Point

Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs.
CA, 1 which was penned by Mr. Justice Vitug himself. I respectfully submit,
however, that that case turned largely on the issue of whether or not the sale
of an immovable in breach of a right of first refusal that had been decreed in
a final judgment would justify the issuance of certain orders of execution in
the same case. The validity of said orders was the subject of the attack before
this Court. These orders had not only directed the defendants to execute a
deed of sale in favor of the plaintiffs, when there was nothing in the
judgment itself decreeing it, but had also set aside the sale made in breach of
said right of first refusal and even canceled the title that had been issued to
the buyer, who was not a party to the suit and had obviously not been given
its day in court. It was thus aptly held:
The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil Case No.
87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the
property, without first being duly afforded its day in court. 2
In other words, the question of whether specific performance of one's right of
first refusal is available as a remedy in case of breach thereof was not before
the Supreme Court at all in Ang Yu Asuncion. Consequently, the
pronouncements there made bearing on such unlitigated question were
mere obiter. Moreover, as will be shown later, the pronouncement that a
breach of the right of first refusal would not sanction an action for specific
performance but only an action for damages (at p. 615) is at best debatable
(and in my humble view, imprecise or incorrect), on top of its being
contradicted by extant jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both
contractual, are involved in the instant case: (1) the deed of sale between the
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petitioners dated July 30, 1978, and (2) the contract clause establishing
Mayfair's right of first refusal which was violated by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore
had no personality to sue for its annulment, since Art. 1397 of the Civil Code
provides, inter alia, that "(t)he action for the annulment of contracts may be
instituted by all who are thereby obliged principally or subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case
for rescission under Art. 1177, in relation to Art. 1381(3), of the Civil Code,
which pertinently read as follows:
Art. 1177. The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may have done to
defraud them.
Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
xxx xxx xxx
(emphasis supplied)
The term "creditors" as used in these provisions of the Civil Code is broad
enough to include the obligee under an option contract 3 as well as under a
right of first refusal, sometimes known as a right of first priority. 4 Thus,
in Nietes, the Supreme Court, speaking through then Mr. Chief Justice
Roberto Concepcion, repeatedly referred to the grantee or optionee as "the
creditor" and to the grantor or optioner as "the debtor". 5 In any case, the
personal elements of an obligation are the active and passive subjects thereof,
the former being known as creditors or obligees and the latter as debtors or
obligors. 6Insofar as the right of first refusal is concerned, Mayfair is the
obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in
question by way of accion pauliana under the last clause of Art. 1177,
aforequoted, because the sale was an act done by the debtor to defraud him of
his right to acquire the property. 7 Rescission was also available under par. 3,
Art. 1381, abovequoted, as was expressly held inGuzman, Bocaling & Co., a

case closely analogous to this one as it was also an action brought by the
lessee to enforce his "right of first priority" which is just another name for
the right of first refusal and to annul a sale made by the lessor in violation
of such right. In said case, this Court, speaking through Mr. Justice Isagani A.
Cruz, affirmed the invalidation of the sale and the enforcement of the lessee's
right of first priority this wise: 8
The petitioner argues that assuming the Contract of Sale to be voidable, only
the parties thereto could bring an action to annul it pursuant to Article 1397
of the Civil Code. It is stressed that private respondents are strangers to that
agreement and therefore have no personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was not
voidable but rescissible. Under Article(s) 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.
(emphasis supplied)
By the same token, the status of a defrauded creditor can, and should, be
granted to Mayfair, for it certainly had substantial interests that were
prejudiced by the sale of the subject property to petitioner Equatorial in open
violation of Mayfair's right of first refusal under its existing contracts with
Carmelo.
In fact, the parity between that case and the present one does not stop there
but extends to the crucial and critical fact that there was manifest bad faith on
the part of the buyer. Thus, in Guzman, this Court affirmed in toto the
appealed judgment of the Court of Appeals which, in turn, had affirmed the
trial court's decision insofar as it invalidated the deed of sale in favor of the
petitioner-buyer, cancelled its TCT, and ordered the lessor to execute a deed
of sale over the leased property in favor of the lessee for the same price and
"under the same terms and conditions", aside from affirming as well the
damages awarded, but at a reduced amount. 9 In other words, the aggrieved
party was allowed to acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that
rescission is the proper remedy but also and more importantly that
specific performance was actually used and given free rein as an effective
remedy to enforce a right of first refusal in the wake of its violation, in the
cited case of Guzman.

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On the other hand, and as already commented on above, the pronouncement
in Ang Yu Asuncion to the effect that specific performance is unavailable to
enforce a violated right of first refusal is at best a debatable legal proposition,
aside from being contradicted by extant jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should
not be confused with, the consensuality attendant to the right of first refusal
itself. While indeed, prior to the actual sale of the property to Equatorial and
the filing of Mayfair's complaint for specific performance, no perfected
contract of sale involving the property ever existed between Carmelo as
seller and Mayfair as buyer, there already was, in law and in fact, a perfected
contract between them which established a right of first refusal, or of first
priority.
Specific Performance Is
Viable Remedy
The question is: Can this right (of first refusal) be enforced by an action for
specific performance upon a showing of its breach by an actual sale of the
property under circumstances showing palpable bad faith on the part of both
seller and buyer?
The answer, I respectfully submit, should be 'yes'.
As already noted, Mayfair's right of first refusal in the case before us is
embodied in an express covenant in the lease contracts between it as lessee
and Carmelo as lessor, hence the right created is one springing from contract.
10 Indubitably, this had the force of law between the parties, who should thus
comply with it in good faith. 11 Such right also established a correlative
obligation on the part of Carmelo to give or deliver to Mayfair a formal offer
of sale of the property in the event Carmelo decides to sell it. The decision to
sell was eventually made. But instead of giving or tendering to Mayfair the
proper offer to sell, Carmelo gave it to its now co-petitioner, Equatorial, with
whom it eventually perfected and consummated, on July 30, 1978, an
absolute sale of the property, doing so within the period of effectivity of
Mayfair's right of first refusal. Less than two months later, or in September
1978, with the lease still in full force, Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to
require that the offer to sell the property be sent to it by Carmelo, and not to
anybody else. This was violated when the offer was made to Equatorial.
Under its covenant with Carmelo, Mayfair had the right, at that point, to sue
for either specific performance or rescission, with damages in either case,
pursuant to Arts. 1165 and 1191, Civil Code. 12 An action for specific
performance and damages seasonably filed, fortified by a writ of preliminary

injunction, would have enabled Mayfair to prevent the sale to Equatorial

from taking place and to compel Carmelo to sell the property to Mayfair for
the same terms and price, for the reason that the filing of the action for
specific performance may juridically be considered as a solemn, formal, and
unqualified acceptance by Mayfair of the specific terms of the offer of sale.
Note that by that time, the price and other terms of the proposed sale by
Carmelo had already been determined, being set forth in the offer of sale that
had wrongfully been directed to Equatorial.
As it turned out, however, Mayfair did not have a chance to file such suit, for
it learned of the sale to Equatorial onlyafter it had taken place. But it did file
the present action for specific performance and for invalidation of the
wrongful sale immediately after learning about the latter act. The act of
promptly filing this suit, coupled with the fact that it is one for specific
performance, indicates beyond cavil or doubt Mayfair's unqualified
acceptance of the misdirected offer of sale, giving rise, thereby, to a
demandable obligation on the part of Carmelo to execute the corresponding
document of sale upon the payment of the price of P11,300,000.00. In other
words, the principle of consensuality of a contract of sale should be deemed
satisfied. The aggrieved party's consent to, or acceptance of, the misdirected
offer of sale should be legally presumed in the context of the proven facts.
To say, therefore, that the wrongful breach of a right of first refusal does not
sanction an action for specific performance simply because, factually, there
was no meeting of the minds as to the particulars of the sale since ostensibly
no offer was ever made to, let alone accepted by, Mayfair, is to ignore the
proven fact of presumed consent. To repeat, that consent was deemed given
by Mayfair when it sued for invalidation of the sale and for specific
performance of Carmelo's obligation to Mayfair. Nothing in the law as it now
stands will be violated, or even simply emasculated, by this holding. On the
contrary, the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of
obligations, 13 Mayfair's right of first refusal may be classified as one subject
to a suspensive condition namely, if Carmelo should decide to sell the
leased premises during the life of the lease contracts, then it should make an
offer of sale to Mayfair. Futurity and uncertainty, which are the essential
characteristics of a condition, 14 were distinctly present. Before the decision
to sell was made, Carmelo had absolutely no obligation to sell the property to
Mayfair, nor even to make an offer to sell, because in conditional obligations,
where the condition is suspensive, the acquisition of rights depends upon the
happening of the event which constitutes the condition. 15 Had the decision to
sell not been made at all, or had it been made after the expiry of the lease, the
parties would have stood as if the conditional obligation had never
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existed. 16 But the decision to sell was in fact made. And it was made during
the life and efficacy of the lease. Undoubtedly, the condition was duly
fulfilled; the right of first refusal effectively accrued and became enforceable;
and correlatively, Carmelo's obligation to make and send the offer to
Mayfair became immediately due and demandable. 17 That obligation was to
deliver to Mayfair an offer to sell a determinate thing for a determinate price.
As things turned out, a definite and specific offer to sell the entire property
for the price of P11,300,000.00 was actually made by Carmelo but to the
wrong party. It was that particular offer, and no other, which Carmelo should
have delivered to Mayfair, but failed to deliver. Hence, by the time the
obligation of Carmelo accrued through the fulfillment of the suspensive
condition, the offer to sell had become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the
remedies available to the creditor against the debtor, when it provides that
"(w)hen what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to
make the delivery," clearly authorizing not only the recovery of damages
under Art. 1170 but also an action for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a
determinate offer but only a generic one, the second paragraph of Art. 1165
explicitly gives to the creditor the right "to ask that the obligation be
complied with at the expense of the debtor." The availability of an action for
specific performance is thus clear and beyond doubt. And the correctness
of Guzman becomes all the more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by
the fact that the jurisprudence upon which it supposedly rests namely, the
cases of Madrigal & CO. vs. Stevenson & Co. 18 and Salonga vs. Farrales 19
did NOT involve a right of first refusal or of first priority. Nor did those
two cases involve an option to buy. In Madrigal, plaintiff sued defendant for
damages claiming wrongful breach of an alleged contract of sale of 2,000
tons of coal. The case was dismissed because "the minds of the parties never
met upon a contract of sale by defendant to plaintiff", 20 each party having
signed the broker's memorandum as buyer, erroneously thinking that the
other party was the seller! In Salonga, a lessee, who was one of several
lessees ordered by final judgment to vacate the leased premises, sued the
lessor to compel the latter to sell the leased premises to him, but his suit was
not founded upon any right of first refusal and was therefore dismissed on the
ground that there was no perfected sale in his favor. He just thought that
because the lessor had decided to sell and in fact sold portions of the property
to her other lessees, she was likewise obligated to sell to him even in the
absence of a perfected contract of sale. In fine, neither of the two cases cited

in support of the legal proposition that a breach of the right of first refusal
does not sanction an action for specific performance but, at best, only one for
damages, provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire
property, not just the portions leased to Mayfair, is no reason to deprive the
latter of its right to receive a formal and specific offer. The offer of a larger
property might have led Mayfair to reject the offer, but until and unless such
rejection was actually made, its right of first refusal still stood. Upon the
other hand, an acceptance by Mayfair would have saved all concerned the
time, trouble, and expense of this protracted litigation. In any case, the
disquisition by the Court of Appeals on this point can hardly be faulted; in
fact, it amply justifies the conclusions reached in its decision, as well as the
dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to
AFFIRM the assailed Decision.

ROMERO, J., concurring and dissenting:

I share the opinion that the right granted to Mayfair Theater under the
identical par 8 of the June 1, 1967 and March 31, 1969 contracts constitute a
right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain
within a specified time and is usually supported by a consideration which is
why, it may be regarded as a contract in itself. The option results in a
perfected contract of sale once the person to whom it is granted decides to
exercise it. The right of first refusal is unlike an option which requires a
certainty as to the object and consideration of the anticipated contract. When
the right of first refusal is exercised, there is no perfected contract of sale
because the other terms of the sale have yet to be determined. Hence, in case
the offeror reneges on his promise to negotiate with offeree, the latter may
only recover damages in the belief that a contract could have been perfected
under Article 19 of the New Civil Code.
I beg to disagree, however, with the majority opinion that the contract of sale
entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Inc.,
should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground
for recission apparently relied on the case of Guzman, Bocaling and
Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened to the
status of a creditor. The case, in citing Tolentino, stated that rescission is a
remedy granted by law to contracting parties and even to third persons, to
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secure reparation for damages caused to them by a contract, even if this
should be valid, by means of restoration of things to their condition prior to
celebration of the contract. It is my opinion that "third persons" should be
construed to refer to the wards, creditors, absentees, heirs and others
enumerated under the law who are prejudiced by the contract sought to be
rescinded.
It should be borne in mind that rescission is an extreme remedy which may
be exercised only in the specific instances provided by law. Article 1381 (3)
specifically refers to contracts undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due them. If rescission were
allowed for analogous cases, the law would have so stated. While Article
1381 (5) itself says that rescission may be granted to all other contracts
specially declared by law to be subject to rescission, there is nothing in the
law that states that an offeree who failed to exercise his right of refusal
because of bad faith on the part of the offeror may rescind the subsequent
contract entered into by the offeror and a third person. Hence, there is no
legal justification to rescind the contract between Carmelo and Bauermann,
Inc. and Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay
Carmelo and Bauermann, Inc. the amount of P11,300,000.00 plus
compounded interest of 12% p.a. Justice Melo rationalized that had Carmelo
and Bauermann sold the property to Mayfair, the latter would have paid the
property for the same price that Equatorial bought it. It bears emphasis that
Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to
the price of the property in dispute because the negotiations between the two
parties were not pursued to its very end. We cannot, even for reasons of
equity, compel Carmelo to sell the entire property to Mayfair at
P11,300,000.00 without violating the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo
and Bauermann, Inc. and Equatorial Realty Development Corp.

VITUG, J., dissenting:

I share the opinion that the right granted to Mayfair Theater, Inc., is neither
an offer nor an option but merely a right of first refusal as has been so well
and amply essayed in the ponencia of our distinguished colleague Mr. Justice
Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil
Code invoked to be the statutory authority for the rescission of the contract of

sale between Carmelo & Bauermann, Inc., and Equatorial Realty

Development, Inc., has been misapplied. The action for rescission under that
provision of the law, unlike in the resolution of reciprocal obligations under
Article 1191 of the Code, is merely subsidiary and relates to the specific
instance when a debtor, in an attempt to defraud his creditor, enters into a
contract with another that deprives the creditor to recover his just claim and
leaves him with no other legal means, than by rescission, to obtain
reparation. Thus, the rescission is only to the extent necessary to cover the
damages caused (Article 1384, Civil Code) and, consistent with its subsidiary
nature, would require the debtor to be an indispensable party in the action
(see Gigante vs. Republic Savings Bank, 135 Phil. 359).
The concept of a right of first refusal as a simple juridical relation, and so
governed (basically) by the Civil Code's title on "Human Relations," is not
altered by the fact alone that it might be among the stipulated items in a
separate document or even in another contract. A "breach" of the right of first
refusal can only give rise to an action for damages primarily under Article 19
of the Civil Code, as well as its related provisions, but not to an action for
specific performance set out under Book IV of the Code on "Obligations and
Contracts." That right, standing by itself, is far distant from being the
obligation referred to in Article 1159 of the Code which would have the force
of law sufficient to compel compliance per se or to establish a creditor-debtor
or obligee-obligor relation between the parties. If, as it is rightly so, a right of
first refusal cannot even be properly classed as an offer or as an option,
certainly, and with much greater reason, it cannot be the equivalent of, nor be
given the same legal effect as, a duly perfected contract. It is not possible to
cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals
(238 SCRA 602), the indispensable element of consensuality in the
perfection of contracts. It is basic that without mutual consent on the object
and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary to
it, no one can be forced, least of all perhaps by a court, into a contract against
his will or compelled to perform thereunder.
It is sufficiently clear, I submit, that, there being no binding contract between
Carmelo and Mayfair, neither the rescission of the contract between Carmelo
and Equatorial nor the directive to Carmelo to sell the property to Mayfair
would be legally appropriate.
My brief disquisition should have ended here except for some personal
impressions expressed by my esteemed colleague, Mr. Justice Artemio V.
Panganiban, on the Ang Yu decision which perhaps need to be addressed.
The discussion by the Court in Ang Yu on the right of first refusal is branded
as a mere obiter dictum. Justice Panganiban states: The case "turned largely
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on the issue of whether or not the sale of an immovable in breach of a right
of first refusal that had been decreed in a final judgment would justify the
issuance of certain orders of execution in the same case. . . . . In other words,
the question of whether specific performance of one's right of first refusal is
available as a remedy in case of breach thereof was not before the Supreme
Court at all in Ang Yu Asuncion."
Black defines an obiter dictum as "an opinion entirely unnecessary for the
decision of the case" and thus "are not binding as precedent." (Black's Law
Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as
found by the Court of Appeals and as later quoted by this Court would
readily disclose that the "right of first refusal" was a major point in the
controversy. Indeed, the trial and the appellate courts had rule on it. With due
respect, I would not deem it "entirely unnecessary" for this Court to itself
discuss the legal connotation and significance of the decreed (confirmatory)
right of first refusal. I should add that when the ponencia recognized that, in
the case of Buen Realty Development Corporation (the alleged purchaser of
the property), the latter could not be held subject of the writ of execution and
be ousted from the ownership and possession of the disputed property
without first affording it due process, the Court decided to simply put a cap
in the final disposition of the case but it could not have intended to thereby
mitigate the import of its basic ratio decidendi.
Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a
breach of the right of first refusal does not sanction an action for specific
performance but only an action for damages, "is at best debatable (. . .
imprecise or incorrect), on to top of its being contradicted by extant
jurisprudence." He then comes up with the novel proposition that "Mayfair's
right of first refusal may be classified as one subject to a suspensive
condition namely, if Carmelo should decide to sell the leased premises
during the life of the lease contracts, then it should make an offer of sale to
Mayfair," presumably enforceable by action for specific performance.
It would be perilous a journey, first of all, to try to seek out a common path
for such juridical relations as contracts, options, and rights of first refusal
since they differ, substantially enough, in their concepts, consequences and
legal implications. Very briefly, in the area on sales particularly, I borrow
from Ang Yu, a unanimous decision of the Supreme Court En Banc, which
held:
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.
An obligation, and so a conditional obligation as well (albeit subject to the
occurrence of the condition), in its context under Book IV of the Civil Code,
can only be "a juridical necessity to give, to do or not to do" (Art. 1156, Civil
Code), and one that is constituted by law, contracts, quasi-contracts, delicts
and quasi-delicts (Art. 1157, Civil Code) which all have their respective legal
significance rather well settled in law. The law certainly must have meant to
provide congruous, albeit contextual, consequences to its
provisions. Interpretare et concordore legibus est optimus interpretendi. As a
valid source of an obligation, a contract must have the concurrence of (a)
consent of the contracting parties, (b) object certain (subject matter of the
contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly
defined, are essential. The consent contemplated by the law is that which is
manifested by the meeting of the offer and of the acceptance upon the object
and the cause of the obligation. The offer must be certain and the acceptance
absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot
have the effect of a contract because, by its very essence, certain basic terms
would have yet to be determined and fixed. How its "breach" be also its
perfection escapes me. It is only when the elements concur that the juridical
act would have the force of law between the contracting parties that must be
complied with in good faith (Article 1159 of the Civil Code; see also Article
1308, of the Civil Code), and, in case of its breach, would allow the creditor
or obligee (the passive subject) to invoke the remedy that specifically
appertains to it.
The judicial remedies, in general, would, of course, include: (a)
The principal remedies (i) of specific performance in obligations to give
specific things (Articles 1165 and 1167 of the Civil Code), substitute
performance in an obligation to do or to deliver generic things (Article 1165
of the Civil Code) and equivalent performance for damages (Articles 1168
and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal
22

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obligations; and (b) the subsidiary remedies that may be availed of when the
principal remedies are unavailable or ineffective such as (i) accion
subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also
Articles 1729 and 1893 of the Civil Code); and (ii) accion pauliana or
rescissory action (Articles 1177 and 1381 of the Civil Code). And, in order to
secure the integrity of final judgments, such ancillary remedies as
attachments, replevin, garnishments, receivership, examination of the debtor,
and similar remedies, are additionally provided for in procedural law.
Might it be possible, however, that Justice Panganiban was referring to
how Ang Yu could relate to the instant case for, verily, his remark, earlier
quoted, was followed by an extensive discussion on the factual and case
milieu of the present petition? If it were, then I guess it was the applicability
of the Ang Yu decision to the instant case that he questioned, but that would
not make Ang Yu "imprecise" or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent
with Guzman, Bocaling & Co. vs. Bonnevie (206 SCRA 668). I would not be
too hasty in concluding similarly. In Guzman, the stipulation involved,
although loosely termed a "right of first priority," was, in fact, a contract of
option. The provision in the agreement there stated:
20. In case the LESSOR desires or decides to sell the leased property, the
LESSEES shall be given a first priority to purchase the same, all things and
considerations being equal.(At page 670; emphasis supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had
been adequately, albeit briefly, spelled out with the lease consideration being
deemed likewise to be the essential cause for the option. The situation
undoubtedly was not the same that prevailed in Ang Yu or, for that matter, in
the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo
& Bauermann, Inc., merely read:
That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
The provision was too indefinite to allow it to even come close to within the
area of the Guzman ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co.
vs. Stevenson & Co. and Salonga vs. Farrales (cited in Ang Yu) did NOT
involve a right of first refusal or of first priority. Nor did those two cases
involve an option to buy." The two cases, to set the record straight, were
cited, not because they were thought to involve a right of first refusal or an
option to buy but to emphasize the indispensability of consensuality over the

object and cause of contracts in their perfection which would explain why,
parallel therewith, Articles 1315 and 1318 of the Civil Code were also
mentioned.
One final note: A right of first refusal, in its proper usage, is not a contract;
when parties instead make certain the object and the cause thereof and
support their understanding with an adequate consideration, that juridical
relation is not to be taken as just a right of first refusal but as a contract in
itself (termed an "option"). There is, unfortunately, in law a limit to an
unabated use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not
for all the reasons it has advanced, should be REINSTATED.

Separate Opinions
PADILLA, J., concurring:
I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court
in this case should categorically recognize Mayfair's right of first refusal
under its contract of lease with Carmelo and Bauermann, Inc. (hereafter,
Carmelo) and, because of Carmelo's and Equatorial's bad faith in riding
"roughshod" over Mayfair's right of first refusal, the Court should order the
rescission of the sale of the Claro M. Recto property by the latter to
Equatorial (Art. 1380-1381[3], Civil Code). The Court should, in this same
case, to avoid multiplicity of suits, likewise allow Mayfair to effectively
exercise said right of first refusal, by paying Carmelo the sum of
P11,300,000.00 for the entire subject property, without any need of
instituting a separate action for damages against Carmelo and/or Equatorial.
I do not agree with the proposition that, in addition to the aforesaid purchase
price, Mayfair should be required to pay a compounded interest of 12% per
annum of said amount computed from 1 August 1978. Under the Civil Code,
a party to a contract may recover interest as indemnity for damages in the
following instances:
Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.

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Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract.
There appears to be no basis in law for adding 12% per annum compounded
interest to the purchase price of P11,300,000.00 payable by Mayfair to
Carmelo since there was no such stipulation in writing between the parties
(Mayfair and Carmelo) but, more importantly, because Mayfair neither
incurred in delay in the performance of its obligation nor committed any
breach of contract. Indeed, why should Mayfair be penalized by way of
making it pay 12% per annum compounded interest when it was Carmelo
which violated Mayfair's right of first refusal under the contract?
The equities of the case support the foregoing legal disposition. During the
intervening years between 1 August 1978 and this date, Equatorial (after
acquiring the C.M. Recto property for the price of P11,300,000.00) had been
leasing the property and deriving rental income therefrom. In fact, one of the
lessees in the property was Mayfair. Carmelo had, in turn, been using the
proceeds of the sale, investment-wise and/or operation-wise in its own
business.
It may appear, at first blush, that Mayfair is unduly favored by the solution
submitted by this opinion, because the price of P11,300,000.00 which it has
to pay Carmelo in the exercise of its right of first refusal, has been subjected
to the inroads of inflation so that its purchasing power today is less than
when the same amount was paid by Equatorial to Carmelo. But then it cannot
be overlooked that it was Carmelo's breach of Mayfair's right of first refusal
that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo
at about the same time the amount was paid by Equatorial to Carmelo.
Moreover, it cannot be ignored that Mayfair had also incurred consequential
or "opportunity" losses by reason of its failure to acquire and use the property
under its right of first refusal. In fine, any loss in purchasing power of the
price of P11,300,000.00 is for Carmelo to incur or absorb on account of its
bad faith in breaching Mayfair's contractual right of first refusal to the
subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale
between Carmelo and Equatorial of the Claro M. Recto property in question,
so that within thirty (30) days from the finality of the Court's decision, the
property should be retransferred and delivered by Equatorial to Carmelo with
the latter simultaneously returning to Equatorial the sum of P11,300, 000.00.
I also vote to allow Mayfair to exercise its right of first refusal, by paying to
Carmelo the sum of P11,300,000.00 without interest for the entire subject
property, within thirty (30) days from re-acquisition by Carmelo of the titles

to the property, with the corresponding obligation of Carmelo to sell and

transfer the property to Mayfair within the same period of thirty (30) days.

PANGANIBAN, J., concurring:

In the main, I concur with the ponencia of my esteemed colleague, Mr.
Justice Regino C. Hermosisima, Jr., especially with the following doctrinal
pronouncements:
1. That while no option to purchase within the meaning of the second
paragraph of Article 1479 of the Civil Code was given to Mayfair Theater,
Inc. ("Mayfair"), under the two lease contracts a right of first refusal was in
fact granted, for which no separate consideration is required by law to be
paid or given so as to make it binding upon Carmelo & Bauermann, Inc.
("Carmelo");
2. That such right was violated by the latter when it sold the entire property
to Equatorial Realty Development, Inc. ("Equatorial") on July 30, 1978, for
the sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease
contracts, its own lawyers having studied said contracts prior to the sale; and
4. That, consequently, the contract of sale is rescissible.
5. That, finally, under the proven facts, the right of first refusal may be
enforced by an action for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above
are concerned. It is in items 4 and 5 that there is a marked divergence of
opinion. Hence, I shall limit the discussion in this Separate Concurring
Opinion to such issues, namely: Is the contract of sale between Carmelo and
Equatorial rescissible, and corollarily, may the right of first refusal granted
to Mayfair be enforced by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the
legal proposition espoused by two equally well-respected colleagues, Mme.
Justice Flerida Ruth P. Romero and Mr. Justice Jose C. Vitug who are both
acknowledged authorities on Civil Law that a breach of the covenanted
right of first refusal, while warranting a suit for damages under Article 19 of
the Civil Code, cannot sanction an action for specific performance without
thereby negating the indispensable element of con-sensuality in the
perfection of contracts.
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Ang Yu Asuncion Not In Point
Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs.
CA, 1 which was penned by Mr. Justice Vitug himself. I respectfully submit,
however, that that case turned largely on the issue of whether or not the sale
of an immovable in breach of a right of first refusal that had been decreed in
a final judgment would justify the issuance of certain orders of execution in
the same case. The validity of said orders was the subject of the attack before
this Court. These orders had not only directed the defendants to execute a
deed of sale in favor of the plaintiffs, when there was nothing in the
judgment itself decreeing it, but had also set aside the sale made in breach of
said right of first refusal and even canceled the title that had been issued to
the buyer, who was not a party to the suit and had obviously not been given
its day in court. It was thus aptly held:
The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil Case No.
87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the
property, without first being duly afforded its day in court. 2
In other words, the question of whether specific performance of one's right of
first refusal is available as a remedy in case of breach thereof was not before
the Supreme Court at all in Ang Yu Asuncion. Consequently, the
pronouncements there made bearing on such unlitigated question were
mere obiter. Moreover, as will be shown later, the pronouncement that a
breach of the right of first refusal would not sanction an action for specific
performance but only an action for damages (at p. 615) is at best debatable
(and in my humble view, imprecise or incorrect), on top of its being
contradicted by extant jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both
contractual, are involved in the instant case: (1) the deed of sale between the

petitioners dated July 30, 1978, and (2) the contract clause establishing
Mayfair's right of first refusal which was violated by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore
had no personality to sue for its annulment, since Art. 1397 of the Civil Code
provides, inter alia, that "(t)he action for the annulment of contracts may be
instituted by all who are thereby obliged principally or subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case
for rescission under Art. 1177, in relation to Art. 1381(3), of the Civil Code,
which pertinently read as follows:
Art. 1177. The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may have done to
defraud them.
Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
xxx xxx xxx
(emphasis supplied)
The term "creditors" as used in these provisions of the Civil Code is broad
enough to include the obligee under an option contract 3 as well as under a
right of first refusal, sometimes known as a right of first priority. 4 Thus,
in Nietes, the Supreme Court, speaking through then Mr. Chief Justice
Roberto Concepcion, repeatedly referred to the grantee or optionee as "the
creditor" and to the grantor or optioner as "the debtor". 5 In any case, the
personal elements of an obligation are the active and passive subjects thereof,
the former being known as creditors or obligees and the latter as debtors or
obligors. 6Insofar as the right of first refusal is concerned, Mayfair is the
obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in
question by way of accion pauliana under the last clause of Art. 1177,
aforequoted, because the sale was an act done by the debtor to defraud him of
his right to acquire the property. 7 Rescission was also available under par. 3,
Art. 1381, abovequoted, as was expressly held inGuzman, Bocaling & Co., a
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case closely analogous to this one as it was also an action brought by the
lessee to enforce his "right of first priority" which is just another name for
the right of first refusal and to annul a sale made by the lessor in violation
of such right. In said case, this Court, speaking through Mr. Justice Isagani A.
Cruz, affirmed the invalidation of the sale and the enforcement of the lessee's
right of first priority this wise: 8
The petitioner argues that assuming the Contract of Sale to be voidable, only
the parties thereto could bring an action to annul it pursuant to Article 1397
of the Civil Code. It is stressed that private respondents are strangers to that
agreement and therefore have no personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was not
voidable but rescissible. Under Article(s) 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.
(emphasis supplied)
By the same token, the status of a defrauded creditor can, and should, be
granted to Mayfair, for it certainly had substantial interests that were
prejudiced by the sale of the subject property to petitioner Equatorial in open
violation of Mayfair's right of first refusal under its existing contracts with
Carmelo.
In fact, the parity between that case and the present one does not stop there
but extends to the crucial and critical fact that there was manifest bad faith on
the part of the buyer. Thus, in Guzman, this Court affirmed in toto the
appealed judgment of the Court of Appeals which, in turn, had affirmed the
trial court's decision insofar as it invalidated the deed of sale in favor of the
petitioner-buyer, cancelled its TCT, and ordered the lessor to execute a deed
of sale over the leased property in favor of the lessee for the same price and
"under the same terms and conditions", aside from affirming as well the
damages awarded, but at a reduced amount. 9 In other words, the aggrieved
party was allowed to acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that
rescission is the proper remedy but also and more importantly that
specific performance was actually used and given free rein as an effective
remedy to enforce a right of first refusal in the wake of its violation, in the
cited case of Guzman.

On the other hand, and as already commented on above, the pronouncement

in Ang Yu Asuncion to the effect that specific performance is unavailable to
enforce a violated right of first refusal is at best a debatable legal proposition,
aside from being contradicted by extant jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should
not be confused with, the consensuality attendant to the right of first refusal
itself. While indeed, prior to the actual sale of the property to Equatorial and
the filing of Mayfair's complaint for specific performance, no perfected
contract of sale involving the property ever existed between Carmelo as
seller and Mayfair as buyer, there already was, in law and in fact, a perfected
contract between them which established a right of first refusal, or of first
priority.
Specific Performance Is
Viable Remedy
The question is: Can this right (of first refusal) be enforced by an action for
specific performance upon a showing of its breach by an actual sale of the
property under circumstances showing palpable bad faith on the part of both
seller and buyer?
The answer, I respectfully submit, should be 'yes'.
As already noted, Mayfair's right of first refusal in the case before us is
embodied in an express covenant in the lease contracts between it as lessee
and Carmelo as lessor, hence the right created is one springing from contract.
10 Indubitably, this had the force of law between the parties, who should thus
comply with it in good faith. 11 Such right also established a correlative
obligation on the part of Carmelo to give or deliver to Mayfair a formal offer
of sale of the property in the event Carmelo decides to sell it. The decision to
sell was eventually made. But instead of giving or tendering to Mayfair the
proper offer to sell, Carmelo gave it to its now co-petitioner, Equatorial, with
whom it eventually perfected and consummated, on July 30, 1978, an
absolute sale of the property, doing so within the period of effectivity of
Mayfair's right of first refusal. Less than two months later, or in September
1978, with the lease still in full force, Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to
require that the offer to sell the property be sent to it by Carmelo, and not to
anybody else. This was violated when the offer was made to Equatorial.
Under its covenant with Carmelo, Mayfair had the right, at that point, to sue
for either specific performance or rescission, with damages in either case,
pursuant to Arts. 1165 and 1191, Civil Code. 12 An action for specific
performance and damages seasonably filed, fortified by a writ of preliminary
26

SALES
injunction, would have enabled Mayfair to prevent the sale to Equatorial
from taking place and to compel Carmelo to sell the property to Mayfair for
the same terms and price, for the reason that the filing of the action for
specific performance may juridically be considered as a solemn, formal, and
unqualified acceptance by Mayfair of the specific terms of the offer of sale.
Note that by that time, the price and other terms of the proposed sale by
Carmelo had already been determined, being set forth in the offer of sale that
had wrongfully been directed to Equatorial.
As it turned out, however, Mayfair did not have a chance to file such suit, for
it learned of the sale to Equatorial onlyafter it had taken place. But it did file
the present action for specific performance and for invalidation of the
wrongful sale immediately after learning about the latter act. The act of
promptly filing this suit, coupled with the fact that it is one for specific
performance, indicates beyond cavil or doubt Mayfair's unqualified
acceptance of the misdirected offer of sale, giving rise, thereby, to a
demandable obligation on the part of Carmelo to execute the corresponding
document of sale upon the payment of the price of P11,300,000.00. In other
words, the principle of consensuality of a contract of sale should be deemed
satisfied. The aggrieved party's consent to, or acceptance of, the misdirected
offer of sale should be legally presumed in the context of the proven facts.
To say, therefore, that the wrongful breach of a right of first refusal does not
sanction an action for specific performance simply because, factually, there
was no meeting of the minds as to the particulars of the sale since ostensibly
no offer was ever made to, let alone accepted by, Mayfair, is to ignore the
proven fact of presumed consent. To repeat, that consent was deemed given
by Mayfair when it sued for invalidation of the sale and for specific
performance of Carmelo's obligation to Mayfair. Nothing in the law as it now
stands will be violated, or even simply emasculated, by this holding. On the
contrary, the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of
obligations, 13 Mayfair's right of first refusal may be classified as one subject
to a suspensive condition namely, if Carmelo should decide to sell the
leased premises during the life of the lease contracts, then it should make an
offer of sale to Mayfair. Futurity and uncertainty, which are the essential
characteristics of a condition, 14 were distinctly present. Before the decision
to sell was made, Carmelo had absolutely no obligation to sell the property to
Mayfair, nor even to make an offer to sell, because in conditional obligations,
where the condition is suspensive, the acquisition of rights depends upon the
happening of the event which constitutes the condition. 15 Had the decision to
sell not been made at all, or had it been made after the expiry of the lease, the
parties would have stood as if the conditional obligation had never

existed. 16 But the decision to sell was in fact made. And it was made during
the life and efficacy of the lease. Undoubtedly, the condition was duly
fulfilled; the right of first refusal effectively accrued and became enforceable;
and correlatively, Carmelo's obligation to make and send the offer to
Mayfair became immediately due and demandable. 17 That obligation was to
deliver to Mayfair an offer to sell a determinate thing for a determinate price.
As things turned out, a definite and specific offer to sell the entire property
for the price of P11,300,000.00 was actually made by Carmelo but to the
wrong party. It was that particular offer, and no other, which Carmelo should
have delivered to Mayfair, but failed to deliver. Hence, by the time the
obligation of Carmelo accrued through the fulfillment of the suspensive
condition, the offer to sell had become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the
remedies available to the creditor against the debtor, when it provides that
"(w)hen what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to
make the delivery," clearly authorizing not only the recovery of damages
under Art. 1170 but also an action for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a
determinate offer but only a generic one, the second paragraph of Art. 1165
explicitly gives to the creditor the right "to ask that the obligation be
complied with at the expense of the debtor." The availability of an action for
specific performance is thus clear and beyond doubt. And the correctness
of Guzman becomes all the more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by
the fact that the jurisprudence upon which it supposedly rests namely, the
cases of Madrigal & CO. vs. Stevenson & Co. 18 and Salonga vs. Farrales 19
did NOT involve a right of first refusal or of first priority. Nor did those
two cases involve an option to buy. In Madrigal, plaintiff sued defendant for
damages claiming wrongful breach of an alleged contract of sale of 2,000
tons of coal. The case was dismissed because "the minds of the parties never
met upon a contract of sale by defendant to plaintiff", 20 each party having
signed the broker's memorandum as buyer, erroneously thinking that the
other party was the seller! In Salonga, a lessee, who was one of several
lessees ordered by final judgment to vacate the leased premises, sued the
lessor to compel the latter to sell the leased premises to him, but his suit was
not founded upon any right of first refusal and was therefore dismissed on the
ground that there was no perfected sale in his favor. He just thought that
because the lessor had decided to sell and in fact sold portions of the property
to her other lessees, she was likewise obligated to sell to him even in the
absence of a perfected contract of sale. In fine, neither of the two cases cited
27

SALES
in support of the legal proposition that a breach of the right of first refusal
does not sanction an action for specific performance but, at best, only one for
damages, provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire
property, not just the portions leased to Mayfair, is no reason to deprive the
latter of its right to receive a formal and specific offer. The offer of a larger
property might have led Mayfair to reject the offer, but until and unless such
rejection was actually made, its right of first refusal still stood. Upon the
other hand, an acceptance by Mayfair would have saved all concerned the
time, trouble, and expense of this protracted litigation. In any case, the
disquisition by the Court of Appeals on this point can hardly be faulted; in
fact, it amply justifies the conclusions reached in its decision, as well as the
dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to
AFFIRM the assailed Decision.

ROMERO, J., concurring and dissenting:

I share the opinion that the right granted to Mayfair Theater under the
identical par 8 of the June 1, 1967 and March 31, 1969 contracts constitute a
right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain
within a specified time and is usually supported by a consideration which is
why, it may be regarded as a contract in itself. The option results in a
perfected contract of sale once the person to whom it is granted decides to
exercise it. The right of first refusal is unlike an option which requires a
certainty as to the object and consideration of the anticipated contract. When
the right of first refusal is exercised, there is no perfected contract of sale
because the other terms of the sale have yet to be determined. Hence, in case
the offeror reneges on his promise to negotiate with offeree, the latter may
only recover damages in the belief that a contract could have been perfected
under Article 19 of the New Civil Code.
I beg to disagree, however, with the majority opinion that the contract of sale
entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Inc.,
should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground
for recission apparently relied on the case of Guzman, Bocaling and
Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened to the
status of a creditor. The case, in citing Tolentino, stated that rescission is a
remedy granted by law to contracting parties and even to third persons, to

secure reparation for damages caused to them by a contract, even if this

should be valid, by means of restoration of things to their condition prior to
celebration of the contract. It is my opinion that "third persons" should be
construed to refer to the wards, creditors, absentees, heirs and others
enumerated under the law who are prejudiced by the contract sought to be
rescinded.
It should be borne in mind that rescission is an extreme remedy which may
be exercised only in the specific instances provided by law. Article 1381 (3)
specifically refers to contracts undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due them. If rescission were
allowed for analogous cases, the law would have so stated. While Article
1381 (5) itself says that rescission may be granted to all other contracts
specially declared by law to be subject to rescission, there is nothing in the
law that states that an offeree who failed to exercise his right of refusal
because of bad faith on the part of the offeror may rescind the subsequent
contract entered into by the offeror and a third person. Hence, there is no
legal justification to rescind the contract between Carmelo and Bauermann,
Inc. and Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay
Carmelo and Bauermann, Inc. the amount of P11,300,000.00 plus
compounded interest of 12% p.a. Justice Melo rationalized that had Carmelo
and Bauermann sold the property to Mayfair, the latter would have paid the
property for the same price that Equatorial bought it. It bears emphasis that
Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to
the price of the property in dispute because the negotiations between the two
parties were not pursued to its very end. We cannot, even for reasons of
equity, compel Carmelo to sell the entire property to Mayfair at
P11,300,000.00 without violating the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo
and Bauermann, Inc. and Equatorial Realty Development Corp.

VITUG, J., dissenting:

I share the opinion that the right granted to Mayfair Theater, Inc., is neither
an offer nor an option but merely a right of first refusal as has been so well
and amply essayed in the ponencia of our distinguished colleague Mr. Justice
Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil
Code invoked to be the statutory authority for the rescission of the contract of
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SALES
sale between Carmelo & Bauermann, Inc., and Equatorial Realty
Development, Inc., has been misapplied. The action for rescission under that
provision of the law, unlike in the resolution of reciprocal obligations under
Article 1191 of the Code, is merely subsidiary and relates to the specific
instance when a debtor, in an attempt to defraud his creditor, enters into a
contract with another that deprives the creditor to recover his just claim and
leaves him with no other legal means, than by rescission, to obtain
reparation. Thus, the rescission is only to the extent necessary to cover the
damages caused (Article 1384, Civil Code) and, consistent with its subsidiary
nature, would require the debtor to be an indispensable party in the action
(see Gigante vs. Republic Savings Bank, 135 Phil. 359).
The concept of a right of first refusal as a simple juridical relation, and so
governed (basically) by the Civil Code's title on "Human Relations," is not
altered by the fact alone that it might be among the stipulated items in a
separate document or even in another contract. A "breach" of the right of first
refusal can only give rise to an action for damages primarily under Article 19
of the Civil Code, as well as its related provisions, but not to an action for
specific performance set out under Book IV of the Code on "Obligations and
Contracts." That right, standing by itself, is far distant from being the
obligation referred to in Article 1159 of the Code which would have the force
of law sufficient to compel compliance per se or to establish a creditor-debtor
or obligee-obligor relation between the parties. If, as it is rightly so, a right of
first refusal cannot even be properly classed as an offer or as an option,
certainly, and with much greater reason, it cannot be the equivalent of, nor be
given the same legal effect as, a duly perfected contract. It is not possible to
cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals
(238 SCRA 602), the indispensable element of consensuality in the
perfection of contracts. It is basic that without mutual consent on the object
and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary to
it, no one can be forced, least of all perhaps by a court, into a contract against
his will or compelled to perform thereunder.
It is sufficiently clear, I submit, that, there being no binding contract between
Carmelo and Mayfair, neither the rescission of the contract between Carmelo
and Equatorial nor the directive to Carmelo to sell the property to Mayfair
would be legally appropriate.
My brief disquisition should have ended here except for some personal
impressions expressed by my esteemed colleague, Mr. Justice Artemio V.
Panganiban, on the Ang Yu decision which perhaps need to be addressed.
The discussion by the Court in Ang Yu on the right of first refusal is branded
as a mere obiter dictum. Justice Panganiban states: The case "turned largely

on the issue of whether or not the sale of an immovable in breach of a right

of first refusal that had been decreed in a final judgment would justify the
issuance of certain orders of execution in the same case. . . . . In other words,
the question of whether specific performance of one's right of first refusal is
available as a remedy in case of breach thereof was not before the Supreme
Court at all in Ang Yu Asuncion."
Black defines an obiter dictum as "an opinion entirely unnecessary for the
decision of the case" and thus "are not binding as precedent." (Black's Law
Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as
found by the Court of Appeals and as later quoted by this Court would
readily disclose that the "right of first refusal" was a major point in the
controversy. Indeed, the trial and the appellate courts had rule on it. With due
respect, I would not deem it "entirely unnecessary" for this Court to itself
discuss the legal connotation and significance of the decreed (confirmatory)
right of first refusal. I should add that when the ponencia recognized that, in
the case of Buen Realty Development Corporation (the alleged purchaser of
the property), the latter could not be held subject of the writ of execution and
be ousted from the ownership and possession of the disputed property
without first affording it due process, the Court decided to simply put a cap
in the final disposition of the case but it could not have intended to thereby
mitigate the import of its basic ratio decidendi.
Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a
breach of the right of first refusal does not sanction an action for specific
performance but only an action for damages, "is at best debatable (. . .
imprecise or incorrect), on to top of its being contradicted by extant
jurisprudence." He then comes up with the novel proposition that "Mayfair's
right of first refusal may be classified as one subject to a suspensive
condition namely, if Carmelo should decide to sell the leased premises
during the life of the lease contracts, then it should make an offer of sale to
Mayfair," presumably enforceable by action for specific performance.
It would be perilous a journey, first of all, to try to seek out a common path
for such juridical relations as contracts, options, and rights of first refusal
since they differ, substantially enough, in their concepts, consequences and
legal implications. Very briefly, in the area on sales particularly, I borrow
from Ang Yu, a unanimous decision of the Supreme Court En Banc, which
held:
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
29

SALES
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.
An obligation, and so a conditional obligation as well (albeit subject to the
occurrence of the condition), in its context under Book IV of the Civil Code,
can only be "a juridical necessity to give, to do or not to do" (Art. 1156, Civil
Code), and one that is constituted by law, contracts, quasi-contracts, delicts
and quasi-delicts (Art. 1157, Civil Code) which all have their respective legal
significance rather well settled in law. The law certainly must have meant to
provide congruous, albeit contextual, consequences to its
provisions. Interpretare et concordore legibus est optimus interpretendi. As a
valid source of an obligation, a contract must have the concurrence of (a)
consent of the contracting parties, (b) object certain (subject matter of the
contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly
defined, are essential. The consent contemplated by the law is that which is
manifested by the meeting of the offer and of the acceptance upon the object
and the cause of the obligation. The offer must be certain and the acceptance
absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot
have the effect of a contract because, by its very essence, certain basic terms
would have yet to be determined and fixed. How its "breach" be also its
perfection escapes me. It is only when the elements concur that the juridical
act would have the force of law between the contracting parties that must be
complied with in good faith (Article 1159 of the Civil Code; see also Article
1308, of the Civil Code), and, in case of its breach, would allow the creditor
or obligee (the passive subject) to invoke the remedy that specifically
appertains to it.
The judicial remedies, in general, would, of course, include: (a)
The principal remedies (i) of specific performance in obligations to give
specific things (Articles 1165 and 1167 of the Civil Code), substitute
performance in an obligation to do or to deliver generic things (Article 1165
of the Civil Code) and equivalent performance for damages (Articles 1168
and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal

obligations; and (b) the subsidiary remedies that may be availed of when the
principal remedies are unavailable or ineffective such as (i) accion
subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also
Articles 1729 and 1893 of the Civil Code); and (ii) accion pauliana or
rescissory action (Articles 1177 and 1381 of the Civil Code). And, in order to
secure the integrity of final judgments, such ancillary remedies as
attachments, replevin, garnishments, receivership, examination of the debtor,
and similar remedies, are additionally provided for in procedural law.
Might it be possible, however, that Justice Panganiban was referring to
how Ang Yu could relate to the instant case for, verily, his remark, earlier
quoted, was followed by an extensive discussion on the factual and case
milieu of the present petition? If it were, then I guess it was the applicability
of the Ang Yu decision to the instant case that he questioned, but that would
not make Ang Yu "imprecise" or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent
with Guzman, Bocaling & Co. vs. Bonnevie (206 SCRA 668). I would not be
too hasty in concluding similarly. In Guzman, the stipulation involved,
although loosely termed a "right of first priority," was, in fact, a contract of
option. The provision in the agreement there stated:
20. In case the LESSOR desires or decides to sell the leased property, the
LESSEES shall be given a first priority to purchase the same, all things and
considerations being equal.(At page 670; emphasis supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had
been adequately, albeit briefly, spelled out with the lease consideration being
deemed likewise to be the essential cause for the option. The situation
undoubtedly was not the same that prevailed in Ang Yu or, for that matter, in
the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo
& Bauermann, Inc., merely read:
That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
The provision was too indefinite to allow it to even come close to within the
area of the Guzman ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co.
vs. Stevenson & Co. and Salonga vs. Farrales (cited in Ang Yu) did NOT
involve a right of first refusal or of first priority. Nor did those two cases
involve an option to buy." The two cases, to set the record straight, were
cited, not because they were thought to involve a right of first refusal or an
option to buy but to emphasize the indispensability of consensuality over the
30

SALES
object and cause of contracts in their perfection which would explain why,
parallel therewith, Articles 1315 and 1318 of the Civil Code were also
mentioned.
One final note: A right of first refusal, in its proper usage, is not a contract;
when parties instead make certain the object and the cause thereof and
support their understanding with an adequate consideration, that juridical
relation is not to be taken as just a right of first refusal but as a contract in
itself (termed an "option"). There is, unfortunately, in law a limit to an
unabated use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not
for all the reasons it has advanced, should be REINSTATED.

AQUINO, J.:
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.

3.) Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-26872 July 25, 1975
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.
J. Villareal, Navarro and Associates for defendants-appellants.
P. P. Gallardo and Associates for intervenor-appellee.

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):
31

SALES
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 propertylocated 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
Tagley truly yours,
SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the land of the National
Shipyards & Steel Corporation (Nassco), with an area of twenty thousand

square meters, located at Punta, Sta. Ana, Manila. At the bidding held on
January 17, 1964 that land was awarded to Bormaheco, Inc., the highest
bidder, for the price of P552,000. The Nassco Board of Directors in its
resolution of February 18, 1964 authorized the General Manager to sign the
necessary contract (Exh. H).
On February 28, 1964, the Nassco Acting General Manager wrote a letter to
the Economic Coordinator, requesting approval of that resolution. The Acting
Economic Coordinator approved the resolution on March 24, 1964 (Exh. 1).
In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued
their negotiations for the sale of the Buendia Avenue property. Cervantes and
Teofilo Villonco had a final conference on February 27, 1964. As a result of
that conference Villonco Realty Company, through Teofilo Villonco, in its
letter of March 4, 1964 made a revised counter- offer (Romeo Villonco's first
counter-offer was dated February 24, 1964, Exh. C) for the purchase of the
property. The counter-offer was accepted by Cervantes as shown in Exhibit
D, which is quoted below:
VILLONCO REALTY COMPANY
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
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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,
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).1wph1.t
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
oflis 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".
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

33

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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).1wph1.t
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 fortyfive-day period was not fulfilled; (2) that Bormaheco, Inc. cannot be
compelled to sell the land which belongs to the Cervantes spouses and (3)
that Francisco N. Cervantes did not bind the conjugal partnership and his
wife when, as president of Bormaheco, Inc., he entered into negotiations with
Villonco Realty Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid of merit.
"By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determining thing, and the other to
pay therefor a price certain in money or its equivalent. A contract of sale may
be absolute or conditional" (Art. 1458, Civil Code).

"The contract of sale is perfected at the moment there is a meeting of minds

upon the thing which is the object of the contract and upon the price. From
that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law" (Art. 1315, Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer" (Art. 1319, Civil Code). "An acceptance may be express or
implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to purchase the
Buendia Avenue property, as shown in Teofilo Villonco's letter dated March
4, 1964 (Exh. D), indubitably proves that there was a meeting of minds upon
the subject matter and consideration of the sale. Therefore, on that date the
sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil.
285; Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's
acceptance of the part payment of one hundred ,thousand pesos shows that
the sale was conditionally consummated or partly executed subject to the
purchase by Bormaheco, Inc. of the Punta property. The nonconsummation
of that purchase would be a negative resolutory condition (Taylor vs. Uy
Tieng Piao, 43 Phil. 873).
On February 18, 1964 Bormaheco's bid for the Punta property was already
accepted by the Nassco which had authorized its General Manager to sign the
corresponding deed of sale. What was necessary only was the approval of the
sale by the Economic Coordinator and a request for that approval was
already pending in the office of that functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that the sale was not
perfected because Cervantes allegedly qualified his acceptance of Villonco's
revised offer and, therefore, his acceptance amounted to a counter-offer
which Villonco Realty Company should accept but no such acceptance was
ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its
offer.
That contention is not well-taken. It should be stressed that there is no
evidence as to what changes were made by Cervantes in Villonco's revised
offer. And there is no evidence that Villonco Realty Company did not assent
to the supposed changes and that such assent was never made known to
Cervantes.

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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).

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 counteroffer 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).

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.

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).

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.

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

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 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.

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by Serra. There was no such acceptance. Serra revoked his offer. Hence,
there was no perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan
Hacienda owned by Benito Legarda, who had empowered Valdes to sell it.
Borck was given three months from December 4, 1911 to buy the hacienda
for P307,000. On January 17, 1912 Borck wrote to Valdes, offering to
purchase the hacienda for P307,000 payable on May 1, 1912. No reply was
made to that letter. Borck wrote other letters modifying his proposal. Legarda
refused to convey the property.
It was held that Borck's January 17th letter plainly departed from the terms of
the offer as to the time of payment and was a counter-offer which amounted
to a rejection of Valdes' original offer. A subsequent unconditional acceptance
could not revive that offer.
The instant case is different from Laudico and Harden vs. Arias Rodriguez,
43 Phil. 270 where the written offer to sell was revoked by the offer or before
the offeree's acceptance came to the offeror's knowledge.
Appellants' next contention is that the contract was not perfected because the
condition that Bormaheco, Inc. would acquire the Nassco land within fortyfive 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
36

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property and whether it would be able to sell the Buendia property. That
aforementioned paragraph 5 does not even specify how long after the fortyfive 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 daysfrom 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).
1wph1.t
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."

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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 fortyfive days within which to acquire the Nassco property and "to negotiate" with
the registered owner of the three lots. The absurdity of that pretension stands
out in bold relief when it is borne in mind that the answers of Bormaheco,
Inc. were verified by Cervantes and that the registered owner of the three lots
is Cervantes himself. That affirmative defense means that Cervantes as
president of Bormaheco, Inc. needed forty-five days in order to "negotiate"
with himself (Cervantes).
The incongruous stance of the Cervantes spouses is also patent in their
answer to the amended complaint. In that answer they disclaimed knowledge
or information of certain allegations which were well-known to Cervantes as
president of Bormaheco, Inc. and which were admitted in Bormaheco's three
answers that were verified by Cervantes.
It is significant to note that Bormaheco, Inc. in its three answers, which were
verified by Cervantes, never pleaded as an affirmative defense that Mrs.
Cervantes opposed the sale of the three lots or that she did not authorize her
husband to sell those lots. Likewise, it should be noted that in their separate
answer the Cervantes spouses never pleaded as a defense that Mrs. Cervantes
was opposed to the sale of three lots or that Cervantes could not bind the
conjugal partnership. The appellants were at first hesitant to make it appear
that Cervantes had committed the skullduggery of trying to sell property
which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes declared on the
witness stand that his wife was opposed to the sale of the three lots, a defense
which, as already stated, was never interposed in the three answers of
Bormaheco, Inc. and in the separate answer of the Cervantes spouses. That
same viewpoint was adopted in defendants' motion for reconsideration dated
November 20, 1965.

But that defense must have been an afterthought or was evolved post litem
motam since it was never disclosed in Cervantes' letter of rescission and in
his letter to Miss Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes did
not testify at the trial to fortify that defense which had already been waived
for not having been pleaded (See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and
his wife and the fact that the three lots were entirely occupied by
Bormaheco's building, machinery and equipment and were mortgaged to the
DBP as security for its obligation, and considering that appellants' vague
affirmative defenses do not include Mrs. Cervantes' alleged opposition to the
sale, the plea that Cervantes had no authority to sell the lots strains the rivets
of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs.
Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith" (Art. 1159,
Civil Code). Inasmuch as 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
38

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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.
SO ORDERED.

Makalintal, C.J, Castro. Fernando, Makasiar, Antonio, Esguerra, Muoz

Palma, Concepcion Jr. and Martin, JJ., concur.
Teehankee, J., is on leave.

Separate Opinions
BARREDO, J., concurring:
The comprehensive and well prepared opinion of Mr. Justice Aquino
deserves concurrence and I do not hesitate to accord my assent to it. The only
purpose of the following lines is to express my personal view regarding two
basic points which I feel should be thoroughly emphasized.
1. I am not for giving the letter proposal of appellant Francisco Cervantes to
Romeo Villonco of February 12, 1964, Exhibit B, any decisive importance.
To my mind, it has no more legal significance than what is appears to be a
mere unaccepted proposal. Accordingly, to my mind, paragraph (5) thereof to
the effect that "final negotiations on both properties can be definitely known
after 45 days" has no relevance in the disposition of this case, there being
nothing in the record to show that the same was accepted by appellee.
What to me is the actual contract between appellee and appellant Francisco
Cervantes is the counter-offer signed by Teofilo Villonco and addressed to
the latter of March 4, 1964, Exhibit D, which does not even make any
reference to the above-mentioned proposal of Cervantes of February 12,
1964, even as it mentions specifically the letters of the agent, Miss E. Perez
de Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit D
reads thus: "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) Pesos, M.B.T.C. Cheek No. 448314, as earnest
money." And it is undisputed that Francisco Cervantes did affix his signature
in the place indicated for his conformity, albeit under the typewritten words,
Bormaheco, Inc. It is also a fact that on the same date, the stipulated
P100,000 earnest money was received by Cervantes.
It is true that in the voucher-receipt evidencing the delivery of the earnest
money, the agent, Miss Tagle, indicated in her own handwriting that the same
was "subject to the terms and conditions embodied in Bormaheco's letter of
February 12, 1974 and Villonco Realty Company's letter of March 4, 1974,"
but it is my considered opinion that such reservation cannot be understood as
comprehending reference to the above-quoted paragraph (5) of the proposal
39

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of February 12, for the simple reason that since the parties had in fact
continued negotiating after February 12 until the final conference of
February 27, Cervantes must be deemed as having intended his signing of his
conformity to the letter of March 4 to be the formalization of the "final
negotiations" referred to in said paragraph (5), thereby rendering said
provision of no further consequence. It should be noted that, to be sure, as
said paragraph (5) was worded, the idea it conveyed was that Cervantes was
just making a mere tentative offer which he would finalize only after 45 days,
and so, when he signed Villonco's counter-offer of March 4 and accepted the
P100,000 earnest money tendered therein, no other significance could be
given to such acts than that they were meant to finalize and perfect the
transaction in advance of the 45-day waiting period originally proposed by
him. Indeed, in the addendum written and signed by Cervantes himself (not
by the agent) to the March 4 letter, all that he stated was that "this sale shall
be subject to favorable consummation of a property in Sta. Ana we are
negotiating", and this was none other than the Nassco property which the
Nassco Board authorized its manager on February 18, 1964 to sell to
appellants who had won the award the day before. In other words, when
Cervantes signed the space for his conformity to the terms of that letter of
March 4, he already knew or must have known that the acquisition of the
Nassco property was already an impending certainty and must have cared
less about what had become an unnecessary waiting period, hence the
omission of any mention thereof by him in his addendum.
My conclusion, therefore, is that said acts of Cervantes of signing his
conformity to Villonco's counter-offer of March 4 and accepting the
P100,000 earnest money therein offered resulted in a completely perfected
contract of sale between the parties per Article 1482 of the Civil Code,
needing only the execution of the corresponding deed of sale for its
consummation and subject solely to the negative resolutory condition that the
"sale shall be cancelled, only if your (Cervantes') deal with another property
in Sta. Ana (indisputably the Nassco transaction) shall not be consummated",
without stipulating anymore a period for such consummation, since
evidently, with the sale thereof having been authorized already by the Nassco
Board on February 18, 1964, the Villoncos must have been made to
understand or they did understand that such consummation was inexorably
forthcoming. In fact, the Nassco Board already approved on March 3, 1964
not only the award but the actual sale of the property to appellants, and the
Economic Coordinator gave his sanction thereto on March 24 following.
Thus, as of March 3, one day before Cervantes accepted Villonco's counteroffer, nothing more was left to formalize the transaction with Nassco except
that approval of the Economic Coordinator.
I cannot believe that Cervantes did not have up-to-date information of the
progress of his transactions with Nassco. Actually, from the legal standpoint,

he was under obligation, if only in consequence of his offer of February 12

and his continuous conversations and negotiations with the Villoncos up to
the signing of their agreement on March 4, to keep constant and close tract
thereof in order that he might be able to inform the parties he was dealing
with of the real status thereof, the finalization of the same being a material
factor in the accomplishment of their common purpose. Withal, equity would
assume that he did what ought to have been done by him in taking ordinary
care of his concerns, which he is presumed to have taken, according to
Section 5 (d) of rule 131. Under these circumstances, I am amply persuaded
that he must have been aware of the favorable actuations of the Nassco
authorities all the while that he was dealing with appellee up to March 4, the
day after the Nassco Board approved the sale. Accordingly, I hold that when
he gave his conformity to the counter-offer of the Villoncos of March 4, he
was already fully confident his transaction with Nassco would eventually
materialize.
What is worse is that assuming that the 45-day period invoked by him could
be considered in this discussion, it would be inequitable to allow him to take
advantage thereof in the light of the circumstances extant in the record. It
cannot be denied that, as already stated, the Economic Coordinator approved
the Nassco transaction on March 24, 1964. Anyone would know, and much
more so Cervantes who was directly interested therein and must have been
anxiously and even excitedly waiting for it, that that was the last requisite for
the inevitable execution of the deed of sale in his favor. One has to be very
naive and it would be contrary to the ordinary course of human experience
and business practices for anyone to concede to appellants that when
Cervantes wrote his letter to Villonco Realty Company of March 30, 1964
stating that "despite the lapse of 45 days from February 12, 1964, there is no
certainty yet for us to acquire a substitute property", he did not even have the
slightest inkling of the favorable action of the Economic Coordinator of
March 24. The same or more may be said relative to his letter to Miss Tagle
of as late as April 6, 1964 wherein he alleged that the forty-five day period
had already expired and the sale to Bormaheco, Inc. of the Punta (Nassco)
property had not been consummated as of then and that, therefore, his letter
was a "manifestation that we are no longer interested to sell" the Buendia
property to the Villoncos.
I have no doubt whatsoever that the whole trouble here is that after Cervantes
had already signed his conformity and received earnest money on March 4,
he had a change of heart, perhaps dictated by reasons of better economic
advantage, and banking on the idea, albeit erroneous, that he could utilize
paragraph (5) of his letter of February 12 as a escape door through which he
could squeeze out of the perfected contract with the Villoncos, he opted to
actually back out and break with them thru his letters of March 30 to them
and of April 6 to the agent, Miss Tagle. The Court would certainly be
40

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sanctioning a deliberate mala fide breach of a contract already definitely
perfected were it to buy the theory of non-perfection appellants are lamely
pressing on Us. No amount of rationalization can convince me that the
Villoncos had agreed to any 45-day suspensive condition for the perfection of
the agreement, but even on the remote assumption that they did, I would hold
as I do hold that the purchase of the Nassco property by appellants was
virtually consummated, from the viewpoint of the spirit and intent of the
contract here in question, on March 24, 1964, when the Economic
Coordinator approved the same and nothing else remained to be done to
formalize it except the actual execution of the deed of sale which in fact took
place on June 26, 1964, hence, Cervantes had no more excuse for further
delaying compliance with his agreement with the Villoncos. In other words,
for all legal purposes, assuming hypothetically the plausibility of the theory
of appellants about a 45-day waiting period, the negative resolutory condition
arising from said theory became inoperative four days before said 45 days
expired. After the approval of the sale by the Economic Coordinator, there
was nothing anymore that could impede the formal conveyance of the Nassco
property to appellants, other than their own desistance, and even that might
have been legally controversial if Nassco insisted otherwise. Reading all the
communications exchanged between the parties, the conclusion therefrom is
inevitable that the 45-day period stipulation was inextricably tied up with
appellants' being able to acquire the Nassco property. In other words,
Cervantes merely wanted to be sure that they would get the Nassco property
before proceeding with the sale of the Buendia property. To construe the 45day stipulation as giving Cervantes the absolute right to disregard the
Villoncos entirely until after the 45 days had expired is to render the whole of
Cervantes' letter of February 12 as totally meaningless, legally non-existent
and as deceitfully farcical. Consequently, the acquisition of the Nassco
property having actually eventualized, it cannot lie in the lips of Cervantes to
claim that he may not be compelled to proceed with the transaction. To view
the situation otherwise is to condone resort to ambiguity as a means of
deception and informality in contractual obligations, which in my opinion is
contrary to the elementary requirements of candidness and honest dealing
between responsible contracting parties, and in that sense offensive to public
policy.
2. The contention of appellants that inasmuch as in actual fact the Buendia
property contemplated in the contract is the conjugal property of Cervantes
spouses and that since in dealing with the Villoncos, Cervantes acted as
President of Bormaheco, Inc., the appellee cannot have any right to compel
the conveyance to them thereof is in my view definitely puerile. It is
predicated on duplicity and smacks of utter bad faith.
I do not find in the evidence before Us adequate basis for accepting the
suggestion that Francisco Cervantes acted for and in behalf of Bormaheco,

Inc. in his dealing with the Villoncos. The mere fact that he signed his letter
of February 12, 1964 over the title of President, there being no showing that
he was duly authorized to make the offer therein contained in the name of the
corporation, did not convert it into a corporate act. The language of the letter
which is conspicuously sprinkled with the pronoun I used by Cervantes to
refer to himself rather than exclusively the pronoun we does not so indicate.
Besides, Cervantes is undisputably the registered owner with his wife of the
property therein mentioned, and being evidently conscious, as he ought to
have been of this fact, he knew his act would be ultra vires and void, if he
were to act for the corporation. He was the manager of the conjugal
partnership and he knew it was only in that capacity that he could in good
faith give validity to his representation, assuming the conformity of his wife.
Unless Cervantes wants Us to hold that he deliberately negotiated with the
Villoncos clothed in dubious garments of authority precisely to afford him
the opportunity to repudiate at his convenience any agreement they may enter
into with him. I am for holding as I do hold that Bormaheco, Inc. had nothing
to do with the transaction here in controversy. In any event, if Cervantes may
held to have acted for Bormaheco, Inc., in spite of the absence of evidence of
any authority for him to do so, it must be because Bormaheco, Inc. is
Cervantes himself, and there being no proof to the contrary, the corporate
shield of Bormaheco, Inc. may be deemed pierced in order to prevent any
further fraudulent implications in his actuations. Moreover, it may be
observed that the March 4 letter of Teofilo Villonco was not addressed to
Bormaheco, Inc. but to Francisco Cervantes and it does not even mention his
being President of that corporation.
Anent the requirement of consent of Mrs. Cervantes under Article 166 of the
Civil Code, I consider any defense along this line as unavailing to the
appellants in this case. As very ably discussed in the main opinion of Mr.
Justice Aquino, the answer of the defendants, make no reference at all to any
lack of such consent. And considering that the subsequent testimony of
Cervantes to the effect that his wife opposed the transaction cannot cure such
omission, if only because any husband in the circumstances revealed in the
record is estopped from setting up such a defense (cf Riobo vs. Hontiveros,
21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see Civil Law by Reyes &
Puno, 1964 ed. p. 192), and that from her silence in her answer in this respect
Mrs. Cervantes may either be presumed to have given her consent thereto or
to have ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457;
Castaeda vs. Samson, 43 Phil. 751), it is obvious that the belated invocation
of this defense now should be deemed in fact and in law as an unacceptable
and ineffective afterthought. Besides, it appearing that the sale of the
Buendia property was purposely to enable the spouses to acquire the Nassco
property, I have grave doubts as to the application of Article 166 to the sale
here in dispute. I believe that the disposition by a husband prohibited by the
41

SALES
Code unless consented to by the wife refers to a transaction outrightly
prejudicial to the partnership and cannot comprehend a sale made precisely
for its benefit and causing no loss thereto beyond the ordinary risks of
misjudgment of a manager acting in good faith.
IN VIEW OF THE FOREGOING, I would not even require the formality of
the serial execution of instruments by the Cervantes spouses and Bormaheco,
Inc. In the view I have taken above, it would be legally feasible for the sale
to the Villonco Realty Property to be made directly by the spouses. But I
would not insist in the modification of the dispositive portion of the
judgment, since the result would be the same anyway.

Separate Opinions
BARREDO, J., concurring:
The comprehensive and well prepared opinion of Mr. Justice Aquino
deserves concurrence and I do not hesitate to accord my assent to it. The only
purpose of the following lines is to express my personal view regarding two
basic points which I feel should be thoroughly emphasized.
1. I am not for giving the letter proposal of appellant Francisco Cervantes to
Romeo Villonco of February 12, 1964, Exhibit B, any decisive importance.
To my mind, it has no more legal significance than what is appears to be a
mere unaccepted proposal. Accordingly, to my mind, paragraph (5) thereof to
the effect that "final negotiations on both properties can be definitely known
after 45 days" has no relevance in the disposition of this case, there being
nothing in the record to show that the same was accepted by appellee.
What to me is the actual contract between appellee and appellant Francisco
Cervantes is the counter-offer signed by Teofilo Villonco and addressed to
the latter of March 4, 1964, Exhibit D, which does not even make any
reference to the above-mentioned proposal of Cervantes of February 12,
1964, even as it mentions specifically the letters of the agent, Miss E. Perez
de Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit D
reads thus: "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) Pesos, M.B.T.C. Cheek No. 448314, as earnest
money." And it is undisputed that Francisco Cervantes did affix his signature
in the place indicated for his conformity, albeit under the typewritten words,
Bormaheco, Inc. It is also a fact that on the same date, the stipulated
P100,000 earnest money was received by Cervantes.
It is true that in the voucher-receipt evidencing the delivery of the earnest
money, the agent, Miss Tagle, indicated in her own handwriting that the same

was "subject to the terms and conditions embodied in Bormaheco's letter of

February 12, 1974 and Villonco Realty Company's letter of March 4, 1974,"
but it is my considered opinion that such reservation cannot be understood as
comprehending reference to the above-quoted paragraph (5) of the proposal
of February 12, for the simple reason that since the parties had in fact
continued negotiating after February 12 until the final conference of
February 27, Cervantes must be deemed as having intended his signing of his
conformity to the letter of March 4 to be the formalization of the "final
negotiations" referred to in said paragraph (5), thereby rendering said
provision of no further consequence. It should be noted that, to be sure, as
said paragraph (5) was worded, the idea it conveyed was that Cervantes was
just making a mere tentative offer which he would finalize only after 45 days,
and so, when he signed Villonco's counter-offer of March 4 and accepted the
P100,000 earnest money tendered therein, no other significance could be
given to such acts than that they were meant to finalize and perfect the
transaction in advance of the 45-day waiting period originally proposed by
him. Indeed, in the addendum written and signed by Cervantes himself (not
by the agent) to the March 4 letter, all that he stated was that "this sale shall
be subject to favorable consummation of a property in Sta. Ana we are
negotiating", and this was none other than the Nassco property which the
Nassco Board authorized its manager on February 18, 1964 to sell to
appellants who had won the award the day before. In other words, when
Cervantes signed the space for his conformity to the terms of that letter of
March 4, he already knew or must have known that the acquisition of the
Nassco property was already an impending certainty and must have cared
less about what had become an unnecessary waiting period, hence the
omission of any mention thereof by him in his addendum.
My conclusion, therefore, is that said acts of Cervantes of signing his
conformity to Villonco's counter-offer of March 4 and accepting the
P100,000 earnest money therein offered resulted in a completely perfected
contract of sale between the parties per Article 1482 of the Civil Code,
needing only the execution of the corresponding deed of sale for its
consummation and subject solely to the negative resolutory condition that the
"sale shall be cancelled, only if your (Cervantes') deal with another property
in Sta. Ana (indisputably the Nassco transaction) shall not be consummated",
without stipulating anymore a period for such consummation, since
evidently, with the sale thereof having been authorized already by the Nassco
Board on February 18, 1964, the Villoncos must have been made to
understand or they did understand that such consummation was inexorably
forthcoming. In fact, the Nassco Board already approved on March 3, 1964
not only the award but the actual sale of the property to appellants, and the
Economic Coordinator gave his sanction thereto on March 24 following.
Thus, as of March 3, one day before Cervantes accepted Villonco's counter42

SALES
offer, nothing more was left to formalize the transaction with Nassco except
that approval of the Economic Coordinator.

What is worse is that assuming that the 45-day period invoked by him could
be considered in this discussion, it would be inequitable to allow him to take
advantage thereof in the light of the circumstances extant in the record. It
cannot be denied that, as already stated, the Economic Coordinator approved
the Nassco transaction on March 24, 1964. Anyone would know, and much
more so Cervantes who was directly interested therein and must have been
anxiously and even excitedly waiting for it, that that was the last requisite for
the inevitable execution of the deed of sale in his favor. One has to be very
naive and it would be contrary to the ordinary course of human experience
and business practices for anyone to concede to appellants that when
Cervantes wrote his letter to Villonco Realty Company of March 30, 1964
stating that "despite the lapse of 45 days from February 12, 1964, there is no
certainty yet for us to acquire a substitute property", he did not even have the
slightest inkling of the favorable action of the Economic Coordinator of
March 24. The same or more may be said relative to his letter to Miss Tagle
of as late as April 6, 1964 wherein he alleged that the forty-five day period
had already expired and the sale to Bormaheco, Inc. of the Punta (Nassco)
property had not been consummated as of then and that, therefore, his letter
was a "manifestation that we are no longer interested to sell" the Buendia
property to the Villoncos.

advantage, and banking on the idea, albeit erroneous, that he could utilize
paragraph (5) of his letter of February 12 as a escape door through which he
could squeeze out of the perfected contract with the Villoncos, he opted to
actually back out and break with them thru his letters of March 30 to them
and of April 6 to the agent, Miss Tagle. The Court would certainly be
sanctioning a deliberate mala fide breach of a contract already definitely
perfected were it to buy the theory of non-perfection appellants are lamely
pressing on Us. No amount of rationalization can convince me that the
Villoncos had agreed to any 45-day suspensive condition for the perfection of
the agreement, but even on the remote assumption that they did, I would hold
as I do hold that the purchase of the Nassco property by appellants was
virtually consummated, from the viewpoint of the spirit and intent of the
contract here in question, on March 24, 1964, when the Economic
Coordinator approved the same and nothing else remained to be done to
formalize it except the actual execution of the deed of sale which in fact took
place on June 26, 1964, hence, Cervantes had no more excuse for further
delaying compliance with his agreement with the Villoncos. In other words,
for all legal purposes, assuming hypothetically the plausibility of the theory
of appellants about a 45-day waiting period, the negative resolutory condition
arising from said theory became inoperative four days before said 45 days
expired. After the approval of the sale by the Economic Coordinator, there
was nothing anymore that could impede the formal conveyance of the Nassco
property to appellants, other than their own desistance, and even that might
have been legally controversial if Nassco insisted otherwise. Reading all the
communications exchanged between the parties, the conclusion therefrom is
inevitable that the 45-day period stipulation was inextricably tied up with
appellants' being able to acquire the Nassco property. In other words,
Cervantes merely wanted to be sure that they would get the Nassco property
before proceeding with the sale of the Buendia property. To construe the 45day stipulation as giving Cervantes the absolute right to disregard the
Villoncos entirely until after the 45 days had expired is to render the whole of
Cervantes' letter of February 12 as totally meaningless, legally non-existent
and as deceitfully farcical. Consequently, the acquisition of the Nassco
property having actually eventualized, it cannot lie in the lips of Cervantes to
claim that he may not be compelled to proceed with the transaction. To view
the situation otherwise is to condone resort to ambiguity as a means of
deception and informality in contractual obligations, which in my opinion is
contrary to the elementary requirements of candidness and honest dealing
between responsible contracting parties, and in that sense offensive to public
policy.

I have no doubt whatsoever that the whole trouble here is that after Cervantes
had already signed his conformity and received earnest money on March 4,
he had a change of heart, perhaps dictated by reasons of better economic

2. The contention of appellants that inasmuch as in actual fact the Buendia

property contemplated in the contract is the conjugal property of Cervantes
spouses and that since in dealing with the Villoncos, Cervantes acted as

I cannot believe that Cervantes did not have up-to-date information of the
progress of his transactions with Nassco. Actually, from the legal standpoint,
he was under obligation, if only in consequence of his offer of February 12
and his continuous conversations and negotiations with the Villoncos up to
the signing of their agreement on March 4, to keep constant and close tract
thereof in order that he might be able to inform the parties he was dealing
with of the real status thereof, the finalization of the same being a material
factor in the accomplishment of their common purpose. Withal, equity would
assume that he did what ought to have been done by him in taking ordinary
care of his concerns, which he is presumed to have taken, according to
Section 5 (d) of rule 131. Under these circumstances, I am amply persuaded
that he must have been aware of the favorable actuations of the Nassco
authorities all the while that he was dealing with appellee up to March 4, the
day after the Nassco Board approved the sale. Accordingly, I hold that when
he gave his conformity to the counter-offer of the Villoncos of March 4, he
was already fully confident his transaction with Nassco would eventually
materialize.

43

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President of Bormaheco, Inc., the appellee cannot have any right to compel
the conveyance to them thereof is in my view definitely puerile. It is
predicated on duplicity and smacks of utter bad faith.
I do not find in the evidence before Us adequate basis for accepting the
suggestion that Francisco Cervantes acted for and in behalf of Bormaheco,
Inc. in his dealing with the Villoncos. The mere fact that he signed his letter
of February 12, 1964 over the title of President, there being no showing that
he was duly authorized to make the offer therein contained in the name of the
corporation, did not convert it into a corporate act. The language of the letter
which is conspicuously sprinkled with the pronoun I used by Cervantes to
refer to himself rather than exclusively the pronoun we does not so indicate.
Besides, Cervantes is undisputably the registered owner with his wife of the
property therein mentioned, and being evidently conscious, as he ought to
have been of this fact, he knew his act would be ultra vires and void, if he
were to act for the corporation. He was the manager of the conjugal
partnership and he knew it was only in that capacity that he could in good
faith give validity to his representation, assuming the conformity of his wife.
Unless Cervantes wants Us to hold that he deliberately negotiated with the
Villoncos clothed in dubious garments of authority precisely to afford him
the opportunity to repudiate at his convenience any agreement they may enter
into with him. I am for holding as I do hold that Bormaheco, Inc. had nothing
to do with the transaction here in controversy. In any event, if Cervantes may
held to have acted for Bormaheco, Inc., in spite of the absence of evidence of
any authority for him to do so, it must be because Bormaheco, Inc. is
Cervantes himself, and there being no proof to the contrary, the corporate
shield of Bormaheco, Inc. may be deemed pierced in order to prevent any
further fraudulent implications in his actuations. Moreover, it may be
observed that the March 4 letter of Teofilo Villonco was not addressed to
Bormaheco, Inc. but to Francisco Cervantes and it does not even mention his
being President of that corporation.
Anent the requirement of consent of Mrs. Cervantes under Article 166 of the
Civil Code, I consider any defense along this line as unavailing to the
appellants in this case. As very ably discussed in the main opinion of Mr.
Justice Aquino, the answer of the defendants, make no reference at all to any
lack of such consent. And considering that the subsequent testimony of
Cervantes to the effect that his wife opposed the transaction cannot cure such
omission, if only because any husband in the circumstances revealed in the
record is estopped from setting up such a defense (cf Riobo vs. Hontiveros,
21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see Civil Law by Reyes &
Puno, 1964 ed. p. 192), and that from her silence in her answer in this respect
Mrs. Cervantes may either be presumed to have given her consent thereto or
to have ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457;
Castaeda vs. Samson, 43 Phil. 751), it is obvious that the belated invocation

of this defense now should be deemed in fact and in law as an unacceptable

and ineffective afterthought. Besides, it appearing that the sale of the
Buendia property was purposely to enable the spouses to acquire the Nassco
property, I have grave doubts as to the application of Article 166 to the sale
here in dispute. I believe that the disposition by a husband prohibited by the
Code unless consented to by the wife refers to a transaction outrightly
prejudicial to the partnership and cannot comprehend a sale made precisely
for its benefit and causing no loss thereto beyond the ordinary risks of
misjudgment of a manager acting in good faith.
IN VIEW OF THE FOREGOING, I would not even require the formality of
the serial execution of instruments by the Cervantes spouses and Bormaheco,
Inc. In the view I have taken above, it would be legally feasible for the sale
to the Villonco Realty Property to be made directly by the spouses. But I
would not insist in the modification of the dispositive portion of the
judgment, since the result would be the same anyway.
Footnotes
* Underscoring supplied. Note that, according to the
defendants, Cervantes inserted "12th and" between the
"February" and "26" in the second line of the foregoing
letter, that in paragraph 3 of the terms and conditions he
crossed out "Nassco's" and wrote "another" and that he
inserted "pa" after "interest" (p. 7, defendants-appellants'
brief). There is no stipulation nor testimony on the alleged
insertions.
**
"March 31,1964
Mr. Francisco Cervantes
President, BORMAHECO, INC.
245 Buendia Avenue
Makati, Rizal
Dear Mr. Cervantes:
As your official and authorized representative on the sale of
your property located at 245 Buendia Avenue, Makati, Rizal,
with a total area of 3,500 square meters, at P400.00 per
square meter or a total purchase cost of P1,400.000.00, in
favor of Mr. Romeo Villonco of Villonco Realty Co., I was
surprised and shocked at the news of your actions yesterday
afternoon when you had a certain Mr. de Guzman bring to
Mr. Romeo Villonco, your letter dated March 30th, 1964,
44

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together with 2 checks. One for P100.000.00 and another for
P694.25 as 10% interest on the same.
If you will recall, this deal on selling your property started
way back in October 1963 when you ordered me to negotiate
for you certain properties to buy in order that you could
move to a bigger location than that at 245 Buendia Avenue
which was becoming too small for your needs.
You also authorized me to negotiate with my BUYERS, one
of whom was the Villonco Brothers who owned the adjacent
property, on the sale of your property. Plenty of conferences
were held between you and me, and also between the
Villoncos and me on the said property, specially after your
Formal Bidding of the NASSCO PROPERTY, located at
Punta. Sta. Ana, was made on January 17, 1964.
After this made (sic) was made, you called me and had me
offer your property at 245 Buendia Avenue to the Villoncos.
For this you made your formal offer as per your letter dated
February 12, 1964. And that after there were many personal
conferences made between you and the Villoncos either by
phone and also personally at their office in my presence.
After your Formal Offer of February 12, 1964, and the
subsequent acceptance by the Villoncos of your offer, and
the payment of the EARNEST MONEY of P100,000.00
which you accepted on March 4, 1964 and signed
CONFORME to the LETTER CONTRACT of the same
date, this deal become a close deal as the said Earnest
Money becomes a part of the down payment on the property.
The only stipulation mentioned in your Contractual Letter of
March 4, 1964 which followed your letter of February 12,
1964, was that the said sale becomes ineffective only if the
purchase of the property at Sta. Ana is not approved by the
NASSCO or the OEC. However, from all my follow up on
the matter at the NASSCO and the OEC, it appears that your
bid on purchasing the said property at Sta. Ana has been
approved by the NASSCO BOARD on March 3, 1964, and
subsequently approved by the Office of the Economic
Coordinator and signed by Mr. Adevoso on March 25,1964.
This, therefore, removes the stipulation on your letter of Feb.
12, 1964 and thus effecting the consummation of this deal.

agreeable to a cancellation of this deal with them on the

purchase of your property at 245 Buendia Avenue, Makati,
Rizal, for the following reasons:
(1.) That this deal has been made after a Formal Written
Offer from you after several lengthy verbal conferences
between you, and which terms have been agreed upon;
(2.) That after the Earnest Money had been received by you,
I, as your official representative have followed the matter
and have kept them informed on the progress of the deal
with the NASSCO and the OEC, this being the only
stipulation on the consummation of the deal; and as such
made it necessary that the Villoncos mortgage several of
their properties with the bank to have ready the Cash
payment required by you as per your Contractual Letter of
March 4, 1964;
(3.) That in all big business firms, the presence of a large
amount of spot cash is always not present, thus it was
necessary that the Villoncos raised this spot cash which was
one of your requirements for this sale;
(4.) That the Villoncos have put aside all other projects in
favor of this deal, since the same requires a large amount of
cash, not only for the payment of the land, but also for the
cost of the new building to be erected; (5.) That the
stipulation on the letters of February 12, 1964 and March 4,
1964 wherein the approval and consequent purchase of the
lot at Sta. Ana, Manila has been removed by the approval of
your bid purchase of the property of the NASSCO, at Punta,
Sta. Ana which has been approved by the NASSCO BOARD
on March 3, 1964 and the OEC on March 25, 1964;
For all the above reasons, Mr. Romeo Villonco will not agree
to your backing out of this deal or rescinding your
Contractual Agreement with them for any other reason
whatsoever.
Trusting that you will see your way clear in all this, I am
Very truly yours,

Mr. Romeo Villonco has called me to his office and has

returned to me your letter and the checks, as he is not
45

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EN BANC
G.R. No. L-36083 September 5, 1975
Spouses RAMON DOROMAL, SR., and ROSARIO SALAS, and Spouses
RAMON DOROMAL, JR., and GAUDELIA VEGA, petitioners,
vs.
HON. COURT OF APPEALS and FILOMENA JAVELLANA, respondents.
Salonga, Ordonez, Yap, Parlade and Associates and Marvin J. Mirasol for
petitioners. Arturo H. Villanueva, Jr. for private respondent.
BARREDO, J.:
Petition for review of the decision of the Court of Appeals in CA-G.R. No.
47945-R entitled Filomena Javellana vs. Spouses Ramon Doromal, Sr., et al.
which reversed the decision of the Court of First Instance of Iloilo that had in
turn dismissed herein private respondent Filomena Javellana's action for
redemption of a certain property sold by her co-owners to herein petitioners for
having been made out of time.
The factual background found by the Court of Appeals and which is binding on
this Court, the same not being assailed by petitioners as being capricious, is as
follows:
IT RESULTING: That the facts are quite simple; Lot 3504 of
the cadastral survey of Iloilo, situated in the poblacion of La
Paz, one of its districts, with an area of a little more than 2-
hectares was originally decreed in the name of the late Justice
Antonio Horilleno, in 1916, under Original Certificate of Title
No. 1314, Exh. A; but before he died, on a date not
particularized in the record, he executed a last will and
testament attesting to the fact that it was a co-ownership
between himself and his brothers and sisters, Exh. C; so that the
truth was that the owners or better stated, the co-owners were;
beside Justice Horilleno,
"Luis, Soledad, Fe, Rosita, Carlos and Esperanza,"

4.) Republic of the Philippines

SUPREME COURT
Manila

all surnamed Horilleno, and since Esperanza had already died,

she was succeeded by her only daughter and heir herein
plaintiff. Filomena Javellana, in the proportion of 1/7 undivided
ownership each; now then, even though their right had not as
yet been annotated in the title, the co-owners led by Carlos, and
as to deceased Justice Antonio Horilleno, his daughter Mary,
sometime since early 1967, had wanted to sell their shares, or if
possible if Filomena Javellana were agreeable, to sell the entire
property, and they hired an acquaintance Cresencia Harder, to
look for buyers, and the latter came to interest defendants, the
father and son, named Ramon Doromal, Sr. and Jr., and in
preparation for the execution of the sale, since the brothers and

46

SALES
sisters Horilleno were scattered in various parts of the country,
Carlos in Ilocos Sur, Mary in Baguio, Soledad and Fe, in
Mandaluyong, Rizal, and Rosita in Basilan City, they all
executed various powers of attorney in favor of their niece,
Mary H. Jimenez Exh. 1-8, they also caused preparation of a
power of attorney of identical tenor for signature by plaintiff,
Filomena Javellana, Exh. M, and sent it with a letter of Carlos,
Exh. 7 dated 18 January, 1968 unto her thru Mrs. Harder, and
here, Carlos informed her that the price was P4.00 a square
meter, although it now turns out according to Exh. 3 that as
early as 22 October, 1967, Carlos had received in check as
earnest money from defendant Ramon Doromal, Jr., the sum of
P5,000.00 and the price therein agreed upon was five (P5.00)
pesos a square meter as indeed in another letter also of Carlos to
Plaintiff in 5 November, 1967, Exh. 6, he had told her that the
Doromals had given the earnest money of P5,000.00 at P5.00 a
square meter, at any rate, plaintiff not being agreeable, did
not sign the power of attorney, and the rest of the co-owners
went ahead with their sale of their 6/7, Carlos first seeing to it
that the deed of sale by their common attorney in fact, Mary H.
Jimenez be signed and ratified as it was signed and ratified in
Candon, Ilocos Sur, on 15 January, 1968, Exh. 2, then brought
to Iloilo by Carlos in the same month, and because the Register
of Deeds of Iloilo refused to register right away, since the
original registered owner, Justice Antonio Horilleno was
already dead, Carlos had to ask as he did, hire Atty. Teotimo
Arandela to file a petition within the cadastral case, on 26
February, 1968, for the purpose, Exh. C, after which Carlos
returned to Luzon, and after compliance with the requisites of
publication, hearing and notice, the petition was approved, and
we now see that on 29 April, 1968, Carlos already back in Iloilo
went to the Register of Deeds and caused the registration of the
order of the cadastral court approving the issuance of a new title
in the name of the co-owners, as well as of the deed of sale to
the Doromals, as a result of which on that same date, a new title
was issued TCT No. 23152, in the name of the Horillenos to 6/7
and plaintiff Filomena Javellana to 1/7, Exh. D, only to be
cancelled on the same day under TCT No. 23153, Exh. 2,
already in the names of the vendees Doromals for 6/7 and to
herein plaintiff, Filomena Javellana, 1/7, and the next day 30
April, 1968, the Doromals paid unto Carlos by check, the sum
of P97,000.00 Exh. 1, of Chartered Bank which was later
substituted by check of Phil. National Bank, because there was
no Chartered Bank Branch in Ilocos Sur, but besides this
amount paid in check, the Doromals according to their evidence
still paid an additional amount in cash of P18,250.00 since the
agreed price was P5.00 a square meter; and thus was

consummated the transaction, but it is here where complications

set in,
On 10 June, 1968, there came to the residence of the Doromals in Dumangas,
Iloilo, plaintiff's lawyer, Atty. Arturo H. Villanueva, bringing with him her letter
of that date, reading,Mr. & Mrs. Ramon Doromal, Sr.
and Mr. and Mrs. Ramon Doromal, Jr. "Dumangas Iloilo
Dear Mr. and Mrs. Doromal:
The bearer of this letter is my nephew, Atty. Arturo H. Villanueva, Jr., of this
City. Through him, I am making a formal offer to repurchase or redeem from you
the 6/7 undivided share in Lot No. 3504, of the Iloilo Cadastre, which you
bought from my erstwhile co-owners, the Horillenos, for the sum of P30,000.00,
Atty. Villanueva has with him the sum of P30,000.00 in cash, which he will
deliver to you as soon as you execute the contract of sale in my favor.
Thank you very much for whatever favorable consideration you can give this
request.
Very truly yours,
p. 26, Exh. "J", Manual of Exhibits.
and then and there said lawyer manifested to the Doromals that he had the
P30,000.00 with him in cash, and tendered it to them, for the exercise of the
legal redemption, the Doromals were aghast, and refused. and the very next day
as has been said. 11 June, 1968, plaintiff filed this case, and in the trial, thru oral
and documentary proofs sought to show that as co-owner, she had the right to
redeem at the price stated in the deed of sale, Exh. 2, namely P30,000.00 of the
but defendants in answer, and in their evidence, oral and documentary sought to
show that plaintiff had no more right to redeem and that if ever she should have,
that it should be at the true and real price by them paid, namely, the total sum of
P115,250.00, and trial judge, after hearing the evidence, believed defendants,
that plaintiff had no more right, to redeem, because,
"Plaintiff was informed of the intended sale of the 6/7 share belonging to the
Horillenos." and that,
"The plaintiff have every reason to be grateful to Atty. Carlos Horilleno because
in the petition for declaration of heirs of her late uncle Antonio Horilleno in
whose name only the Original Certificate of Title covering the Lot in question
was issued, her uncle Atty. Carlos Horilleno included her as one of the heirs of
said Antonio Horilleno. Instead, she filed this case to redeem the 6/7 share sold
to the Doromals for the simple reason that the consideration in the deed of sale is
the sum of P30,000.00 only instead of P115,250.00 approximately which was
actually paid by the defendants to her co-owners, thus she wants to enrich herself
at the expense of her own blood relatives who are her aunts, uncles and cousins.
The consideration of P30,000.00 only was placed in the deed of sale to minimize
the payment of the registration fees, stamps, and sales tax. pp. 77-78, R.A.,

47

SALES
and dismiss and further condemned plaintiff to pay attorney's fees, and moral and
exemplary damages as set forth in few pages back, it is because of this that
plaintiff has come here and contends, that Lower Court erred:
"I. ... in denying plaintiff-appellant, as a co-owner of Lot No. 3504, of the Iloilo
Cadastre, the right of legal redemption under Art. 1620, of the Civil Code:
"II. ... as a consequence of the above error, in refusing to order the defendantsappellees, the vendees of a portion of the aforesaid Lot No. 3504 which they
bought from the co-owners of the plaintiff-appellant, to reconvey the portion
they purchased to the herein plaintiff-appellant..
"III. ... in admitting extrinsic evidence in the determination of
the consideration of the sale, instead of simply adhering to the
purchase price of P30,000.00, set forth in the pertinent Deed of
Sale executed by the vendors and owners of the plaintiffappellant in favor of the defendants-appellees.
"IV. ... in dismissing the complaint filed in this case." pp. 1-3,
Appellant's Brief,.
which can be reduced to the simple question of whether or not
on tile basis of the evidence and the law, the judgment appealed
from should be maintained; (Pp. 16-22, Record.) .
Upon these facts, the Court of Appeals reversed the trial court's decision and held
that although respondent Javellana was informed of her co-owners' proposal to
sell the land in question to petitioners she was, however, "never notified ... least
of all, in writing", of the actual execution and registration of the corresponding
deed of sale, hence, said respondent's right to redeem had not yet expired at the
time she made her offer for that purpose thru her letter of June 10, 1968
delivered to petitioners on even date. The intermediate court further held that the
redemption price to be paid by respondent should be that stated in the deed of
sale which is P30,000 notwithstanding that the preponderance of the evidence
proves that the actual price paid by petitioners was P115,250. Thus, in their brief,
petitioners assign the following alleged errors:
I
IT IS ERROR FOR THE COURT OF APPEALS TO HOLD
THAT THE NOTICE IN WRITING OF THE SALE
CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL CODE
REFERS TO A NOTICE IN WRITING AFTER THE
EXECUTION AND REGISTRATION OF THE
INSTRUMENT OF SALE, HENCE, OF THE DOCUMENT
OF SALE.
II
THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE INSCRIPTION OF THE SALE IN THE
REGISTRY OF PROPERTY TAKES EFFECT AS AGAINST

THIRD PERSONS INCLUDING CLAIMS OF POSSIBLE

REDEMPTIONERS.
ASSUMING, ARGUENDO THAT PRIVATE RESPONDENT
HAS THE RIGHT TO REDEEM, THE COURT OF APPEALS
ERRED IN HOLDING THAT THE REDEMPTION PRICE
SHOULD BE THAT STATED IN THE DEED OF SALE. (Pp.
1-2, Brief for Petitioner, page 74-Rec.)
We cannot agree with petitioners.
Petitioners do not question respondent's right to redeem, she being admittedly a
1/7 co-owner of the property in dispute. The thrust of their first assignment of
error is that for purposes of Article 1623 of the Civil Code which provides that:
ART. 1623. The right of legal pre-emption or redemption shall
not be exercised except within thirty days from the notice in
writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry
of Property, unless accompanied by an affidavit of the vendor
that he has given written notice thereof to all possible
redemptioners.
The right of redemption of co-owners excludes that of adjoining
owners.
the letters sent by Carlos Horilleno to respondent and dated January 18, 1968,
Exhibit 7, and November 5, 1967, Exhibit 6, constituted the required notice in
writing from which the 30-day period fixed in said provision should be
computed. But to start with, there is no showing that said letters were in fact
received by respondent and when they were actually received. Besides,
petitioners do not pinpoint which of these two letters, their dates being more than
two months apart, is the required notice. In any event, as found by the appellate
court, neither of said letters referred to a consummated sale. As may be observed,
it was Carlos Horilleno alone who signed them, and as of January 18, 1968,
powers of attorney from the various co-owners were still to be secured. Indeed,
the later letter of January 18, 1968 mentioned that the price was P4.00 per square
meter whereas in the earlier letter of November 5, 1967 it was P5.00, as in fact,
on that basis, as early as October 27, 1967, Carlos had already received P5,000
from petitioners supposedly as earnest money, of which, however, mention was
made by him to his niece only in the later letter of January 18, 1968, the
explanation being that "at later negotiation it was increased to P5.00 per square
meter." (p. 4 of petitioners' brief as appellees in the Court of Appeals quoting
from the decision of the trial court.) In other words, while the letters relied upon
by petitioners could convey the idea that more or less some kind of consensus
had been arrived at among the other co-owners to sell the property in dispute to
petitioners, it cannot be said definitely that such a sale had even been actually
perfected. The fact alone that in the later letter of January 18, 1968 the price
indicated was P4.00 per square meter while in that of November 5, 1967, what
was stated was P5.00 per square meter negatives the possibility that a "price
definite" had already been agreed upon. While P5,000 might have indeed been

48

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paid to Carlos in October, 1967, there is nothing to show that the same was in the
concept of the earnest money contemplated in Article 1482 of the Civil Code,
invoked by petitioner, as signifying perfection of the sale. Viewed in the
backdrop of the factual milieu thereof extant in the record, We are more inclined
to believe that the said P5,000 were paid in the concept of earnest money as the
term was understood under the Old Civil Code, that is, as a guarantee that the
buyer would not back out, considering that it is not clear that there was already a
definite agreement as to the price then and that petitioners were decided to buy
6/7 only of the property should respondent Javellana refuse to agree to part with
her 1/7 share.
In the light of these considerations, it cannot be said that the Court of Appeals
erred in holding that the letters aforementioned sufficed to comply with the
requirement of notice of a sale by co-owners under Article 1623 of the Civil
Code. We are of the considered opinion and so hold that for purposes of the coowner's right of redemption granted by Article 1620 of the Civil Code, the notice
in writing which Article 1623 requires to be made to the other co-owners and
from receipt of which the 30-day period to redeem should be counted is a notice
not only of a perfected sale but of the actual execution and delivery of the deed
of sale. This is implied from the latter portion of Article 1623 which requires that
before a register of deeds can record a sale by a co-owner, there must be
presented to him, an affidavit to the effect that the notice of the sale had been
sent in writing to the other co-owners. A sale may not be presented to the register
of deeds for registration unless it be in the form of a duly executed public
instrument. Moreover, the law prefers that all the terms and conditions of the sale
should be definite and in writing. As aptly observed by Justice Gatmaitan in the
decision under review, Article 1619 of the Civil Code bestows unto a co-owner
the right to redeem and "to be subrogated under the same terms and conditions
stipulated in the contract", and to avoid any controversy as to the terms and
conditions under which the right to redeem may be exercised, it is best that the
period therefor should not be deemed to have commenced unless the notice of
the disposition is made after the formal deed of disposal has been duly executed.
And it being beyond dispute that respondent herein has never been notified in
writing of the execution of the deed of sale by which petitioners acquired the
subject property, it necessarily follows that her tender to redeem the same made
on June 10, 1968 was well within the period prescribed by law. Indeed, it is
immaterial when she might have actually come to know about said deed, it
appearing she has never been shown a copy thereof through a written
communication by either any of the petitioners-purchasers or any of her coowners-vendees. (Cornejo et al. vs. CA et al., 16 SCRA 775.)
The only other pivotal issue raised by petitioners relates to the price which
respondent offered for the redemption in question. In this connection, from the
decision of the Court of Appeals, We gather that there is "decisive preponderance
of evidence" establishing "that the price paid by defendants was not that stated in
the document, Exhibit 2, of P30,000 but much more, at least P97,000, according
to the check, Exhibit 1, if not a total of P115,250.00 because another amount in
cash of P18,250 was paid afterwards."

It is, therefore, the contention of petitioners here that considering said finding of
fact of the intermediate court, it erred in holding nevertheless that "the
redemption price should be that stated in the deed of sale."
Again, petitioners' contention cannot be sustained. As stated in the decision
under review, the trial court found that "the consideration of P30,000 only was
placed in the deed of sale to minimize the payment of the registration fees,
stamps and sales tax." With this undisputed fact in mind, it is impossible for the
Supreme Court to sanction petitioners' pragmatic but immoral posture. Being
patently violative of public policy and injurious to public interest, the seemingly
wide practice of understating considerations of transactions for the purpose of
evading taxes and fees due to the government must be condemned and all parties
guilty thereof must be made to suffer the consequences of their ill-advised
agreement to defraud the state. Verily, the trial court fell short of its devotion and
loyalty to the Republic in officially giving its stamp of approval to the stand of
petitioners and even berating respondent Javellana as wanting to enrich herself
"at the expense of her own blood relatives who are her aunts, uncles and
cousins." On the contrary, said "blood relatives" should have been sternly told, as
We here hold, that they are in pari-delicto with petitioners in committing tax
evasion and should not receive any consideration from any court in respect to the
money paid for the sale in dispute. Their situation is similar to that of parties to
an illegal contract. 1
Of course, the Court of Appeals was also eminently correct in its considerations
supporting the conclusion that the redemption in controversy should be only for
the price stipulated in the deed, regardless of what might have been actually paid
by petitioners that style inimitable and all his own, Justice Gatmaitan states those
considerations thus:
CONSIDERING: As to this that the evidence has established
with decisive preponderance that the price paid by defendants
was not that stated in the document, Exh. 2 of P30,000.00 but
much more, at least P97,000.00 according to the check, Exh. 1
if not a total of P115,250.00 because another amount in cash of
P18,250.00 was paid afterwards, perhaps it would be neither
correct nor just that plaintiff should be permitted to redeem at
only P30,000.00, that at first glance would practically enrich
her by the difference, on the other hand, after some reflection,
this Court can not but have to bear in mind certain definite
points.
1st According to Art. 1619
"Legal redemption is the right to be subrogated, upon the same
terms and conditions stipulated in the contract, in the place of
one who acquires a thing by purchase or dation in payment, or
by any other transaction whereby ownership is transmitted by
onerous title." pp. 471-472, New Civil Code,
and note that redemptioner right is to be subrogated
"upon the same terms and conditions stipulated in the contract."

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and here, the stipulation in the public evidence of the contract,
made public by both vendors and vendees is that the price was
P30,000.00;
2nd According to Art. 1620,
"A co-owner of a thing may exercise the right of redemption in case the share of
all the other co-owners or any of them, are sold to a third person. If the price of
the alienation is grossly excessive, the redemptioner shall pay only a reasonable
one. p. 472, New Civil Code, .
from which it is seen that if the price paid is 'grossly excessive'
redemptioner is required to pay only a reasonable one; not that
actually paid by the vendee, going to show that the law seeks to
protect redemptioner and converts his position into one not that
of a contractually but of a legally subrogated creditor as to the
right of redemption, if the price is not 'grossly excessive', what
the law had intended redemptioner to pay can be read in Art.
1623.
The right of a legal pre-emption or redemption
shall not be exercised except within thirty (30)
days from the notice in writing by the
prospective vendor, or by the vendor as the
case may be. The deed of sale shall not be
recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that
he has given written notice thereof of all
possible redemptioners.' p. 473, New Civil
Code,
if that be so that affidavit must have been intended by the
lawmakers for a definite purpose, to argue that this affidavit has
no purpose is to go against all canons of statutory construction,
no law mandatory in character and worse, prohibitive should be
understood to have no purpose at all, that would be an
absurdity, that purpose could not but have been to give a clear
and unmistakable guide to redemptioner, on how much he
should pay and when he should redeem; from this must follow
that that notice must have been intended to state the truth and if
vendor and vendee should have instead, decided to state an
untruth therein, it is they who should bear the consequences of
having thereby misled the redemptioner who had the right to
rely and act thereon and on nothing else; stated otherwise, all
the elements of equitable estoppel are here since the
requirement of the law is to submit the affidavit of notice to all
possible redemptioners, that affidavit to be a condition
precedent to registration of the sale therefore, the law must have
intended that it be by the parties understood that they were there
asking a solemn representation to all possible redemptioners,

who upon faith of that are thus induced to act, and here worse
for the parties to the sale, they sought to avoid compliance with
the law and certainly refusal to comply cannot be rewarded with
exception and acceptance of the plea that they cannot be now
estopped by their own representation, and this Court notes that
in the trial and to this appeal, plaintiff earnestly insisted and
insists on their estoppel;
3rd If therefore, here vendors had only attempted to comply
with the law, they would have been obligated to send a copy of
the deed of sale unto Filomena Javellana and from that copy,
Filomena would have been notified that she should if she had
wanted to redeem, offered no more, no less, that P30,000.00,
within 30 days, it would have been impossible for vendors and
vendees to have inserted in the affidavit that the price was truly
P97,000.00 plus P18,250.00 or a total of P115,250.00; in other
words, if defendants had only complied with the law, they
would have been obligated to accept the redemption money of
only P30,000.00;
4th If it be argued that foregoing solution would mean unjust
enrichment for plaintiff, it need only be remembered that
plaintiff's right is not contractual, but a mere legal one, the
exercise of a right granted by the law, and the law is definite
that she can subrogate herself in place of the buyer,
"upon the same terms and conditions stipulated in the contract,"
in the words of Art. 1619, and here the price
"stipulated in the contract"
was P30,000.00, in other words, if this be possible enrichment
on the part of Filomena, it was not unjust but just enrichment
because permitted by the law; if it still be argued that plaintiff
would thus be enabled to abuse her right, the answer simply is
that what she is seeking to enforce is not an abuse but a mere
exercise of a right; if it be stated that just the same, the effect of
sustaining plaintiff would be to promote not justice but
injustice, the answer again simply is that this solution is not
unjust because it only binds the parties to make good their
solemn representation to possible redemptioners on the price of
the sale, to what they had solemnly averred in a public
document required by the law to be the only basis for that
exercise of redemption; (Pp. 24-27, Record.)
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs
against petitioners..
Fernando, Makasiar, Esguerra, Aquino and Martin, JJ., concur.
Makalintal, CJ., took no part.

50

SALES
Muoz Palma, J., took no part.
Antonio and Concepcion Jr., JJ., are on leave.

Separate Opinions
TEEHANKEE, J., concurring:
The legal (and moral) right of private respondent Filomena Javellana as (1/7)
pro-indiviso co-owner to exercise the right granted her by the Civil Code of legal
redemption of the pro-indiviso 6/7 share of the property which was sold by her
erstwhile co-owners to the Doromals as interested third persons for the stipulated
contractual price of P30,000.00 is unassailable.
It is admitted in the record (from the Doromals' own evidence and the trial
court's factual findings) that the Doromals (buyers) and the co-owners (sellers)
had criminally understated and falsified the contractual price in the deed of sale
as registered with the Register of Deeds to be P30,000.00 instead of P115,250.00
as "actually paid" by the Doromals, admittedly for the illegal and criminal
purpose "to minimize the payment of the registration fees, stamps and sales
tax. 1 (It may be added that such gross understatement of the actual price was
resorted to obviously to minimize the resultant tax liability of the co-owners for
income tax or capital gains from the sale of the property as well as to minimize, if
not conceal, the sources and assets of the Doromals as buyers and make it falsely
appear that their capital outlay for the purchase was only one-fourth () of the actual
price which is a device notoriously availed of by tax evaders to willfully and
criminally evade the payment of taxes justly due to the government).
This criminal and illegal conduct in no way entitles the Doromals to claim
callously as against respondent redemptioner who is merely exercising her legal
right of redemption "to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of the Doromals as third-person buyers
[Articles 1619 and 1620, Civil Code] that she may only redeem the property
from them by paying the larger amount of P115,250.00 that they had actually
paid the co-owners for their 6/7 share of the property. Such criminal-tax evasion
can in no way be abated if the courts and the law would yet pay heed to the plea
of the tax evaders that they had falsely understated the contract price and that the
courts should order the redemptioner to pay them not the contract price but
the larger amount they had actually paid but illegally understated in order to
evade the taxes justly due to the Government. A party to an illegal contract
cannot come to court and ask it to help carry out his illegal objects. 2
For the tax evaders to invoke in court their very act of tax evasion and to ask the
courts to sanction the same by declaring that the understated stipulated price was
only for purposes of tax evasion but that for the exercise of the legal right of
redemption, respondent must be ordered by the courts to pay them the larger

amount they had actually paid but falsely understated in the deed would be to put
a premium on criminal conduct and frank cynicism in gross derogation of the
law, morals, good customs and public policy.
When the Doromals falsely understated the contractual price of their purchase
from respondent's co-owners, they did so at their own risk and with full
knowledge of respondent's right to redeem the property for the price stated in the
contract.
By virtue of the rule of in pari delicto, they cannot even seek recourse against
the co-owners to refund to them the difference between the redemption price (of
P30,000.00) and the much larger amount (of P115,250.00) that they actually paid
the co-owners.
If, say, there were no question of redemption but that they had a valid cause for
rescission of their purchase and brought suit therefor, (so that the case were
strictly one between the Doromals and their sellers), the courts would order the
return of only the price as officially stated in the deed and not the larger amount
(of P115,250.00) that they had actually paid (but understated for tax evasion
purposes) since the law will not aid either party in pari delictobut will leave
the parties where it finds them, or more accurately where they have placed
themselves. Manifestly the law will not aid the Doromals as against respondentredemptioner who had no part in their illegal and criminal conduct.
Finally, if such notorious tax evasion is to be effectively curbed, and the facts of
record in the case at bar are duly established in the appropriate proceedings, the
Doromals and the co-owners-sellers should be criminally charged for
falsification of public documents besides being held liable by the proper
authorities for the full amount of taxes, income and capital gains, documentary
stamps, registration fees, etc., that they had admittedly willfully evaded by the
false understatement of the real and actual price in the deed of sale executed
between them.

Separate Opinions
TEEHANKEE, J., concurring:
The legal (and moral) right of private respondent Filomena Javellana as (1/7)
pro-indiviso co-owner to exercise the right granted her by the Civil Code of legal
redemption of the pro-indiviso 6/7 share of the property which was sold by her
erstwhile co-owners to the Doromals as interested third persons for the stipulated
contractual price of P30,000.00 is unassailable.
It is admitted in the record (from the Doromals' own evidence and the trial
court's factual findings) that the Doromals (buyers) and the co-owners (sellers)
had criminally understated and falsified the contractual price in the deed of sale
as registered with the Register of Deeds to be P30,000.00 instead of P115,250.00
as "actually paid" by the Doromals, admittedly for the illegal and criminal
purpose "to minimize the payment of the registration fees, stamps and sales

51

SALES
tax. 1 (It may be added that such gross understatement of the actual price was
resorted to obviously to minimize the resultant tax liability of the co-owners for
income tax or capital gains from the sale of the property as well as to minimize, if
not conceal, the sources and assets of the Doromals as buyers and make it falsely
appear that their capital outlay for the purchase was only one-fourth () of the actual
price which is a device notoriously availed of by tax evaders to willfully and
criminally evade the payment of taxes justly due to the government).
This criminal and illegal conduct in no way entitles the Doromals to claim
callously as against respondent redemptioner who is merely exercising her legal
right of redemption "to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of the Doromals as third-person buyers
[Articles 1619 and 1620, Civil Code] that she may only redeem the property
from them by paying the larger amount of P115,250.00 that they had actually
paid the co-owners for their 6/7 share of the property. Such criminal-tax evasion
can in no way be abated if the courts and the law would yet pay heed to the plea
of the tax evaders that they had falsely understated the contract price and that the
courts should order the redemptioner to pay them not the contract price but
the larger amount they had actually paid but illegally understated in order to
evade the taxes justly due to the Government. A party to an illegal contract
cannot come to court and ask it to help carry out his illegal objects. 2

Finally, if such notorious tax evasion is to be effectively curbed, and the facts of
record in the case at bar are duly established in the appropriate proceedings, the
Doromals and the co-owners-sellers should be criminally charged for
falsification of public documents besides being held liable by the proper
authorities for the full amount of taxes, income and capital gains, documentary
stamps, registration fees, etc., that they had admittedly willfully evaded by the
false understatement of the real and actual price in the deed of sale executed
between them.

For the tax evaders to invoke in court their very act of tax evasion and to ask the
courts to sanction the same by declaring that the understated stipulated price was
only for purposes of tax evasion but that for the exercise of the legal right of
redemption, respondent must be ordered by the courts to pay them the larger
amount they had actually paid but falsely understated in the deed would be to put
a premium on criminal conduct and frank cynicism in gross derogation of the
law, morals, good customs and public policy.
When the Doromals falsely understated the contractual price of their purchase
from respondent's co-owners, they did so at their own risk and with full
knowledge of respondent's right to redeem the property for the price stated in the
contract.
By virtue of the rule of in pari delicto, they cannot even seek recourse against
the co-owners to refund to them the difference between the redemption price (of
P30,000.00) and the much larger amount (of P115,250.00) that they actually paid
the co-owners.
If, say, there were no question of redemption but that they had a valid cause for
rescission of their purchase and brought suit therefor, (so that the case were
strictly one between the Doromals and their sellers), the courts would order the
return of only the price as officially stated in the deed and not the larger amount
(of P115,250.00) that they had actually paid (but understated for tax evasion
purposes) since the law will not aid either party in pari delictobut will leave
the parties where it finds them, or more accurately where they have placed
themselves. Manifestly the law will not aid the Doromals as against respondentredemptioner who had no part in their illegal and criminal conduct.

5.) [G.R. No. 126812. November 24, 1998]

GOLDENROD, INC., petitioner vs. COURT OF APPEALS, PIO
BARRETTO & SONS, INC., PIO BARRETTO REALTY
DEVELOPMENT, INC., and ANTHONY QUE, respondents.
DECISION
52

SALES
BELLOSILLO, J.:
In the absence of a specific stipulation, may the seller of real estate keep the
earnest money to answer for damages in the event the sale fails due to the
fault of the prospective buyer?
Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three (43)
parcels of registered land with a total area of 18,500 square meters located at
Carlos Palanca St., Quiapo, Manila, which were mortgaged with the United
Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation
with UCPB remained unpaid making foreclosure of the mortgage imminent.
Goldenrod, Inc. (GOLDENROD), offered to buy the property from
BARRETTO & SONS. On 25 May 1988, through its president Sonya G.
Mathay, petitioner wrote respondent Anthony Que, President of
respondentBARRETTO & SONS, as follows:
Thank you for your reply to our letter offering to buy your property in
Echague (C. Palanca) Quiapo.
We are happy that you have accepted our offer except the two amendments
concerning the payment of interest which should be monthly instead of semiannually and the period to remove the trusses, steel frames etc. which shall
be 180 days instead of 90 days only. Please be advised that we agree to your
amendments.
As to your other query, we prefer that the lots be reconsolidated back to its
(sic) mother titles.
Enclosed is the earnest money of P1 million which shall form part of the
purchase price.
Payment of the agreed total consideration shall be effected in accordance
with our offer as you have accepted and upon execution of the necessary
documents of sale to be implemented after the said reconsolidation of the
lots.
Kindly acknowledge receipt of the earnest money.
When the term of existence of BARRETTO & SONS expired, all its assets
and liabilities including the property located in Quiapo were transferred to
respondent Pio Barretto Realty Development, Inc. (BARRETTO
REALTY).Petitioners offer to buy the property resulted in its agreement with
respondent BARRETTO REALTY that petitioner would pay the following
amounts: (a) P24.5 million representing the outstanding obligations of
BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the
bank for payment; and, (b) P20 million which was the balance of the
purchase price of the property to be paid in installments within a 3-year
period with interest at 18% per annum.

Petitioner did not pay UCPB the P24.5 million loan obligation
of BARRETTO REALTY on the deadline set for payment; instead, it asked
for an extension of one (1) month or up to 31 July 1988 to settle the
obligation, which the bank granted. On 31 July 1988, petitioner requested
another extension of sixty (60) days to pay the loan. This time the bank
demurred.
In the meantime BARRETTO REALTY was able to cause the
reconsolidation of the forty-three (43) titles covering the property subject of
the purchase into two (2) titles covering Lots 1 and 2, which were issued on 4
August 1988. The reconsolidation of the titles was made pursuant to the
request of petitioner in its letter to private respondents on 25 May
1988. Respondent BARRETTO REALTY allegedly incurred expenses for the
reconsolidation amounting to P250,000.00.
On 25 August 1988 petitioner sought reconsideration of the denial by the
bank of its request for extension of sixty (60) days by asking for a shorter
period of thirty (30) days. This was again denied by UCPB.
On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and
Development Corporation (LOGARTA REALTY), which acted as agent and
broker of petitioner, wrote private respondent Anthony Que informing him
on behalf of petitioner that it could not go through with the purchase of the
property due to circumstances beyond its fault, i.e., the denial by UCPB of its
request for extension of time to pay the obligation. In the same letter, Logarta
also demanded the refund of the earnest money of P1 million which
petitioner gave to respondent BARRETTO REALTY.
On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld
Trade Center Phils., Inc. (ASIAWORLD), Lot 2, one of the two (2)
consolidated lots, for the price of P23 million. On 13 October 1988
respondent BARRETTO REALTY executed a deed transferring
by way of dacion the property reconsolidated as Lot 1 in favor of UCPB,
which in turn sold the property to ASIAWORLD for P24 million.
On 12 December 1988 Logarta again wrote respondent Que demanding the
return of the earnest money to GOLDENROD. On 7 February 1989
petitioner through its lawyer reiterated its demand, but the same remained
unheeded by private respondents. This prompted petitioner to file a
complaint with the Regional Trial Court of Manila against private
respondents for the return of the amount of P1 million and the payment of
damages including lost interests or profits. In their answer, private
respondents contended that it was the agreement of the parties that the
earnest money of P1 million would be forfeited to answer for losses and
damages that might be suffered by private respondents in case of failure by
petitioner to comply with the terms of their purchase agreement.
53

SALES
On 15 March 1991 the trial court rendered a decision[1] ordering private
respondents jointly and severally to pay petitioner P1,000,000.00 with legal
interest from 9 February 1989 until fully paid, P50,000.00 representing
unrealized profits and P10,000.00 as attorneys fees. The trial court found that
there was no written agreement between the parties concerning forfeiture of
the earnest money if the sale did not push through. It further declared that the
earnest money given by petitioner to respondent BARRETTO REALTY was
intended to form part of the purchase price; thus, the refusal of the latter to
return the money when the sale was not consummated violated Arts. 22 and
23 of the Civil Code against unjust enrichment.
Obviously dissatisfied with the decision of the trial court, private respondents
appealed to the Court of Appeals which reversed the trial court and ordered
the dismissal of the complaint; hence, this petition.
Petitioner alleges that the Court of Appeals erred in disregarding the finding
of the trial court that the earnest money given by petitioner to respondent
BARRETTO REALTY should be returned to the former. The absence of an
express stipulation that the same shall be forfeited in favor of the seller in
case the buyer fails to comply with his obligation is compelling. It argues that
the forfeiture of the money in favor of respondent BARRETTO REALTY
would amount to unjust enrichment at the expense of petitioner.
We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest
money is given in a contract of sale, it shall be considered as part of the
purchase price and as proof of the perfection of the contract. Petitioner
clearly stated without any objection from private respondents that the earnest
money was intended to form part of the purchase price. It was an advance
payment which must be deducted from the total price. Hence, the parties
could not have intended that the earnest money or advance payment would
be forfeited when the buyer should fail to pay the balance of the price,
especially in the absence of a clear and express agreement thereon. By reason
of its failure to make payment petitioner, through its agent, informed private
respondents that it would no longer push through with the sale. In other
words, petitioner resorted to extrajudicial rescission of its agreement with
private respondents.

Private respondents did not interpose any objection to the rescission by

petitioner of the agreement. As found by the Court of Appeals, private
respondent BARRETTO REALTY even sold Lot 2 of the subject
consolidated lots to another buyer, ASIAWORLD, one day after its President
Anthony Que received the broker's letter rescinding the sale. Subsequently,
on 13 October 1988 respondent BARRETTO REALTY also conveyed
ownership over Lot 1 to UCPB which, in turn, sold the same to
ASIAWORLD.
Article 1385 of the Civil Code provides that rescission creates the obligation
to return the things which were the object of the
contract together with their fruits and interest. The vendor is therefore
obliged to return the purchase price paid to him by the buyer if the latter
rescinds the sale,[4] or when the transaction was called off and the subject
property had already been sold to a third person, as what obtained in this
case.[5] Therefore, by virtue of the extrajudicial rescission of the contract to
sell by petitioner without opposition from private respondents who, in turn,
sold the property to other persons, private respondent BARRETTO REALTY,
as the vendor, had the obligation to return the earnest money
of P1,000,000.00 plus legal interest from the date it received notice of
rescission from petitioner, i.e., 30 August 1988, up to the date of the return or
payment. It would be most inequitable if respondent BARRETTO REALTY
would be allowed to retain petitioners payment of P1,000,000.00 and at the
same time appropriate the proceeds of the second sale made to another.[6]
WHEREFORE, the Petition is GRANTED. The decision of the Court of
Appeals is REVERSED and SET ASIDE. Private respondent Pio Barretto
Realty Development, Inc. (BARRETTO REALTY), its successors and
assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD),
the amount of P1,000,000.00 with legal interest thereon from 30 August
1988, the date of notice of extrajudicial rescission, until the amount is fully
paid, with costs against private respondents.
SO ORDERED.

In University of the Philippines v. de los Angeles,[2] the right to rescind

contracts is not absolute and is subject to scrutiny and review by the proper
court. We held further, in the more recent case of Adelfa Properties, Inc. v.
Court of Appeals,[3] that rescission of reciprocal contracts may be
extrajudicially rescinded unless successfully impugned in court. If the party
does not oppose the declaration of rescission of the other party, specifying
the grounds therefor, and it fails to reply or protest against it, its silence
thereon suggests an admission of the veracity and validity of the rescinding
party's claim.
54

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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:
6.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJEDALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO
SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.
MEDIALDEA, J.:

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.
55

SALES
From the adverse decision of the trial court, Dalion appealed, assigning
errors some of which, however, were disregarded by the appellate court, not
having been raised in the court below. While the Court of Appeals duly
recognizes Our authority to review matters even if not assigned as errors in
the appeal, We are not inclined to do so since a review of the case at bar
reveals that the lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason to
dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same property
deeded out in Exhibit "B". The boundaries delineating it from adjacent lots
are identical. Both documents detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract
of sale of a parcel of land and b) the necessity of a public document for
transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21
and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.-Before
any private writing may be received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. The handwriting of a person may be
proved by any witness who believes it to be the handwriting of such person,
and has seen the person write, or has seen writing purporting to be his upon
which the witness has acted or been charged, and has thus acquired
knowledge of the handwriting of such person. Evidence respecting the
handwriting may also be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the party against whom
the evidence is offered, or proved to be genuine to the satisfaction of the
judge. (Rule 132, Revised Rules of Court)

And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively testified
on the authenticity thereof. They categorically stated that it had been
executed and signed by the signatories thereto. In fact, one of such witnesses,
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 3C) 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

56

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forge another signature, an unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44, Rollo)
as we reiterate that
Appellate courts have consistently subscribed to the principle that
conclusions and findings of fact by the trial courts are entitled to great weight
on appeal and should not be disturbed unless for strong and cogent reasons,
since it is undeniable that the trial court is in a more advantageous position to
examine real evidence, as well as to observe the demeanor of the witnesses
while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395,
May 13, 1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605,
August 19, 1985, 138 SCRA 185)
Assuming authenticity of his signature and the genuineness of the document,
Dalion nonetheless still impugns the validity of the sale on the ground that
the same is embodied in a private document, and did not thus convey title or
right to the lot in question since "acts and contracts which have for their
object the creation, transmission, modification or extinction of real rights
over immovable property must appear in a public instrument" (Art. 1358, par
1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity of a
public document is only for convenience, not for validity or enforceability. It
is not a requirement for the validity of a contract of sale of a parcel of land
that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale is
perfected by mere consent. No particular form is required for its validity.
Upon perfection of the contract, the parties may reciprocally demand
performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee to
pay the thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje
the parcel of land and to execute corresponding formal deed of conveyance
in a public document. Under Art. 1498, NCC, when the sale is made through
a public instrument, the execution thereof is equivalent to the delivery of the
thing. Delivery may either be actual (real) or constructive. Thus delivery of a
parcel of land may be done by placing the vendee in control and possession
of the land (real) or by embodying the sale in a public instrument
(constructive).
As regards petitioners' contention that the proper action should have been one
for specific performance, We believe that the suit for recovery of ownership
is proper. As earlier stated, Art. 1475 of the Civil Code gives the parties to a
perfected contract of sale the right to reciprocally demand performance, and

to observe a particular form, if warranted, (Art. 1357). The trial court, aptly
observed that Sabesaje's complaint sufficiently alleged a cause of action to
compel Dalion to execute a formal deed of sale, and the suit for recovery of
ownership, which is premised on the binding effect and validity inter
partes of the contract of sale, merely seeks consummation of said contract.
... . A sale of a real property may be in a private instrument but that contract
is valid and binding between the parties upon its perfection. And a party may
compel the other party to execute a public instrument embodying their
contract affecting real rights once the contract appearing in a private
instrument hag been perfected (See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court of
Appeals upholding the ruling of the trial court is hereby AFFIRMED. No
costs.
SO ORDERED.

7.) Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55048 May 27, 1981
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO
SOTTO, petitioners,
vs.
HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY
RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA NOGAR,
MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU,
OSCAR DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU,
SEBASTIAN YU, CARLOS UY, HOC CHUAN and MANUEL
DY,respondents.
BARREDO, J.:1wph1.t
Petition for certiorari and prohibition to declare void for being in grave
abuse of discretion the orders of respondent judge dated November 2, 1978
57

SALES
and August 29, 1980, in Civil Case No. 5759 of the Court of First Instance of
Leyte, which denied the motion filed by petitioners to dismiss the complaint
of private respondents for specific performance of an alleged agreement of
sale of real property, the said motion being based on the grounds that the
respondents' complaint states no cause of action and/or that the claim alleged
therein is unenforceable under the Statute of Frauds.

Very truly yours,

Finding initially prima facie merit in the petition, We required respondents to

answer and We issued a temporary restraining order on October 7, 1980
enjoining the execution of the questioned orders.

Atty. Pedro Gamboa

In essence, the theory of petitioners is that while it is true that they did
express willingness to sell to private respondents the subject property for
P6,500,000 provided the latter made known their own decision to buy it not
later than July 31, 1978, the respondents' reply that they were agreeable was
not absolute, so much so that when ultimately petitioners' representative went
to Cebu City with a prepared and duly signed contract for the purpose of
perfecting and consummating the transaction, respondents and said
representative found variance between the terms of payment stipulated in the
prepared document and what respondents had in mind, hence the bankdraft
which respondents were delivering to petit loners' representative was
returned and the document remained unsigned by respondents. Hence the
action below for specific performance.

Osmea Boulevard, Cebu City

To be more specific, the parties do not dispute that on July 12, 1978,
petitioners, thru a certain Pedro C. Gamboa, sent to respondents the
following letter:
Mr. Yao King Ong
Life Bakery
Tacloban City
Dear Mr. Yao: 1wph1.t
This refers to the Sotto property (land and building) situated at Tacloban
City. My clients are willing to sell them at a total price of P6,500,000.00.
While there are other parties who are interested to buy the property, I am
giving you and the other occupants the preference, but such priority has to be
exercised within a given number of days as I do not want to lose the
opportunity if you are not interested. I am therefore gluing you and the rest of
the occupants until July 31, 1978 within it which to decide whether you want
to buy the property. If I do not hear from you by July 31, I will offer or close
the deal with the other interested buyer.
Thank you so much for the hospitality extended to me during my last trip to
Tacloban, and I hope to hear from you very soon. 1wph1.t

Pedro C. Gamboa 1
(Page 9, Record.)
Reacting to the foregoing letter, the following telegram was sent by "Yao
King Ong & tenants" to Atty. Pedro Gamboa in Cebu City:
Room 314, Maria Cristina Bldg.
Reurlet dated July 12 inform Dra. Yuvienco we agree to buy property
proceed Tacloban to negotiate details 1wph1.t
Yao King Ong & tenants
(Page 10, Record.)
Likewise uncontroverted is the fact that under date of July 27, 1978, Atty.
Gamboa wired Yao King Ong in Tacloban City as follows:
NLT
YAO KING ONG
LIFE BAKERY
TACLOBAN CITY
PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH
CONTRACT PREPARE PAYMENT BANK DRAFT 1wph1.t
ATTY. GAMBOA
(Page 10, Id.)
Now, Paragraph 10 of the complaint below of respondents
alleges: 1wph1.t
10. That on August 1, 1978, defendant Pedro Gamboa arrived Tacloban
City bringing with him the prepared contract to purchase and to sell referred
to in his telegram dated July 27, 1978 (Annex 'D' hereof) for the purpose of
closing the transactions referred to in paragraphs 8 and 9 hereof, however, to
the complete surprise of plaintiffs, the defendant (except def. Tacloban City
Ice Plant, Inc.) without giving notice to plaintiffs, changed the mode of
payment with respect to the balance of P4,500,000.00 by imposing upon
plaintiffs to pay same amount within thirty (30) days from execution of the
contract instead of the former term of ninety (90) days as stated in paragraph
8 hereof. (Pp. 10-11, Record.)

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Additionally and to reenforce their position, respondents alleged further in
their complaint: 1wph1.t

or not the claim alleged therein is unenforceable under the Statute of Frauds,
by holding thus: 1wph1.t

8. That on July 12, 1978, defendants (except defendant Tacloban City Ice
Plant, Inc.) finally sent a telegram letter to plaintiffs- tenants, through same
Mr. Yao King Ong, notifying them that defendants are willing to sell the
properties (lands and building) at a total price of P6,500,000.00, which herein
plaintiffs-tenants have agreed to buy the said properties for said price; a copy
of which letter is hereto attached as integral part hereof and marked as Annex
'C', and plaintiffs accepted the offer through a telegram dated July 25, 1978,
sent to defendants (through defendant Pedro C. Gamboa), a copy of which
telegram is hereto attached as integral part hereof and marked as Annex C-1
and as a consequence hereof. plaintiffs except plaintiff Tacloban - merchants'
Realty Development Corporation) and defendants (except defendant
Tacloban City Ice Plant. Inc.) agreed to the following terms and conditions
respecting the payment of said purchase price, to wit: 1wph1.t

The second ground of the motion to dismiss is that plaintiffs' claim is

unenforceable under the Statute of Frauds. The defendants argued against
this motion and asked the court to reject the objection for the simple reason
that the contract of sale sued upon in this case is supported by letters and
telegrams annexed to the complaint and other papers which will be presented
during the trial. This contention of the defendants is not well taken. The
plaintiffs having alleged that the contract is backed up by letters and
telegrams, and the same being a sufficient memorandum, the complaint states
a cause of action and they should be given a day in court and allowed to
substantiate their allegations (Paredes vs. Espino, 22 SCRA 1000).

P2,000,000.00 to be paid in full on the date of the execution of the contract;

and the balance of P4,500,000.00 shall be fully paid within ninety (90) days
thereafter;
9. That on July 27, 1978, defendants sent a telegram to plaintiff- tenants,
through the latter's representative Mr. Yao King Ong, reiterating their
acceptance to the agreement referred to in the next preceding paragraph
hereof and notifying plaintiffs-tenants to prepare payment by bank drafts;
which the latter readily complied with; a copy of which telegram is hereto
attached as integral part hereof and marked as Annex "D"; (Pp 49-50,
Record.)
It was on the basis of the foregoing facts and allegations that herein
petitioners filed their motion to dismiss alleging as main
grounds: 1wph1.t
I. That plaintiff, TACLOBAN MERCHANTS' REALTY DEVELOPMENT
CORPORATION, amended complaint, does not state a cause of action and
the claim on which the action is founded is likewise unenforceable under the
provisions of the Statute of Frauds.

To take a contract for the sale of land out of the Statute of Frauds a mere note
or memorandum in writing subscribed by the vendor or his agent containing
the name of the parties and a summary statement of the terms of the sale
either expressly or by reference to something else is all that is required. The
statute does not require a formal contract drawn up with technical exactness
for the language of Par. 2 of Art. 1403 of the Philippine Civil Code is' ... an
agreement ... or some note or memorandum thereof,' thus recognizing a
difference between the contract itself and the written evidence which the
statute requires (Berg vs. Magdalena Estate, Inc., 92 Phil. 110; Ill Moran,
Comments on the Rules of Court, 1952 ed. p. 187). See also Bautista's
Monograph on the Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111,
Record)
Our first task then is to dwell on the issue of whether or not in the light of the
foregoing circumstances, the complaint in controversy states sufficiently a
cause of action. This issue necessarily entails the determination of whether or
not the plaintiffs have alleged facts adequately showing the existence of a
perfected contract of sale between herein petitioners and the occupant
represented by respondent Yao King Ong.
In this respect, the governing legal provision is, of course, Article 1319 of the
Civil Code which provides:1wph1.t

II. That as to the rest of the plaintiffs, their amended complaint does not state
a cause of action and the claim on which the action is founded is likewise
unenforceable under the provisions of the Statute of Frauds. (Page 81,
Record.)

ART. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are constitute the contract.
The offer must be certain the acceptance absolute. A qualified acceptance
constitute a counter-offer.

With commendable knowledgeability and industry, respondent judge ruled

negatively on the motion to dismiss, discoursing at length on the personality
as real party-in-interest of respondent corporation, while passing lightly,
however, on what to Us are the more substantial and decisive issues of
whether or not the complaint sufficiently states a cause of action and whether

In the instant case, We can lay aside, for the moment, petitioners' contention
that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to respondents Yao

Acceptance made by letter or telegram does not bind offerer except from the
time it came to his knowledge. The contract, in a case, is presumed to have
been entered into in the place where the offer was made.

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SALES
King Ong and his companions constitute an offer that is "certain", although
the petitioners claim that it was a mere expression of willingness to sell the
subject property and not a direct offer of sale to said respondents. What We
consider as more important and truly decisive is what is the correct juridical
significance of the telegram of respondents instructing Atty. Gamboa to
"proceed to Tacloban to negotiate details." We underline the word "negotiate"
advisedly because to Our mind it is the key word that negates and makes it
legally impossible for Us to hold that respondents' acceptance of petitioners'
offer, assuming that it was a "certain" offer indeed, was the "absolute" one
that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of the
Idea that an agreement has been reached. Webster's Third International
Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine copyright) gives
the meaning of negotiate as "to communicate or confer with another so as to
arrive at the settlement of some matter; meet with another so as to arrive
through discussion at some kind of agreement or compromise about
something; to arrange for or bring about through conference or discussion;
work at or arrive at or settle upon by meetings and agreements or
compromises ". Importantly, it must be borne in mind that Yao King Ong's
telegram simply says "we agree to buy property". It does not necessarily
connote acceptance of the price but instead suggests that the details were to
be subject of negotiation.
Respondents now maintain that what the telegram refers to as "details" to be
"negotiated" are mere "accidental elements", not the essential elements of the
contract. They even invite attention to the fact that they have alleged in their
complaint (Par. 6) that it was as early as "in the month of October, 1977
(that) negotiations between plaintiffs and defendants for the purchase and
sale (in question) were made, thus resulting to offers of same defendants
and counter-offer of plaintiffs". But to Our mind such alleged facts precisely
indicate the failure of any meeting of the minds of the parties, and it is only
from the letter and telegrams above-quoted that one can determine whether
or not such meeting of the minds did materialize. As We see it, what such
allegations bring out in bold relief is that it was precisely because of their
past failure to arrive at an agreement that petitioners had to put an end to the
uncertainty by writing the letter of July 12, 1978. On the other hand, that
respondents were all the time agreeable to buy the property may be
conceded, but what impresses Us is that instead of "absolutely" accepting the
"certain" offer if there was one of the petitioners, they still insisted on
further negotiation of details. For anyone to read in the telegram of Yao that
they accepted the price of P6,500,000.00 would be an inference not
necessarily warranted by the words "we agree to buy" and "proceed Tacloban
to negotiate details". If indeed the details being left by them for further
negotiations were merely accidental or formal ones, what need was there to

say in the telegram that they had still "to negotiate (such) details", when,
being unessential per their contention, they could have been just easily
clarified and agreed upon when Atty. Gamboa would reach Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier
above, We gather that it was in answer to the telegram of Yao. Considering
that Yao was in Tacloban then while Atty. Gamboa was in Cebu, it is difficult
to surmise that there was any communication of any kind between them
during the intervening period, and none such is alleged anyway by
respondents. Accordingly, the claim of respondents in paragraph 8 of their
complaint below that there was an agreement of a down payment of P2 M,
with the balance of P4.5M to be paid within 90 days afterwards is rather
improbable to imagine to have actually happened.
Respondents maintain that under existing jurisprudence relative to a motion
to dismiss on the ground of failure of the complaint to state a cause of action,
the movant-defendant is deemed to admit the factual allegations of the
complaint, hence, petitioners cannot deny, for purposes of their motion, that
such terms of payment had indeed been agreed upon.
While such is the rule, those allegations do not detract from the fact that
under Article 1319 of the Civil Code above-quoted, and judged in the light of
the telegram-reply of Yao to Atty. Gamboa's letter of July 12, 1978, there was
not an absolute acceptance, hence from that point of view, petitioners'
contention that the complaint of respondents state no cause of action is
correct.
Nonetheless, the alleged subsequent agreement about the P2 M down and
P4.5 M in 90 days may at best be deemed as a distinct cause of action. And
placed against the insistence of petitioners, as demonstrated in the two deeds
of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10 of the answer
of herein respondents, that there was no agreement about 90 days, an issue of
fact arose, which could warrant a trial in order for the trial court to determine
whether or not there was such an agreement about the balance being payable
in 90 days instead of the 30 days stipulated in Annexes 9 and 10 abovereferred to. Our conclusion, therefore, is that although there was no perfected
contract of sale in the light of the letter of Atty. Gamboa of July 12, 1978 and
the letter-reply thereto of Yao; it being doubtful whether or not, under Article
1319 of the Civil Code, the said letter may be deemed as an offer to sell that
is "certain", and more, the Yao telegram is far from being an "absolute"
acceptance under said article, still there appears to be a cause of action
alleged in Paragraphs 8 to 12 of the respondents' complaint, considering it is
alleged therein that subsequent to the telegram of Yao, it was agreed that the
petitioners would sell the property to respondents for P6.5 M, by paving P2
M down and the balance in 90 days and which agreement was allegedly

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violated when in the deeds prepared by Atty. Gamboa and taken to Tacloban,
only 30 days were given to respondents.
But the foregoing conclusion is not enough to carry the day for respondents.
It only brings Us to the question of whether or not the claim for specific
performance of respondents is enforceable under the Statute of Frauds. In
this respect, We man, view the situation at hand from two angles, namely, (1)
that the allegations contained in paragraphs 8 to 12 of respondents' complaint
should be taken together with the documents already aforementioned and (2)
that the said allegations constitute a separate and distinct cause of action. We
hold that either way We view the situation, the conclusion is inescapable e
that the claim of respondents that petitioners have unjustifiably refused to
proceed with the sale to them of the property v in question is unenforceable
under the Statute of Frauds.

statements of law, inferences and arguments need not be stated. Thus, Sec. 1
of Rule 8 provides that 'every pleading shall contain in a methodical and
logical form, a plain concise and direct statement of the ultimate facts on
which the party pleading relies for his claim or defense, as the case may be,
omitting the statement of mere evidentiary facts.' Exhibits need not be
attached. The contract of sale sued upon in this case is supported by letters
and telegrams annexed to the complaint and plaintiffs have announced that
they will present additional evidences during the trial to prove their cause of
action. The plaintiffs having alleged that the contract is backed up by letters
and telegrams, and the same being sufficient memorandum, the complaint
states a cause of action and they should be given their day in court and
allowed to substantiate their allegations (Parades vs. Espino, 22 SCRA 1000).
(Pp 165-166, Record.)

It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is

any writing or memorandum, much less a duly signed agreement to the effect
that the price of P6,500,000 fixed by petitioners for the real property herein
involved was agreed to be paid not in cash but in installments as alleged by
respondents. The only documented indication of the non-wholly-cash
payment extant in the record is that stipulated in Annexes 9 and 10 abovereferred to, the deeds already signed by the petitioners and taken to Tacloban
by Atty. Gamboa for the signatures of the respondents. In other words, the
90-day term for the balance of P4.5 M insisted upon by respondents choices
not appear in any note, writing or memorandum signed by either the
petitioners or any of them, not even by Atty. Gamboa. Hence, looking at the
pose of respondents that there was a perfected agreement of purchase and
sale between them and petitioners under which they would pay in
installments of P2 M down and P4.5 M within ninety 90) days afterwards it
is evident that such oral contract involving the "sale of real property" comes
squarely under the Statute of Frauds (Article 1403, No. 2(e), Civil Code.)

The foregoing disquisition of respondent judge misses at least two (2)

juridical substantive aspects of the Statute of Frauds insofar as sale of real
property is concerned. First, His Honor assumed that the requirement of
perfection of such kind of contract under Article 1475 of the Civil Code
which provides that "(t)he contract of sale is perfected at the moment there is
a meeting of the minds upon the thing which is the object of the contract and
upon the price", the Statute would no longer apply as long as the total price
or consideration is mentioned in some note or memorandum and there is no
need of any indication of the manner in which such total price is to be paid.
We cannot agree. In the reality of the economic world and the exacting
demands of business interests monetary in character, payment on installments
or staggered payment of the total price is entirely a different matter from cash
payment, considering the unpredictable trends in the sudden fluctuation of
the rate of interest. In other words, it is indisputable that the value of money varies from day to day, hence the indispensability of providing in any sale of
the terms of payment when not expressly or impliedly intended to be in cash.

On the other score of considering the supposed agreement of paying

installments as partly supported by the letter and t telegram earlier quoted
herein, His Honor declared with well studied ratiocination, albeit legally
inaccurate, that: 1wph1.t

Thus, We hold that in any sale of real property on installments, the Statute of
Frauds read together with the perfection requirements of Article 1475 of the
Civil Code must be understood and applied in the sense that the idea of
payment on installments must be in the requisite of a note or memorandum
therein contemplated. Stated otherwise, the inessential elements" mentioned
in the case of Parades vs. Espino, 22 SCRA 1000, relied upon by respondent
judge must be deemed to include the requirement just discussed when it
comes to installment sales. There is nothing in the monograph re the
Statute of Frauds appearing in 21 SCRA 250 also cited by His Honor
indicative of any contrary view to this ruling of Ours, for the essence and
thrust of the said monograph refers only to the form of the note or
memorandum which would comply with the Statute, and no doubt, while
such note or memorandum need not be in one single document or writing and

The next issue relate to the State of Frauds. It is contended that plaintiffs'
action for specific performance to compel the defendants to execute a good
and sufficient conveyance of the property in question (Sotto land and
building) is unenforceable because there is no other note memorandum or
writing except annexes "C", "C-l" and "D", which by themselves did not give
birth to a contract to sell. The argument is not well founded. The rules of
pleading limit the statement of the cause of action only to such operative
facts as give rise to the right of action of the plaintiff to obtain relief against
the wrongdoer. The details of probative matter or particulars of evidence,

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it can be in just sufficiently implicit tenor, imperatively the separate notes
must, when put together', contain all the requisites of a perfected contract of
sale. To put it the other way, under the Statute of Frauds, the contents of the
note or memorandum, whether in one writing or in separate ones merely
indicative for an adequate understanding of all the essential elements of the
entire agreement, may be said to be the contract itself, except as to the form.
Secondly, We are of the considered opinion that under the rules on proper
pleading, the ruling of the trial court that, even if the allegation of the
existence of a sale of real property in a complaint is challenged as barred
from enforceability by the Statute of Frauds, the plaintiff may simply say
there are documents, notes or memoranda without either quoting them in or
annexing them to the complaint, as if holding an ace in the sleeves is not
correct. To go directly to the point, for Us to sanction such a procedure is to
tolerate and even encourage undue delay in litigation, for the simple reason
that to await the stage of trial for the showing or presentation of the requisite
documentary proof when it already exists and is asked to be produced by the
adverse party would amount to unnecessarily postponing, with the
concomitant waste of time and the prolongation of the proceedings,
something that can immediately be evidenced and thereby determinable with
decisiveness and precision by the court without further delay.
In this connection, Moran observes that unlike when the ground of dismissal
alleged is failure of the complaint to state a cause of action, a motion to
dismiss invoking the Statute of Frauds may be filed even if the absence of
compliance does not appear an the face of the complaint. Such absence may
be the subject of proof in the motion stage of the proceedings. (Moran,
Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It follows then that
when such a motion is filed and all the documents available to movant are
before the court, and they are insufficient to comply with the Statute, it
becomes incumbent upon the plaintiff, for the reasons of policy We have just'
indicated regarding speedy administration of justice, to bring out what note
or memorandum still exists in his possession in order to enable the court to
expeditiously determine then and there the need for further proceedings. In
other words, it would be inimical to the public interests in speedy justice for
plaintiff to play hide and seek at his own convenience, particularly, when, as
is quite apparent as in the instant case that chances are that there are no more
writings, notes or memoranda of the installment agreement alleged by
respondents. We cannot divine any reason why any such document would be
withheld if they existed, except the unpermissible desire of the respondents
to force the petitioners to undergo the ordeals, time, effort and expenses of a
futile trial.
In the foregoing premises, We find no alternative than to render judgment in
favor of petitioners in this certiorari and prohibition case. If at all, appeal

could be available if the petitioners subjected themselves to the trial ruled to

be held by the trial court. We foresee even at this point, on the basis of what
is both extant and implicit in the records, that no different result can be
probable. We consider it as sufficiently a grave abuse of discretion
warranting the special civil actions herein the failure of respondent judge to
properly apply the laws on perfection of contracts in relation to the Statute of
Frauds and the pertinent rules of pleading and practice, as We have discussed
above.
ACCORDINGLY, the impugned orders of respondent judge of November 2,
1978 and August 29, 1980 are hereby set aside and private respondents'
amended complaint, Annex A of the petition, is hereby ordered dismissed and
the restraining order heretofore issued by this Court on October 7, 1980 is
declared permanent. Costs against respondents.
Guerrero,* Abad Santos and De Castro, JJ., concur.1wph1.t
Mr. Justice Hermogenes Concepcion, Jr. is on leave.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. Private respondents cannot prove any perfected sale
which they can enforce.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. Private respondents cannot prove any perfected sale
which they can enforce.
Footnotes1wph1.t
1 Yao King Ong was recognized as acting not only on his own behalf but also
of his co-tenants. On the other hand, the authority of Pedro C. Gamboa to
make this offer is not disputed, regardless of whether it was in writing or not.
At this point, it may be mentioned that among the plaintiffs in Civil Case No.
5759 is a corporation named Tacloban Merchants Realty Development
Corporation which registered its articles of incorporation with the Securities
and Exchange Commission on August 8, 1978 and secured the issuance of
the corresponding certificate on August 9, 1978. It appears that said
corporation was purportedly formed in order to carry out the intent of the
occupants of petitioners' property in question, albeit there are stockholders
who are not occupants and vice-versa. The personality as a real party-interest
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of this corporation to be plaintiff is among the issues passed upon by His
Honor. Considering the ultimate manner We view this controversy, We
believe it is not essential for the final resolution thereof to deal with that
matter here.
* Mr. Justice Juvenal K. Guerrero, Member of the First Division, was
designated to sit in the Second Division.
8.) [G.R. No. 115849. January 24, 1996]
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers
Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank
officers in an exchange of letters and/or in a meeting with the buyers
constitute a perfected and enforceable contract of sale over 101 hectares of
land in Sta. Rosa, Laguna? Does the doctrine of apparent authority apply in
this case? If so, may the Central Bank-appointed conservator of Producers
Bank (now First Philippine International Bank) repudiate such apparent
authority after said contract has been deemed perfected? During the
pendency of a suit for specific performance, does the filing of a derivative
suit by the majority shareholders and directors of the distressed bank to
prevent the enforcement or implementation of the sale violate the ban against
forum-shopping?
Simply stated, these are the major questions brought before this Court in the
instant Petition for review on certiorari under Rule 45 of the Rules of Court,
to set aside the Decision promulgated January 14, 1994 of the respondent
Court of Appeals[1] in CA-G.R. CV No. 35756 and the Resolution
promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the
elimination of the damages awarded under paragraphs 3, 4 and 6 of its
dispositive portion and the reduction of the award in paragraph 5 thereof to
P75,000.00, to be assessed against defendant bank. In all other aspects, said
decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive
portion are deemed, herein and hereafter, to legally refer to the plaintiffappellee Carlos C. Ejercito.

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Costs against appellant bank.
The dispositive portion of the trial courts[2] decision dated July 10, 1991, on
the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiffs and against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six
(6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of
101 hectares, more or less, covered by and embraced in Transfer Certificates
of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of
Laguna, between the plaintiffs as buyers and the defendant Producers Bank
for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of
this decision and receipt from the plaintiffs the amount of P5.5 Million, to
execute in favor of said plaintiffs a deed of absolute sale over the
aforementioned six (6) parcels of land, and to immediately deliver to the
plaintiffs the owners copies of T.C.T. Nos. T-106932 to T-106937, inclusive,
for purposes of registration of the same deed and transfer of the six (6) titles
in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A.
Janolo and Demetrio Demetria the sums of P 200,000.00 each in moral
damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of
P 100,000.00 as exemplary damages;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount of P400,000.00 for and by way of attorneys fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual
and moderate damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply
to sur-rejoinder, the petition was given due course in a Resolution
dated January 18, 1995. Thence, the parties filed their respective memoranda
and reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating
on the aforesaid submissions, the Court assigned the case to the undersigned
ponente for the writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of
the Philippines; petitioner Bank, for brevity) is a banking institution
organized and existing under the laws of the Republic of thePhilippines.

Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and
was, at all times material to this case, Head Manager of the Property
Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age
and is the assignee of original plaintiffs-appellees Demetrio Demetria and
Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition.
The Facts
The facts of this case are summarized in the respondent Courts Decision,[3] as
follows:
(1) In the course of its banking operations, the defendant Producer Bank of
the Philippines acquired six parcels of land with a total area of 101 hectares
located at Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates
of Title Nos. T-106932 to T-106937. The property used to be owned by
BYME Investment and Development Corporation which had them
mortgaged with the bank as collateral fora loan. The original plaintiffs,
Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and
thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of
BYME Investments legal counsel, Jose Fajardo, met with defendant
Mercurio Rivera, Manager of the Property Management Department of the
defendant bank. The meeting was held pursuant to plaintiffs plan to buy the
property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to
the bank through a letter dated August 30, 1987 (Exh. B), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentlemen:
I have the honor to submit my formal offer to purchase your properties
covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total
area of 101 hectares, more or less.
TCT NO. AREA
T-106932 113,580 sq.m.
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T-106933 70,899 sq.m.

Hoping that this proposal meets your satisfaction.

T-106934 52,246 sq.m.

(5) There was no reply to Janolos foregoing letter of September 17, 1987.
What took place was a meeting on September 28, 1987 between the plaintiffs
and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as
Fajardo, the BYME lawyer, attended the meeting. Two days later, or
on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the
following letter (Exh. E):

T-106935 96,768 sq.m.

T-106936 187,114 sq.m.
T-106937 481,481 sq.m.
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00) PESOS, in cash.

The Producers Bank of the Philippines

Kindly contact me at Telephone Number 921-1344.

Paseo de Roxas, Makati

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a

formal reply by letter which is hereunder quoted (Exh. C):

Metro Manila

September 1, 1987

Re: 101 Hectares of Land in Sta. Rosa, Laguna

J-P M-P GUTIERREZ ENTERPRISES

Gentlemen:

142 Charisma St., Doa Andres II

Attention: JOSE O. JANOLO Dear Sir:

Pursuant to our discussion last 28 September 1987, we are pleased to inform

you that we are accepting your offer for us to purchase the property at Sta.
Rosa, Laguna, formerly owned by Byme In-vestment, for a total price of
PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Dear Sir:

Thank you.

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at
Sta. Rosa, Laguna (formerly owned by Byme industrial Corp.). Please be
informed however that the banks counter-offer is at P5.5 million for more
than 101 hectares on lot basis.
We shall be very glad to hear your position on the matter.

(6) On October 12, 1987, the conservator of the bank (which has been placed
under conservatorship by the Central Bank since 1984) was replaced by an
Acting Conservator in the person of defendant Leonida T. Encarnacion.
OnNovember 4, 1987, defendant Rivera wrote plaintiff Demetria the
following letter (Exh. F):

Best regards.

Attention: Atty. Demetrio Demetria

(4)On September 17, 1987, plaintiff Janolo, responding to Riveras

aforequoted reply, wrote (Exh.

Dear Sir:

Rosario, Pasig, Metro Manila

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare
lot located at Sta. Rosa Laguna, I would like to amend my previous offer and
I now propose to buy the said lot at P4.250 million in CASH.

Attention: Mr. Mercurio Rivera

Your proposal to buy the properties the bank foreclosed from Byme
Investment Corp. located at Sta. Rosa, Laguna is under study yet as of this
time by the newly created committee for submission to the newly designated
Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for
compliance by the bank with what plaintiff considered as a perfected contract
of sale, which demands were in one form or another refused by the bank. As
detailed by the trial court in its decision, on November 17, 1987, plaintiffs
through a letter to defendant Rivera (Exhibit G) tendered payment of the
amount of P5.5 million pursuant to (our) perfected sale agreement.
Defendants refused to receive both the payment and the letter. Instead, the
65

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parcels of land involved in the transaction were advertised by the bank for
sale to any interested buyer (Exhs. H and H-1). Plaintiffs demanded the
execution by the bank of the documents on what was considered as a
perfected agreement. Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to
purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are
covered by TCT No. T-106932 to 106937.
From the documents at hand, it appears that your counter-offer dated
September 1, 1987 of this same lot in the amount of P5.5 million was
accepted by our client thru a letter dated September 30, 1987 and was
received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been
perfected. We were also informed that despite repeated follow-up to
consummate the purchase, you now refuse to honor your commitment.
Instead, you have advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this formal demand upon
you to consummate and execute the necessary actions/documentation within
three (3) days from your receipt hereof We are ready to remit the agreed
amount of P5.5 million at your advice. Otherwise, we shall be constrained to
file the necessary court action to protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the
foregoing letter and stated, in its communication of December 2, 1987 (Exh.
I), that said letter has been referred x x x to the office of our Conservator for
proper disposition. However, no response came from the Acting Conservator.
On December 14, 1987, the plaintiffs made a second tender of payment
(Exhs. L and L-1), this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,

Attn.: Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:
We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO,
MBTC Check No. 258387 in the amount of P5.5 million as our agreed
purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933,
106934, 106935, 106936 and 106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your
offer of P5.5 Million as the purchase price of the said lots. Please inform us
of the date of documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then,
on May 3, 1988, plaintiff, through counsel, made a final demand for
compliance by the bank with its obligations under the considered perfected
contract of sale (Exhibit N). As recounted by the trial court (Original Record,
p. 656), in a reply letter dated May 12, 1988 (Annex 4 of defendants answer
to amended complaint), the defendants through Acting Conservator
Encarnacion repudiated the authority of defendant Rivera and claimed that
his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million
are unauthorized or illegal. On that basis, the defendants justified the refusal
of the tenders of payment and the non-compliance with the obligations under
what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with
damages against the bank, its Manager Rivera and Acting Conservator
Encarnacion. The basis of the suit was that the transaction had with the bank
resulted in a perfected contract of sale. The defendants took the position that
there was no such perfected sale because the defendant Rivera is not
authorized to sell the property, and that there was no meeting of the minds as
to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel
Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the
trial court, alleging that as owner of 80% of the Banks outstanding shares of
stock, he had a substantial interest in resisting the complaint. On July 8,
1991, the trial court issued an order denying the motion to intervene on the
ground that it was filed after trial had already been concluded. It also denied
a motion for reconsideration filed thereafter. From the trial courts decision,
the Bank, petitioner Rivera and conservator Encarnacion appealed to the
Court of Appeals which subsequently affirmed with modification the said
judgment. Henry Co did not appeal the denial of his motion for intervention.

Makati, Metro Manila

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In the course of the proceedings in the respondent Court, Carlos Ejercito was
substituted in place of Demetria and Janolo, in view of the assignment of the
latters rights in the matter in litigation to said private respondent.

The factual findings and conclusions of the Court of Appeals are supported
by the evidence on record and may no longer be questioned in this case.

On July 11, 1992, during the pendency of the proceedings in the Court of
Appeals, Henry Co and several other stockholders of the Bank, through
counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the Second Case) -purportedly a derivative suit - with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No.
92-1606, against Encarnacion, Demetria and Janolo to declare any perfected
sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale.[4] In his answer, Janolo argued that the Second Case
was barred by litis pendentia by virtue of the case then pending in the Court
of Appeals. During the pre-trial conference in the Second Case, plaintiffs
filed a Motion for Leave of Court to Dismiss the Case Without Prejudice.
Private respondent opposed this motion on the ground, among others, that
plaintiffs act of forum shopping justifies the dismissal of both cases, with
prejudice.[5] Private respondent, in his memorandum, averred that this motion
is still pending in the Makati RTC.

The Court of Appeals correctly held that there was a perfected contract
between Demetria and Janolo (substituted by respondent Ejercito) and the
bank.

III.

IV.
The Court of Appeals has correctly held that the conservator, apart from
being estopped from repudiating the agency and the contract, has no
authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be
summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?

In their Petition[6] and Memorandum,[7] petitioners summarized their position

as follows:

3) Assuming there was, was the said contract enforceable under the statute of
frauds?

I.

4) Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?

The Court of Appeals erred in declaring that a contract of sale was perfected
between Ejercito (in substitution of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable
contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have
the power to overrule or revoke acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the
evidence on record.
On the other hand, private respondents prayed for dismissal of the instant suit
on the ground[8] that:
I.
Petitioners have engaged in forum shopping.
II.

5) Did the respondent Court commit any reversible error in its findings of
facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the
Supreme Court promulgated Revised Circular No. 28-91 requiring that a
party must certify under oath x x x [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues in the
Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to
the best of his knowledge, no such action or proceeding is pending in said
courts or agencies. A violation of the said circular entails sanctions that
include the summary dismissal of the multiple petitions or complaints. To be
sure, petitioners have included a VERIFICATION/CERTIFICATION in their
Petition stating for the record(,) the pendency of Civil Case No. 92-1606
before the Regional Trial Court of Makati, Branch 134, involving
a derivative suit filed by stockholders of petitioner Bank against the
conservator and other defendants but which is the subject of a pending
Motion to Dismiss Without Prejudice.[9]
Private respondent Ejercito vigorously argues that in spite of this verification,
petitioners are guilty of actual forum shopping because the instant petition
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pending before this Court involves identical parties or interests represented,
rights asserted and reliefs sought (as that) currently pending before the
Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the
issues in the two cases are so intertwined that a judgment or resolution in
either case will constitute res judicata in the other.[10]
On the other hand, petitioners explain[11] that there is no forum-shopping
because:
1) In the earlier or First Case from which this proceeding arose, the Bank was
impleaded as a defendant, whereas in the Second Case (assuming the Bank is
the real party in interest in a derivative suit), it was the plaintiff;
2) The derivative suit is not properly a suit for and in behalf of the
corporation under the circumstances;
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the
Bank president and attached to the Petition identifies the action as a
derivative suit, it does not mean that it is one and (t)hat is a legal question for
the courts to decide;
4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private
international law,[12] where non-resident litigants are given the option to
choose the forum or place wherein to bring their suit for various reasons or
excuses, including to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue.
To combat these less than honorable excuses, the principle of forum non
conveniens was developed whereby a court, in conflicts of law cases, may
refuse impositions on its jurisdiction where it is not the most convenient or
available forum and the parties are not precluded from seeking remedies
elsewhere.
In this light, Blacks Law Dictionary[13] says that forum-shopping occurs
when a party attempts to have his action tried in a particular court or
jurisdiction where he feels he will receive the most favorable judgment or
verdict. Hence, according to Words and Phrases,[14] a litigant is open to the
charge of forum shopping whenever he chooses a forum with slight
connection to factual circumstances surrounding his suit, and litigants should
be encouraged to attempt to settle their differences without imposing undue
expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation encompassing
not only a choice of venues, as it was originally understood in conflicts of
laws, but also to a choice of remedies. As to the first (choice of venues), the

Rules of Court, for example, allow a plaintiff to commence personal actions

where the defendant or any of the defendants resides or may be found, or
where the plaintiff or any of the plaintiffs resides, at the election of the
plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for example,
are given a choice of pursuing civil liabilities independently of the criminal,
arising from the same set of facts. A passenger of a public utility vehicle
involved in a vehicular accident may sue on culpa contractual, culpa
aquiliana or culpa criminal - each remedy being available independently of
the others - although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the
litigant actually shops for a forum of his action. This was the original concept
of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of
their actions, litigants, through the encouragement of their lawyers, file their
actions in all available courts, or invoke all relevant remedies simultaneously.
This practice had not only resulted to (sic) conflicting adjudications among
different courts and consequent confusion enimical (sic) to an orderly
administration of justice. It had created extreme inconvenience to some of
the parties to the action.
Thus, forum-shopping had acquired a different concept - which is unethical
professional legal practice. And this necessitated or had given rise to the
formulation of rules and canons discouraging or altogether prohibiting the
practice.[15]
What therefore originally started both in conflicts of laws and in our
domestic law as a legitimate device for solving problems has been abused
and misused to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the
Supreme Court, as already mentioned, promulgated Circular 28-91. And even
before that, the Court had proscribed it in the Interim Rules and Guidelines
issued on January 11, 1983 and had struck down in several cases[16] the
inveterate use of this insidious malpractice. Forum-shopping as the filing of
repetitious suits in different courts has been condemned by Justice Andres R.
Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. Heirs
of Orval Hughes, et al., as a reprehensible manipulation of court processes
and proceedings x x x.[17] When does forum-shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one
forum, a party seeks a favorable opinion (other than by appeal or certiorari)
in another. The principle applies not only with respect to suits filed in the
courts but also in connection with litigations commenced in the courts while
an administrative proceeding is pending, as in this case, in order to defeat
administrative processes and in anticipation of an unfavorable administrative
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ruling and a favorable court ruling. This is specially so, as in this case, where
the court in which the second suit was brought, has no jurisdiction [18]
The test for determining whether a party violated the rule against forumshopping has been laid down in the 1986 case of Buan vs. Lopez,[19] also by
Chief Justice Narvasa, and that is, forum-shopping exists where the elements
of litis pendentia are present or where a final judgment in one case will
amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No.
86-36563 identity of parties, or at least such parties as represent the same
interests in both actions, as well as identity of rights asserted and relief
prayed for, the relief being founded on the same facts, and the identity on the
two preceding particulars is such that any judgment rendered in the other
action, will, regardless of which party is successful, amount to res
adjudicata in the action under consideration: all the requisites, in fine,
of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and RTC Case No.
86-36563, an identity as regards parties, or interests represented, rights
asserted and relief sought, as well as basis thereof, to a degree sufficient to
give rise to the ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction of twin
dismissals just mentioned. The application of this sanction will prevent any
further delay in the settlement of the controversy which might ensue from
attempts to seek reconsideration of or to appeal from the Order of the
Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15,
1986, which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or
person) sues the same party against whom another action or actions for the
alleged violation of the same right and the enforcement of the same relief is/
are still pending, the defense of litis pendencia in one case is a bar to the
others; and, a final judgment in one would constitute res judicata and thus
would cause the dismissal of the rest. In either case, forum shopping could be
cited by the other party as a ground to ask for summary dismissal of the
two[20] (or more) complaints or petitions, and for the imposition of the other
sanctions, which are direct contempt of court, criminal prosecution, and
disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with
the Second Case, it is obvious that there exist identity of parties or interests
represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise
to the instant petition was filed by the buyer (herein private respondent and

his predecessors-in-interest) against the seller (herein petitioners) to enforce

the alleged perfected sale of real estate. On the other hand, the
complaint[21] in the Second Case seeks to declare such purported sale
involving the same real property as unenforceable as against the Bank, which
is the petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what
the Bank itself failed to do in the original case in the trial court. In brief, the
objective or the relief being sought, though worded differently, is the same,
namely, to enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on Audit,
[22] this Court ruled that the filing by a party of two apparently different
actions, but with the same objective, constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner
impleaded different respondents therein - PNOC in the case before the lower
court and the COA in the case before this Court and sought what seems to be
different reliefs. Petitioner asks this Court to set aside the questioned letterdirective of the COA dated October 10, 1988 and to direct said body to
approve the Memorandum of Agreement entered into by and between the
PNOC and petitioner, while in the complaint before the lower court petitioner
seeks to enjoin the PNOC from conducting a rebidding and from selling to
other parties the vessel T/T Andres Bonifacio, and for an extension of time
for it to comply with the paragraph 1 of the memorandum of agreement and
damages. One can see that although the relief prayed for in the two (2)
actions are ostensibly different, the ultimate objective in both actions is the
same, that is, the approval of the sale of vessel in favor of petitioner, and to
overturn the letter-directive of the COA of October 10, 1988 disapproving the
sale. (italics supplied)
In an earlier case,[23] but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their
action in the Makati Regional Trial Court, is a species of forum-shopping.
Both actions unquestionably involve the same transactions, the same
essential facts and circumstances. The petitioners claim of absence of identity
simply because the PCGG had not been impleaded in the RTC suit, and the
suit did not involve certain acts which transpired after its commencement, is
specious. In the RTC action, as in the action before this Court, the validity of
the contract to purchase and sell of September 1, 1986, i.e., whether or not it
had been efficaciously rescinded, and the propriety of implementing the same
(by paying the pledgee banks the amount of their loans, obtaining the release
of the pledged shares, etc.) were the basic issues. So, too, the relief was the
same: the prevention of such implementation and/or the restoration of
the status quo ante. When the acts sought to be restrained took place anyway
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despite the issuance by the Trial Court of a temporary restraining order, the
RTC suit did not become functus oflcio. It remained an effective vehicle for
obtention of relief; and petitioners remedy in the premises was plain and
patent: the filing of an amended and supplemental pleading in the RTC suit,
so as to include the PCGG as defendant and seek nullification of the acts
sought to be enjoined but nonetheless done. The remedy was certainly not the
institution of another action in another forum based on essentially the same
facts. The adoption of this latter recourse renders the petitioners amenable to
disciplinary action and both their actions, in this Court as well as in the
Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of
interests represented. Although the plaintiffs in the Second Case (Henry L.
Co. et al.) are not name parties in the First Case, they represent the same
interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct
personal interest in the matter in controversy. They are not principally or
even subsidiarily liable; much less are they direct parties in the assailed
contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a derivative suit. In the caption itself, petitioners
claim to have brought suit for and in behalf of the Producers Bank of
thePhilippines.[24] Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf
of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as a nominal party, with the corporation as
the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979];
italics supplied).
In the face of the damaging admissions taken from the complaint in the
Second Case, petitioners, quite strangely, sought to deny that the Second
Case was a derivative suit, reasoning that it was brought,not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over
80% of the outstanding capital stock, but also constitute the majority in the
Board of Directors of petitioner Bank.That being so, then they really
represent the Bank. So, whether they sued derivatively or directly, there is
undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality
of the Bank is separate and distinct from its shareholders. But the rulings of
this Court are consistent: When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an

existing obligation, the circumvention of statutes, the achievement or

perfection of a monopoly or generally the perpetration of knavery or crime,
the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.[25]
In addition to the many cases[26] where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that the
corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending
corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders
as fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping,
even assuming arguendo that there is identity of parties, causes of action and
reliefs sought, because it (the Bank) was the defendant in the (first) case
while it was the plaintiff in the other (Second Case), citing as
authority Victronics Computers, Inc. vs. Regional Trial Court, Branch 63,
Makati, etc. et al.,[27] where the Court held:
The rule has not been extended to a defendant who, for reasons known only
to him, commences a new action against the plaintiff - instead of filing a
responsive pleading in the other case - setting forth therein, as causes of
action, specific denials, special and affirmative defenses or even
counterclaims. Thus, Velhagens and Kings motion to dismiss Civil Case No.
91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (italics supplied)
Petitioner pointed out that since it was merely the defendant in the original
case, it could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual
setting between Victronics and the present suit. In the former, as underscored
in the above-quoted Court ruling, the defendants did not file any responsive
pleading in the first case. In other words, they did not make any denial or
raise any defense or counter-claim therein. In the case before us however,
petitioners filed a responsive pleadingto the complaint - as a result of which,
the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in
their responsive pleadings, the petitioners became plaintiffs themselves in the
original case, giving unto themselves the very remedies they repeated in the
Second Case.
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Ultimately, what is truly important to consider in determining whether
forum-shopping exists or not is the vexation caused the courts and partieslitigant by a party who asks different courts and/or administrative agencies to
rule on the same or related causes and/or to grant the same or substantially
the same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different fora upon the same issue. In this
case, this is exactly the problem: a decision recognizing the perfection and
directing the enforcement of the contract of sale will directly conflict with a
possible decision in the Second Case barring the parties from enforcing or
implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other.[28]
The foregoing conclusion finding the existence of forum-shopping
notwithstanding, the only sanction possible now is the dismissal of both
cases with prejudice, as the other sanctions cannot be imposed because
petitioners present counsel entered their appearance only during the
proceedings in this Court, and the Petitions VERIFICATION/
CERTIFICATION contained sufficient allegations as to the pendency of the
Second Case to show good faith in observing Circular 28-91. The lawyers
who filed the Second Case are not before us; thus the rudiments of due
process prevent us from motu propio imposing disciplinary measures against
them in this Decision. However, petitioners themselves (and particularly
Henry Co, et al.) as litigants are admonished to strictly follow the rules
against forum-shopping and not to trifle with court proceedings and
processes. They are warned that a repetition of the same will be dealt with
more severely.
Having said that, let it be emphasized that this petition should be dismissed
not merely because of forum-shopping but also because of the substantive
issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there
was, on the basis of the facts established, a perfected contract of sale as the
ultimate issue. Holding that a valid contract has been established, respondent
Court stated:
There is no dispute that the object of the transaction is that property owned
by the defendant bank as acquired assets consisting of six (6) parcels of land
specifically identified under Transfer Certificates of Title Nos. T-106932 to
T-106937. It is likewise beyond cavil that the bank intended to sell the
property. As testified to by the Banks Deputy Conservator, Jose Entereso, the
bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that
they met with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The procedure in

the sale of acquired assets as well as the nature and scope of the authority of
Rivera on the matter is clearly delineated in the testimony of Rivera himself,
which testimony was relied upon by both the bank and by Rivera in their
appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and
then I published it in the form of an inter-office memorandum distributed to
all branches that these are acquired assets for sale. I was instructed to
advertise acquired assets for sale so on that basis, I have to entertain offer; to
accept offer, formal offer and upon having been offered, I present it to the
Committee. I provide the Committee with necessary information about the
property such as original loan of the borrower, bid price during the
foreclosure, total claim of the bank, the appraised value at the time the
property is being offered for sale and then the information which are relative
to the evaluation of the bank to buy which the Committee considers and it is
the Committee that evaluate as against the exposure of the bank and it is also
the Committee that submit to the Conservator for final approval and once
approved, we have to execute the deed of sale and it is the Conservator that
sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their
purpose of buying the property, dealt with and talked to the right person.
Necessarily, the agenda was the price of the property, and plaintiffs were
dealing with the bank official authorized to entertain offers, to accept offers
and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily,
too, it being inherent in his authority, Rivera is the officer from whom official
information regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera confirmed his authority
when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio
Rivera, did you ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him
how long it would take because he was saying that the matter of pricing will
be passed upon by the committee. And when I asked him how long it will
take for the committee to decide and he said the committee meets every
week. If I am not mistaken Wednesday and in about two weeks (sic) time, in
effect what he was saying he was not the one who was to decide. But he
would refer it to the committee and he would relay the decision of the
committee to me.
Q: Please answer the question.

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A: He did not say that he had the authority(.) But he said he would refer the
matter to the committee and he would relay the decision to me and he did just
like that.
Parenthetically, the Committee referred to was the Past Due Committee of
which Luis Co was the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with
the authority and the duties of Rivera and the banks internal procedure in the
matter of the sale of banks assets. As advised by Rivera, the plaintiffs made a
formal offer by a letter dated August 20, 1987 stating that they would buy at
the price of P3.5 Million in cash. The letter was for the attention of Mercurio
Rivera who was tasked to convey and accept such offers. Considering an
aspect of the official duty of Rivera as some sort of intermediary between the
plaintiffs-buyers with their proposed buying price on one hand, and the bank
Committee, the Conservator and ultimately the bank itself with the set price
on the other, and considering further the discussion of price at the meeting of
August resulting in a formal offer of P3.5 Million in cash, there can be no
other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for
more than 101 hectares on lot basis, such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator
after Rivera had duly presented plaintiffs offer for discussion by the
Committee of such matters as original loan of borrower, bid price during
foreclosure, total claim of the bank, and market value. Tersely put, under the
established facts, the price of P5.5 Million was, as clearly worded in Riveras
letter (Exh. E), the official and definitive price at which the bank was selling
the property.
There were averments by defendants below, as well as before this Court, that
the P5.5 Million price was not discussed by the Committee and that it was
merely quoted to start negotiations regarding the price. As correctly
characterized by the trial court, this is not credible. The testimonies of Luis
Co and Jose Entereso on this point are at best equivocal and considering the
gratuitous and self-serving character of these declarations, the banks
submission on this point does not inspire belief. Both Co and Entereso, as
members of the Past Due Committee of the bank, claim that the offer of the
plaintiff was never discussed by the Committee. In the same vein, both Co
and Entereso openly admit that they seldom attend the meetings of the
Committee. It is important to note that negotiations on the price had started
in early August and the plaintiffs had already offered an amount as purchase
price, having been made to understand by Rivera, the official in charge of the
negotiation, that the price will be submitted for approval by the bank and that
the banks decision will be relayed to plaintiffs. From the facts, the amount of
P5.5 Million has a definite significance. It is the official bank price. At any

rate, the bank placed its official, Rivera, in a position of authority to accept
offers to buy and negotiate the sale by having the offer officially acted upon
by the bank. The bank cannot turn around and later say, as it now does, that
what Rivera states as the banks action on the matter is not in fact so. It is a
familiar doctrine, the doctrine of ostensible authority, that if a corporation
knowingly permits one of its officers, or any other agent, to do acts within
the scope of an apparent authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as against any one
who has in good faith dealt with the corporation through such agent, he
estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577,
583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank
v. Court of Appeals, G.R. No. 103957, June 14, 1993).[29]
Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: (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.
There is no dispute on requisite no. 2. The object of the questioned contract
consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate
area of about 101 hectares, more or less, and covered by Transfer Certificates
of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first
and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is
unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to accept.
[30] They disputed the factual basis of the respondent Courts findings that
there was an offer made by Janolo for P3.5 million, to which the Bank
counter-offered P5.5 million. We have perused the evidence but cannot find
fault with the said Courts findings of fact. Verily, in a petition under Rule 45
such as this, errors of fact -if there be any - are, as a rule, not reviewable. The
mere fact that respondent Court (and the trial court as well) chose to believe
the evidence presented by respondent more than that presented by petitioners
is not by itself a reversible error. in fact, such findings merit serious
consideration by this Court, particularly where, as in this case, said courts
carefully and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court
of Appeals, let us review the question of Riveras authority to act and
petitioners allegations that the P5.5 million counter-offer was extinguished
by the P4.25 million revised offer of Janolo. Here, there are questions of law
which could be drawn from the factual findings of the respondent Court.
They also delve into the contractual elements of consent and cause.

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The authority of a corporate officer in dealing with third persons may be
actual or apparent. The doctrine of apparent authority, with special reference
to banks, was laid out in Prudential Bank vs. Court of Appeals,[31] where it
was held that:

(d) Rivera signed the letter dated September 1, 1987 offering to sell the
property for P5.5 million (TSN, July 30, p. 11);

Conformably, we have declared in countless decisions that the principal is

liable for obligations contracted by the agent. The agents apparent
representation yields to the principals true representation and the contract is
considered as entered into between the principal and the third person (citing
National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was
the final price of the Bank (TSN, January 16, 1990, p. 18);

A bank is liable for wrongful acts of its officers done in the interests of the
bank or in the course of dealings of the officers in their representative
capacity but not for acts outside the scope of their authority (9 C.J.S., p. 417).
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetrate in the
apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is
liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing his
authority and attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52
ND 752, 204 NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have a
fiduciary relationship with the public and their stability depends on the
confidence of the people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner
Rivera has apparent or implied authority to act for the Bank in the matter of
selling its acquired assets. This evidence includes the following:
(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times
material to this case, Manager of the Property Management Department of
the Bank. By his own admission, Rivera was already the person in charge of
the Banks acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by
the Bank. And during the initial meeting between the buyers and Rivera, the
latter suggested that the buyers offer should be no less than P3.3 million
(TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5
million (TSN, 30 July 1990, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);

(g) Rivera arranged the meeting between the buyers and Luis Co
on September 28, 1987, during which the Banks offer of P5.5 million was
confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co,
a major shareholder and officer of the Bank, confirmed Riveras statement as
to the finality of the Banks counter-offer of P5.5 million (TSN, January 16,
1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to
Rivera as the officer acting for the Bank in relation to parties interested in
buying assets owned/acquired by the Bank. In fact, Rivera was the officer
mentioned in the Banks advertisements offering for sale the property in
question (cf. Exhs. S and S-I).
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals,
et al.,[32] the Court, through Justice Jose A. R. Melo, affirmed the doctrine of
apparent authority as it held that the apparent authority of the officer of the
Bank of P.I. in charge of acquired assets is borne out by similar
circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority
through documents and testimony which seek to establish
Riveras actual authority. These pieces of evidence, however, are inherently
weak as they consist of Riveras self-serving testimony and various interoffice memoranda that purport to show his limited actual authority, of which
private respondent cannot be charged with knowledge. In any event, since the
issue is apparent authority, the existence of which is borne out by the
respondent Courts findings, the evidence of actual authority is immaterial
insofar as the liability of a corporation is concerned.[33]
Petitioners also argued that since Demetria and Janolo were experienced
lawyers and their law firm had once acted for the Bank in three criminal
cases, they should be charged with actual knowledge of Riveras limited
authority. But the Court of Appeals in its Decision (p. 12) had already made a
factual finding that the buyers had no notice of Riveras actual authority prior
to the sale. In fact, the Bank has not shown that they acted as its counsel in
respect to any acquired assets; on the other hand, respondent has proven that
Demetria and Janolo merely associated with a loose aggrupation of lawyers
(not a professional partnership), one of whose members (Atty. Susana
Parker) acted in said criminal cases.
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Petitioners also alleged that Demetrias and Janolos P4.25 million counteroffer in the letter dated September 17, 1987 extinguished the Banks offer of
P5.5 million.[34] They disputed the respondent Courts finding that there was a
meeting of minds when on 30 September 1987 Demetria and Janolo through
Annex L (letter dated September 30, 1987) accepted Riveras counter offer of
P5.5 million under Annex J (letter dated September 17, 1987), citing the late
Justice Paras,[35] Art. 1319 of the Civil Code[36] and related Supreme Court
rulings starting with Beaumont vs. Prieto.[37]
However, the above-cited authorities and precedents cannot apply in the
instant case because, as found by the respondent Court which reviewed the
testimonies on this point, what was accepted by Janolo in his letter dated
September 30, 1987 was the Banks offer of P5.5 million as confirmed and
reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their
meeting on September 28, 1987. Note that the said letter of September 30,
1987 begins with (p)ursuant to our discussion last 28 September 1987 x x x.
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting was
meant to have the offerors improve on their position of P5.5 million.
[38] However, both the trial court and the Court of Appeals found petitioners
testimonial evidence not credible, and we find no basis for changing this
finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and the
CA) common finding that private respondents evidence is more in keeping
with truth and logic - that during the meeting on September 28, 1987, Luis
Co and Rivera confirmed that the P5.5 million price has been passed upon by
the Committee and could no longer be lowered (TSN of April 27, 1990, pp.
34-35).[39] Hence, assumingarguendo that the counter-offer of P4.25 million
extinguished the offer of P5.5 million, Luis Cos reiteration of the said P5.5
million price during the September 28, 1987 meeting revived the said offer.
And by virtue of the September 30, 1987 letter accepting this revived offer,
there was a meeting of the minds, as the acceptance in said letter was
absolute and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of
Riveras authority and action, particularly the latters counter-offer of P5.5
million, as being unauthorized and illegal came only on May 12, 1988 or
more than seven (7) months after Janolos acceptance. Such delay, and the
absence of any circumstance which might have justifiably prevented the
Bank from acting earlier, clearly characterizes the repudiation as nothing
more than a last-minute attempt on the Banks part to get out of a binding
contractual obligation.
Taken together, the factual findings of the respondent Court point to an
implied admission on the part of the petitioners that the written offer made

on September 1, 1987 was carried through during the meeting of September

28, 1987. This is the conclusion consistent with human experience, truth and
good faith.
It also bears noting that this issue of extinguishment of the Banks offer of
P5.5 million was raised for the first time on appeal and should thus be
disregarded.
This Court in several decisions has repeatedly adhered to the principle that
points of law, theories, issues of fact and arguments not adequately brought
to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time on
appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592).[40]
xxx It is settled jurisprudence that an issue which was neither averred in the
complaint nor raised during the trial in the court below cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair play,
justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo
vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA,
157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs.
IAC, G.R. 77029, August 30, 1990).[41]
Since the issue was not raised in the pleadings as an affirmative defense,
private respondent was not given an opportunity in the trial court to
controvert the same through opposing evidence. Indeed, this is a matter of
due process. But we passed upon the issue anyway, if only to avoid deciding
the case on purely procedural grounds, and we repeat that, on the basis of the
evidence already in the record and as appreciated by the lower courts, the
inevitable conclusion is simply that there was a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged:[42]
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5
million during the meeting of 28 September 1987, and it was this verbal offer
that Demetria and Janolo accepted with their letter of 30 September 1987, the
contract produced thereby would be unenforceable by action - there being no
note, memorandum or writing subscribed by the Bank to evidence such
contract. (Please see Article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p. 14) stated:
x x x Of course, the banks letter of September 1, 1987 on the official price
and the plaintiffs acceptance of the price on September 30, 1987, are not, in
themselves, formal contracts of sale. They are however clear embodiments of
the fact that a contract of sale was perfected between the parties, such
contract being binding in whatever form it may have been entered into (case
citations omitted). Stated simply, the banks letter of September 1, 1987, taken
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together with plaintiffs letter dated September 30, 1987, constitute in law a
sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolos August 20,
1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda - since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the
object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a new offer which was accepted by
Janolo on September 30, 1987. Still, the statute of frauds will not apply by
reason of the failure of petitioners to object to oral testimony proving
petitioner Banks counter-offer of P5.5 million. Hence, petitioners - by such
utter failure to object - are deemed to have waived any defects of the contract
under the statute of frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
Article 1403, are ratified by the failure to object to the presentation of oral
evidence to prove the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the
reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence
of petitioners all throughout the presentation makes the evidence binding on
them thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present
because Atty. Demetria told me to accompany him and we were able to meet
Luis Co at the Bank.
xxx xxx xxx
Q - Now, what transpired during this meeting with Luis Co of the Producers
Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr.
Mercurio Rivera is the final price and that is the price they intends (sic) to
have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic)
that the defendant Riveras counter-offer of 5.5 million was the defendants
bank (sic) final offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp.
18-21.]
----0---Q - What transpired during that meeting between you and Mr. Luis Co of the
defendant Bank?
A - We went straight to the point because he being a busy person, I told him
if the amount of P5.5 million could still be reduced and he said that was
already passed upon by the committee. What the bank expects which was
contrary to what Mr. Rivera stated. And he told me that is the final offer of
the bank P5.5 million and we should indicate our position as soon as
possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said
that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the
time at his office.
Q - For the record, your Honor please, will you tell this Court who was with
Mr. Co in his Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on
(sic) the counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank
which offer we accepted, the offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
---- 0 ---Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was
reached by the Committee and it is not within his power to reduce this
amount. What can you say to that statement that the amount of P5.5 million
was reached by the Committee?
A - It was not discussed by the Committee but it was discussed initially by
Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in
that September 28, 1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by
the Central Bank of the Philippines during the time that the negotiation and
perfection of the contract of sale took place. Petitioners energetically
contended that the conservator has the power to revoke or overrule actions of
the management or the board of directors of a bank, under Section 28-A of
Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

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Whenever, on the basis of a report submitted by the appropriate supervising
or examining department, the Monetary Board finds that a bank or a nonbank financial intermediary performing quasi - banking functions is in a state
of continuing inability or unwillingness to maintain a state of liquidity
deemed adequate to protect the interest of depositors and creditors, the
Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and
debts due said institution and exercise all powers necessary to preserve the
assets of the institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or non-bank
financial intermediary performing quasi-banking functions, any provision of
law to the contrary notwithstanding, and such other powers as the Monetary
Board shall deem necessary.
In the first place, this issue of the Conservators alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this
Petition - as this was not litigated in the trial court or Court of Appeals. As
already stated earlier, issues not raised and/or ventilated in the trial court, let
alone in the Court of Appeals, cannot be raised for the first time on appeal as
it would be offensive to the basic rules of fair play, justice and due process.
[43]

We deny that Producers Bank has ever made a legal counter-offer to any of
your clients nor perfected a contract to sell and buy with any of them for the
following reasons.
In the Inter-Office Memorandum dated April 25, 1986 addressed to and
approved by former Acting Conservator Mr. Andres I. Rustia, Producers
Bank Senior Manager Perfecto M. Pascua detailed the functions of Property
Management Department (PMD) staff and officers (Annex A), you will
immediately read that Manager Mr. Mercurio Rivera or any of his
subordinates has no authority, power or right to make any alleged counteroffer. In short, your lawyer-clients did not deal with the authorized officers of
the bank.
Moreover, under Secs. 23 and 36 of the Corporation Code of
the Philippines (Batas Pambansa Blg. 68) and Sec. 28-A of the Central Bank
Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator
may authorize the sale of any property of the corporation/bank.
Our records do not show that Mr. Rivera was authorized by the old board or
by any of the bank conservators (starting January, 1984) to sell the aforesaid
property to any of your clients. Apparently, what took place were just
preliminary discussions/ consultations between him and your clients, which
everyone knows cannot bind the Banks Board or Conservator.

In the second place, there is absolutely no evidence that the Conservator, at

the time the contract was perfected, actually repudiated or overruled said
contract of sale. The Banks acting conservator at the time, Rodolfo Romey,
never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion,
who took over from Romey after the sale was perfected on September 30,
1987 (Annex V, petition) which unilaterally repudiated - not the contract but the authority of Rivera to make a binding offer - and which unarguably
came months after the perfection of the contract. Said letter dated May 12,
1988 is reproduced hereunder:

We are, therefore, constrained to refuse any tender of payment by your

clients, as the same is patently violative of corporate and banking laws. We
believe that this is more than sufficient legal justification for refusing said
alleged tender.

May 12, 1988

(Sgd.) Leonida T. Encarnacion

Atty. Noe C. Zarate

LEONIDA T. ENCARNACION

Zarate Carandang Perlas & Ass.

Acting Conservator

Suite 323 Rufino Building

In the third place, while admittedly, the Central Bank law gives vast and farreaching powers to the conservator of a bank, it must be pointed out that such
powers must be related to the (preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its
viability. Such powers, enormous and extensive as they are, cannot extend to
the post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution.[44] If the

Ayala Avenue, Makati, Metro Manila

Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

Rest assured that we have nothing personal against your clients. All our acts
are official, legal and in accordance with law. We also have no personal
interest in any of the properties of the Bank.
Please be advised accordingly.
Very truly yours,

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legislature itself cannot revoke an existing valid contract, how can it delegate
such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective - i.e.,
void, voidable, unenforceable or rescissible. Hence, the conservator merely
takes the place of a banks board of directors. What the said board cannot do such as repudiating a contract validly entered into under the doctrine of
implied authority - the conservator cannot do either. Ineluctably, his power is
not unilateral and he cannot simply repudiate valid obligations of the Bank.
His authority would be only to bring court actions to assail such contracts as he has already done so in the instant case. A contrary understanding of the
law would simply not be permitted by the Constitution. Neither by common
sense. To rule otherwise would be to enable a failing bank to become solvent,
at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another come
to be considered unfavorable to the Bank, yielding nothing to perfected
contractual rights nor vested interests of the third parties who had dealt with
the Bank.
The Fifth Issue: Were There Reversible Errors of Fact?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of
Court, findings of fact by the Court of Appeals are not reviewable by the
Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation,
[45] we held:
x x x. The rule regarding questions of fact being raised with this Court in a
petition for certiorari under Rule 45 of the Revised Rules of Court has been
stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA
138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a
petition for certiorari under Rule 45 of the Revised Rules of Court. The
jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of law imputed to it,
its findings of the fact being conclusive [Chan vs. Court of Appeals, G.R. No.
L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
This Court has emphatically declared that it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been
committed by the lower court (Tiongco v. De la Merced, G.R. No.
L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No.
L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals,
G.R. No. L-47531, February 20, 1984, 127 SCRA 596). Barring, therefore, a
showing that the findings complained of are totally devoid of support in the
record, or that they are so glaringly erroneous as to constitute serious abuse

of discretion, such findings must stand, for this Court is not expected or
required to examine or contrast the oral and documentary evidence
submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No.
L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals,[46] we held:
The resolution of this petition invites us to closely scrutinize the facts of the
case, relating to the sufficiency of evidence and the credibility of witnesses
presented. This Court so held that it is not the function of the Supreme Court
to analyze or weigh such evidence all over again. The Supreme Courts
jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. x x x
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and
Goldrock Construction and Development Corp.:[47]
The Court has consistently held that the factual findings of the trial court, as
well as the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when
the findings went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee. After a careful study of the
case at bench, we find none of the above grounds present to justify the reevaluation of the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea
Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al.[48] is
equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate
court. x x x (I)t is not the function of this Court to assess and evaluate all
over again the evidence, testimonial and documentary, adduced by the
parties, particularly where, such as here, the findings of both the trial court
and the appellate court on the matter coincide. (italics supplied)
Petitioners, however, assailed the respondent Courts Decision as fraught with
findings and conclusions which were not only contrary to the evidence on
record but have no bases at all, specifically the findings that (1) the Banks
counter-offer price of P5.5 million had been determined by the past due
committee and approved by conservator Romey, after Rivera presented the
same for discussion and (2) the meeting with Co was not to scale down the
price and start negotiations anew, but a meeting on the already determined
price of P5.5 million. Hence, citing Philippine National Bank vs. Court of
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Appeals,[49] petitioners are asking us to review and reverse such factual
findings.
The first point was clearly passed upon by the Court of Appeals,[50] thus:
There can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that the banks counter-offer is at
P5.5 Million for more than 101 hectares on lot basis, such counter-offer price
had been determined by the Past Due Committee and approved by the
Conservator after Rivera had duly presented plaintiffs offer for discussion by
the Committee x x x. Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Riveras letter (Exh. E), the official and
definitive price at which the bank was selling the property. (p. 11, CA
Decision)
xxx xxx xxx
xxx. The argument deserves scant consideration. As pointed out by plaintiff,
during the meeting of September 28, 1987 between the plaintiffs, Rivera and
Luis Co, the senior vice-president of the bank, where the topic was the
possible lowering of the price, the bank official refused it and confirmed that
the P5.5 Million price had been passed upon by the Committee and could no
longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this
point, characterizing it as not credible and at best equivocal, and considering
the gratuitous and self-serving character of these declarations, the banks
submissions on this point do not inspire belief.
To become credible and unequivocal, petitioners should have presented then
Conservator Rodolfo Romey to testify on their behalf, as he would have been
in the best position to establish their thesis. Under the rules on evidence,
[51] such suppression gives rise to the presumption that his testimony would
have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners
evidence was deemed insufficient by both the trial court and the respondent
Court, and instead, it was respondents submissions that were believed and
became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the
findings of fact by the lower courts are valid and correct. But the petitioners
are now asking this Court to disturb these findings to fit the conclusion they
are espousing. This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may
disregard findings of fact by the Court of Appeals.[52] We have studied both
the records and the CA Decision and we find no such exceptions in this case.
On the contrary, the findings of the said Court are supported by a

preponderance of competent and credible evidence. The inferences and

conclusions are reasonably based on evidence duly identified in the Decision.
Indeed, the appellate court patiently traversed and dissected the issues
presented before it, lending credibility and dependability to its findings. The
best that can be said in favor of petitioners on this point is that the factual
findings of respondent Court did not correspond to petitioners claims, but
were closer to the evidence as presented in the trial court by private
respondent. But this alone is no reason to reverse or ignore such factual
findings, particularly where, as in this case, the trial court and the appellate
court were in common agreement thereon. Indeed, conclusions of fact of a
trial judge - as affirmed by the Court of Appeals - are conclusive upon this
Court, absent any serious abuse or evident lack of basis or capriciousness of
any kind, because the trial court is in a better position to observe the
demeanor of the witnesses and their courtroom manner as well as to examine
the real evidence presented.
Epilogue
In summary, there are two procedural issues involved - forum-shopping and
the raising of issues for the first time on appeal [viz., the extinguishment of
the Banks offer of P5.5 million and the conservators powers to repudiate
contracts entered into by the Banks officers] - which per se could justify the
dismissal of the present case. We did not limit ourselves thereto, but delved
as well into the substantive issues - the perfection of the contract of sale and
its enforceability, which required the determination of questions of fact.
While the Supreme Court is not a trier of facts and as a rule we are not
required to look into the factual bases of respondent Courts decisions and
resolutions, we did so just the same, if only to find out whether there is
reason to disturb any of its factual findings, for we are only too aware of the
depth, magnitude and vigor by which the parties, through their respective
eloquent counsel, argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and there is
need to rehabilitate the Bank in order to get it back on its feet x x x as many
people depend on (it) for investments, deposits and well as employment. As
of June 1987, the Banks overdraft with the Central Bank had already reached
P1.023 billion x x x and there were (other) offers to buy the subject
properties for a substantial amount of money.[53]
While we do not deny our sympathy for this distressed bank, at the same
time, the Court cannot emotionally close its eyes to overriding considerations
of substantive and procedural law, like respect for perfected contracts, nonimpairment of obligations and sanctions against forum-shopping, which must
be upheld under the rule of law and blind justice.

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This Court cannot just gloss over private respondents submission that, while
the subject properties may currently command a much higher price, it is
equally true that at the time of the transaction in 1987, the price agreed upon
of P5.5 million was reasonable, considering that the Bank acquired these
properties at a foreclosure sale for no more than P 3.5 million.[54] That the
Bank procrastinated and refused to honor its commitment to sell cannot now
be used by it to promote its own advantage, to enable it to escape its binding
obligation and to reap the benefits of the increase in land values. To rule in
favor of the Bank simply because the property in question has algebraically
accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the
Court cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and
Resolution, the Court hereby DENIES the petition. The assailed Decision is
AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in
forum-shopping and WARNED that a repetition of the same or similar acts
will be dealt with more severely. Costs against petitioners.
SO ORDERED.

9.) Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 92871 August 2, 1991
MARIA P. VDA. DE JOMOC, ET AL., petitioners,
vs.
THE COURT OF APPEALS, REGIONAL TRIAL COURT OF
MISAMIS ORIENTAL, 10th Judicial Region, Br. 25,respondents.
G.R. No. 92860 August 2, 1991
SPOUSES LIM LEONG KANG & LIM PUE KING, petitioners,
vs.
MAURA SO & HON. COURT OF APPEALS (Eleventh
Division), respondents.
Pablito C. Pielago, Nemesio G. Beltran, Federico C. Villaroya and Medardo
P.

Manolo S. Tagarda for petitioners in G.R. No. 92871.

Jose Ngaw collaborating counsel for the petitioners in G.R. No. 92871.
GUTIERREZ, JR., J.:p
The main issue raised in these consolidated petitions is whether or not private
respondent Maura So abandoned or backed out from the agreement for the
purchase of a lot belonging to the heirs of Pantaleon Jomoc, so that the
subsequent sale to petitioner spouses Lim is null and void.
The subject lot in Cagayan de Oro City forms part of the estate of the late
Pantaleon Jomoc. Because it was fictitiously sold and transferred to third
persons, petitioner Maria P. Vda. Jomoc, as administratrix of the estate and in
behalf of all the heirs, filed suit to recover the property before the trial court
of Misamis Oriental in Civil Case No. 4750. Mariano So, the last of the
transferees and the husband of Maria So, intervened. The case was decided in
favor of Jomoc and was accordingly appealed by Mariano So and one Gaw
Sur Cheng to the Court of Appeals. In February 1979, pending the appeal,
Jomoc executed a Deed of Extrajudicial Settlement and Sale of Land (Exhibit
"A") with private respondent for P300,000.00. The document was not yet
signed by all the parties nor notarized but in the meantime, Maura So had
made partial payments amounting to P49,000.00.
In 1983, Mariano So, the appellant in the recovery proceeding, agreed to
settle the case by executing a Deed of Reconveyance of the land in favor of
the heirs of Pantaleon Jomoc. The reconveyance was in compliance with the
decision in the recovery case and resulted in the dismissal of his appeal. On
February 28, 1983, the heirs of Jomoc executed another extra-judicial
settlement with absolute sale in favor of intervenors Lim Leong Kang and
Lim Pue filing. Later, Maura So demanded from the Jomoc family the
execution of a final deed of conveyance. They ignored the demand.
Thus, private respondent Maria So sued petitioners-heirs for specific
performance to compel them to execute and deliver the proper registrable
deed of sale over the lot. The case was docketed as Civil Case No. 8983. So
then filed a notice of lis pendens with the Register of Deeds on February 28,
1983. It was on the same date, February 28, 1983, allegedly upon the Jomocs'
belief that Maura So had backed out from the transaction that the Jomocs
executed the other extrajudicial settlement with sale of registered land in
favor of the spouses Lim for a consideration of P200,000.00 part of which
amount was allegedly intended to be returned to Maura So as reimbursement.
The spouses Lim, however, registered their settlement and sale only on April
27, 1983.

Millares for petitioners in G.R. No. 92860.

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The Jomocs as defendants, and the spouses Lim as intervenors alleged that
complainant Maura so backed out as evidenced by an oral testimony that she
did so in a conference with the Jomocs' lawyers where she expressed
frustration in evicting squatters who demanded large sums as a condition for
vacating. They alleged the lack of signatures of four of the heirs of Jomoc
and Maura So herself as well as the lack of notarization.
The lower court, finding that there was no sufficient evidence to show
complainant-respondents' withdrawal from the sale, concluded that: (1) the
case is one of double sale; (2) the spouses-intervenors are registrants in bad
faith who registered their questioned deed of sale long after the notice of lis
pendens of Civil Case No. 8983 was recorded.
On appeal, the trial court decision was affirmed except for the award of
moral and exemplary damages and attorney's fees and expenses for litigation.
Hence, these petitions.
The petitioners' allegation that the contract of sale by Maria P. Jomoc with
private respondent is unenforceable under the Statute of Frauds, is without
merit. The petitioners-heirs, in their brief before the appellate court, admitted
that the extrajudicial settlement with sale in favor of Maura So is valid and
enforceable under the Statute of Frauds.
Of importance to the Court is the fact that the petitioners do not deny the
existence of Exhibit "A"; including its terms and contents, notwithstanding
the incompleteness in form. The meeting of the minds and the delivery of
sums as partial payment is clear and this is admitted by both parties to the
agreement. Hence, there was already a valid and existing contract, not merely
perfected as the trial court saw it, but partly executed. It is of no moment
whether or not it is enforceable under the Statute of Frauds, which rule we do
not find to be applicable because of partial payment of the vendee's
obligation and its acceptance by the vendors-heirs. The contract of sale of
real property even if not complete in form, so long as the essential requisites
of consent of the contracting parties, object, and cause of the obligation
concur and they were clearly established to be present, is valid and effective
as between the parties. Under Article 1357 of the Civil Code, its
enforceability is recognized as each contracting party is granted the right to
compel the other to execute the proper public instrument so that the valid
contract of sale of registered land can be duly registered and can bind third
persons. The complainant respondent correctly exercised such right
simultaneously with a prayer for the enforcement of the contract in one
complaint.
The Court finds no cogent reason to reverse the factual finding of the
Regional Trial Court and the Court of Appeals that private respondent did not
subsequently abandon her intention of purchasing the subject lot.

The facts reveal an agreement between the contracting parties to Exhibit "A"
to the effect that "the consideration of P300,000.00 or whatever balance
remains after deducting the advanced payments thereon, shall be paid upon
the termination of (Mariano So's) appeal in the case involving the property in
question." (G.R. No. 92871, Rollo, p. 123). The finding is supported by
substantial evidence. As reasoned by both courts, even if the sums paid by
Maura So were allegedly intended to expedite the dismissal of the appeal of
Mariano So, such payment only indicates interest in acquiring the subject lot.
In addition, the claim by the defendants-petitioners that the payments were
for the gathering of the several heirs from far places to sign Exhibit "A"
confirms respondent Maura So's continuing interest. The terms of Exhibit
"A" and the actual intention of the parties are clear and no reform requiring
parole evidence is being sought to elucidate the intention further. The oral
evidence offered by defendants-petitioners to show a subsequent refusal to
proceed with the sale cannot be considered to reverse the express intention in
the contract. Moreover, the two courts below had definite findings on this
factual issue and we see no reason to reject and reverse their conclusion.
The petitioners contend that the trial court and the appellate court erred in
declaring as void the subsequent deed of extra-judicial settlement with
spouses Lim since specific performance and not annulment of contract due to
existence of double sale, was the thrust of the complaint. This argument is
untenable. The issue of double sale had to be resolved to determine whether
or not complainant Maura So was entitled to the reliefs prayed for There was
no hard evidence to show that the vinculum or contractual relation between
petitioners-heirs and Maura So had been cut-off. Yet, petitioners-heirs sold
the same lot to spouses Lim. The case therefore requires us to discern who
has the better right to the property.
Article 1544 of the Civil Code provides:
xxx xxx xxx
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.
xxx xxx xxx
In view of this provision, the two courts below correctly ruled that the
spouses Lim do not have a better right. They purchased the land with full
knowledge of a previous sale to private respondent and without requiring
from the vendors-heirs any proof' of the prior vendee's revocation of her
purchase. They should have exercised extra caution in their purchase
especially if at the time of the sale, the land was still covered by TCT No.
19648 bearing the name of Mariano So and was not yet registered in the
name of petitioners- heirs of Pantaleon Jomoc (Original Records, p. 80),
although it had been reconveyed to said heirs. Not having done this,
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SALES
petitioners spouses Lim cannot be said to be buyers in good faith. When they
registered the sale on April 27, 1983 after having been charged with notice
of lis pendens annotated as early as February 28, 1983 (the same date of their
purchase), they did so in bad faith or on the belief that a registration may
improve their position being subsequent buyers of the same lot. Under
Article 1544, mere registration is not enough to acquire new title. Good faith
must concur. ( Bergado v. Court of Appeals, 173 SCRA 497 [1989];
Concepcion V. Court of Appeals, G.R. No. 83208, February 6,1991)
Considering the failure of the petitioners to show that the findings of the two
courts below are not supported by substantial trial evidence or that their
conclusions are contrary to law and jurisprudence, we find no reversible error
in the questioned decision.
WHEREFORE, the petitions are hereby DISMISSED for lack of merit. The
decision of the Court of Appeals dated September 13, 1989 and its resolution
dated April 2, 1990 are AFFIRMED.
SO ORDERED.

10.) Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10265
March 3, 1916
EUTIQUIANO CUYUGAN, plaintiff-appellant,
vs.
ISIDORO SANTOS, defendant-appellee.
Ramon Diokno for appellant.
William A. Kincaid and Thomas L. Hartigan for appellee.
CARSON, J.:
The complaint in this case alleges that the plaintiff is the sole heir of his
mother, Guillerma Cuyugan y Candia, deceased; that in the year 1895 she
borrowed the sum of P3,500 from the defendant and executed, at the same
time, the document, Exhibit C, attached to the complaint, which purports on
its face to be a deed of sale of the land described therein, with a reservation
in favor of the vendor of the right to repurchase for the sum of P3,500; that
although the instrument purports on its face to be a deed of sale, it was
intended by the parties merely to evidence the loan of the nominal purchase
price and to serve as a security for the repayment of the amount of the loan;
that under the terms of the instrument plaintiff's mother was left in
possession of the land as a nominal tenant of the defendant at an annual
rental of P420, an amount equal to the agreed upon annual interest on the
loan at the rate of 12 per cent per annum; that in the year 1897 the borrower
paid P1,000 on the loan, whereupon the nominal rent on the land was
reduced from P420 to P300 per annum, that being the amount of the interest
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on the unpaid balance of the loan at the rate of 12 per cent per annum; that
plaintiff and his mother continued in the peaceable possession of the land
until the defendant, in the year prior to the institution of this action, served
notice on the plaintiff that an annual payment of P420 would be required of
him thereafter, that is to say, the original amount of the annual payments as
agreed upon prior to the payment of P1,000 on the debt in the year 1897; that
upon plaintiff's refusal to meet this demand, defendant set up a claim of
ownership in himself and threatened to eject the plaintiff from the land; that
thereupon plaintiff offered to pay, and still stands ready to pay the balance
due on the original indebtedness and the unpaid interest thereon for one year,
but that defendant declined and continues to decline to accept the amount
tendered and to cancel the formal deed of sale to the land.
The prayer of the complaint is that the defendant be required to accept the
amount thus tendered, and to cancel the formal deed of conveyance.
A demurrer to the complaint was sustained by the court below on the ground
that it does not set forth facts constituting a cause of action it appearing on
the face of the deed of conveyance attached to the complaint that it was a
deed of sale of land with a reserved right in the vendor to repurchase; and the
allegations of the complaint disclosing that the deed of conveyance was
executed by plaintiff's mother, that the stipulated price of repurchase has not
been paid in full, and that the time allowed in the deed for repurchase has
long since expired.
This is an appeal from the order sustaining the demurrer and dismissing the
complaint.
We are of opinion that the demurrer should have been overruled on two
separate and distinct grounds, either one of which is sufficient to sustain the
ruling.
1. Since the demurrer to the complaint admits all the material facts well
pleaded therein, it follows that, for the purposes of the demurrer, the
defendant admits that the true nature and intent of the transaction mentioned
in the complaint was a mere loan of money secured by a formal conveyance
of the land of the vendor; that the written instrument, purporting to be a deed
of sale of the land, with a right of repurchase reserved by the vendor, did not
set forth the real nature of the agreement between the parties thereto; and that
the true intention and understanding of the parties at the time when the deed
was executed and delivered was that it should be held by the defendant, not
as a deed of sale of the land, but rather as an instrument in the nature of a
mortgage, evidencing a loan secured by the lands of the borrower. The
demurrer further admits that the borrower's successor in interest had tendered
the full amount of the indebtedness together with the interest due and payable
thereon at the time of the tender, and that he stands ready at any time to pay

the full amount due on the loan with interest, upon the cancellation by the
defendant of the formal deed of conveyance of the land.
But proof of these facts would clearly entitle the plaintiff to the relief prayed
for. The demurrer should therefore have been overruled and the plaintiff
should have been given an opportunity to submit his evidence in support of
the allegation of his complaint.
It is contended, however, that even if all these allegations in the complaint
were true in fact, nevertheless, the demurrer should be sustained, because, as
it is said, these allegations of fact can not be sustained at the trial by the
introduction of competent testimony, since the court will be compelled to
exclude any evidence offered by the plaintiff which would tend to alter, vary,
or defeat the terms of the written deed of conveyance which is attached to the
complaint as an exhibit, and the execution of which the plaintiff's mother is
expressly alleged and admitted in the complaint.
In support of this contention we are cited to various decisions of this court
wherein we have held that the intent of the parties executing instruments
purporting to evidence sales of lands with the right of repurchase reserved to
the vendors was sufficiently and satisfactorily disclosed by the terms of the
instruments themselves; and that the intent of the parties as disclosed by the
terms of these instruments should be given full force and effect in accordance
therewith, despite the contentions of the vendors that the original transactions
between the parties were had in contemplation of, and to give effect to
contracts or agreements for the loan of money, the repayment of which was
to be secured by the lands of the borrower.
It is true that in a number of cases submitted to this court in which such a
contention has been advanced, and in which the language of the instrument
evidencing the transaction under investigation clearly and without ambiguity
set forth a contract of sale with a reserved right to repurchase, we have
uniformly declined to maintain such contentions, and have enforced the
contract in accord with the terms of the instrument by which it was evidence.
But it does not necessarily follow that such a contention can never be
successfully asserted and maintained in the courts in this jurisdiction.
An examination of these cases will disclose that the true ground upon which
they are based was the lack of evidence sufficiently clear, satisfactory and
convincing to sustain a holding that the true nature of the transaction between
the parties was any other than that set forth in written instruments executed
by them and purporting to evidence sales of land with a right of repurchase
reserved to the vendors. And the fact that, in the cases relied upon, the court
examined and weighed the evidence before rejecting it as insufficient affords
reasonable ground for an inference that had the court been of the opinion that
the parol evidence submitted in any of these cases was clear, satisfactory and
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convincing, it might, and doubtless would have arrived at a different
conclusion.
But however this may be, and without entering upon an extend review of the
reported opinions of this court to ascertain whether language has been used
in any of them which might be construed as an intimation by this court of its
views on the question now under consideration, we are of the opinion that the
issues raised on this appeal are such as to impose on us the duty of
reexamining the whole question as to the power of the courts in this
jurisdiction to admit extraneous parol evidence in support of allegations that
an instrument in writing, purporting on its face to transfer the absolute title to
property, or to transfer the title with a mere right of repurchase under
specified conditions reserved to the vendor, was in truth and in fact given
merely as a security; and upon proof of the truth of such allegations to
enforce such an agreement or understanding in accord with the true intend of
the parties at the time when it was executed. The question having been
brought here on an appeal from a ruling on a demurrer, the issue of law is
squarely presented, without being obscured or befogged by the intervention
of any doubtful question of fact, or of the relevancy, materiality, competence
or probative value of specific questions and answers in a particular case.
We are of opinion, and so hold, that on both principle and authority, this
question must be answered in the affirmative.
The Supreme Court of Porto Rico in the case of Monagas vs. Albertucci (17
Porto Rico, 684, cited and in effect affirmed as to this ruling by the Supreme
Court of the United States, 235 U. S., 81) observed in the course of a
discussion of a similar question that "The American doctrine on this
subject does not differ materially from the principles set forth in our Civil
Code," a code which is substantially identical with the Civil Code of the
Philippines in all its provisions with relation to the question under
consideration; and we are satisfied on a full review of the whole question
that, under our Codes, both substantive and adjective, the doctrine which
must be applied in this jurisdiction "does not differ materially" from the
equitable doctrine frequently announced and applied by the Supreme Court
of the United States in the numerous cases in which similar questions have
come to it from the various states and territories within its jurisdiction.
We shall consider first, whether the provisions of the new Code of Civil
Procedure should be so construed as to deny the right to the borrower in such
cases, to introduce extraneous and parol evidence to support his allegations
as to the existence of a parol agreement, whereby the lender obligated
himself to hold the title to the lands merely as security for the repayment of
the debt; and further whether there is anything in that Code which would
deny the right of the borrower in such cases, upon proof of such allegations,
to enforce the agreement in accordance with its terms. The authors of the new

Code of Civil Procedure (Act No. 190 of the Civil Commission) were
American lawyers, and the avowed purpose and object of its enactment was
to introduce in these Islands a system of procedure of civil cases modelled
upon precedents in general use in the United States. Most of its provisions
are borrowed directly from the statute books of one or other of the States of
the Union, and many of its more important provisions have been construed
and applied by both state and federal courts of last resort. We have, therefore,
in the Supreme Court Reports of the various States from which these
provisions were borrowed, numerous precedents of strong and persuasive, if
not conclusive authority; and, except in so far as they are affected by the
substantive law in force in this jurisdiction or necessarily modified by local
conditions, we have always felt ourselves bound by the rulings of the
Supreme Court of the United States in construing and applying statutory
enactments modelled upon or borrowed from English or American originals.
The various provisions of the new Code of Civil Procedure which have any
bearing on the question now under consideration, or statutory provisions of
like tenor and effect, have been construed and applied by all or nearly all the
courts of last resorts in England and the United States; and while these courts
are not wholly in accord as to the reasoning upon which their conclusions are
based, it may safely be asserted that with substantial, if not absolute
unanimity, they have arrived a substantially similar results.
But we shall not shop at this time to review all the questions which have been
raised in connection with the subject now under consideration. It will be
sufficient for our purposes to examine the obligations which have been
advanced against the admission of parol evidence to sustain allegations
similar in effect to those set forth in the case at bar, based either on the
ground that such evidence should be excluded under the "Statute of Frauds,"
the alleged agreement not having been reduced to writing, or on the ground
that its admission would violate the rule that parol evidence will not be
admitted to vary or contradict the terms of a written instrument.
For this purpose we can do no better than to insert here a few citations from
the books, which set forth quite fully the doctrine in this regard that has been
announced by the great weight of authority, and which in our opinion should
prevail in this jurisdiction in applying and construing the pertinent provisions
of the new Code of Civil Procedure. But, before doing so, it may be well to
indicate that we do not adopt every proposition advanced in these somewhat
extended citations from text-book and judicial authority, and that, at this
time, we make the doctrine our own only to the extent of declaring that the
provisions of the new Code of Civil Procedure do not have the effect of
excluding parol evidence in support of allegations such as those set forth in
the complaint in the case at bar, or of denying the right of the borrower in
cases of this kind to enforce the alleged agreement in accordance with its
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terms. Supported by numerous citations the doctrine summarily stated in 27
Cyclopedia, page 1023, is as follows:
Effect of statute of frauds. The statute of frauds does not stand in the way
of treating an absolute deed as a mortgage, when such was the intention of
the parties, although the agreement for redemption or defeasance rests wholly
in parol, or is proved by parol evidence. The courts will not permit the statute
to be used as a shield for fraud, or as a means for perpetrating fraud.
Rule prohibiting contradiction of written documents. The admission of
parol testimony to prove that a deed absolute in form was in fact given and
accepted as a mortgage does not violate the rule against the admission of oral
evidence to vary or contradict the terms of a written instrument.
In the case of Russell vs. Southard (53 U. S., 139, 147), the Supreme Court of
the United States dealt with these objections in part as follows:
The first question is, whether this transaction was a mortgage, or a sale.
It is insisted, on behalf of the defendants, that this question is to be
determined by inspection of the written papers alone, oral evidence not being
admissible to contradict, vary, or add to, their contents. But we have no doubt
extraneous evidence is admissible to inform the court of every material fact
known to the parties when the deed and memorandum were executed. This is
clear, both upon principle and authority. To insist on what was really a
mortgage, as a sale, is in equity a fraud, which cannot be successfully
practiced, under the shelter of any written papers, however precise and
complete they may appear to be. In Conway vs. Alexander(7 Cranch, 238),
Ch. J. Marshall says: `Having made these observations on the deed itself, the
court will proceed to examine those extrinsic circumstances, which are to
determine whether it was a sale or a mortgage;' and in Morris vs. Nixon (1
How., 126), it is stated; 'The charge against Nixon is, substantially, a
fraudulent attempt to convert that into an absolute sale, which was originally
meant to be a security for a loan. It is in this view of the case that the
evidence is admitted to ascertain the truth of the transaction, though the deed
be absolute on its face.'
These views are supported by many authorities. (Maxwell vs. Montacute, Pr.
in Ch., 526; Dixon vs. Parker, 2 Ves., Sen., 225; Prince vs. Bearden, 1 A. K.
Marsh. [Ky.], 170; Oldham vs. Halley, 2 J. J. March. [Ky.], 114; Whittick vs.
Kane, 1 Paige [N. Y.], 202; Taylor vs. Luther, 2 Sumn, 232; Flagg vs. Mann,
Id., 538; Overton vs. Bigelow, 3 Yerg. [Tenn.] 513; Brainerd vs. Brainerd, 15
Conn., 575; Wright vs. Bates, 13 Vt., 341; McIntyre vs. Humphries, 1 Hoffm.
[N. Y.] Ch., 331; 4 Kent, 143, note A., and 2 Green. Cruise, 86, n.)
It is suggested that a different rule is held by the highest court of equity in
Kentucky. If it were, with great respect for that learned court, this court
would not feel bound thereby. This being a suit in equity, and oral evidence

being admitted, or rejected, not by the mere force of any state statute, but
upon the principles of general equity jurisprudence, this court must be
governed by its own views of those principles. (Robinson vs. Campbell, 3
Wheat., 212; United States vs. Howland, 4 Id., 108; Boyle vs. Zacharie et al.,
6 Pet., 658; Swift vs. Tyson, 16 Id., 1; Foxcroft vs. Mallett, 4 How., 379.) But
we do not perceive that the rule held in Kentucky differs from that above laid
down. The rule, as stated in Thomas vs. McCormack (9 Dana [Ky.], 109), is
that oral evidence is not admissible in opposition to the legal import of the
deed, and the positive denial in the answer, unless a foundation for such
evidence had been first laid by an allegation, and some proof of fraud or
mistake in the execution of the conveyance, or some vice in the
consideration.
But the inquiry still remains, what amounts to an allegation of fraud, or of
some vice in the consideration and it is the doctrine of this court, that
when it is alleged and proved that a loan on security was really intended, and
the defendant sets up the loan as a payment of purchase money, and the
conveyance as a sale, both fraud and a vice in the consideration are
sufficiently averred and proved to require a court of equity to hold the
transaction to be a mortgage; and we know of no court which has stated this
doctrine with more distinctness, than the Court of Appeals of the State of
Kentucky. In Edrington vs. Harper (3 J. J. Marsh. [Ky.], 355), that court
declared: `The fact that the real transaction between the parties was a
borrowing and lending, will, whenever, or however it may appear, show that
a deed absolute on its face was intended as a security for money; and
whenever it can be ascertained to be a security for money, it is only a
mortgage, however artfully it may be disguised.'
xxx

xxx

xxx

In respect to the written memorandum, it was clearly intended to manifest a

conditional sale. Very uncommon pains are taken to do this. Indeed, so much
anxiety is manifested on this point, as to make it apparent that the draftsman
considered he had a somewhat difficult task to perform. But it is not to be
forgotten, that the same language which truly describes a real sale, may also
be employed to cut off the right of redemption, in case of a loan on security;
that it is the duty of the court to watch vigilantly these exercises of skill, lest
they should be effectual to accomplish what equity forbids; and that, in
doubtful cases, the court leans to the conclusion that the reality was a
mortgage, and not a sale. (Conway vs. Alexander, 7 Cranch, 218; Flagg vs.
Mann, 2 Sumn., 533; Secrest vs. Turner, 2 J. J. March. [Ky.], 471; Edrington
vs. Harper, 3 Id., 354; Crane vs. Bonnell, 1 Green [N. J.] Ch., 264; Robertson
vs. Campbell, 2 Call. [Va.], 421; Poindexter vs. McCannon, 1 Dev. [N. C.]
Eq., 373.)

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It is true Russell must have given his assent to this form of the memorandum;
but the distress for money under which he then was, places him in the same
condition as other borrowers, in numerous cases reported in the books, who
have submitted to the dictation of the lender under the pressure of their
wants; and a court of equity does not consider a consent, thus obtained, to be
sufficient to fix the rights of the parties. `Necessitous men,' says the Lord
Chancellor, in Vernon vs. Bethell (2 Eden, 113), `are not, truly speaking, free
men; but, to answer a present emergency, will submit to any terms that the
crafty may impose upon them.'
The memorandum does not contain any promise by Russell to repay the
money, and no personal security was taken; but it is settled that this
circumstance does not make the conveyance less effectual as a mortgage.
(Floyer vs. Lavington, 1 P. Wms., 268; Lawly vs. Hooper, 3 Atk., 278; Scott
vs. Fields, 7 Watts. [Pa.], 360; Flagg vs. Mann, 2 Sumn., 533; Ancaster vs.
Mayer, 1 Bro. C. C., 464.) And consequently it is not only entirely consistent
with the conclusion that a mortgage was intended, but in a case where it was
the design of one of the parties to clothe the transaction with the forms of a
sale, in order to cut off the right of redemption, it is not to be expected that
the party would, by taking personal security, effectually defeat his own
attempt to avoid the appearance of a loan.
Citing and relying upon this case Mr. Justice Field speaking for the Supreme
Court of the United States (Brick vs. Brick, 98 U. S., 514) announced the
doctrine with relation to transactions in personal property, which is
summarized as follows in the head notes:
Parol evidence is admissible in equity to show that a certificate of stock
issued to a party as owner was delivered to him as security for a loan of
money. A court of equity will look beyond the terms of an instrument to the
real transaction, and when that is shown to be one of security and not of sale,
it will give effect to the actual contract of the parties.
The rule which excludes such evidence to contradict or vary a written
instrument does not forbid an inquiry into the object of the parties in
execution and receiving it.
In the case of Monagas vs. Albertucci (235 U. S., 81, 83) the Supreme Court
of the United States inserts the following excerpt from the opinion of the
Supreme Court of Porto Rico (17 Porto Rico, 684, 686):
The whole case really turns on the question of whether the written instrument
in controversy was a mortgage or a conditional sale. If it is the latter, it must
be complied with according to its terms; if the former, the plaintiff must be
allowed to repay the money received and take a reconveyance of the land.
The real intention of the parties at the time the written instrument was made
must govern in the interpretation given to it by the courts. This must be

ascertained from the circumstances surrounding the transaction and from the
language of the document itself. The correct test, where it can be applied, is
the continued existence of a debt or liability between the parties. If such
exists, the conveyance may be held to be merely a security for the debt or an
indemnity against the liability. On the contrary, if no debt or liability is found
to exist, then the transaction is not a mortgage, but merely a sale with a
contract of repurchase within a fixed time. While every case depends on its
own special facts, certain circumstances are considered as important, and the
courts regard them as throwing much light upon the real intent of the parties
and upon the nature of such transactions: such are the existence of a
collateral agreement made by the grantor for the payment of money to the
grantee, his liability to pay interest, inadequacy of price paid for the
conveyance, the grantor still remaining in possession of the land conveyed,
and any negotiation or application for a loan made preceding or during the
transaction resulting in the conveyance. The American doctrine on this
subject does not differ materially from the principles set forth in our Civil
Code.
We insert here an extract of some length from the discussion of the subject
(supported by numerous citations of authority) found in Jones' Commentaries
on Evidence, (1913) volume 3, paragraphs 446, 447:
446. To show that instruments apparently absolute are only securities. It
has long been the settled rule that in courts exercising equitable jurisdiction it
is admissible to prove by parol that instruments in writing apparently
transferring the absolute title are in fact only given as security. The doctrine
is thus stated by Mr. Field: `It is an established doctrine that a court of equity
will treat a deed, absolute in form, as a mortgage, when it is executed as
security for loan of money. That court looks beyond the terms of the
instrument to the real transaction; and when that is shown to be one of
security and not of sale, it will give effect to the actual contract of the parties.
As the equity, upon which the court acts in such cases, arises from the real
character of the transaction, any evidence, written or oral, tending to show
this is admissible. The rule which excludes parol testimony to contradict or
vary a written instrument has reference to the language used by the parties.
That cannot be qualified or varied from its natural import, but must speak for
itself. The rule does not forbid an inquiry into the object of the parties in
executing and receiving the instrument.' Although in some of the earlier cases
this evidence was received only on the grounds of fraud or mistake, yet in
later cases it was deemed sufficient evidence of fraud for the grantee to treat
the conveyance as absolute, when in fact it was not, and the tendency of the
modern decisions is that such evidence may be received to show the real
nature and object of the transaction, although no fraud or mistake of any kind
is alleged or proved. It is held that "the agreement for the defeasance,
whether written or unwritten, is no more than one of the conditions upon
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which the deed was given, and therefore constitutes a part of the
consideration for the conveyance . . . . Where the deed does not contain the
defeasance, the presumption arises that the conveyance is absolute, and, in
making proof that a defeasance was intended by the parties, and was in fact a
part of the consideration upon which the conveyance was made, this
presumption must be removed by testimony before the debtor can use the
evidence showing his right to defeat the absolute character of the conveyance
. . . . It comes finally to a question of what was the understanding and the
intention of the parties at the time the instrument was made; and this, like any
other fact, depends for its support upon what was said and done by the parties
at the time, together with all the other circumstances bearing upon the
question.'
447. Same Real intention of the parties to be ascertained. In applying
the exception under discussion, the extrinsic evidence will not be received
because of any particular form of language which the parties may have
adopted. As we have shown in the preceding section, the intention of the
parties must govern; and it matters not what peculiar form the transaction
may have taken. The inquiry always is, Was a security for the loan of money
or other property intended? But where the deed and accompanying papers on
their face constitute a mortgage, parol evidence is not competent to show the
contrary. In solving the question upon the facts, a few things are absolutely
necessary to be found to exist before the deed can be construed a mortgage. A
debt owing to the mortgagee, or a liability incurred for the grantor, either
preexisting or created at the time the deed is made, is essential to give the
deed the character of a mortgage. The relation of debtor and creditor must
appear. The existence of the debt is one of the tests. The amount of the debt,
as well as its continuance, should also be made to appear where a foreclosure
is asked in the same suit wherein it is sought to establish the character of the
instrument. It is also of importance to know precisely when the character
claimed for the instrument was fixed. In construing the deed to be a
mortgage, its character as such must have existed from its very inception,
created at the time the conveyance was made. The character of the
transaction is precisely what the intention of the parties at the time made it. It
will therefore be discovered that the testimony of those who were present at
the time the instrument was made, and especially of those who participated in
the transaction, becomes most important. In arriving at the real intent of the
parties, their statements and acts at the time of the transaction, the
inadequacy of the consideration named in the deed, the prior existence of a
debt, and the recognition of its continuance, as by the payment of interest or
other acts, are all facts to be considered, and are relevant to the issue. But
although parol evidence is received in such cases to show the real nature of
the transaction, the presumption is that the instrument is what it purports to
be; and before a deed absolute in form can be shown to be a mortgage,

the proof should be clear and convincing. The burden rests upon the moving
party of overcoming the strong presumption arising from the terms of a
written instrument. If the proofs are doubtful and unsatisfactory, if there is a
failure to overcome this presumption by testimony entirely plain and
convincing beyond reasonable controversy, the writing will be held to
express correctly the intention of the parties. A judgment of the court, a
deliberate deed or writing, are of too much solemnity to be brushed away by
loose and inconclusive evidence. Proof tending to show that no transfer of
title was contemplated does not fall within the condemnation of the rule
prohibiting oral evidence to vary the terms of a written instrument. As the
rule has often been stated, `to convert a deed absolute into a mortgage, the
evidence should be so clear as to leave no substantial doubt that the real
intention of the parties was to execute a mortgage.'"
Having disposed of the contention that the provisions of the new Code of
Civil Procedure, enacted under American sovereignty, forbid the introduction
of parol evidence to establish the true nature of transactions such as that
under consideration in the case at bar, we come now to consider whether
there is anything in the Spanish Codes which denies the power of the courts
to enforce the equitable doctrine announced by the Supreme Court of the
United States with reference to agreements and understandings of this nature.
But first, it may be well at this time to emphasize the fact that the courts of
these Islands are not organized with reference to the old English and
American classification into courts of law and equity; and that our Codes
recognize no distinction between actions at law and suits in equity, as these
terms are understood in English and American jurisdictions, wherein a
distinction is made between law and equity in the enforcement of private
rights and the redress of private wrongs.
Deeply embedded among the fundamental principles on which the authors of
the Civil Code of Spain erected that monument to their genuis as codifiers, is
the broad equitable rule that "No man may wrongfully (tortiously) enrich
himself at the expense of (to the injury of) another." ("E aun dixeron, que
ninguno non deue enriqueszer tortizeramente con dao de otro"). (Regla 17,
Title 34, Setena Partida, sentencias Tribunal de Espaa, May 1, 1875;
December 16, 1880; May 24, 1882, April 24, 1896.)
As deeply embedded at the very foundation of all the provisions of the
Spanish Code touching the nature and effect of all contractual obligations is
the maxim that the will of the contracting parties is the law of their contract
a maxim which is amplified in the elementary propositions that "contracts
are perfected by mere consent" (article 1258); that "the contracting parties
may make any agreement and establish any clauses and conditions which
they may deem advisable, provided they are not in contravention of law,
morals, or public order" (article 1255); that "the validity and fulfillment of
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contracts cannot be left to the will of one of the contracting parties" (article
1256); and that "contracts shall be binding, whatever be the form in which
they may have been executed, provided the essential conditions required for
their validity exist" (article 1278).
In the light of these elementary and basic principles of the Code there can be
no question, in the absence of express statutory prohibition, as to the validity
of an agreement or understanding whereby the lender of money, who as
security for the repayment of the loan has taken a deed to land, absolute on
its face or in the form of a deed reserving a mere right of repurchase to the
vendor, obligates himself to hold such deed, not as evidence of a contract of
sale but by way of security for the repayment of the debt; and that unless the
rights of innocent third persons have intervened the lender of the money may
be compelled to comply specifically with the terms of such an agreement,
whether it be oral or written; and further, that he will not be permitted, in
violation of its terms, to set up title in himself or to assert a claim or absolute
ownership.
If the parties actually enter into such an agreement, the lender of the money
is legally and morally bound to fulfill it. Of course such an oral contract does
not give the borrower a real right in the lands unless it is executed in
compliance with the formalities prescribed by law. If entered into orally, it
creates a mere personal obligation which in no wise effects the lands, and if
the lender conveys the lands to innocent third persons, the borrower must
content himself with a mere right of action for damages against the lender,
for failure to comply with his agreement. But so long as the land remains in
the hands of the lender, the borrower may demand the fulfillment of the
agreement, and a mere lack of any of the formalities prescribed under the
Spanish Code for the execution of contracts affecting real estate will not
defeat his right to have the contract fulfilled, as the lender may be compelled
in appropriate proceedings to execute the contract with the necessary
prescribed formalities.
We have frequently held that under the Spanish Codes an oral contract
affecting lands, even an oral contract for the sale of lands, was valid and
enforceable, provided none of the essential requisites of all valid contracts is
lacking, that is to say, (1) consent, (2) definite object, and (3) causa or
consideration. The lack of the formal requisites prescribed by the Code in
order that such contracts may become effective to bind or convey the
property, such as their execution in public instruments and the like, does not
invalidate them as personal obligations, as "either party may compel the
other to comply with such formalities" from the moment the valid personal
obligation has been entered into. (Article 1279 of the Civil Code.)
In like manner an agreement such as we have just described, entered into by
a lender of money, who has taken lands and security for its repayment, is a

valid contract, and we know of no provision in the Codes which denies the
right of the borrower to demand its fulfillment. On the contrary, provided the
rights of innocent purchasers for valuable consideration have not intervened,
and provided of course that the borrower can establish satisfactorily the fact
that such a contract was actually entered into, the principle that no man may
wrongfully enrich himself at the expense of another imposes an imperative
obligation on the lender to carry out his contract, and secures the right to the
borrower to have it enforced by the courts. And on the other hand, the same
principle secures to the lender the right to enforce the contract upon the
failure of the borrower to comply with its terms, that is to say, to have the
lands held as security sold and the proceeds applied to the payment of the
debt.
But this conclusion is in substance and in effect identical with that arrived at
by the courts in England and the United States, when they declare that the
transaction in such cases will be treated as in the nature of an equitable
mortgage and enforced as such. That is merely to say that the parties will be
compelled to comply with the terms of the agreement that the lands should be
held as security for the debt, provided of course the agreement can be
established by competent evidence and the rights of innocent third parties
have not intervened.
Under neither system will the contract be given the effect of a duly recorded
or a valid mortgage, so as to bind the lands in the hands of innocent third
persons; but the result under both systems is substantially identical in that as
long as the property remains in the hands of the lender he cannot deny the
right of the borrower to recover the lands by the payment of the debt, nor can
he set up a claim of absolute ownership on the lands which will defeat the
right of the borrower in this regard until and unless the borrower's right of
action has prescribed.
The real difficulty which has confronted the borrowers in attempting to
enforce alleged contracts of this nature has not lain in the failure of the law to
recognize their rights in the premises, but rather in the inherent difficulties
confronting them in their attempts to prove the existence of such a contract.
In the very nature of things the disqualification of those directly interested in
an action to testify as witnesses, prescribed in article 1247 of the Spanish
Code, must have enormously increased the difficulties confronting a
borrower in an attempt to establish the existence of such an oral contract,
prior to the enactment of the new Code of Civil Procedure prescribing new
rules in this regard. This because, as a rule, the existence of such contracts is
made known to few persons other than the contracting parties themselves.
And while the new rules of evidence have removed this difficulty from the
path of the lender seeking to establish the existence of such an agreement,
they by no means relief him of the necessity of establishing his allegations by
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clear, convincing and satisfactory evidence. The principle on which the
codifiers rested the rule laid down in article 1248 of the Civil Code is not less
imperative under the new rules of evidence than under those found in the
Spanish Code. That article is as follows:
The probative force of the testimony of the witnesses shall be valued by the
courts in accordance with the provisions of the Law of Civil Procedure,
taking care to avoid that, by the simple coincidence of some testimony,
unless its truthfulness be evident, the affairs may be finally decided in which
are usually employed public deeds, private documents, or any
commencement of written evidence.
In this jurisdiction, as in the United States, the existence of an oral agreement
or understanding such as that alleged in the complaint in the case at bar
cannot be maintained on vague, uncertain and indefinite testimony, against
the reasonable presumption that prudent men who enter into such contracts
will execute them in writing, and comply with the formalities prescribed by
law for the creation of a valid mortgage. But where the evidence as to the
existence of such an understanding or agreement is clear,
convincing and satisfactory, the same broad principles of equity operate in
this jurisdiction as in the United States to compel the parties to live up to the
terms of their contract.
2. The second ground upon which the demurrer should have been overruled
is that it admits the truth of the allegation of the complaint that in the year
1897, two years after the date of the execution of the instrument purporting
to be a deed of sale, the nominal vendor paid the nominal purchaser P1,000,
whereupon the nominal rent of the land was reduced from P420 to P300 per
annum, the real purpose and object of this arrangement being to reduce the
amount of the annual interest on the original loan made to the nominal
vendor of the land, proportionately to the reduction of the amount of the loan
itself by the payment of P1,000. If it be true that two years after the
transaction evidenced by the instrument attached to the complaint, the
defendant accepted from the plaintiff's mother the sum of P1,000, and
thereafter reduced the amount of the annual payments to be made by her, it
cannot be doubted that the plaintiff has a good cause of action against the
defendant.
The acceptance by the defendant of this large sum of money, under the
circumstances as they appear from the complaint, can only be accounted for
on one of two hypotheses. Either the original transaction was in truth and in
fact an arrangement or agreement by virtue of which a loan of money was
made and secured by a formal deed of sale of land with a reserved right of
repurchase; or, if the original transaction was in truth and in fact one of
purchase and sale of real estate, with a reserved right of repurchase in the
vendor, then the purchaser, by the acceptance from the vendor of the sum of

P1,000, waived and surrendered his rights under the original contract, and
entered into a new contract with the vendor, under which he obligated
himself to cancel the deed, or resell the land to the original vendor on the
payment of the balance of the original purchase price, and bound himself not
to exercise his right, under the original deed of sale, to refuse to allow the
original vendor to repurchase after the expiration of the period stipulated in
the original contract for that purpose.
Upon either hypothesis, plaintiff would clearly be entitled to the relief prayed
for in his complaint. Of course the defendant is not entitled to keep both the
land and the payment of a thousand pesos. The acceptance and retention of
such a payment is wholly inconsistent with a claim of a right of absolute
ownership in the land, without any obligation to resell it to the original
vendor. Defendant can not eat his cake and have it too.
In the case of Lichauco vs. Berenguer (20 Phil. Rep., 12), we found the fact
that various partial payments had been made by the vendor, and accepted by
the purchaser, for the purpose of repaying the original purchase price,
absolutely incompatible "with the idea of the irrevocability of the title of
ownership of the purchaser" at the expiration of the term stipulated in the
original contract for the exercise of the right of repurchase. Speaking through
the Chief Justice, we said in that case:
The vendee, who has been reimbursed by the vendor for a part of the
repurchase price, is bound to fulfill the obligation to sell back, derived from
the sale with right to repurchase, or must show reason why he may keep this
part of the price and, notwithstanding his so doing, be considered released
from effecting the resale. He may be entitled to require the completion of the
price, or that he be paid other expenses before he returns the thing which he
had purchased under such a condition subsequent; but the exercise of the
right of redemption having been begun and admitted, the irrevocability of the
ownership in such manner acquired is in all respects incompatible with these
acts so performed.
The order entered in the court below, sustaining the demurrer to the
complaint must be reversed, and the record remanded for further
proceedings, without costs in this instance.
Let judgment be entered in accordance herewith. So ordered.

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