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Acceptance

Traders Royal Bank vs Cuison Kumber Co. Inc.

SECOND DIVISION

TRADERS ROYAL BANK, G.R. No. 174286


Petitioner,
Present:

- versus - QUISUMBING, Chairperson,


*
YNARES-SANTIAGO,
VELASCO, JR.,
**
LEONARDO-DE CASTRO, and
BRION, JJ.
CUISON LUMBER CO., INC.,
and JOSEFA JERODIAS
VDA. DE CUISON, Promulgated:
Respondents.
June 5, 2009

x ----------------------------------------------------------------------------------------x

DECISION

BRION, J.:

We review in this petition for review on certiorari[1] the decision[2] and


resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 49900. The
CA affirmed with modifications the decision[4] of the Regional Trial Court
(RTC), Davao City, Branch 13. The RTC ruled in favor of respondents
Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. Cuison),
collectively referred to as respondents, in the action they commenced for
breach of contract, specific performance, damages, and attorneys fees, with
prayer for the issuance of a writ of preliminary injunction against petitioner
Traders Royal Bank (bank).
THE BACKGROUND FACTS

On July 14, 1978 and December 9, 1979, respectively, CLCI, through its
then president, Roman Cuison Sr., obtained two loans from the bank. The
loans were secured by a real estate mortgage over a parcel of land covered
by Transfer Certificate of Title No. 10282 (subject property). CLCI failed to
pay the loan, prompting the bank to extrajudicially foreclose the mortgage
on the subject property. The bank was declared the highest bidder at the
public auction that followed, conducted on August 1, 1985. A Certificate of
Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the
banks favor.

In a series of written communications between CLCI and the


bank, CLCI manifested its intention to restructure its loan obligations and to
repurchase the subject property. On July 31, 1986, Mrs. Cuison, the widow
and administratrix of the estate of Roman Cuison Sr., wrote the banks
Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms
of repurchase. She stated:
1. That I will pay the interest of P115,538.66, plus the additional
expenses of P17,293.69, the total amount of which is P132,832.35
on August 8, 1986;

2. That I will pay 20% of the bid price of P949,632.84, plus


whatever interest accruing within sixty (60) days from August 8,
1986;

3. That whatever remaining balance after the above two (2)


payments shall be amortized for five (5) years on equal monthly
installments including whatever interest accruing lease on
diminishing balance.[5]

CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00
(on September 3, 1986). The bank received and regarded these amounts as
earnest money for the repurchase of the subject property. On October 20,
1986, the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the president
and general manager of CLCI, a letter informing CLCI of the banks board of
directors resolution of October 10, 1986 (TRB Repurchase
Agreement), laying down the conditions for the repurchase of the subject
property:
This is to formally inform you that our Board of Directors, in its
regular meeting held on October 10, 1986, passed a resolution for the
repurchase of your property acquired by the bank, subject to the following
terms and conditions, viz:

1. That the repurchase price shall be at total banks claim as of the


date of implementation;

2. That client shall initially pay P132,000.00 within fifteen (15)


days from the expiration of the redemption period (August 8, 1986) and
further payment of P200,632.84, representing 20% of the bid price, to be
remitted on or before October 31, 1986;

3. That the balance of P749,000.00 to be paid in three (3) years in


twelve (12) quarterly amortizations, with interest rate at 26% computed on
diminishing balance;

4. That all the interest and other charges starting from August 8,
1986 to date of approval shall be paid first before implementation of the
request; interest as of October 31, 1986 is P65,669.53;

5. Possession of the property shall be deemed transferred after


signing of the Contract to Sell. However, title to the property shall be
delivered only upon full payment of the repurchase price viaDeed of
Absolute Sale;

6. Registration fees, documentary stamps, transfer taxes at the date


of sale and other similar government impost shall be for the exclusive
account of the buyer;

7. The improvement of the property shall at all times be covered by


insurance against loss with a policy to be obtained from a reputable
company which designates the bank as beneficiary but premiums shall be
paid by the client;

8. That the sale is good for thirty (30) days from the buyers receipt
of notice of approval of the offer; otherwise, sale is automatically
cancelled;

9. Effective upon signing of the Contract to Sell, all realty taxes


which will become due on the property shall be for the account of the
buyer;
10. That the first quarterly installment shall be due within ninety
(90) days of approval hereof, and the succeeding installment shall be due
every three (3) months thereafter;

11. Upon default of the buyer to pay two (2) successive quarterly
installments, contract is automatically cancelled at the Banks option and
all payments already made shall be treated as rentals or as liquidated
damages; and

12. Other terms and conditions that the bank may further impose to
protect its interest.

Should you agree with the above terms and conditions please sign
under Conforme on the space provided below.

We attach herewith your Statement of Account[6] as of October 31,


1986, for your reference.

Thank you.

Very truly yours,


(Signed)

Conforme: (Not signed)[7]

CLCI failed to comply with the above terms notwithstanding the


extensions of time given by the bank. Nevertheless, CLCI tendered, on
February 3, 1987, a check for P135,091.57 to cover fifty percent (50%) of
the twenty percent (20%) bid price. The check, however, was returned for
insufficiency of funds. On May 13, 1987, CLCI tendered an
additional P50,000.00.[8] On May 29, 1987, the bank sent Atty. Cuison a
letter informing him that the P185,000.00 CLCI paid was not a deposit, but
formed part of the earnest money under the TRB Repurchase Agreement. On
August 28, 1987, Atty. Cuison, by letter, requested that CLCIs outstanding
obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1
million, and the amount ofP221,075.61 be condoned by the bank. To show
its commitment to the request, CLCI paid the bank P100,000.00
and P200,000.00 on August 28, 1987. The bank credited both payments as
earnest money.

A year later, CLCI inquired about the status of its request. The bank
responded that the request was still under consideration by the banks Manila
office. On September 30, 1988, the bank informed CLCI that it would resell
the subject property at an offered price of P3 million, and gave CLCI 15
days to make a formal offer; otherwise, the bank would sell the subject
property to third parties. On October 26, 1988, CLCI offered to repurchase
the subject property for P1.5 million, given that it had already tendered the
amount of P400,000.00 as earnest money.

CLCI subsequently claimed that the bank breached the terms of


repurchase, as it had wrongly considered its payments (in the amounts
of P140,485.18, P200,000.00 andP100,000.00) as earnest money, instead of
applying them to the purchase price. Through its counsel, CLCI demanded
that the bank rectify the repurchase agreement to reflect the true
consideration agreed upon for which the earnest money had been given. The
bank did not act on the demand. Instead, it informed CLCI that the amounts
it received were not earnest money, and that the bank was willing to return
these sums, less the amounts forfeited to answer for the unremitted rentals
on the subject property.

In view of these developments, CLCI and Mrs. Cuison, on February


10, 1989, filed with the RTC a complaint for breach of contract, specific
performance, damages, and attorneys fees against the bank. On April 20,
1989, the bank filed its Answer alleging that the TRB repurchase agreement
was already cancelled given CLCIs failure to comply with its provisions; by
way of counterclaim, the bank also demanded the payment of the
accrued rentals in the subject property as of January 31, 1989, and the award
of moral damages and exemplary damages as well as attorneys fees and
litigation expenses for the unfounded suit instituted against the bank by
CLCI.[9] After trial on the merits, the RTC ruled in respondents favor. The
dispositive portion of its November 4, 1994 Decision states:

WHEREFORE, premises considered, judgment is hereby rendered in


favor of plaintiffs and against the defendant bank, ordering said defendant
bank to:

1. Execute and consummate a Contract to Sell which is reflective


of the true consideration indicated in the Resolution of the Board of
Directors of Traders Royal Bank held on October 10, 1986 (Exhibit F and
Exhibit 13), duly accrediting the amount of P435,000 as earnest money to
be part of the price, the mode of payment being on quarterly installment,
but the period within which the first quarterly payment being on quarterly
payment shall be made to commence upon the execution of said Contract
to Sell;

2. Pay to plaintiffs the amounts of P50,000.00 in concept of moral


damages, P20,000.00 as exemplary damages;

3. Pay attorneys fees of P20,000.00; and

4. Pay litigation expenses in the amount of P2,000.00.

The counterclaim of defendant bank is hereby dismissed.

SO ORDERED.

On appeal to the CA, the bank pointed out the misappreciation of facts the
RTC committed and argued that: first, the repurchase agreement did not
ripen into a perfected contract; andsecond, even assuming that there was a
perfected repurchase agreement, the bank had the right to revoke it and
apply the payments already made to the rentals due for the use of the subject
property, or as liquidated damages under paragraph 11 of the TRB
Repurchase Agreement, since CLCI violated its terms and conditions.
Further, the bank contended that CLCI had abandoned the TRB Repurchase
Agreement in its letters dated August 28, 1987 and October 26, 1988 when it
proposed to repurchase the subject property for P1 million and P1.5 million,
respectively. Lastly, the bank objected to the award of damages in the
plaintiffs favor.

THE CA DECISION

On March 31, 2006, the CA issued the challenged Decision and affirmed the
RTCs factual findings and legal conclusions. Although it deleted the awards
of attorneys fees, moral and exemplary damages, the CA ruled that there was
a perfected contract to repurchase the subject property given the banks
acceptance (as stated in the letter dated October 20, 1986) of CLCIs proposal
contained in Mrs. Cuisons letter of July 31, 1986. The CA distinguished
between a condition imposed on the perfection of the contract and a
condition imposed on the performance of an obligation, and declared that the
conditions laid down in the letter dated October 20, 1986 merely relate to the
manner the obligation is to be performed and implemented; failure to
comply with the latter obligation does not result in the failure of the contract
and only gives the other party the options and/or remedies to protect its
interest. The CA held that the same conclusion obtains even if the letter of
October 20, 1986 is considered a counter-offer by the bank; CLCIs payment
of P135,000.00 operated as an implied acceptance of the banks counter-
offer, notwithstanding CLCIs failure to expressly manifest its conforme. In
light of these findings, the CA went on to acknowledge the validity of the
terms of paragraph 11 of the TRB Repurchase Agreement, but nonetheless
held that CLCI has not yet violated its terms given the banks previous acts
(i.e., the grant of extensions to pay), which showed that it had waived the
agreements original terms of payment.

The CA rejected the theory that CLCI had abandoned the terms of the
TRB Repurchase Agreement and found no incompatibility between the
agreement and the contents of the August 28, 1987 and October 26, 1988
letters which did not show an implied abandonment by CLCI, nor the latters
expressed intent to cancel or abandon the perfected repurchase agreement. In
the same manner, the CA struck down the banks position that CLCIs
payments were deposits rather than earnest money. The appellate court
reasoned that while the amounts tendered cannot be strictly considered as
earnest money under Article 1482 of the New Civil Code,[10] they were
nevertheless within the concept of earnest money under this Courts ruling
in Spouses Doromal, Sr. v. CA,[11] since they were paid as a guarantee so that
the buyer would not back out of the contract.

The CA however ruled that the award of moral and exemplary


damages, attorneys fees and litigation expenses lacked factual and legal
support. The CA found that the bank acted in good faith and based its
actions on the erroneous belief that CLCI had already abandoned the
repurchase agreement. Likewise, the award of moral damages was not in
order as there was no showing that CLCIs reputation was debased or
besmirched by the banks action of applying the previous payments made to
the interest and rentals due on the subject property; neither is Mrs. Cuison
entitled to moral damages without any evidence to justify this award. The
CA also ruled that there was nothing in the records to warrant the awards of
exemplary damages and attorneys fees.

The bank subsequently moved but failed to secure a reconsideration of


the CA decision. The bank thus came to us with the following
ISSUES

I.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN APPREHENDING THE SIGNIFICATION (SIC)
OF THE TERM OFFER ON THE ONE HAND AND
ACCEPTANCE ON THE OTHER HAND IN SALES
CONTRACT WHICH ERROR LED IT TO ARRIVE AT A
WRONG CONCLUSION OF LAW.

II.

THE HONORABLE COURT OF APPEALS GRAVELY


ERRED IN ITS INTERPRETATION OF THE
STIPULATIONS AND TERMS AND CONDITIONS
EMBODIED IN THE PROPOSED REPURCHASE
AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY
CONCLUDE THAT THERE WAS A PERFECTED
REPURCHASE AGREEMENT BETWEEN RESPONDENTS
AND PETITIONER AND WHICH INTERPRETATION IS
NOT IN ACCORDANCE WITH THE APPLICABLE LAW
AND ESTABLISHED JURISPRUDENCE.

Reduced to the most basic, the main issue posed is whether or not
a perfected contract of repurchase existed and can be enforced between
the parties.
THE COURTS RULING

We GRANT the petition.

The case presents to us as threshold issue the presence or absence of


consent as a requisite for a perfected contract to repurchase the subject
property. The RTC ruled that a perfected contract existed based mainly on
the following facts: first, the existence of the TRB Repurchase Agreement
which clearly depicts the repurchase agreement of the subject property under
the terms therein embodied; and second, the payment of earnest money in
the total amount of P435,000.00 which forms part of the price and, as initial
payment, is proof of the perfection of the contract.[12] In concurring with the
foregoing findings on appeal, the CA, in turn, declared that there was a
meeting of the minds between the parties on the offer and acceptance
for the repurchase of the subject property under the following quoted facts:

It may be recalled that it was Mrs. Cuison, through her letter of


July 31, 1986, who proposed to repurchase the foreclosed property. She in
fact had tendered right away an amount of P50,000.00 as partial payment
of the P132,000.00 she had promised to pay as initial payment. In
response, TRB sent a letter dated October 20, 1986 to Atty. Cuison
informing him of the resolution passed by the Board of Directors of TRB
acknowledging the proposal of Ms. Cuison to repurchase the property.
Under the circumstance, the proposal made by Ms. Cuison constituted the
offer contemplated by law, and the reply of TRB was the corresponding
acceptance of the proposal-offer.

xxx

Conceding arguendo that TRBs letter-response October 20, 1986


constituted a counter-offer or politacion, CLCIs ensuing remittance
of P135,000.00 as initial payment of the price, operates effectively as an
implied acceptance of TRBs counter-offer. The absence of a signature to
signify plaintiffs conforme to the repurchase agreement is of no moment.
While the conforme portion of the subject repurchase agreement indeed
bears no signature at all, this fact, however, does not detract from the
accomplished fact that plaintiffs had acquiesced or assented to the
standing conditional counter-offer of TRB. Plaintiffs conforme would at
best be a mere formality considering that the repurchase agreement had
already been perfected, if impliedly.[13]

Based on these findings, the crucial points that the lower courts
apparently considered were Mrs. Cuisons letter of July 31, 1986 to the bank;
the banks letter of October 20, 1986 to CLCI; and the parties subsequent
conduct showing their acknowledgement of the existence of their agreement,
specifically, the respondents payments (designated as earnest money) and
the banks acceptance of these payments. However, unlike the RTCs
conclusion that relied on CLCIs payment and the banks acceptance of the
payment as earnest money, the CA concluded that there was a perfected
contract, either because of the banks acceptance of CLCIs offer (made
through Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied
acceptance indicated by its initial payments in compliance with the terms of
the TRB Repurchase Agreement.

The petitioner bank, of course, argues differently and concludes that


the undisputed facts of the case show that there was no meeting of the minds
between the parties given CLCIs failure to give its consent and conformity
to the banks letter of October 20, 1986, confirmed by the testimony of Atty.
Cuison, no less, when he denied that CLCI consented to the agreements
terms of implementation.

Our task in this petition for review on certiorari is not to review the
factual findings of the CA and the RTC, but to determine whether or not, on
the basis of the said findings, the conclusions of law reached by the said
courts are correct.

Under the law, a contract is perfected by mere consent, that is, from
the moment that there is a meeting of the offer and the acceptance upon the
thing and the cause that constitute the contract.[14] The law requires that the
offer must be certain and the acceptance absolute and unqualified.[15] An
acceptance of an offer may be express and implied; a qualified offer
constitutes a counter-offer.[16] Case law holds that an offer, to be considered
certain, must be definite,[17] while an acceptance is considered absolute and
unqualified when it is identical in all respects with that of the offer so as to
produce consent or a meeting of the minds.[18] We have also previously held
that the ascertainment of whether there is a meeting of minds on the offer
and acceptance depends on the circumstances surrounding the case.[19]

In Villonco Realty Co. v. Bormacheco,[20] the Court found a perfected


contract of sale between the parties after considering the parties written
communications showing the offer (counter-offer) and acceptance by the
seller who formally manifested his conformity with the offer in the buyers
letter. We took note of the acts of the parties the payment of the buyer of an
amount representing the partial payment under the contract; the acceptance
of the partial payment by the seller; the allowance of the buyer for the seller
to encash the check containing the partial payment; the subsequent return of
the amount representing the partial payment by the buyer with the
corresponding interest stated in the buyers letter (offer) and considered them
evidence of the perfection of the sale. Under these circumstances, we also
declared that a change in a phrase in the offer to purchase, that 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.

In Schuback & Sons Philippine Trading Corp. v. CA,[21] we declared a


meeting of minds between the vendor and the vendee even though the
quantity of goods purchased had not been fully determined. We noted that
the vendee, after expressing his intention to purchase the merchandise,
simultaneously enclosed a purchase order whose receipt prompted the
vendor to immediately order the merchandise. We also took into account the
act of the vendee in requesting for a discount as proof of his acceptance of
the quoted price.

Yuviengco v. Dacuycuy[22] yielded a different result, as we considered


that the letter and telegrams sent by the parties to each other showed that
there was no meeting of minds in the absence of an unconditional
acceptance to the terms of the contract of sale; otherwise, the buyers would
not have included the phrase to negotiate details when they agreed to the
property that was subject of the proposed contract.

Similarly, in Philippine National Bank v. CA,[23] we ruled that there


was no perfected contract of sale because the specified terms and conditions
imposed under the facts of the case constituted counter-offers against each
other that were not accepted by either of the parties. This case involved a
first contract, involving the same property, which the parties mutually
cancelled; we said that the terms of this earlier contract cannot be considered
in determining the acceptance and compliance with the terms of a proposed
second contract a distinct and separate contract from the one earlier aborted.

The incomplete details of the agreement led us to conclude in Insular


Life Assurance Co. Ltd. v. Assets Builders Corp.[24] that no perfected
contract existed; there were other matters or details in addition to the subject
matter and the consideration [that] would be stipulated and agreed. We
likewise considered the subsequent acts between the parties and the
existence of a second proposal which belied the perfection of any initial
contract.

The recent Navarra v. Planters Development Bank[25] is another case


where we saw no perfected contract, as the offer was incomplete for lack of
agreed details on the manner of paying the purchase price; there was also no
acceptance as the letter of Planters Development Bank indicated the need to
discuss other details of the transaction.

All these cases illustrate the rule that the concurrence of the offer and
acceptance is vital to the birth and the perfection of a contract. The clear and
neat principle is that the offer must be certain and definite with respect to the
cause or consideration and object of the proposed contract, while the
acceptance of this offer express or implied must be
unmistakable,unqualified, and identical in all respects to the offer. The
required concurrence, however, may not always be immediately clear and
may have to be read from the attendant circumstances; in fact, a binding
contract may exist between the parties whose minds have met, although they
did not affix their signatures to any written document.[26]

The facts of the present case, although ambivalent in some


respects, point on the whole to the conclusion that both parties agreed to
the repurchase of the subject property.

A reading of the petitioners letter of October 20, 1986 informing


CLCI that the banks board of directors passed a resolution for the repurchase
of [your] property shows that the tenor of acceptance, except for the
repurchase price, was subject to conditions not identical in all respects with
the CLCIs letter-offer of July 31, 1986. In this sense, the banks October 20,
1986 letter was effectively a counter-offer that CLCI must be shown to have
accepted absolutely and unqualifiedly in order to give birth to a perfected
contract. Evidence exists showing that CLCI did not sign any document to
show its conformity with the banks counter-offer. Testimony also exists
explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not
agree with the implementation of the repurchase transaction since the bank
made a wrong computation.[27]
These indicators notwithstanding, we find that CLCI accepted the terms of
the TRC Repurchase Agreement and thus unqualifiedly accepted the banks
counter-offer under the TRB Repurchase Agreement and, in fact, partially
executed the agreement, as shown from the following undisputed evidence:

(a) The letter-reply dated November 29, 1986 of Atty. Cuison, as


president and general manager of CLCI, to the bank (in response
to the banks demand letter dated November 27, 1986 to pay 20%
of the bid price); CLCI requested an extension of time, until the
end of December 1986, to pay its due obligation;[28]

(b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter
of January 13, 1987) showed that she acknowledged CLCIs
failure to comply with its requested extension and proposed a
new payment scheme that would be reasonable given CLCIs
critical economic difficulties; Mrs. Cuizon tendered a check
for P135,091.57, which represented 50% of the 20% bid price;[29]

(c) The CLCIs continuous payments of the repurchase price after


their receipt of the banks letter of October 20, 1986;

(d) CLCIs possession of the subject property pursuant to paragraph 5


of the TRB Repurchase Agreement, notwithstanding the absence
of a signed contract to sell between the parties;

xxx

We counted the following facts, too, as indicators leading to the conclusion


that a perfected contract existed: CLCI did not raise any objection to the
terms and conditions of the TRB Repurchase Agreement, and instead,
unconditionally paid without protests or objections[30]; CLCIs
acknowledgment of their obligations under the TRB Repurchase Agreement
(as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons
admission that the TRB Repurchase Agreement was already a negotiated
agreement between CLCI and the bank, as shown by the following
testimony:

Q When you received this document, this Exh. F from the defendant bank,
did you already consider this as an agreement?
A We consider that as a negotiated agreement pending the documentation
of the formal contract to sell which is stated under the repurchase
agreement.

Q In other words, at the time you received this document Exh. F, which
was on October 23, 1986 date of receipt, was there already a
meeting of the minds between the parties?
A That is precisely we put [sic] the earnest money because we were of the
opinion that the bank is already agreeable to the implementation of
the repurchase agreement.
xxx
COURT

Q Insofar as Exh. F is concerned?


A There was initially, that is precisely we [sic] deposited in consideration
of the repurchase agreement.[31]
The bank, for its part, showed its recognition of the existence of a repurchase
agreement between itself and CLCI by the following acts:

(a) The letter dated November 27, 1986 of the bank, reminding CLCI
that it was remiss in its commitments to pay 20% of the bid price
under the terms of the TRB Repurchase Agreement;

(b) In the same letter, the bank gave CLCI an extension of time (until
November 30, 1986) to comply with its past due obligations
under the agreement;

(c) The banks acceptance of CLCIs payments as earnest money for


the repurchase of the property;

(d) CLCIs continued possession of the subject property with the


banks consent;
(e) The banks grant of extensions to CLCI for the payment of
its obligations under the contract;

(f) The Statement of Account dated July 31, 1987 showing that the
bank applied CLCIs payments according to the terms of the TRB
Repurchase Agreement;

(g) The letter of January 26, 1989 of the banks counsel, Atty.
Abarquez, addressed to CLCIs counsel, showing the banks
recognition that there was an agreement between the bank and
CLCI, which the latter failed to honor; and

(h) The testimonies of the banks witnesses Mr. Eulogio


Giramis[32] and Ms. Arlene Aportadera,[33] the banks employees
who handled the CLCI transactions who admitted the existence of
the repurchase agreement with CLCI and the latters failure to
comply with the agreements terms.

Admittedly, some evidence on record may be argued to point to the


absence of a meeting of the minds (more particularly, the previous offers
made by CLCI to change the payment scheme of the repurchase of the
subject property which was not accepted; the banks expressed intent to offer
the subject property for sale to third persons at a higher price; and the
unaccepted counter-offer by the respondents after the bank increased the
purchase price).[34] These incidents, however, were the results of CLCIs
failure to comply with its obligations to pay the amounts due on the
stipulated time and were made after the parties minds had met on the terms
of the contract. The seemingly contrary indications, therefore, do not go into
and affect the perfection of the contract; they came after the contract had
been perfected and, as discussed below, were indicative of the banks
cancellation of the repurchase agreement.

In light of this conclusion, we now determine the consequential rights,


obligations and liabilities of the parties. It is at this point that we diverge
from the conclusions of the CA and the RTC, as we conclude that while
there was a perfected contract between the parties, the bank effectively
cancelled the contract when it communicated with CLCI that it would sell
the subject property at a higher price to third parties, giving CLCI 15 days to
make a formal offer, and disregarding CLCIs counter-offer to buy the
subject property for P1.5 million. We arrive at this conclusion after
considering the following reasons:

First, the bank communicated its intent not to proceed with the
repurchase as above outlined and formally cancelled the TRB Repurchase
Agreement in its letters dated January 11 and 30, 1989 to CLCI.[35] Thus,
CLCIs rights acquired under the TRB Repurchase Agreement to repurchase
the subject property have been defeated by its own failure to comply with its
obligations under the agreement. The right to cancel for breach is provided
under paragraph 11 of the TRB Repurchase Agreement, as follows:
11. Upon default of the buyer to pay two (2) successive quarterly
installments, contract is automatically cancelled at the Banks option
and all payments already made shall be treated as rentals or as
liquidated damages;

We note, additionally, that the TRB Repurchase Agreement is in the nature


of a contract to sell where the title to the subject property remains in the
banks name, as the vendor, and shall only pass to the respondents, as
vendees, upon the full payment of the repurchase price.[36] The settled rule
for contracts to sell is that the full payment of the purchase price is a positive
suspensive condition; the failure to pay in full is not to be considered a
breach, casual or serious, but simply an event that prevents the obligation of
the vendor to convey title from acquiring any obligatory force.[37] Viewed in
this light, the bank cannot be compelled to perform its obligations under the
TRB Repurchase Agreement that has been rendered ineffective by the
respondents non-performance of their own obligations.

Second, the respondents violated the terms and conditions of the TRB
Repurchase Agreement when they failed to pay their obligations under the
agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB
Repurchase Agreement are clear on the respondents obligation to pay the bid
price and the quarterly installments. Paragraphs 2 and 10 state:
2. That client shall initially pay P132,000.00 within fifteen (15) days
from the expiration of the redemption period (August 8, 1986) and
further payment of P200,632.84 representing 20% of the bid price to
be remitted on or before October 31, 1986;

xxx xxx xxx

10. That the first quarterly installment shall be due within ninety (90) days
of approval hereof, and the succeeding installment shall be due every
three (3) months thereafter;

The approval referred to under paragraph 10 is the approval by the bank of


the repurchase of the subject property, as indicated in the banks letter of
October 20, 1986 which states, This is to formally inform you that our Board
of Directors in its regular meeting held on October 10, 1986, passed a
resolution for the repurchase of your property acquired by the bank. It was
on the basis of this approval and the quoted terms of the agreement that the
bank issued its Statement of Account dated July 31, 1987 indicating that the
respondents were already in default, not only with respect to the 20% of the
bid price, but also with the three quarterly installments.

Third, the respondents themselves claim that the bank violated the
agreement when it applied the respondents payments to the interest and
penalties due without the respondents consent, instead of applying these to
the repurchase price for the subject property.[38] An examination of the
provisions of the TRB Repurchase Agreement reveals that the bank is
allowed to apply the respondents payments first to the amounts due as
interests and other charges, before applying any payment to the repurchase
price. Paragraph 4 of the agreement provides:
4. That all the interest and other charges starting from August 8, 1986 to
date of approval shall be paid first before implementation of the
request; interest as of October 31, 1986 is P65,669.53;

Under these terms, the bank cannot be faulted for the application of
payments it made. Likewise, the bank cannot be faulted for the application
of other amounts paid as rentals as this is allowed under paragraph 11,
quoted above, of the agreement.

Fourth, the petitioner bank cannot be said, as the CA ruled, to have


already waived the terms of the TRB Repurchase Agreement by extending
the time to pay and subsequently accepting late payments. The CAs
conclusion lacks factual and legal basis taking into account that the
Statement of Account of July 31, 1987, heretofore cited, which shows that
the bank considered the respondents already in default. At this point, Atty.
Cuison, by letter, requested that part of its outstanding obligation be
condoned by the bank, paying P300,000.00 as of August 31, 1987, which
amount the bank accepted as earnest money. For one whole year thereafter,
neither party moved. Significantly, the respondents, who had continuing
payments to make and who had the burden of complying with the terms of
the agreement, failed to act except to ask the bank for the status of its
requested condonation. Under these facts, a continuing breach of the
agreement took place, even granting that a waiver had intervened as of
August 31, 1987. Thus, the bank was well within its right to consider the
agreement cancelled when, in September 1988, it changed the repurchase
terms to P3.0 million. We find it significant that the respondents, instead of
asserting its rights under the TRB Repurchase Agreement, counter-
offered P1.5 million with the P400,000.00 already paid as part of the
purchase price. At that point, it was clear that even the respondents
themselves considered the TRB Repurchase Agreement cancelled.

Lastly, the perfected repurchase agreement itself provides for the


respondents possession of the subject property; in fact, the respondents have
been in continuous possession of the subject property since October 1986,
despite the absence of a contract to sell apparently with the banks
consent. The agreement also provides under its paragraph 11 that upon the
respondents default and the cancellation of the agreement, all payments
already made shall be treated as rentals or as liquidated damages.
The undisputed facts show that the bank has been deprived of the use
and benefit of its property that has been in the possession of the respondents
for the latters use and benefit without paying any rentals thereon. The
records reveal that until now, the respondents are still in possession of the
subject property.[39]

We note that subsequent to the banks counterclaim for the payment of


rentals due as of January 31, 1989, the bank also seeks to recover the rentals
that accrued after January 31, 1989, which as of August 8, 1993 amounted
to P1,123,500.00 as shown by the evidence presented by the bank before the
RTC and in the pleadings it had filed before the RTC, CA, and the
Court.[40] Although this claim was not alleged in the banks Answer being an
after-acquired claim which was only raised during the trial proper through
the testimony dated August 17, 1993 of Ms. Arlene Aportadera, [41] the bank
is not barred from recovering these rentals. As we explained in Banco de
Oro Universal Bank v. CA,[42] a party is not barred from setting up a claim
even after the filing of the answer if the claim did not exist or had not
matured at the time said party filed its answer. Moreover, we note that the
respondents did not object to the presentation of this evidence, hence, the
issue of rentals from August 8, 1993 and onwards was tried with the implied
consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil
Procedure,[43] the issue should be treated in all respects as if it had been
raised in the pleadings.[44] Given the implied consent, judgment may be
validly rendered on this issue even if no motion had been filed and no
amendment had been ordered.[45]

In National Power Corporation v. CA,[46] we held that where there is a


variance in the defendants pleadings and the evidence adduced by it at the
trial, the Court may treat the pleading as amended to conform to the
evidence.

Additionally, the respondents are also liable to pay interest by way of


damages for their failure to pay the rentals due for the use of the subject
property. In Eastern Shipping Lines v. CA,[47] we laid down the following
guidelines with respect to the award and the computation of legal interest, as
follows:
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing.Furthermore, the interest
due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default,i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169 Civil Code) but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time quantification
ofdamages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annumfrom such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. [Emphasis supplied]

The records are unclear on when the bank made a demand outside of
the judicial proceedings for the rentals on the subject property. [48] However,
the records show that the bank made a counterclaim for the payments of the
rentals due as of January 31, 1989 in its Answer and subsequently, a claim
for the after-acquired rentals was made by the bank through the testimony of
Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of
interest for the rentals shall be reckoned from the date the judicial demand
was made by the bank or on April 20, 1989 when the bank set up its
counterclaim for rentals in the subject property.

Under the circumstances, we can impose a 6% interest on the rentals


from April 20, 1989 up to the finality of this decision. Thereafter, the
interest shall be computed at 12% per annum from such finality up to full
satisfaction.
We find no basis for the award of exemplary damages. Article 2232 of
the Civil Code declares:
Article 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.

Considering the factual circumstances we have discussed above, we can


hardly characterize respondents act of insisting on the enforcement of the
repurchase agreement as wanton, fraudulent, reckless, oppressive, or
malevolent.

As there is no basis for an award of exemplary damages, the awards of


attorneys fees and litigation expenses to the bank are not justified under
Article 2208 of the Civil Code.

WHEREFORE, premises considered, we hereby GRANT the


petition. The Decision dated March 31, 2006 and Resolution dated August
11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are
hereby REVERSED and SET ASIDE.

The complaint in Civil Case No. 19416-89 for breach of contract,


specific performance, damages, and attorneys fees, with preliminary
injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders
Royal Bank is hereby DISMISSED. The respondents are ordered to vacate
the subject property and to restore its possession to the petitioner bank.

The respondents are further ordered to pay reasonable compensation,


for the use and occupation of the subject property in the amount
of P1,123,500.00, representing the accrued rentals as of August 8, 1993, less
the amount of P485,000.00 representing deposits paid by the respondents. In
additiodn, respondents are also ordered to pay the amount of P13,700.00 a
month by way of rentals starting from August 8, 1993 until they vacate the
subject property. The rentals shall earn a corresponding legal interest of six
percent (6%) per annum to be computed from April 20, 1989 until the
finality of this decision. After this decision becomes final and executory, the
rate of legal interest shall be computed at twelve percent (12%) per
annum from such finality until its satisfaction.
Costs against the respondents.
SO ORDERED.

Retrieved from:
http://sc.judiciary.gov.ph/jurisprudence/2009/june2009/174286.htm

Villonco Realty Co. vs Bormaheco, Inc.

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.

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.

In the early part of February, 1964 there were negotiations for the sale of the said lots and
the improvements thereon between Romeo Villonco of Villonco Realty Company "and
Bormaheco, Inc., represented by its president, Francisco N. Cervantes, through the
intervention of Edith Perez de Tagle, a real estate broker".

In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred
with Cervantes in his office to discuss the price and terms of the sale. Later, Cervantes "went
to see Villonco for the same reason until some agreement" was arrived at. On a subsequent
occasion, Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of
the sale with Villonco.

During the negotiations, Villonco Realty Company assumed that the lots belonged to
Bormaheco, Inc. and that Cervantes was duly authorized to sell the same. Cervantes did not
disclose to the broker and to Villonco Realty Company that the lots were conjugal properties
of himself and his wife and that they were mortgaged to the DBP.

Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to
Romeo Villonco for the sale of the property. The offer reads (Exh. B):

BORMAHECO, INC.

February 12,1964

Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.

Dear Mr. Villonco:

This is with reference to our telephone conversation this noon on the matter
of the sale of our 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 Tagle.

Very truly
yours,

SGD.
FRANCISCO
N.
CERVANTES
President

The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel
Corporation (Nassco), with an area of twenty thousand square meters, located at Punta, Sta.
Ana, Manila. At the bidding held on January 17, 1964 that land was awarded to Bormaheco,
Inc., the highest bidder, for the price of P552,000. The Nassco Board of Directors in its
resolution of February 18, 1964 authorized the General Manager to sign the necessary
contract (Exh. H).

On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic
Coordinator, requesting approval of that resolution. The Acting Economic Coordinator
approved the resolution on March 24, 1964 (Exh. 1).

In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their
negotiations for the sale of the Buendia Avenue property. Cervantes and Teofilo Villonco had
a final conference on February 27, 1964. As a result of that conference Villonco Realty
Company, through Teofilo Villonco, in its letter of March 4, 1964 made a revised counter-
offer (Romeo Villonco's first counter-offer was dated February 24, 1964, Exh. C) for the
purchase of the property. The counter-offer was accepted by Cervantes as shown in Exhibit
D, which is quoted below:

VILLONCO REALTY COMPANY


V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines

March 4, 1964

Mr. Francisco Cervantes.


Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal
Dear Mr. Cervantes:

In reference to the letter of Miss E. Perez de Tagle dated February 12th


and 26, 1964 in respect to the terms and conditions on the purchase of your
property located at Buendia Ave., Makati, Rizal, with a total area of 3,500 sq.
meters., we hereby revise our offer, as follows:

1. That the price of the property shall be P400.00 per sq. m., including the
improvements thereon;

2. That a deposit of P100,000.00 shall be given to you as earnest money


which will become as part payment in the event the sale is consummated;

3. This sale shall be cancelled, only if your deal with another property in Sta.
Ana shall not be consummated and in such case, the P100,000-00 earnest
money will be returned to us with a 10% interest p.a. However, if our deal
with you is finalized, said P100,000.00 will become as part payment for the
purchase of your property without interest:

4. The manner of payment shall be as follows:

a. P100,000.00 earnest money and


650,000.00 as part of the down payment, or
P750,000.00 as total down payment

b. The balance is payable as follows:


P100,000.00 after 3 months
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total

As regards to the other conditions which we have discussed during our last
conference on February 27, 1964, the same shall be finalized upon
preparation of the contract to sell.*

If the above terms and conditions are acceptable to you, kindly sign your
conformity hereunder. Enclosed is our check for ONE HUNDRED
THOUSAND (P100,000.00) PESOS, MBTC Check No. 448314, as earnest
money.

Very truly yours,

VILLONCO
REALTY
COMPANY
(Sgd.)
TEOFILO
VILLONCO

CONFORME:
BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES

That this sale shall be subject to favorable consummation of a property in


Sta. Ana we are negotiating.

(Sgd.) FRANCISCO CERVANTES

The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by
Edith Perez de Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes.
In the voucher-receipt evidencing the delivery the broker indicated in her handwriting that the
earnest money was "subject to the terms and conditions embodied in Bormaheco's letter" of
February 12 and Villonco Realty Company's letter of March 4, 1964 (Exh. E-1; 14 tsn).

Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of
the contract of sale, Exhibit D, Cervantes returned the earnest money, with interest
amounting to P694.24 (at ten percent per annum). Cervantes cited as an excuse the
circumstance that "despite the lapse of 45 days from February 12, 1964 there is no certainty
yet" for the acquisition of the Punta property (Exh. F; F-I and F-2). Villonco Realty Company
refused to accept the letter and the checks of Bormaheco, Inc. Cervantes sent them by
registered mail. When he rescinded the contract, he was already aware that the Punta lot
had been awarded to Bormaheco, Inc. (25-26 tsn).

Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated
her shock and surprise at Bormaheco's turnabout. She reviewed the history of the deal and
explained why Romeo Villonco could not agree to the rescission of the sale (Exh. G).**

Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-
five day period had already expired and the sale to Bormaheco, Inc. of the Punta property
had not been consummated. Cervantes said that his letter was a "manifestation that we are
no longer interested to sell" the Buendia Avenue property to Villonco Realty Company
(Annex I of Stipulation of Facts). The latter was furnished with a copy of that letter.

In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to
Bormaheco, Inc., stating that the condition for the cancellation of the contract had not arisen
and at the same time announcing that an action for breach of contract would be filed against
Bormaheco, Inc. (Annex G of Stipulation of Facts). 1äwphï1.ñët

On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6)
for specific performance against Bormaheco, Inc. Also on that same date, April 7, at eight-
forty-five in the morning, a notice 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 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).
1äw phï1.ñët

Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself
to pay her a three percent commission on the price of P1,400,000 or the amount of forty-two
thousand pesos (14 tsn).

After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in
favor of Bormaheco, Inc. a deed of conveyance for the three lots in question and directing
Bormaheco, Inc. (a) to convey the same lots to Villonco Realty Company, (b) to pay the
latter, as consequential damages, the sum of P10,000 monthly from March 24, 1964 up to
the consummation of the sale, (c) to pay Edith Perez de Tagle the sum of P42,000 as
broker's commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109).

Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a)
that no contract of sale was perfected because Cervantes made a supposedly qualified
acceptance of the revised offer contained in Exhibit D, which acceptance amounted to a
counter-offer, and because the condition that Bormaheco, inc. would acquire the Punta land
within the forty-five-day period was not fulfilled; (2) that Bormaheco, Inc. cannot be
compelled to sell the land which belongs to the Cervantes spouses and (3) that Francisco N.
Cervantes did not bind the conjugal partnership and his wife when, as president of
Bormaheco, Inc., he entered into negotiations with Villonco Realty Company regarding the
said land.

We hold that the appeal, except as to the issue of damages, is devoid of merit.

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

"The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the law governing the form of
contracts" (Art. 1475, Ibid.).

"Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law" (Art.
1315, Civil Code).

"Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An
acceptance may be express or implied" (Art. 1320, Civil Code).

Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia


Avenue property, as shown in Teofilo Villonco's letter dated March 4, 1964 (Exh. D),
indubitably proves that there was a meeting of minds upon the subject matter and
consideration of the sale. Therefore, on that date the sale was perfected. (Compare with
McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1 Phil. 490). Not only that
Bormaheco's acceptance of the part payment of one hundred ,thousand pesos shows that
the sale was conditionally consummated or partly executed subject to the purchase by
Bormaheco, Inc. of the Punta property. The nonconsummation of that purchase would be a
negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil. 873).

On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the
Nassco which had authorized its General Manager to sign the corresponding deed of sale.
What was necessary only was the approval of the sale by the Economic Coordinator and a
request for that approval was already pending in the office of that functionary on March 4,
1964.

Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected
because Cervantes allegedly qualified his acceptance of Villonco's revised offer and,
therefore, his acceptance amounted to a counter-offer which Villonco Realty Company
should accept but no such acceptance was ever transmitted to Bormaheco, Inc. which,
therefore, could withdraw its offer.

That contention is not well-taken. It should be stressed that there is no evidence as to what
changes were made by Cervantes in Villonco's revised offer. And there is no evidence that
Villonco Realty Company did not assent to the supposed changes and that such assent was
never made known to Cervantes.

What the record reveals is that the broker, Miss Tagle, acted as intermediary between the
parties. It is safe to assume that the alleged changes or qualifications made by Cervantes
were approved by Villonco Realty Company and that such approval was duly communicated
to Cervantes or Bormaheco, Inc. by the broker as shown by the fact that Villonco Realty
Company paid, and Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or
down payment. That crucial fact implies that Cervantes was aware that Villonco Realty
Company had accepted the modifications which he had made in Villonco's counter-offer.
Had Villonco Realty Company not assented to those insertions and annotations, then it
would have stopped payment on its check for P100,000. The fact that Villonco Realty
Company allowed its check to be cashed by Bormaheco, Inc. signifies that the company was
in conformity with the changes made by Cervantes and that Bormaheco, Inc. was aware of
that conformity. Had those insertions not been binding, then Bormaheco, Inc. would not have
paid interest at the rate of ten percent per annum, on the earnest money of P100,000.

The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D)
are not material or are mere clarifications of what the parties had previously agreed upon.

Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and"
in Villonco's counter-offer is the same as the statement found in the voucher-receipt for the
earnest money, which reads: "subject to the terms and conditions embodied in Bormaheco's
letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-1).

Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised
counter-offer and substituted for it the word "another" so that the original phrase, "Nassco's
property in Sta. Ana", was made to read as "another property in Sta. Ana". That change is
trivial. What Cervantes did was merely to adhere to the wording of paragraph 3 of
Bormaheco's original offer (Exh. B) which mentions "another property located at Sta. Ana."
His obvious purpose was to avoid jeopardizing his negotiation with the Nassco for the
purchase of its Sta. Ana property by unduly publicizing it.

It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or
after the Nassco property had been awarded to Bormaheco, Inc., alluded to the "Nassco
property". At that time, there was no more need of concealing from the public that
Bormaheco, Inc. was interested in the Nassco property.

Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word
"interest" in that same paragraph 3 of the revised counter-offer (Exh. D) could not be
categorized as a major alteration of that counter-offer that prevented a meeting of the minds
of the parties. It was understood that the parties had contemplated a rate of ten percent per
annum since ten percent a month or semi-annually would be usurious.

Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the
voucher for the earnest money of P100,000 that Bormaheco's acceptance thereof was
subject to the terms and conditions embodied in Bormaheco's letter of February 12, 1964
and your (Villonco's) letter of March 4, 1964" made Bormaheco's acceptance "qualified and
conditional".

That contention is not correct. There is no incompatibility between Bormaheco's offer of


February 12, 1964 (Exh. B) and Villonco's counter-offer of March 4, 1964 (Exh. D). The
revised counter-offer merely amplified Bormaheco's original offer.

The controlling fact is that there was agreement between the parties on the subject matter,
the price and the mode of payment and that part of the price was paid. "Whenever earnest
money is given in a contract of sale, it shall be considered as part of the price and as proof of
the perfection of the contract" (Art. 1482, Civil Code).

"It is true that an acceptance may contain a request for certain changes in the terms of the
offer and yet be a binding acceptance. 'So long as it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether such request is
granted or not, a contract is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965,
citing Sec. 79, Williston on Contracts).
Thus, it was held that the vendor's change in a phrase of the offer to purchase, which
change does not essentially change the terms of the offer, does not amount to a rejection of
the offer and the tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra).

The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil.
670, 985, 63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the
acceptance radically altered the offer and, consequently, there was no meeting of the minds
of the parties.

Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central
for P1,000,000 on condition that the price be paid in cash, or, if not paid in cash, the price
would be payable within three years provided security is given for the payment of the
balance within three years with interest. Zayco, instead of unconditionally accepting those
terms, countered that he was going to make a down payment of P100,000, that Serra's
mortgage obligation to the Philippine National Bank of P600,000 could be transferred to
Zayco's account and that he (plaintiff) would give a bond to secure the payment of the
balance of the price. It was held that the acceptance was conditional or was a counter-offer
which had to be accepted by Serra. There was no such acceptance. Serra revoked his offer.
Hence, there was no perfected contract.

In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda
owned by Benito Legarda, who had empowered Valdes to sell it. Borck was given three
months from December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912
Borck wrote to Valdes, offering to purchase the hacienda for P307,000 payable on May 1,
1912. No reply was made to that letter. Borck wrote other letters modifying his proposal.
Legarda refused to convey the property.

It was held that Borck's January 17th letter plainly departed from the terms of the offer as to
the time of payment and was a counter-offer which amounted to a rejection of Valdes'
original offer. A subsequent unconditional acceptance could not revive that offer.

The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270
where the written offer to sell was revoked by the offer or before the offeree's acceptance
came to the offeror's knowledge.

Appellants' next contention is that the contract was not perfected because the condition that
Bormaheco, Inc. would acquire the Nassco land within forty-five days from February 12,
1964 or on or before March 28, 1964 was not fulfilled. This contention is tied up with the
following letter of Bormaheco, Inc. (Exh. F):

BORMAHECO, INC.

March 30, 1964

Villonco Realty Company


V.R.C. Building
219 Buendia Ave.,
Makati, Rizal

Gentlemen:
We are returning herewith your earnest money together with interest thereon
at 10% per annum. Please be informed that despite the lapse of the 45 days
from February 12, 1964 there is no certainty yet for us to acquire a substitute
property, hence the return of the earnest money as agreed upon.

Very truly yours,

SGD.
FRANCISCO
N.
CERVANTES
President

Encl.: P.N.B. Check No. 112994 J


P.N.B. Check No. 112996J

That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to
acquire the Nassco land within forty-five days or on or before March 28, 1964.

The trial court ruled that the forty-five-day period was merely an estimate or a forecast of
how long it would take Bormaheco, Inc. to acquire the Nassco property and it was not "a
condition or a deadline set for the defendant corporation to decide whether or not to go
through with the sale of its Buendia property".

The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that
the forty-five-day period was the time within which (a) the Nassco property and two Pasong
Tamo lots should be acquired, (b) when Cervantes would secure his wife's consent to the
sale of the three lots and (c) when Bormaheco, Inc. had to decide what to do with the DBP
encumbrance.

Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the
Buendia lots would be consummated after he had consummated the purchase of the Nassco
property. Then, in paragraph 5 of the same offer he stated "that final negotiations on both
properties can be definitely known after forty-five days" (See Exh. B).

It is deducible from the tenor of those statements that the consummation of the sale of the
Buendia lots to Villonco Realty Company was conditioned on Bormaheco's acquisition of the
Nassco land. But it was not spelled out that such acquisition should be effected within forty-
five days from February 12, 1964. Had it been Cervantes' intention that the forty-five days
would be the period within which the Nassco land should be acquired by Bormaheco, then
he would have specified that period in paragraph 3 of his offer so that paragraph would read
in this wise: "That this sale is to be consummated only after I shall have consummated my
purchase of another property located at Sta. Ana, Manila within forty-five days from the date
hereof ." He could have also specified that period in his "conforme" to Villonco's counter-offer
of March 4, 1964 (Exh. D) so that instead of merely stating "that this sale shall be subject to
favorable consummation of a property in Sta. Ana we are negotiating" he could have said:
"That this sale shall be subject to favorable consummation within forty-five days from
February 12, 1964 of a property in Sta. Ana we are negotiating".

No such specification was made. The term of forty-five days was not a part of the condition
that the Nassco property should be acquired. It is clear that the statement "that final
negotiations on both property can be definitely known after 45 days" does not and cannot
mean that Bormaheco, Inc. should acquire the Nassco property within forty-five days from
February 12, 1964 as pretended by Cervantes. It is simply a surmise that after forty-five days
(in fact when the forty-five day period should be computed is not clear) it would be known
whether Bormaheco, Inc. would be able to acquire the Nassco property and whether it would
be able to sell the Buendia property. That aforementioned paragraph 5 does not even specify
how long after the forty-five days the outcome of the final negotiations would be known.

It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended


complaint, which answer was verified by Cervantes, it was alleged that Cervantes accepted
Villonco's revised counter-offer of March 4, 1964 subject to the condition that "the final
negotiations (acceptance) will have to be made by defendant within 45 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). 1äw phï1.ñët

Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not
sustain at all its theory that the Nassco property should be acquired on or before March 28,
1964. Its rescission or revocation of its acceptance cannot be anchored on that theory which,
as articulated in its pleadings, is quite equivocal and unclear.

It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco
property was fulfilled. As admitted by the appellants, the Nassco property was conveyed to
Bormaheco, Inc. on June 26, 1964. As early as January 17, 1964 the property was awarded
to Bormaheco, Inc. as the highest bidder. On February 18, 1964 the Nassco Board
authorized its General Manager to sell the property to Bormaheco, Inc. (Exh. H). The
Economic Coordinator approved the award on March 24, 1964. It is reasonable to assume
that had Cervantes been more assiduous in following up the transaction, the Nassco
property could have been transferred to Bormaheco, Inc. on or before March 28, 1964, the
supposed last day of the forty-five-day period.

The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be
required to sell the three lots in question because they are conjugal properties of the
Cervantes spouses. They aver that Cervantes in dealing with the Villonco brothers acted as
president of Bormaheco, Inc. and not in his individual capacity and, therefore, he did not bind
the conjugal partnership nor Mrs. Cervantes who was allegedly opposed to the sale.

Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding
the contract of sale and in returning the earnest money, cited as an excuse the circumstance
that there was no certainty in Bormaheco's acquisition of the Nassco property (Exh. F and
Annex 1). He did not say that Mrs. Cervantes was opposed to the sale of the three lots. He
did not tell Villonco Realty Company that he could not bind the conjugal partnership. In truth,
he concealed the fact that the three lots were registered "in the name of FRANCISCO
CERVANTES, Filipino, of legal age, married to Rosario P. Navarro, as owner thereof in fee
simple". He certainly led the Villonco brothers to believe that as president of Bormaheco, Inc.
he could dispose of the said lots. He inveigled the Villoncos into believing that he had
untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned the lots and that he
was invested with adequate authority to sell the same.

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as
"our property" which "we are offering to sell ..." (Opening paragraph and par. 1 of Exh. B).
Whether the prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is not clear.
Then, in paragraphs 3 and 4 of the offer, he used the first person and said: "I shall have
consummated my purchase" of the Nassco property; "... my negotiations with said property"
and "I will return to you your deposit". Those expressions conveyed the impression and
generated the belief that the Villoncos did not have to deal with Mrs. Cervantes nor with any
other official of Bormaheco, Inc.

The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously
avoided making the allegation that Cervantes was not authorized by his wife to sell the three
lots or that he acted merely as president of Bormaheco, Inc. That defense was not
interposed so as not to place Cervantes in the ridiculous position of having acted under false
pretenses when he negotiated with the Villoncos for the sale of the three lots.

Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February
12, 1964, after some prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer
to sell to the plaintiff the property of the said defendant situated at the abovenamed address
along Buendia Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is
hereto attached as Annex A hereof", now Exhibit B (2 Record on Appeal).

That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated
May 5, 1964. It did not traverse that paragraph 2. Hence, it was deemed admitted. However,
it filed an amended answer dated May 25, 1964 wherein it denied that it was the owner of the
three lots. It revealed that the three lots "belong and are registered in the names of the
spouses Francisco N. Cervantes and Rosario N. Cervantes."

The three answers of Bormaheco, Inc. contain the following affirmative defense:

13. That defendant's insistence to finally decide on the proposed sale of the
land in question after 45 days had not only for its purpose the determination
of its acquisition of the said Sta. Ana (Nassco) property during the said
period, but also to negotiate with the actual and registered owner of the
parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in question
which plaintiff was fully aware that the same were not in the name of the
defendant (sic; Par. 18 of Answer to Amended Complaint, 10, 18 and 34,
Record on Appeal).

In that affirmative defense, Bormaheco, Inc. pretended that it needed forty- five days within
which to acquire the Nassco property and "to negotiate" with the registered owner of the
three lots. The absurdity of that pretension stands out in bold relief when it is borne in mind
that the answers of Bormaheco, Inc. were verified by Cervantes and that the registered
owner of the three lots is Cervantes himself. That affirmative defense means that Cervantes
as president of Bormaheco, Inc. needed forty-five days in order to "negotiate" with himself
(Cervantes).

The incongruous stance of the Cervantes spouses is also patent in their answer to the
amended complaint. In that answer they disclaimed knowledge or information of certain
allegations which were well-known to Cervantes as president of Bormaheco, Inc. and which
were admitted in Bormaheco's three answers that were verified by Cervantes.

It is significant to note that Bormaheco, Inc. in its three answers, which were verified by
Cervantes, never pleaded as an affirmative defense that Mrs. Cervantes opposed the sale of
the three lots or that she did not authorize her husband to sell those lots. Likewise, it should
be noted that in their separate answer the Cervantes spouses never pleaded as a defense
that Mrs. Cervantes was opposed to the sale of three lots or that Cervantes could not bind
the conjugal partnership. The appellants were at first hesitant to make it appear that
Cervantes had committed the skullduggery of trying to sell property which he had no
authority to alienate.

It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand
that his wife was opposed to the sale of the three lots, a defense which, as already stated,
was never interposed in the three answers of Bormaheco, Inc. and in the separate answer of
the Cervantes spouses. That same viewpoint was adopted in defendants' motion for
reconsideration dated November 20, 1965.

But that defense must have been an afterthought or was evolved post litem motam since it
was never disclosed in Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F
and Annex 1). Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense
which had already been waived for not having been pleaded (See sec. 2, Rule 9, Rules of
Court).

Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the
fact that the three lots were entirely occupied by Bormaheco's building, machinery and
equipment and were mortgaged to the DBP as security for its obligation, and considering that
appellants' vague affirmative defenses do not include Mrs. Cervantes' alleged opposition to
the sale, the plea that Cervantes had no authority to sell the lots strains the rivets of
credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21
Phil. 31).

"Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was
perfected and even partly executed, Bormaheco, Inc., and the Cervantes spouses, as a
matter of justice and good faith, are bound to comply with their contractual commitments.

Parenthetically, it may be observed that much misunderstanding could have been avoided
had the broker and the buyer taken the trouble of making some research in the Registry of
Deeds and availing themselves of the services of a competent lawyer in drafting the contract
to sell.

Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial
court's award to Villonco Realty Company of consequential damage amounting to ten
thousand pesos monthly from March 24, 1964 (when the Economic Coordinator approved
the award of the Nassco property to Bormaheco, Inc.) up to the consummation of the sale.
The award was based on paragraph 18 of the stipulation of facts wherein Villonco Realty
Company "submits that the delay in the consummation of the sale" has caused it to suffer the
aforementioned damages.
The appellants contend that statement in the stipulation of facts simply means that Villonco
Realty Company speculates that it has suffered damages but it does not mean that the
parties have agreed that Villonco Realty Company is entitled to those damages.

Appellants' contention is correct. As rightly observed by their counsel, the damages in


question were not specifically pleaded and proven and were "clearly conjectural and
speculative".

However, appellants' view in their seventh assignment of error that the trial court erred in
ordering Bormaheco, Inc. to pay Villonco Realty Company the sum of twenty thousand pesos
as attorney's fees is not tenable. Under the facts of the case, it is evident that Bormaheco,
Inc. acted in gross and evident bad faith in refusing to satisfy the valid and just demand of
Villonco Realty Company for specific performance. It compelled Villonco Realty Company to
incure expenses to protect its interest. Moreover, this is a case where it is just and equitable
that the plaintiff should recover attorney's fees (Art. 2208, Civil Code).

The appellants in their eighth assignment of error impugn the trial court's adjudication of
forty-two thousand pesos as three percent broker's commission to Miss Tagle. They allege
that there is no evidence that Bormaheco, Inc. engaged her services as a broker in the
projected sale of the three lots and the improvements thereon. That allegation is refuted by
paragraph 3 of the stipulation of facts and by the documentary evidence. It was stipulated
that Miss Tagle intervened in the negotiations for the sale of the three lots. Cervantes in his
original offer of February 12, 1964 apprised Villonco Realty Company that the earnest money
should be delivered to Miss Tagle, the bearer of the letter-offer. See also Exhibit G and
Annex I of the stipulation of facts.

We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss
Tagle her three percent commission.

WHEREFORE, the trial court's decision is modified as follows:

1. Within ten (10) days from the date the defendants-appellants receive notice from the clerk
of the lower court that the records of this case have been received from this Court, the
spouses Francisco N. Cervantes and Rosario P. Navarra-Cervantes should execute a deed
conveying to Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos.
43530, 43531 and 43532 of the Registry of Deeds of Rizal.

2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc.
should execute in favor of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue,
Makati, Rizal a registerable deed of sale for the said three lots and all the improvements
thereon, free from all lien and encumbrances, at the price of four hundred pesos per square
meter, deducting from the total purchase price the sum of P100,000 previously paid by
Villonco Realty Company to Bormaheco, Inc.

3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay
Bormaheco, Inc. the balance of the price in the sum of one million three hundred thousand
pesos (P1,300,000).

4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos
(P20,000) as attorney's fees and (b) to pay Edith Perez de Tagle the sum of forty-two
thousand pesos (P42,000) as commission. Costs against the defendants-appellants.
SO ORDERED.

Makalintal, C.J, Castro. Fernando, Makasiar, Antonio, Esguerra, Muñoz 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 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 counter-offer,
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 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 45-day 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; Castañeda 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.

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 counter-offer,
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 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 45-day 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; Castañeda 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, 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.

Mr. Romeo Villonco has called me to his office and has returned to me your
letter and the checks, as he is not 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,

(Sgd.) Edith Perez de Tagle


(Typed) EDITH PEREZ DE TAGLE
Realtor"

Retrieved from: http://www.lawphil.net/judjuris/juri1975/jul1975/gr_l_26872_1975.html

ABS-CBN Broadcasting Corp. vs CA

FIRST DIVISION

[G.R. No. 128690. January 21, 1999]


ABS-CBN BROADCASTING CORPORATION, petitioners,
vs. HONORABLE COURT OF APPEALS, REPUBLIC
BROADCASTING CORP., VIVA PRODUCTIONS, INC., and
VICENTE DEL ROSARIO, respondents.

DECISION
DAVIDE, JR., C.J.:

In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp.


(hereinafter ABS-CBN) seeks to reverse and set aside the decision[1] of 31 October 1996
and the resolution[2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV No.
44125. The former affirmed with modification the decision[3] of 28 April 1993 of the
Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The
latter denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as
follows:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A)


whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva
films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of
said agreement stating that-

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24)
Viva films for TV telecast under such terms as may be agreed upon by the
parties hereto, provided, however, that such right shall be exercised by ABS-
CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-
president Charo Santos-Concio, a list of three (3) film packages (36 title) from
which ABS-CBN may exercise its right of first refusal under the afore-said
agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however through
Mrs. Concio, can tick off only ten (10) titles (from the list) we can purchase
(Exh. 3 Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-
10). The titles ticked off by Mrs. Concio are not the subject of the case at bar
except the film Maging Sino Ka Man.

For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3
Viva) is hereby quoted:

6 January 1992

Dear Vic,
This is not a very formal business letter I am writing to you as I would like to
express my difficulty in recommending the purchase of the three film packages
you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can
purchase. Please see attached. I hope you will understand my position. Most of
the action pictures in the list do not have big action stars in the cast.They are
not for primetime. In line with this I wish to mention that I have not scheduled
for telecast several action pictures in our very first contract because of the
cheap production value of these movies as well as the lack of big action
stars. As a film producer, I am sure you understand what I am trying to say as
Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can
only schedule them in out non-primetime slots. We have to cover the amount
that was paid for these movies because as you very well know that non-
primetime advertising rates are very low. These are the unaired titles in the first
contract.

1. Kontra Persa [sic]


2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected
because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their
very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider
including all the other Viva movies produced last year, I have quite an
attractive offer to make.

Thanking you and with my warmest regards.

(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms.
Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on
television) including the 14 titles subject of the present case, as well as 104 re-
runs (previously aired on television) from which ABS-CBN may choose
another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing
rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television
spots (Exh. 4 to 4-C Viva; 9 Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager,


Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to
discuss the package proposal of VIVA. What transpired in that lunch meeting is
the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del
Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to
fourteen (14) films for a total consideration ofP36 million; that he allegedly put
this agreement as to the price and number of films in a napkin and signed it and
gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On
the other hand. Del Rosario denied having made any agreement with Lopez
regarding the 14 Viva films; denied the existence of a napkin in which Lopez
wrote something; and insisted that what he and Lopez discussed at the lunch
meeting was Vivas film package offer of 104 films (52 originals and 52 re-
runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a
counter proposal which came in the form of a proposal contract Annex C of the
complaint (Exh. 1 Viva; Exh C ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-
president for Finance discussed the terms and conditions of Vivas offer to sell
the 104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary , a
handwritten note from Ms. Concio, (Exh. 5 Viva), which reads: Heres the draft
of the contract. I hope you find everything in order, to which was attached a
draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-
proposal covering 53 films, 52 of which came from the list sent by defendant
Del Rosario and one film was added by Ms. Concio, for a consideration of P35
million. Exhibit C provides that ABS-CBN is granted film rights to 53 films
and contains a right of first refusal to 1992 Viva Films. The said counter
proposal was however rejected by Vivas Board of Directors [in the] evening of
the same day, April 7, 1992, as Viva would not sell anything less than the
package of 104 films for P60 million pesos (Exh. 9 Viva), and such rejection
was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Vivas President Teresita
Cruz, in consideration of P60 million, signed a letter of agreement dated April
24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or
acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films
subject of the present case.[4]

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or temporary
restraining order against private respondents Republic Broadcasting
Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del
Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the fourteen
VIVA films subject of the controversy, starting with the film Maging Sino Ka
Man, which was scheduled to be shown on private respondent RBS channel 7 at seven
oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing
the issuance of a writ of preliminary injunction upon ABS-CBNs posting of a P35 million
bond. ABS-CBN moved for the reduction of the bond,[8] while private respondents moved
for reconsideration of the order and offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with
counterclaim.[10] RBS also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary
injunction upon the posting by RBS of a P30 million counterbond to answer for whatever
damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced
petitioners injunction bond to P15 million as a condition precedent for the reinstatement
of the writ of preliminary injunction should private respondents be unable to post a
counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed
to explore the possibility of an amicable settlement. In the meantime, RBS prayed for and
was granted reasonable time within which to put up a P30 million counterbond in the
event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October
1992 a counterbond, which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August
and 15 October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court
of Appeals a petition[17] challenging the RTCs Order of 3 August and 15 October 1992
and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from
enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to
enjoin the airing, broadcasting, and televising of any or all of the films involved in the
controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing
the petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the
dismissal in a petition for review filed with this Court on 19 January 1993, which was
docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-
92-12309. Thereafter, on 28 April 1993, it rendered a decision[20] in favor of RBS and
VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing,


judgment is rendered in favor of defendants and against the plaintiff.

(1) The complaint is hereby dismissed;


(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued
defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man
in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way
of reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the
offer. The alleged agreement between Lopez III and Del Rosario was subject to the
approval of the VIVA Board of Directors, and said agreement was disapproved during
the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBNs
demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of
first refusal under the 1990 Film Exhibition Agreement had previously been exercised per
Ms. Concios letter to Del Rosario ticking off ten titles acceptable to them, which would
have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No.
108363, as no reversible error was committed by the Court of Appeals in its challenged
decision and the case had become moot and academic in view of the dismissal of the
main action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals
claiming that there was a perfected contract between ABS-CBN and VIVA granting
ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and
Del Rosario also appealed seeking moral and exemplary damages and additional
attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that
the contract between ABS-CBN and VIVA had not been perfected, absent the approval
by the VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed
with Lopez III. The appellate court did not even believe ABS-CBNs evidence that Lopez
III actually wrote down such an agreement on a napkin, as the same was never produced
in court. It likewise rejected ABS-CBNs insistence on its right of first refusal and
ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film
Exhibition Agreement was entered into between Appellant ABS-CBN and
appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24)
VIVA films for TV telecast under such terms as may be agreed upon by the
parties hereto, provided, however, that such right shall be exercised by ABS-
CBN within a period of fifteen (15) days from the actual offer in writing
(Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN
shall still be subjected to such terms as may be agreed upon by the parties
thereto, and that the said right shall be exercised by ABS-CBN within fifteen
(15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not
fix the price of the film right to the twenty-four (24) films, nor did it specify the
terms thereof. The same are still left to be agreed upon by the parties.

In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89)


stated that it can only tick off ten (10) films, and the draft contract Exhibit C
accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the
next twenty-four (24) films.

The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B;
Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of
VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of
ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992
(Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA. As aptly observed by the trial court, with the said
letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27,
1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter
of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall
exercise its right of first refusal has already expired.[22]

Accordingly, respondent court sustained the award factual damages consisting in the
cost of print advertisements and the premium payments for the counterbond, there being
adequate proof of the pecuniary loss which RBS has suffered as a result of the filing of
the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals
found reasonable basis therefor, holding that RBSs reputation was debased by the filing
of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the
film Maging Sino Ka Man. Respondent court also held that exemplary damages were
correctly imposed by way of example or correction for the public good in view of the
filing of the complaint despite petitioners knowledge that the contract with VIVA had not
been perfected. It also upheld the award of attorneys fees, reasoning that with ABS-CBNs
act of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced to
litigate. The appellate court, however, reduced the awards of moral damages to P 2
million, exemplary damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios
appeal because it was RBS and not VIVA which was actually prejudiced when the
complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in
this case, contending that the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN
PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-
four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles
from the first list. It insists that we give credence to Lopezs testimony that he and Del
Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the
second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the
same on a paper napkin. It also asserts that the contract has already been effective, as the
elements thereof, namely, consent, object, and consideration were established. It then
concludes that the Court of Appeals pronouncements were not supported by law and
jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v.
Court of Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang
Yu Asuncion v. Court of Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability
therefor. RBS spent for the premium on the counterbond of its own volition in order to
negate the injunction issued by the trial court after the parties had ventilated their
respective positions during the hearings for the purpose. The filing of the counterbond
was an option available to RBS, but it can hardly be argued that ABS-CBN compelled
RBS to incur such expense. Besides, RBS had another available option, i.e., move for the
dissolution of the injunction; or if it was determined to put up a counterbond, it could
have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party
suffering loss injury is also required to exercise the diligence of a good father of a family
to minimize the damages resulting from the act or omission. As regards the cost of print
advertisements, RBS had not convincingly established that this was a loss attributable to
the non-showing of Maging Sino Ka Man; on the contrary, it was brought out during trial
that with or without the case or injunction, RBS would have spent such an amount to
generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of
moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in
any way originate from business transaction between them. The claims for such damages
did not arise from any contractual dealings or from specific acts committed by ABS-CBN
against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by
virtue only of the filing of the complaint. An award of moral and exemplary damages is
not warranted where the record is bereft of any proof that a party acted maliciously or in
bad faith in filing an action.[27] In any case, free resort to courts for redress of wrongs is a
matter of public policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages where by lack
of sufficient evidence, legal technicalities, or a different interpretation of the laws on the
matter, the case would lose ground.[28] One who, makes use of his own legal right does no
injury.[29] If damage results from filing of the complaint, it is damnum absque
injuria.[30] Besides, moral damages are generally not awarded in favor of a juridical
person, unless it enjoys a good reputation that was debased by the offending party
resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no
factual, legal, or equitable justification. In sustaining the trial courts award, the Court of
Appeals acted in clear disregard of the doctrine laid down in Buan v.
Camaganacan[32] that the text of the decision should state the reason why attorneys fees
are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has
been imputed on, much less proved as having been committed by, ABS-CBN. It has been
held that where no sufficient showing of bad faith would be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his cause,
attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-
CBN and VIVA absent meeting of minds between them regarding the object and
consideration of the alleged contract. It affirms that ABS-CBNs claim of a right of first
refusal was correctly rejected by the trial court. RBS insists the premium it had paid for
the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to
put up the counterbond due to the injunction procured by ABS-CBN. Since the trial court
found that ABS-CBN had no cause of action or valid claim against RBS and, therefore
not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium
paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove
to be more expensive, as the loss would be equivalent to the cost of money RBS would
forego in case the P30 million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the
cancelled showing of the film Maging Sino Ka Man because the print advertisements
were out to announce the showing on a particular day and hour on Channel 7, i.e., in its
entirety at one time, not as series to be shown on a periodic basis. Hence, the print
advertisements were good and relevant for the particular date of showing, and since the
film could not be shown on that particular date and hour because of the injunction, the
expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case
and secured injunctions purely for the purpose of harassing and prejudicing
RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held
liable for such damages. Citing Tolentino,[34] damages may be awarded in cases of abuse
of rights even if the done is not illicit, and there is abuse of rights where a plaintiff
institutes an action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary
damages, private respondent RBS cited People v. Manero,[35] where it was stated that such
entity may recover moral and exemplary damages if it has a good reputation that is
debased resulting in social humiliation. It then ratiocinates; thus:

There can be no doubt that RBS reputation has been debased by ABS-CBNs
acts in this case. When RBS was not able to fulfill its commitment to the
viewing public to show the film Maging Sino Ka Man on the scheduled dates
and times (and on two occasions that RBS advertised), it suffered serious
embarrassment and social humiliation. When the showing was cancelled, irate
viewers called up RBS offices and subjected RBS to verbal abuse (Announce
kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-
RBS, par.3). This alone was not something RBS brought upon itself. It was
exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be
excessive. Two reasons justify the amount of the award.

The first is that the humiliation suffered by RBS, is national in extent. RBS
operations as a broadcasting company is [sic] nationwide. Its clientele, like that
of ABS-CBN, consists of those who own and watch television.It is not an
exaggeration to state, and it is a matter of judicial notice that almost every other
person in the country watches television. The humiliation suffered by RBS is
multiplied by the number of televiewers who had anticipated the showing of the
film, Maging Sino Ka Man on May 28 and November 3, 1992 but did not see it
owing to the cancellation. Added to this are the advertisers who had placed
commercial spots for the telecast and to whom RBS had a commitment in
consideration of the placement to show the film in the dates and times
specified.

The second is that it is a competitor that caused RBS suffer the


humiliation. The humiliation and injury are far greater in degree when caused
by an entity whose ultimate business objective is to lure customers (viewers in
this case) away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the
trial court and the Court of Appeals do not support ABS-CBNs claim that there was a
perfected contract. Such factual findings can no longer be disturbed in this petition for
review under Rule 45, as only questions of law can be raised, not questions of fact. On
the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract
between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorneys
fees. It may be noted that that award of attorneys fees of P212,000 in favor of VIVA is
not assigned as another error.
I

The first issue should be resolved against ABS-CBN. A contract is a meeting of


minds between two persons whereby one binds himself to give something or render some
service to another[37] for a consideration.There is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is the
subject of the contract; and (3) cause of the obligation, which is established.[38] A contract
undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed
upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the
minds. Once there is concurrence between the offer and the acceptance upon the subject
matter, consideration, and terms of payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill
on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was
VIVAs offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-
CBN, sent through Ms. Concio, counter-proposal in the form a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-proposal could be
nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario
at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was
met by a counter-offer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals[41] and Villonco Realty Company v. Bormaheco, Inc.,[42] is misplaced. In these
cases, it was held that an acceptance may contain a request for certain changes in the
terms of the offer and yet be a binding acceptance as 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. This ruling was, however, reversed in the resolution of 29
March 1996,[43] which ruled that the acceptance of an offer must be unqualified and
absolute, i.e., it must be identical in all respects with that of the offer so as to produce
consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised
counter-offer were not material but merely clarificatory of what had previously been
agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co.[44] that a
vendors 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.[45] However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence,
they underwent period of bargaining. ABS-CBN then formalized its counter-proposals or
counter-offer in a draft contract. VIVA through its Board of Directors, rejected such
counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the
counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that
Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate
powers, such as the power to enter into contracts, are exercised by the Board of
Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive
committee, must be for specific purposes.[47] Delegation to officers makes the latter agents
of the corporation; accordingly, the general rules of agency as to the binding effects of
their acts would apply.[48] For such officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must specially authorize them to do so. that
Del Rosario did not have the authority to accept ABS-CBNs counter-offer was best
evidenced by his submission of the draft contract to VIVAs Board of Directors for the
latters approval. In any event, there was between Del Rosario and Lopez III no meeting
of minds. The following findings of the trial court are instructive:

A number of considerations militate against ABS-CBNs claim that a contract


was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill
referred to the price and the number of films, which he wrote on a
napkin. However, Exhibit C contains numerous provisions which were not
discussed at the Tamarind Grill, if Lopez testimony was to be believed nor
could they have been physically written on a napkin. There was even doubt as
to whether it was a paper napkin or cloth napkin. In short what were written in
Exhibit C were not discussed, and therefore could not have been agreed upon,
by the parties. How then could this court compel the parties to sign Exhibit C
when the provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter
of the contract was 14 films. The complaint in fact prays for delivery of 14
films. But Exhibit C mentions 53 films as its subject matter.Which is which? If
Exhibit C reflected the true intent of the parties, then ABS-CBNs claim for 14
films in its complaint is false or if what it alleged in the complaint is true, then
Exhibit C did not reflect what was agreed upon by the parties. This underscores
the fact that there was no meeting of the minds as to the subject matter of the
contract, so as to preclude perfection thereof. For settled is the rule that there
can be no contract where there is no object certain which is its subject matter
(Art. 1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh.
D) States:

We were able to reach an agreement. VIVA gave us the exclusive license to


show these fourteen (14) films, and we agreed to pay Viva the amount
of P16,050,000.00 as well as grant Viva commercial slots
worthP19,950,000.00. We had already earmarked this P16,050,000.00.

which gives a total consideration of P36 million (P19,951,000.00


plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:

Q What was written in this napkin?


A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the
other 7 Viva movies because the price was broken down accordingly. The none [sic]
Viva and the seven other Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBNs
claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted
Exhibit C to Mr. Del Rosario with a handwritten note, describing said Exhibit
C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a
well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing


prepared for discussion, the terms and conditions thereof could not have been
previously agreed upon by ABS-CBN and Viva. Exhibit C could not therefore
legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that
the terms and conditions embodied in Exhibit C were prepared by ABS-CBNs
lawyers and there was no discussion on said terms and conditions.

As the parties had not yet discussed the proposed terms and conditions in
Exhibit C, and there was no evidence whatsoever that Viva agreed to the terms
and conditions thereof, said document cannot be a binding contract. The fact
that Viva refused to sign Exhibit C reveals only two [sic] well that it did not
agree on its terms and conditions, and this court has no authority to compel
Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed
upon at the Tamarind Grill was only provisional, in the sense that it was subject
to approval by the Board of Directors of Viva. He testified:

Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you
claimed that you have the meeting of the minds between you and Mr. Vic del Rosario,
what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the
discussion with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del
Rosario had no authority to bind Viva to a contract with ABS-CBN until and
unless its Board of Directors approved it. The complaint, in fact, alleges that
Mr. Del Rosario is the Executive Producer of defendant Viva which is a
corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could
not bind Viva unless what he did is ratified by its Directors. (Vicente
vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As
a mere agent, recognized as such by plaintiff, Del Rosario could not be held
liable jointly and severally with Viva and his inclusion as party defendant has
no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon
vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear
admissions that what was supposed to have been agreed upon at the Tamarind
Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as
it should be because corporate power to enter into a contract is lodged in the
Board of Directors. (Sec. 23, Corporation Code). Without such board approval
by the Viva board, whatever agreement Lopez and Del Rosario arrived at could
not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of
Appeals, 209 SCRA 763). The evidence adduced shows that the Board of
Directors of Viva rejected Exhibit C and insisted that the film package for 104
films be maintained (Exh. 7-1 Cica).[49]

The contention that ABS-CBN had yet to fully exercise its right of first refusal over
twenty-four films under the 1990 Film Exhibition Agreement and that the meeting
between Lopez and Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBNs right of first refusal had already
been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this
letter was sent, was for an entirely different package. Ms. Concio herself
admitted on cross-examination to having used or exercised the right of first
refusal. She stated that the list was not acceptable and was indeed not
accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez
himself admitted that the right of first refusal may have been already
exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del
Rosario himself knew and understand [sic] that ABS-CBN has lost its right
of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992,
pp. 10-11).[50]
II

However, we find for ABS-CBN on the issue of damages. We shall first take up
actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on
actual or compensatory damages. Except as provided by law or by stipulation, one is
entitled to compensation for actual damages only for such pecuniary loss suffered by him
as he has duly proved.[51] The indemnification shall comprehend not only the value of the
loss suffered, but also that of the profits that the obligee failed to obtain.[52] In contracts
and quasi-contracts the damages which may be awarded are dependent on whether the
obligor acted with good faith or otherwise. In case of good faith, the damages recoverable
are those which are the natural and probable consequences of the breach of the obligation
and which the parties have foreseen or could have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton
attitude, he shall be responsible for all damages which may be reasonably attributed to
the non-performance of the obligation.[53] In crimes and quasi-delicts, the defendants shall
be liable for all damages which are the natural and probable consequences of the act or
omission complained of, whether or not such damages have been foreseen or could have
reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury, or for injury to the plaintiffs
business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract,
delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBNs
alleged knowledge of lack of cause of action. Thus paragraph 12 of RBSs Answer with
Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action
against RBS. As a result thereof, RBS suffered actual damages in the amount
of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above
law on actual damages. RBS could only probably take refuge under Articles 19, 20, and
21 of the Civil Code, which read as follows:

ART. 19. Every person must, in the exercise of hid rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.

ART. 20. Every person who, contrary to law, wilfully or negligently causes
damage to another shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is


issued, the damages which the defendant may suffer by reason of the writ are recoverable
from the injunctive bond.[57] In this case, ABS-CBN had not yet filed the required bond;
as a matter of fact, it asked for reduction of the bond and even went to the Court of
Appeals to challenge the order on the matter. Clearly then, it was not necessary for RBS
to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS
paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka
Man for lack of sufficient legal basis. The RTC issued a temporary restraining order and
later, a writ of preliminary injunction on the basis of its determination that there existed
sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the
injunction on the ground of lack of legal and factual basis, but because of the plea of RBS
that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys
fees may be recovered as actual or compensatory damages under any of the
circumstances provided for in Article 2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate.[59] They
are not to be awarded every time a party wins a suit. The power of the court t award
attorneys fees under Article 2208 demands factual, legal, and equitable
justification.[60] Even when a claimant is compelled to litigate with third persons or to
incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case other
than an erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the
Civil Code. Article 2217 thereof defines what are included in moral damages, while
Article 2219 enumerates the cases where they may be recovered. Article 2220 provides
that moral damages may be recovered in breaches of contract where the defendant acted
fraudulently or in bad faith. RBSs claim for moral damages could possibly fall only under
item (10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and
35.

Moral damages are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer.[62] The award is
not meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate the
moral suffering he has undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted.[63] Trial courts must then guard against the award of exorbitant damages; they
should exercise balanced restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because,
being an artificial person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and
mental anguish, which can be experienced only by one having a nervous system.[65] The
statement in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation
may recover moral damages if it has a good reputation that is debased, resulting in social
humiliation is an obiter dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV
of the Civil Code. These are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated, or compensatory damages.[68] They are
recoverable in criminal cases as part of the civil liability when the crime was committed
with one or more aggravating circumstances;[69] in quasi-delicts, if the defendant acted
with gross negligence;[70] and in contracts and quasi-contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict. Hence, the claims for moral and
exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence
of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of
prejudicing or injuring another. Article 20 speaks of the general sanction for all
provisions of law which do not especially provide for their own sanction; while Article
21 deals with acts contra bonus mores, and has the following elements: (1) there is an act
which is legal, (2) but which is contrary to morals, good custom, public order, or public
policy, and (3) and it is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or
bad faith implies a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.[73] Such must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It
was honestly convinced of the merits of its cause after it had undergone serious
negotiations culminating in its formal submission of a draft contract. Settled is the rule
that the adverse result of an action does not per se make the action wrongful and subject
the actor to damages, for the law could not have meant impose a penalty on the right to
litigate.If damages result from a persons exercise of a right, it is damnum absque
injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the
Court of Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to
unappealed award of attorneys fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.

Retrieved from: http://sc.judiciary.gov.ph/jurisprudence/1999/jan99/128690.htm

Mendoza vs CA

SECOND DIVISION

[G.R. No. 116710. June 25, 2001]

DANILO D. MENDOZA, also doing business under the name and style
of ATLANTIC EXCHANGE PHILIPPINES, petitioner,
vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK,
FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA and
BAYANI A. BAUTISTA, respondents.

DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision[1] dated August 8,


1994 of the respondent Court of Appeals (Tenth Division) in CA-G.R. CV No. 38036
reversing the judgment[2] of the Regional Trial Court (RTC) and dismissing the complaint
therein.
Petitioner Danilo D. Mendoza is engaged in the domestic and international trading of
raw materials and chemicals. He operates under the business name Atlantic Exchange
Philippines (Atlantic), a single proprietorship registered with the Department of Trade
and Industry (DTI). Sometime in 1978 he was granted by respondent Philippine National
Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million
Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may thereinafter be
granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of
land[3] with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in
Quezon City; and 3) several pieces of machinery and equipment in his Pasig coco-
chemical plant.
The real estate mortgage[4] provided the following escalation clause:
(f) The rate of interest charged on the obligation secured by this mortgage as
well as the interest on the amount which may have been advanced by the
Mortgagee in accordance with paragraph (d) of the conditions herein stipulated
shall be subject during the life of this contract to such increase within the rates
allowed by law, as the Board of Directors of the Mortgagee may prescribe for
its debtors.

Petitioner executed in favor of respondent PNB three (3) promissory notes covering
the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated March 8, 1979 for
Three Hundred Ten Thousand Pesos (P310,000.00); another dated March 30, 1979 for
Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for One
Hundred Fifty Thousand Pesos (P150,000.00). The said 1979 promissory notes uniformly
stipulated: "with interest thereon at the rate of 12% per annum, until paid, which interest
rate the Bank may, at any time, without notice, raise within the limits allowed by law
xxx."[5]
Petitioner made use of his LC/TR line to purchase raw materials from foreign
importers. He signed a total of eleven (11) documents denominated as "Application and
Agreement for Commercial Letter of Credit,"[6]on various dates from February 8 to
September 11, 1979, which uniformly contained the following clause: "Interest shall be at
the rate of 9% per annum from the date(s) of the draft(s) to the date(s) of arrival of
payment therefor in New York. The Bank, however, reserves the right to raise the interest
charges at any time depending on whatever policy it may follow in the future."[7]
In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr.,
respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank
raised its interest rates to 14% per annum, in line with Central Bank's Monetary Board
Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the
restructuring of his past due accounts into a five-year term loan and for an additional
LC/TR line of Two Million Pesos (P2,000,000.00).[8]According to the letter, because of
the shut-down of his end-user companies and the huge amount spent for the expansion of
his business, petitioner failed to pay to respondent bank his LC/TR accounts as they
became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the
respondent bank and required petitioner to submit the following documents before the
bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2)
Projected cash flow (cash in - cash out) for five (5) years detailed yearly; and 3) List of
additional machinery and equipment and proof of ownership thereof. Cura also suggested
that petitioner reduce his total loan obligations to Three Million Pesos (P3,000,000.00)
"to give us more justification in recommending a plan of payment or restructuring of your
accounts to higher authorities of the Bank."[9]
On September 25, 1981, petitioner sent another letter addressed to PNB Vice-
President Jose Salvador, regarding his request for restructuring of his loans. He offered
respondent PNB the following proposals: 1) the disposal of some of the mortgaged
properties, more particularly, his house and lot and a vacant lot in order to pay the
overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term
loan payable semi-annually or on annual installments; 3) a new Two Million Pesos
(P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate
at full capacity; 4) assignment of all his receivables to PNB from all domestic and export
sales generated by the LC/TR line; and 5) maintenance of the existing Five Hundred
Thousand Pesos (P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong Branch found his
proposal favorable and recommended the implementation of the agreement. However,
Fernando Maramag, PNB Executive Vice-President, disapproved the proposed release of
the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos
(P1,000,000.00).[10] Petitioner claimed he was forced to agree to these changes and that he
was required to submit a new formal proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following revised proposals to
respondent bank: 1) the restructuring of past due accounts including interests and
penalties into a 5-year term loan, payable semi-annually with one year grace period on
the principal; 2) payment of Four Hundred Thousand Pesos (P400,000.00) upon the
approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the
interest component with interest rate at 16% per annum; 5) establishment of a One
Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6)
assignment of all his export proceeds to respondent bank to guarantee payment of his
loans.
According to petitioner, respondent PNB approved his proposal. He further claimed
that he and his wife were asked to sign two (2) blank promissory note forms. According
to petitioner, they were made to believe that the blank promissory notes were to be filled
out by respondent PNB to conform with the 5-year restructuring plan allegedly agreed
upon. The first Promissory Note,[11] No. 127/82, covered the principal while the second
Promissory Note,[12] No. 128/82, represented the accrued interest.
Petitioner testified that respondent PNB allegedly contravened their verbal
agreement by 1) affixing dates on the two (2) subject promissory notes to make them
mature in two (2) years instead of five (5) years as supposedly agreed upon; 2) inserting
in the first Promissory Note No. 127/82 an interest rate of 21% instead of 18%; 3)
inserting in the second Promissory Note No. 128/82, the amount stated therein
representing the accrued interest as One Million Five Hundred Thirty Six Thousand Four
Hundred Ninety Eight Pesos and Seventy Three Centavos (P1,536,498.73) when it should
only be Seven Hundred Sixty Thousand Three Hundred Ninety Eight Pesos and Twenty
Three Centavos (P760,398.23) and pegging the interest rate thereon at 18% instead of
12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both dated December 29,
1982 in the principal amounts of Two Million Six Hundred Fifty One Thousand One
Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and One Million Five
Hundred Thirty Six Thousand Seven Hundred Ninety Eight and Seventy Three Centavos
(P1,536,798.73) respectively and marked Exhibits BB and CC respectively, were payable
on equal semi-annual amortization and contained the following escalation clause:
x x x which interest rate the BANK may increase within the limits allowed by
law at any time depending on whatever policy it may adopt in the future;
Provided, that, the interest rate on this note shall be correspondingly decreased
in the event that the applicable maximum interest rate is reduced by law or by
the Monetary Board. In either case, the adjustment in the interest rate agreed
upon shall take effect on the effectivity date of the increase or decrease in the
maximum interest rate. x x x

It appears from the record that the subject Promissory Notes Nos. 127/82 and 128/82
superseded and novated the three (3) 1979 promissory notes and the eleven (11) 1979
Application and Agreement for Commercial Letter of Credit which the petitioner
executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new PNB Mandaluyong
Branch Manager Bayani A. Bautista suggested that he sell the coco-chemical plant so that
he could keep up with the semi-annual amortizations. On three (3) occasions, Bautista
even showed up at the plant with some unidentified persons who claimed that they were
interested in buying the plant.
Petitioner testified that when he confronted the PNB management about the two (2)
Promissory Notes Nos. 127/82 and 128/82 (marked Exhibits BB and CC respectively)
which he claimed were improperly filled out, Bautista and Maramag assured him that the
five-year restructuring agreement would be implemented on the condition that he assigns
10% of his export earnings to the Bank.[13] In a letter dated August 22, 1983, petitioner
Mendoza consented to assign 10% of the net export proceeds of a Letter of Credit
covering goods amounting to One Hundred Fourteen Thousand Dollars
($114,000.00).[14] However, petitioner claimed that respondent PNB subsequently debited
14% instead of 10% from his export proceeds.[15]
Pursuant to the escalation clauses of the subject two (2) promissory notes, the
interest rate on the principal amount in Promissory Note No. 127/82 was increased from
21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while the interest rate on the
accrued interest per Promissory Note No. 128/82 was increased from 18% to 29% on
May 28, 1984, and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and 128/82
(Exhibits BB and CC) as they fell due. Respondent PNB extra-judicially foreclosed the
real and chattel mortgages, and the mortgaged properties were sold at public auction to
respondent PNB, as highest bidder, for a total of Three Million Seven Hundred Ninety
Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for specific performance,
nullification of the extra-judicial foreclosure and damages against respondents PNB,
Fernando Maramag Jr., Ricardo C. Decepida, Vice-President for Metropolitan Branches,
and Bayani A. Bautista. He alleged that the Extrajudicial Foreclosure Sale of the
mortgaged properties was null and void since his loans were restructured to a five-year
term loan; hence, it was not yet due and demandable; that the escalation clauses in the
subject two (2) Promissory Notes Nos. 127/82 and 128/82 were null and void, that the
total amount presented by PNB as basis of the foreclosure sale did not reflect the actual
loan obligations of the plaintiff to PNB; that Bautista purposely delayed payments on his
exports and caused delays in the shipment of materials; that PNB withheld certain
personal properties not covered by the chattel mortgage; and that the foreclosure of his
mortgages was premature so that he was unable to service his foreign clients, resulting in
actual damages amounting to Two Million Four Thousand Four Hundred Sixty One
Pesos (P2,004,461.00).
On March 16, 1992, the trial court rendered judgment in favor of the petitioner and
ordered the nullification of the extrajudicial foreclosure of the real estate mortgage, the
Sheriffs sale of the mortgaged real properties by virtue of consolidation thereof and the
cancellation of the new titles issued to PNB; that PNB vacate the subject premises in
Pasig and turn the same over to the petitioner; and also the nullification of the
extrajudicial foreclosure and sheriff's sale of the mortgaged chattels, and that the chattels
be returned to petitioner Mendoza if they were removed from his Pasig premises or be
paid for if they were lost or rendered unserviceable.
The trial court also ordered respondent PNB to restructure to five-years petitioner's
principal loan of Two Million Six Hundred Fifty One Thousand One Hundred Eighteen
Pesos and Eighty Six Centavos (P2,651,118.86) and the accumulated capitalized interest
on the same in the amount of Seven Hundred Sixty Thousand Three Hundred Eighty
Nine Pesos and Twenty Three Centavos (P760,389.23) as of December 1982, and that
respondent PNB should compute the additional interest from January 1983 up to October
15, 1984 only when respondent PNB took possession of the said properties, at the rate of
12% and 9% respectively.
The trial court also ordered respondent PNB to grant petitioner Mendoza an
additional Two Million Pesos (P2,000,000.00) loan in order for him to have the necessary
capital to resume operation. It also ordered respondents PNB, Bayani A. Bautista and
Ricardo C. Decepida to pay to petitioner actual damages in the amount of Two Million
One Hundred Thirteen Thousand Nine Hundred Sixty One Pesos (P2,113,961.00) and the
peso equivalent of Six Thousand Two Hundred Fifteen Dollars ($6,215.00) at the
prevailing foreign exchange rate on October 11, 1983; and exemplary damages in the
amount of Two Hundred Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial court to the Court of Appeals.
And the Court of Appeals reversed the decision of the trial court and dismissed the
complaint. Hence, this petition.
It is the petitioners contention that the PNB management restructured his existing
loan obligations to a five-year term loan and granted him another Two Million Pesos
(P2,000,000.00) LC/TR line; that the Promissory Notes Nos. 127/82 and 128/82
evidencing a 2-year restructuring period or with the due maturity date December 29, 1984
were filled out fraudulently by respondent PNB, and contrary to his verbal agreement
with respondent PNB; hence, his indebtedness to respondent PNB was not yet due and
the extrajudicial foreclosure of his real estate and chattel mortgages was premature. On
the other hand, respondent PNB denies that petitioner's loan obligations were restructured
to five (5) years and maintains that the subject two (2) Promissory Notes Nos. 127/82 and
128/82 were filled out regularly and became due as of December 29, 1984 as shown on
the face thereof.
Respondent Court of Appeals held that there is no evidence of a promise from
respondent PNB, admittedly a banking corporation, that it had accepted the proposals of
the petitioner to have a five-year restructuring of his overdue loan obligations. It found
and held, on the basis of the evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's responses were not categorical
that the appellee's request had been favorably accepted by the bank."
Contending that respondent PNB had allegedly approved his proposed five-year
restructuring plan, petitioner presented three (3) documents executed by respondent PNB
officials. The first document is a letter dated March 16, 1981 addressed to the petitioner
and signed by Ceferino D. Cura, Branch Manager of PNB Mandaluyong, which states:

x x x In order to study intelligently the feasibility of your above request, please


submit the following documents/papers within thirty (30) days from the date
thereof, viz:

1. Audited Financial Statements for 1979 and 1980;


2. Projected cash flow (cash in - cash out) for five years detailed yearly; and
3. List of additional machinery and equipment and proof of ownership thereof.

We would strongly suggest, however, that you reduce your total obligations to
at least P3 million (principal and interest and other charges) to give us more
justification in recommending a plan of payment or restructuring of your
accounts to higher authorities of this bank.

The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe Benito,
Jr., Managing Director of the Technological Resources Center and signed by said PNB
Branch Manager, Ceferino D. Cura.According to petitioner, this letter showed that
respondent PNB seriously considered the restructuring of his loan obligations to a five-
year term loan, to wit:
xxx

At the request of our client, we would like to furnish you with the following
information pertinent to his accounts with us:

xxx

We are currently evaluating the proposal of the client to re-structure his


accounts with us into a five-year plan.
We hope that the above information will guide you in evaluating the proposals
of Mr. Danilo Mendoza.

xxx
The third document is a letter dated July 8, 1981 addressed to petitioner and signed
by PNB Assistant Vice-President Apolonio B. Francisco.
xxx

Considering that your accounts/accommodations were granted and carried in


the books of our Mandaluyong Branch, we would suggest that your requests
and proposals be directed to Ceferino Cura, Manager of our said Branch.

We feel certain that Mr. Cura will be pleased to discuss matters of mutual
interest with you.

xxx
Petitioner also presented a letter which he addressed to Mr. Jose Salvador, Vice-
President of the Metropolitan Branches of PNB, dated September 24, 1981, which reads:

Re: Restructuring of our Account into a 5-year Term Loan and Request for the
Establishment of a P2.0 Million LC/TR Line

Dear Sir:

In compliance with our discussion last September 17, we would like to


formalize our proposal to support our above requested assistance from the
Philippine National Bank.

xxx

Again we wish to express our sincere appreciation for your open-minded


approach towards the solution of this problem which we know and will be
beneficial and to the best interest of the bank and mutually advantageous to
your client.

xxx
Petitioner argues that he submitted the requirements according to the instructions
given to him and that upon submission thereof, his proposed five-year restructuring plan
was deemed automatically approved by respondent PNB.
We disagree.
Nowhere in those letters is there a categorical statement that respondent PNB had
approved the petitioners proposed five-year restructuring plan. It is stretching the
imagination to construe them as evidence that his proposed five-year restructuring plan
has been approved by the respondent PNB which is admittedly a banking corporation.
Only an absolute and unqualified acceptance of a definite offer manifests the consent
necessary to perfect a contract.[16] If anything, those correspondences only prove that the
parties had not gone beyond the preparation stage, which is the period from the start of
the negotiations until the moment just before the agreement of the parties.[17]
There is nothing in the record that even suggests that respondent PNB assented to the
alleged five-year restructure of petitioners overdue loan obligations to PNB. However,
the trial court ruled in favor of petitioner Mendoza, holding that since petitioner has
complied with the conditions of the alleged oral contract, the latter may not renege on its
obligation to honor the five-year restructuring period, under the rule of promissory
estoppel. Citing Ramos v. Central Bank,[18] the trial court said:

The broad general rule to the effect that a promise to do or not to do something
in the future does not work an estoppel must be qualified, since there are
numerous cases in which an estoppel has been predicated on promises or
assurances as to future conduct. The doctrine of promissory estoppel is by no
means new, although the name has been adopted only in comparatively recent
years. According to that doctrine, an estoppel may arise from the making of a
promise, even though without consideration, if it was intended that the promise
should be relied upon and in fact it was relied upon, and if a refusal to enforce
it would be virtually to sanction the perpetration of fraud or would result in
other injustice. In this respect, the reliance by the promisee is generally
evidenced by action or forbearance on his part, and the idea has been expressed
that such action or forbearance would reasonably have been expected by the
promissor. xxx

The doctrine of promissory estoppel is an exception to the general rule that a promise
of future conduct does not constitute an estoppel. In some jurisdictions, in order to make
out a claim of promissory estoppel, a party bears the burden of establishing the following
elements: (1) a promise reasonably expected to induce action or forebearance; (2) such
promise did in fact induce such action or forebearance, and (3) the party suffered
detriment as a result.[19]
It is clear from the forgoing that the doctrine of promissory estoppel presupposes the
existence of a promise on the part of one against whom estoppel is claimed. The promise
must be plain and unambiguous and sufficiently specific so that the Judiciary can
understand the obligation assumed and enforce the promise according to its terms.[20] For
petitioner to claim that respondent PNB is estopped to deny the five-year restructuring
plan, he must first prove that respondent PNB had promised to approve the plan in
exchange for the submission of the proposal. As discussed earlier, no such promise was
proven, therefore, the doctrine does not apply to the case at bar. A cause of action for
promissory estoppel does not lie where an alleged oral promise was conditional, so that
reliance upon it was not reasonable.[21] It does not operate to create liability where it does
not otherwise exist.[22]
Since there is no basis to rule that petitioner's overdue loan obligations were
restructured to mature in a period of five (5) years, we see no other option but to respect
the two-year period as contained in the two (2) subject Promissory Notes Nos. 127/82
and 128/82, marked as Exhibits BB and CC respectively which superseded and novated
all prior loan documents signed by petitioner in favor of respondent PNB. Petitioner
argues, in his memorandum, that "respondent Court of Appeals had no basis in saying
that the acceptance of the five-year restructuring is totally absent from the record."[23] On
the contrary, the subject Promissory Notes Nos. 127/82 and 128/82 are clear on their face
that they were due on December 29, 1984 or two (2) years from the date of the signing of
the said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory Notes Nos. 127/82 and 128/82
were signed by him in blank with the understanding that they were to be subsequently
filled out to conform with his alleged oral agreements with PNB officials, among which
is that they were to become due only after five (5) years. If petitioner were to be believed,
the PNB officials concerned committed a fraudulent act in filling out the subject two (2)
promissory notes in question. Private transactions are presumed to be fair and
regular.[24] The burden of presenting evidence to overcome this presumption falls upon
petitioner. Considering that petitioner imputes a serious act of fraud on respondent PNB,
which is a banking corporation, this court will not be satisfied with anything but the most
convincing evidence. However, apart from petitioner's self-serving verbal declarations,
we find no sufficient proof that the subject two (2) Promissory Notes Nos. 127/82 and
128/82 were completed irregularly. Therefore, we rule that the presumption has not been
rebutted.
Besides, it could be gleaned from the record that the petitioner is an astute
businessman who took care to reduce in writing his business proposals to the respondent
bank. It is unthinkable that the same person would commit the careless mistake of leaving
his subject two (2) promissory notes in blank in the hands of other persons. As the
respondent Court of Appeals correctly pointed out:

Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant (p. 3 TSN,


January 9, 1990) will insist that the details of the two promissory notes he and
his wife executed in 1982 should be specific to enable them to make the precise
computation in the event of default as in the case at bench. In fact, his alleged
omission as a C.P.A. and a Tax Consultant to insist that the two promissory
notes be filled up on important details like the rates of interest is inconsistent
with the legal presumption of a person who takes ordinary care of his concerns
(Section 3 (c), Rule 131, Revised Rules on Evidence).

As pointed out by the Court of Appeals, Orlando Montecillo, Chief, Loans and
Discounts, PNB Mandaluyong Branch, testified that the said Promissory Notes Nos.
127/82 and 128/82 were completely filled out when Danilo Mendoza signed them (Rollo,
p. 14).
In a last-ditch effort to save his five-year loan restructuring theory, petitioner
contends that respondent PNB's action of withholding 10% from his export proceeds is
proof that his proposal had been accepted and the contract had been partially
executed. He claims that he would not have consented to the additional burden if there
were no corresponding benefit. This contention is not well taken. There is no credible
proof that the 10% assignment of his export proceeds was not part of the conditions of the
two-year restructuring deal. Considering that the resulting amount obtained from this
assignment of export proceeds was not even enough to cover the interest for the
corresponding month,[25] we are hard-pressed to construe it as the required proof that
respondent PNB allegedly approved the proposed five-year restructuring of petitioners
overdue loan obligations.
It is interesting to note that in his Complaint, petitioner made no mention that the
assignment of his export proceeds was a condition for the alleged approval of his
proposed five-year loan restructuring plan. The Complaint merely alleged that "plaintiff
in a sincere effort to make payments on his obligations agreed to assign 10% of his export
proceeds to defendant PNB." This curious omission leads the court to believe that the
alleged link between the petitioners assignment of export proceeds and the alleged five-
year restructuring of his overdue loans was more contrived than real.
It appears that respondent bank increased the interest rates on the two (2) subject
Promissory Notes Nos. 127/82 and 128/82 without the prior consent of the petitioner. The
petitioner did not agree to the increase in the stipulated interest rate of 21% per annum on
Promissory Note No. 127/82 and 18% per annum on Promissory Note No. 128/82. As
held in several cases, the unilateral determination and imposition of increased interest
rates by respondent bank is violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code.[26] As held in one case:[27]

It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is
wanting on the part of one who contracts, his act has no more efficacy than if it
had been done under duress or by a person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.

It has been held that no one receiving a proposal to change a contract to which he is a
party is obliged to answer the proposal, and his silence per se cannot be construed as an
acceptance.[28] Estoppel will not lie against the petitioner regarding the increase in the
stipulated interest on the subject Promissory Notes Nos. 127/82 and 128/82 inasmuch as
he was not even informed beforehand by respondent bank of the change in the stipulated
interest rates. However, we also note that the said two (2) subject Promissory Notes Nos.
127/82 and 128/82 expressly provide for a penalty charge of 3% per annum to be
imposed on any unpaid amount when due.
Petitioner prays for the release of some of his movables[29] being withheld by
respondent PNB, alleging that they were not included among the chattels he mortgaged to
respondent bank. However, petitioner did not present any proof as to when he acquired
the subject movables and hence, we are not disposed to believe that the same were after-
acquired chattels not covered by the chattel and real estate mortgages.
In asserting its rights over the subject movables, respondent PNB relies on a
common provision in the two (2) subject Promissory Notes Nos. 127/82 and 128/82
which states:

In the event that this note is not paid at maturity or when the same becomes due
under any of the provisions hereof, we hereby authorized the BANK at its
option and without notice, to apply to the payment of this note, any and all
moneys, securities and things of value which may be in its hands on deposit or
otherwise belonging to me/us and for this purpose. We hereby, jointly and
severally, irrevocably constitute and appoint the BANK to be our true
Attorney-in-Fact with full power and authority for us in our name and behalf
and without prior notice to negotiate, sell and transfer any moneys securities
and things of value which it may hold, by public or private sale and apply the
proceeds thereof to the payment of this note.

It is clear, however, from the above-quoted provision of the said promissory notes
that respondent bank is authorized, in case of default, to sell things of value belonging to
the mortgagor which may be on its hands for deposit or otherwise belonging to me/us and
for this purpose. Besides the petitioner executed not only a chattel mortgage but also a
real estate mortgage to secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to after-acquired
property is valid and binding where the after-acquired property is in renewal of, or in
substitution for, goods on hand when the mortgage was executed, or is purchased with the
proceeds of the sale of such goods.[30] As earlier pointed out, the petitioner did not present
any proof as to when the subject movables were acquired.
More importantly, respondent bank makes a valid argument for the retention of the
subject movables. Respondent PNB asserts that those movables were in fact "immovables
by destination" under Art. 415 (5) of the Civil Code.[31] It is an established rule that a
mortgage constituted on an immovable includes not only the land but also the buildings,
machinery and accessories installed at the time the mortgage was constituted as well as
the buildings, machinery and accessories belonging to the mortgagor, installed after the
constitution thereof.[32]
Petitioner also contends that respondent PNBs bid prices for this foreclosed
properties in the total amount of Three Million Seven Hundred Ninety Eight Thousand
Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50), were allegedly
unconscionable and shocking to the conscience of men. He claims that the fair market
appraisal of his foreclosed plant site together with the improvements thereon located in
Pasig, Metro Manila amounted to Five Million Four Hundred Forty One Thousand Six
Hundred Fifty Pesos (P5,441,650.00) while that of his house and lot in Quezon City
amounted to Seven Hundred Twenty Two Thousand Pesos (P722,000.00) per the
appraisal report dated September 20, 1990 of Cuervo Appraisers, Inc.[33] That contention
is not well taken considering that:
1. The total of the principal amounts alone of petitioners subject Promissory Notes Nos.
127/82 and 128/82 which are both overdue amounted to Four Million One Hundred
Eighty Seven Thousand Nine Hundred Seventeen Pesos and Fifty Nine Centavos
(P4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in September 1990,
the extrajudicial foreclosure of petitioners real estate and chattel mortgages have
been effected way back on October 15, 1984, October 23, 1984 and December 21,
1984.[34] Common experience shows that real estate values especially in Metro
Manila tend to go upward due to developments in the locality.
3. In the public auction/foreclosure sales, respondent PNB, as mortgagee, was not
obliged to bid more than its claims or more than the amount of petitioners loan
obligations which are all overdue. The foreclosed real estate and chattel mortgages
which petitioner earlier executed are accessory contracts covering the collaterals or
security of his loans with respondent PNB. The principal contracts are the
Promissory Notes Nos. 127/82 and 128/82 which superseded and novated the 1979
promissory notes and the 1979 eleven (11) Applications and Agreements for
Commercial Letter of Credit.
Finally, the record shows that petitioner did not even attempt to tender any
redemption price to respondent PNB, as highest bidder of the said foreclosed real estate
properties, during the one-year redemption period.
In view of all the foregoing, it is our view and we hold that the extrajudicial
foreclosure of petitioners real estate and chattel mortgages was not premature and that it
was in fact legal and valid.
WHEREFORE, the petition is hereby DENIED. The challenged Decision of the
Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with modification that the
increase in the stipulated interest rates of 21% per annum and 18% per annum appearing
on Promissory Notes Nos. 127/82 and 128/82 respectively is hereby declared null and
void.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

Retrieved from:
http://sc.judiciary.gov.ph/jurisprudence/2001/jun2001/116710.htm

Option Money

Limson vs CA
Republic of the Philippines
SUPREME COURT
Baguio City

SECOND DIVISION

G.R. No. 135929 April 20, 2001

LOURDES ONG LIMSON, petitioner,


vs.
COURT OF APPEALS, SPOUSES LORENZO DE VERA and ASUNCION SANTOS-DE
VERA, TOMAS CUENCA, JR. and SUNVAR REALTY DEVELOPMENT
CORPORATION, respondents.

BELLOSILLO, J.:

Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to
review, reverse and set aside the Decision1 of the Court of Appeals dated 18 May 1998
reversing that of the Regional Trial Court dated 30 June 1993. The petitioner likewise assails
the Resolution2 of the appellate court of 19 October 1998 denying petitioner’s Motion for
Reconsideration.

Petitioner Lourdes Ong Limson, in her 14 may 1979 Complaint filed before the trial
court,3 alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion Santos-
de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land
consisting of 48, 260 square meters, more or less, situated in Barrio San Dionisio,
Parañaque, Metro Manila; that respondent spouses informed her that they were the owners
of the subject property; that on 31 July 1978 she agreed to buy the property at the price of
P34.00 per square meter and gave the sum of P20,000.00 to respondent spouses as
"earnest money;" that respondent spouses signed a receipt therefor and gave her a 10-day
option period to purchase the property; that respondent Lorenzo de Vera then informed her
that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent
Lorenzo de Vera asked her to pay the balance of the purchase price to enable him and his
wife to settle their obligation with the Ramoses.
1âwphi1.nêt

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5
August 1978 at the Office of the Registry of deeds of Makati, Metro Manila, to consummate
the transaction but due to the failure of respondent Asuncion Santos-de Vera and the
Ramoses to appear, no transaction was formalized. In a second meeting scheduled on 11
August 1978 she claimed that she was willing and ready to pay the balance of the purchase
price but the transaction again did not materialize as respondent spouses failed to pay the
back taxes of subject property. Subsequently, on 23 August 1978 petitioner allegedly gave
respondent Lorenzo de Vera three (3) checks in the total amount of P36, 170.00 for the
settlement of the back taxes of the property and for the payment of the quitclaims of the
three (3) tenants of subject land. The amount was purportedly considered part of purchase
price and respondent Lorenzo de Vera signed the receipts therefor.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of
respondent spouses that the property was the subject of a negotiation for the sale to
respondent Sunvar Realty Development Corporation (SUNVAR) represented by respondent
Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that although respondent
spouses purchased the property from the Ramoses on 20 March 1970 it was only on 15
September 1978 that TCT No. S-72946 covering the property was issued to respondent
spouses. As a consequence, she file on the same day an affidavit of Adverse Claim with the
Office of the Registry of Deeds of Makati, Metro, which was annotated on TCT No. S-72946.
She also claimed that on the same day she informed respondent Cuenca of her "contract" to
purchase the property.

The Deed of Sale between respondent spouses and respondent SUNVAR was executed on
15 September 1978 and TCT N0. S-72377 was issued in favor of the latter on 26 September
1978 with the adverse Claim of petitioner annotated thereon. Petitioner claimed that when
respondent spouses sold the property in dispute to SUNVAR, her valid and legal right to
purchase it was ignored if not violated. Moreover, she maintained that SUNVAR was in bad
faith, as it knew of her "contract" to purchase the subject property fro respondent spouse.

Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her
damage, prejudice and injury, petitioner claimed that the Deed of Sale, should be annuled
and TCT No. S-72377 in the name of respondent SUNVAR canceled and TCT No. S-72946
restored. She also insisted that a Deed of Sale between her an respondent spouses be now
executed upon her payment of the balance of the purchase price agreed upon, plus
damages and attorney’s fees.

In their Answer4 respondent spouses maintained that petitioner had no sufficient cause of
action against them; that she was not the real party in interest; that the option to buy the
property had long expired; that there was no perfected contract to sell between them; and,
that petitioner had no legal capacity to sue. Additionally, respondent spouses claimed actual,
moral and exemplary damages, and attorney’s fees against petitioner.

On the other hand, respondents SUNVAR and Cuenca, in their Answer5 alleged that
petitioner was not the proper party in interest and/or had no cause of action against them.
But, even assuming that petitioner was the proper party in interest, they claimed that she
could only be entitled to the return of any amount received by respondent spouses. In the
alternative, they argued that petitioner had lost her option to buy the property for failure to
comply with the terms and conditions of the agreement as embodied in the receipt issued
therefor. Moreover, they contended that at the time of the execution of the Deed of Sale and
the payment of consideration to respondent spouses, they "did not know nor was informed"
of petitioner’s interest or claim over the subject property. They claimed furthermore that it
was only after the signing of the Deed of Sale and the payment of the corresponding
amounts to respondent spouses that they came to know of the claim of petitioner as it was
only then that they were furnished copy to the title to the properly where the Adverse
Claim of petitioner was annotated. Consequently, they also instituted aCross-Claim against
respondent spouses for bad faith in encouraging the negotiations between them without
telling them of the claim of petitioner. The same respondents maintained that had they
known of the claim of petitioner, they would not have initiated negotiations with respondent
spouses for the purchase of the property. Thus, they prayed for reimbursement of all
amounts and monies received from them by respondent spouses, attorney’s fees and
expenses for litigation in the event that the trial court should annul the Deed of Sale and
deprive them of their ownership and possessio of the subject land.

In their Answer to the Cross-Claim6 of respondents SUNVAR and Cuenca, respondent


spouses insisted that they negotiated with the former only after expiration of the option
period given to petitioner and her failure with her commitments thereunder. Respondent
spouses contended that they acted legally and validly, in all honesty and good faith.
According to them, respondent SUNVAR made a verification of the title with the office of the
register of Deeds of Metro Manila District IV before the execution of the Deed of Absolute
Sale. Also, they claimed that theCross-Claim was written executed by respondent SUNVAR
in their favor. Thus, respondent spouses prayed for actual damages for the unjustified filling
of the Cross-Claim, moral damages for the mental anguish and similar injuries they suffered
by reason thereof, exemplary damages "to prevent others from emulation the bad example"
of respondents SUNVAR and Cuenca, plus attorney’s fees.

After a protracted trial and reconstitution of the court records due to the fire that razed the
Pasay City Hall on 18 January 1992, the Regional Trial Court rendered its 30 June 1993
Decision7 in favor of petitioner. It ordered (a) the annulment and rescission of the Deed of
Absolute Sale executed on 15 September 1978 by respondent spouses in favor of
respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the
Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar Realty
Development Corporation, and the restoration or reinstatement of TCT No. S-72946 of the
same Registry issued in the name of respondent spouses; (c) respondent spouses to
execute a deed of sale conveying ownership of the property covered by TCT No. S-72946 in
favor of petitioner upon her payment of the balance of the purchase price agreed upon; and,
(d) respondent spouses to pay petitioner P50,000.00 as and for attorney’s fees, and to pay
the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered
(a) the Register of Deeds of Makati City to lift the Adverse Claim and such other
encumbrances petitioner might have filed or caused to be annotated on TCT No. S-75377;
and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal damages,
P30,000.00 as exemplary damages and P20,000 as attorney’s fees; (2) respondent spouses,
P15,000.00 as nominal damages, P10,000.00 as exemplary damages and P10,000.00 as
attorney’s fees; and, (3) the costs.

Petitioner timely filed a Motion for Reconsideration which was denied by the Court of
Appeals on 19 October 1998. Hence, this petition.

At issue for resolution by the Court is the nature of the contract entered into between
petitioner Lourdes Ong Limson on one hand, and respondent spouses Lorenzo de Vera and
Asuncion Santos-de Vera on the other.

The main argument of petitioner is that there was a perfected contract to sell between her
and respondent spouses. On the other hand, respondent spouses and respondents
SUNVAR and Cuenca argue that what was perfected between petitioner and respondent
spouses was a mere option.

A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the
conclusion that the agreement between the parties was a contract of option and not
a contract to sell.

An option, as used in the law of sales, is a continuing offer or contract by which the owner
sitpulates with another that the latter shall have the right to buy the property at a fixed price
within a time certain, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes
called an "unaccepted offer." An option is not itself a purchase, but merely secures the
privilege to buy.8 It is not a sale of property but a sale of right to purchase.9 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 not sell something, i.e., the right or privilege to buy
at the election or option of the other party.10 Its distinguishing characteristic is that it imposes
no binding obligation on the person holding the option, aside from the consideration for the
offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or
agree to transfer, any title to, or any interest or right in the subject matter, but is merely a
contract by which the owner of the property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms.11

On the other hand, a contract, like a contract to sell, involves the meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to
render some service.12 Contracts, in general, are perfected by mere consent,13 which is
manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute.14

The Receipt15 that contains the contract between petitioner and respondent spouses
provides –

Received from Lourdes Limson the sum of Twenty Thousand Peso (P20,000.00)
under Check No. 22391 dated July 31, 1978 as earnest money with option to
purchase a parcel of land owned by Lorenzo de Vera located at Barrio San Dionisio,
Municipality of Parañaque, Province of Rizal with an area of forty eight thousand two
hundred sixty square meters more or less at the price of Thirty Four Pesos
(34.00)16 cash subject to the condition and stipulation that have been agreed upon by
the buyer and me which will form part of the receipt. Should the transaction of the
property not materialize not on the fault of the buyer, I obligate myself to return the
full amount of P20,000.00 earnest money with option to buy or forfeit on the fault of
the buyer. I guarantee to notify the buyer Lourdes Limson or her representative and
get her conformity should I sell or encumber this property to a third person. This
option to buy is good within ten (10) days until the absolute deed of sale is finally
signed by the parties or the failure of the buyer to comply with the terms of the option
to buy as herein attached.

In the interpretation of contracts, the ascertainment of the intention of the contracting parties
is to be discharged by looking to the words they used to project that intention in their
contracts, all the words standing alone.17 The aboveReceipt readily shows that respondent
spouses and petitioner only entered into a contract of option; a contract by which respondent
spouses agreed with petitioner that the latter shall have the right to buy the former's property
at a fixed price of P34.00 per square meter within ten (10) days from 31 July 1978.
Respondent spouses did not sell their property; they did not also agree to sell it; but they
sold something, i.e., the privilege to buy at the election or option of petitioner. The agreement
imposed no binding obligation on petitioner, aside from the consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as


"earnest money." However, a careful examination of the words used indicated that the
money is not earnest money but option money."Earnest money" and "option money" are not
the same but distinguished thus; (a) earnest money is part of the purchase price, while
option money is the money given as a distinct consideration for an option contract; (b)
earnest money given only where there is already a sale, while option money applies to a sale
not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the
balance, while when the would-be buyer gives option money, he is not required to buy,18 but
may even forfeit it depending on the terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase
price. Moreover, it was not shown that there was a perfected sale between the parties where
earnest money was given. Finally, when petitioner gave the "earnest money" the Receipt did
not reveal that she was bound to pay the balance of the purchase price. In fact, she could
even forfeit the money given if the terms of the option were not met. Thus, the P20,000.00
could only be money given as consideration for the option contract. That the contract
between the parties is one of option is buttressed by the provision therein that should the
transaction of the provision therein that should the transaction of the property not materialize
without fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to
return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the same
on the fault of petitioner. It is further bolstered by the provision therein that guarantees
petitioner that she or her representative would be notified in case the subject property was
sold or encumbered to a third person. Finally, the Receipt provided for a period within which
the option to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option
contract" or what is sometimes called an "unaccepted offer." During the option period the
agreement was not converted into a bilateral promise to sell and to buy where both
respondent spouses and petitioner were then reciprocally bound to comply with their
respective undertakings as petitioner did not timely, affirmatively and clearly accept the offer
of respondent spouses.

The rule is that except where a formal acceptance is not required, although the acceptance
must be affirmatively and clearly made and evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal or an informal manner, and
may be shown by acts, conduct or words by the accepting party that clearly manifest a
present intention or determination to accept the offer to buy the property of respondent
spouses within the 10-day option period. The only occasion within the option period when
petitioner could have demonstrated her acceptance was on 5 August 1978 when, according
to her, she agreed to meet respondent spouses and the Ramoses at the Office of the
Registrar of Deeds of Makati. Petitioner’s agreement to meet with respondent spouses
presupposes an invitation from the latter, which only emphasizes their persistence in offering
the property to the former. But whether that showed acceptance by petitioner of the offer is
hazy and dubious.

On or before 10 August 1978, the last day of the option period, no affirmative or clear
manifestation was made by petitioner to accept the offer. Certainly, there was no
concurrence of private respondent spouses’ offer and petitioner’s acceptance thereof within
the option period. Consequently, there was no perfected contract to sell between the parties.

On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the
property of respondent spouses ceased. The subsequent meetings and negotiations,
specifically on 11 and 23 August 1978, between the parties only showed the desire of
respondent spouses to sell their property to petitioner. Also, on 14 September 1978 when
respondent spouses sent a telegram to petitioner demanding full payment of the purchase
price on even date simply demonstrated an inclination to give her preference to buy subject
property. Collectively, these instances did not indicate that petitioner still had the exclusive
right to purchase subject property. Verily, the commencement of negotiations between
respondent spouses and respondent SUNVAR clearly manifested that their offer to sell
subject property to petitioner was no longer exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses extended the
option period when they extended the authority of their until 31 August 1978. The extension
of the contract of agency could not operate to extend the option period between the parties in
the instant case. The extension must not be implied but categorical and must show the clear
intention of the parties.
1âwphi1.nêt

As to whether respondent spouses were at fault for the non-consummation of their contract
with petitioner, we agree with the appellate court that they were not to be
blammed. First, within the option period, or on 4 August 1978, it was respondent spouses
and not petitioner who initiated the meeting at the Office of The Register of Deeds of
Makati.Second, that the Ramoses filed to appear on 4 August 1978 was beyond the control
of respondent spouses. Third,the succeeding meetings that transpired to consummate the
contract were all beyond the option period and, as declared by the Court of Appeals, the
question of who was at fault was already immaterial. Fourth, even assuming that the
meetings were within the option period, the presence of petitioner was not enough as she
was not even prepared to pay the purchase price in cash as agreed upon. Finally, even
without the presence of the Ramoses, petitioner could have easily made the necessary
payment in cash as the price of the property was already set at P34.00 per square meter and
payment of the mortgage could every well be left to respondent spouses.

Petitioner further claims that when respondent spouses sent her a telegram demanding full
payment of the purchase price on 14 September 1978 it was an acknowledgment of their
contract to sell, thus denying them the right to claim otherwise.

We do not agree. As explained above, there was no contract to sell between petitioner and
respondent spouses to speak of. Verily, the telegram could not operate to estop them from
claiming that there was such contract between them and petitioner. Neither could it mean
that respondent spouses extended the option period. The telegram only showed that
respondent spouses were willing to give petitioner a chance to buy subject property even if it
no longer exclusive.

The option period having expired and acceptance was not effectively made by petitioner, the
purchase of subject property by respondent SUNVAR was perfectly valid and entered into in
good faith. Petitioner claims that in August 1978 Hermigildo Sanchez, the son of respondent
spouses’ agent, Marcosa Snachez, informed Marixi Prieto, a member of the Board of
Directors of respondent SUNVAR, that the property was already sold to petitioner. Also,
petitioner maintains that on 5 September 1978 respondent Cuenca met with her and offered
to buy the property from her at P45.00 per square meter. Petitioner contends that these
incidents, including the annotation of herAdverse Claim on the title of subject property on 15
September 1978 show that respondent SUNVAR was aware of the perfected sale between
her and respondent spouses, thus making respondent SUNVAR a buyer in bad faith.

Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are
immaterial as they were beyond the option period given to petitioner. On the other hand, the
referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as emphasized
by petitioner in her petition is very vague. It could be within or beyond the option period.
Clearly then, even assuming that the meeting with Marixi Prieto actually transpired, it could
not necessarily mean that she knew of the agreement between petitioner and respondent
spouses for the purchase of subject property as the meeting could have occurred beyond the
option period. In which case, no bad faith could be attributed to respondent SUNVAR. If, on
the other hand, the meeting was within the option period, petitioner was remiss in her duty to
prove so. Necessarily, we are left with the conclusion that respondent SUNVAR bought
subject property from respondent spouses in good faith, for value and without knowledge of
any flaw or defect in its title.

The appellate court awarded nominal and exemplary damages plus attorney’s fees to
respondent spouses and respondent SUNVAR. But nominal damages are adjudicated to
vindicate or recognize the right of the plaintiff that has been violated or invaded by the
defendant.19 In the instant case, the Court recognizes the rights of all the parties and finds no
violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her
complaint, only seeks relief, in good faith, for what she believes she was entitled to and
should not be awarded to respondents as they are imposed only by way of example or
correction for the public good and only in addition to the moral, temperate, liquidated or
compensatory damages.20 No such kinds of damages were awarded by the Court of
Appeals, only nominal, which was not justified in this case. Finally, attorney’s fees could not
also be recovered as the Court does not deem it just and equitable under the circumtances.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals ordering the
Register of Deeds of Makati City to lift the adverse claim and such other encumbrances
petitioners Lourdes Ong Limson may have filed or caused to be annotated on TCT No. S-
75377 is AFFIRMED, with the MODIFICATION that the award of nominal and exemplary
damages as well as attorney’s fees is DELETED.

SO ORDERED.

Mendoza, Quisumbing, Buena, De Leon, Jr., JJ., concur.

Retrieved from:
http://www.lawphil.net/judjuris/juri2001/apr2001/gr_135929_2001.html

Cavite Development Bank vs Lim

SECOND DIVISION

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

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST


COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA
CHAN LIM and COURT OF APPEALS, respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision[1] of the Court of Appeals
in C.A. GR CV No. 42315 and the order dated December 9, 1997 denying
petitioners motion for reconsideration.
The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust
Company (FEBTC) are banking institutions duly organized and existing under
Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained
a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a
parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and
covered by TCT No. 300809 registered in his name. As Guansing defaulted in
the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale
held on March 15, 1984, the mortgaged property was sold to CDB as the highest
bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title
to the property in its name. TCT No. 300809 in the name of Guansing was
cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker
named Remedios Gatpandan, offered to purchase the property from CDB. The
written Offer to Purchase, signed by Lim and Gatpandan, states in part:

We hereby offer to purchase your property at #63 Calavite and


Retiro Sts., La Loma, Quezon City for P300,000.00 under the
following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of


illegal occupants or tenants. Scjuris

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB
P30,000.00 as Option Money, for which she was issued Official Receipt No.
3160, dated June 17, 1988, by CDB. However, after some time following up the
sale, Lim discovered that the subject property was originally registered in the
name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT
No. 91148. Rodolfo succeeded in having the property registered in his name
under TCT No. 300809, the same title he mortgaged to CDB and from which the
latters title (TCT No. 355588) was derived. It appears, however, that the father,
Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch
83, Quezon City, for the cancellation of his sons title. On March 23, 1984, the trial
court rendered a decision[2] restoring Perfectos previous title (TCT No. 91148)
and cancelling TCT No. 300809 on the ground that the latter was fraudulently
secured by Rodolfo. This decision has since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its


mother-company, FEBTC, on their ability to sell the subject property, Lim, joined
by her husband, filed on August 29, 1989 an action for specific performance and
damages against petitioners in the Regional Trial Court, Branch 96, Quezon City,
where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as
an additional defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim
spouses. It ruled that: (1) there was a perfected contract of sale between Lim and
CDB, contrary to the latters contention that the written offer to purchase and the
payment of P30,000.00 were merely pre-conditions to the sale and still subject to
the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984
decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor
Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite
the impossibility of performance, because they could not credibly disclaim
knowledge of the cancellation of Rodolfo Guansings title without admitting their
failure to discharge their duties to the public as reputable banking institutions;
and (4) CDB and FEBTC are liable for damages for the prejudice caused against
the Lims.[3] Based on the foregoing findings, the trial court ordered CDB and
FEBTC to pay private respondents, jointly and severally, the amount of
P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full
payment. It also ordered petitioners to pay private respondents, jointly and
severally, the amounts of P250,000.00 as moral damages, P50,000.00 as
exemplary damages, P30,000.00 as attorneys fees, and the costs of the suit. [4]

Petitioners brought the matter to the Court of Appeals, which, on October 14,
1997, affirmed in toto the decision of the Regional Trial Court. Petitioners moved
for reconsideration, but their motion was denied by the appellate court on
December 9, 1997. Hence, this petition. Petitioners contend that - Jjlex

1. The Honorable Court of Appeals erred when it held that


petitioners CDB and FEBTC were aware of the decision dated
March 23, 1984 of the Regional Trial Court of Quezon City in Civil
Case No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to


pay interest on the deposit of THIRTY THOUSAND PESOS
(P30,000.00) by applying Article 2209 of the New Civil Code.

3. The Honorable Court of Appeals erred in ordering petitioners to


pay moral damages, exemplary damages, attorneys fees and costs
of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and
private respondent Lolita Chan Lim. They contend that Lims letter-offer clearly
states that the sum of P30,000.00 was given as option money, not as earnest
money.[5] They thus conclude that the contract between CDB and Lim was merely
an option contract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parties thereto but
by principles of law.[6] In determining the nature of a contract, the courts are not
bound by the name or title given to it by the contracting parties. [7] In the case at
bar, the sum of P30,000.00, although denominated in the offer to purchase as
"option money," is actually in the nature of earnest money or down payment
when considered with the other terms of the offer. In Carceler v. Court of
Appeals,[8] we explained the nature of an option contract, viz. -

An option contract is a preparatory contract in which one party


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

An option contract is therefore a contract separate from and preparatory to a


contract of sale which, if perfected, does not result in the perfection or
consummation of the sale. Only when the option is exercised may a sale be
perfected.

In this case, however, after the payment of the 10% option money, the Offer to
Purchase provides for the payment only of the balance of the purchase price,
implying that the "option money" forms part of the purchase price. This is
precisely the result of paying earnest money under Art. 1482 of the Civil Code. It
is clear then that the parties in this case actually entered into a contract of sale,
partially consummated as to the payment of the price. Moreover, the following
findings of the trial court based on the testimony of the witnesses establish that
CDB accepted Lims offer to purchase:

It is further to be noted that CDB and FEBTC already considered


plaintiffs offer as good and no longer subject to a final approval. In
his testimony for the defendants on February 13, 1992, FEBTCs
Leomar Guzman stated that he was then in the Acquired Assets
Department of FEBTC wherein plaintiffs offer to purchase was
endorsed thereto by Myoresco Abadilla, CDBs senior vice-
president, with a recommendation that the necessary petition for
writ of possession be filed in the proper court; that the
recommendation was in accord with one of the conditions of the
offer, i.e., the clearing of the property of illegal occupants or tenants
(tsn, p. 12); that, in compliance with the request, a petition for writ
of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-
A); that the offer met the requirements of the banks; and that no
rejection of the offer was thereafter relayed to the plaintiffs (p. 17);
which was not a normal procedure, and neither did the banks return
the amount of P30,000.00 to the plaintiffs.[9]

Given CDBs acceptance of Lims offer to purchase, it appears that a contract of


sale was perfected and, indeed, partially executed because of the partial
payment of the purchase price. There is, however, a serious legal obstacle to
such sale, rendering it impossible for CDB to perform its obligation as seller to
deliver and transfer ownership of the property. Acctmis

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give
what one does not have. In applying this precept to a contract of sale, a
distinction must be kept in mind between the "perfection" and "consummation"
stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon


the thing which is the object of the contract and upon the price.[10] It is, therefore,
not required that, at the perfection stage, the seller be the owner of the thing sold
or even that such subject matter of the sale exists at that point in time. [11] Thus,
under Art. 1434 of the Civil Code, when a person sells or alienates a thing which,
at that time, was not his, but later acquires title thereto, such title passes by
operation of law to the buyer or grantee. This is the same principle behind the
sale of "future goods" under Art. 1462 of the Civil Code. However, under Art.
1459, at the time of delivery or consummation stage of the sale, it is required that
the seller be the owner of the thing sold. Otherwise, he will not be able to comply
with his obligation to transfer ownership to the buyer. It is at the consummation
stage where the principle of nemo dat quod non habet applies.

In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the
sellers of the subject land were no longer the owners of the same because of a
prior sale.[13] Again, in Nool v. Court of Appeals,[14] we ruled that a contract of
repurchase, in which the seller does not have any title to the property sold, is
invalid:

We cannot sustain petitioners view. Article 1370 of the Civil Code is


applicable only to valid and enforceable contracts. The Regional
Trial Court and the Court of Appeals ruled that the principal contract
of sale contained in Exhibit C and the auxiliary contract of
repurchase in Exhibit D are both void. This conclusion of the two
lower courts appears to find support inDignos v. Court of Appeals,
where the Court held:

"Be that as it may, it is evident that when petitioners


sold said land to the Cabigas spouses, they were no
longer owners of the same and the sale is null and
void."

In the present case, it is clear that the sellers no longer had any title
to the parcels of land at the time of sale. Since Exhibit D, the
alleged contract of repurchase, was dependent on the validity of
Exhibit C, it is itself void. A void contract cannot give rise to a valid
one. Verily, Article 1422 of the Civil Code provides that (a) contract
which is the direct result of a previous illegal contract, is also void
and inexistent."

We should however add that Dignos did not cite its basis for ruling
that a "sale is null and void" where the sellers "were no longer the
owners" of the property. Such a situation (where the sellers were no
longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil Code. Moreover, the Civil
Code itself recognizes a sale where the goods are to be acquired x
x x by the seller after the perfection of the contract of sale, clearly
implying that a sale is possible even if the seller was not the owner
at the time of sale, provided he acquires title to the property later
on. Misact

In the present case, however, it is likewise clear that the sellers can
no longer deliver the object of the sale to the buyers, as the buyers
themselves have already acquired title and delivery thereof from
the rightful owner, the DBP. Thus, such contract may be deemed to
be inoperative and may thus fall, by analogy, under item No. 5 of
Article 1409 of the Civil Code: Those which contemplate an
impossible service. Article 1459 of the Civil Code provides that "the
vendor must have a right to transfer the ownership thereof [subject
of the sale] at the time it is delivered." Here, delivery of ownership is
no longer possible. It has become impossible.[15]

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by
Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a
valid title to the said property. To be sure, CDB never acquired a valid title to the
property because the foreclosure sale, by virtue of which the property had been
awarded to CDB as highest bidder, is likewise void since the mortgagor was not
the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance
with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced
seller, becomes obliged to transfer the ownership of the thing sold to the highest
bidder who, in turn, is obliged to pay therefor the bid price in money or its
equivalent. Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale. This is the reason Art. 2085[16] of the Civil
Code, in providing for the essential requisites of the contract of mortgage and
pledge, requires, among other things, that the mortgagor or pledgor be the
absolute owner of the thing pledged or mortgaged, in anticipation of a possible
foreclosure sale should the mortgagor default in the payment of the loan.

There is, however, a situation where, despite the fact that the mortgagor is not
the owner of the mortgaged property, his title being fraudulent, the mortgage
contract and any foreclosure sale arising therefrom are given effect by reason of
public policy. This is the doctrine of "the mortgagee in good faith" based on the
rule that all persons dealing with property covered by a Torrens Certificate of
Title, as buyers or mortgagees, are not required to go beyond what appears on
the face of the title.[17] The public interest in upholding the indefeasibility of a
certificate of title, as evidence of the lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied
upon what appears on the face of the certificate of title. Sdjad

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is


not required to make a detailed investigation of the history of the title of the
property given as security before accepting a mortgage.

We are not convinced, however, that under the circumstances of this case, CDB
can be considered a mortgagee in good faith. While petitioners are not expected
to conduct an exhaustive investigation on the history of the mortgagors title, they
cannot be excused from the duty of exercising the due diligence required of
banking institutions. In Tomas v. Tomas,[18] we noted that it is standard practice
for banks, before approving a loan, to send representatives to the premises of
the land offered as collateral and to investigate who are the real owners thereof,
noting that banks are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands, for their
business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which


recognizes a better right for the innocent original registered owner
who obtained his certificate of title through perfectly legal and
regular proceedings, than one who obtains his certificate from a
totally void one, as to prevail over judicial pronouncements to the
effect that one dealing with a registered land, such as a purchaser,
is under no obligation to look beyond the certificate of title of the
vendor, for in the latter case, good faith has yet to be established
by the vendee or transferee, being the most essential condition,
coupled with valuable consideration, to entitle him to respect for his
newly acquired title even as against the holder of an earlier and
perfectly valid title. There might be circumstances apparent on the
face of the certificate of title which could excite suspicion as to
prompt inquiry, such as when the transfer is not by virtue of a
voluntary act of the original registered owner, as in the instant case,
where it was by means of a self-executed deed of extra-judicial
settlement, a fact which should be noted on the face of Eusebia
Tomas certificate of title. Failing to make such inquiry would hardly
be consistent with any pretense of good faith, which the appellant
bank invokes to claim the right to be protected as a mortgagee, and
for the reversal of the judgment rendered against it by the lower
court.[19]

In this case, there is no evidence that CDB observed its duty of diligence in
ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo
Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement
of the Estate With Waiver where he made it appear that he and Perfecto
Guansing were the only surviving heirs entitled to the property, and that Perfecto
had waived all his rights thereto. This self-executed deed should have placed
CDB on guard against any possible defect in or question as to the mortgagors
title. Moreover, the alleged ocular inspection report[20] by CDBs representative
was never formally offered in evidence. Indeed, petitioners admit that they are
aware that the subject land was being occupied by persons other than Rodolfo
Guansing and that said persons, who are the heirs of Perfecto Guansing, contest
the title of Rodolfo.[21] Sppedsc

II.

The sale by CDB to Lim being void, the question now arises as to who, if any,
among the parties was at fault for the nullity of the contract. Both the trial court
and the appellate court found petitioners guilty of fraud, because on June 16,
1988, when Lim was asked by CDB to pay the 10% option money, CDB already
knew that it was no longer the owner of the said property, its title having been
cancelled.[22] Petitioners contend that: (1) such finding of the appellate court is
founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was
a party in the case where the mortgagors title was cancelled; (3) CDB is not privy
to any problem among the Guansings; and (4) the final decision cancelling the
mortgagors title was not annotated in the latters title.

As a rule, only questions of law may be raised in a petition for review, except in
circumstances where questions of fact may be properly raised.[23] Here, while
petitioners raise these factual issues, they have not sufficiently shown that the
instant case falls under any of the exceptions to the above rule. We are thus
bound by the findings of fact of the appellate court. In any case, we are
convinced of petitioners negligence in approving the mortgage application of
Rodolfo Guansing.
III.

We now come to the civil effects of the void contract of sale between the parties.
Article 1412(2) of the Civil Code provides:

If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:

....

(2).......When only one of the contracting parties is at


fault, he cannot recover what he has given by reason
of the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault,
may demand the return of what he has given without
any obligation to comply with his promise.

Private respondents are thus entitled to recover the P30,000.00 option money
paid by them. Moreover, since the filing of the action for damages against
petitioners amounted to a demand by respondents for the return of their money,
interest thereon at the legal rate should be computed from August 29, 1989, the
date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners
accepted the payment. This is in accord with our ruling in Castillo v.
Abalayan[24] that in case of a void sale, the seller has no right whatsoever to keep
the money paid by virtue thereof and should refund it, with interest at the legal
rate, computed from the date of filing of the complaint until fully paid. Indeed, Art.
1412(2) which provides that the non-guilty party "may demand the return of what
he has given" clearly implies that without such prior demand, the obligation to
return what was given does not become legally demandable. Sccalr

Considering CDBs negligence, we sustain the award of moral damages on the


basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of
Appeals[25] that moral damages may be recovered even if a banks negligence is
not attended with malice and bad faith. We find, however, that the sum of
P250,000.00 awarded by the trial court is excessive. Moral damages are only
intended to alleviate the moral suffering undergone by private respondents, not to
enrich them at the expense of the petitioners.[26] Accordingly, the award of moral
damages must be reduced to P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified


under Art. 2232 of the Civil Code, is excessive and should be reduced to
P30,000.00. The award of P30,000.00 attorneys fees based on Art. 2208, pars.
1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the


MODIFICATION as to the award of damages as above stated.
SO ORDERED.2/29/00 2:19 PM

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Retrieved from:
http://sc.judiciary.gov.ph/jurisprudence/2000/feb2000/131679.html

Tuazon vs Del Rosario-Suarez

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 168325 December 8, 2010

ROBERTO D. TUAZON, Petitioner,


vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO
DE LEON, MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L.
SANDICO-SILVA, as attorney-in-fact of the defendants, except Lourdes Q. Del
Rosario-Suarez, Respondents.

DECISION

DEL CASTILLO, J.:

In a situation where the lessor makes an offer to sell to the lessee a certain property at a
fixed price within a certain period, and the lessee fails to accept the offer or to purchase on
time, then the lessee loses his right to buy the property and the owner can validly offer it to
another.

This Petition for Review on Certiorari1 assails the Decision2 dated May 30, 2005 of the Court
of Appeals (CA) in CA-G.R. CV No. 78870, which affirmed the Decision3 dated November
18, 2002 of the Regional Trial Court (RTC), Branch 101, Quezon City in Civil Case No. Q-00-
42338.

Factual Antecedents

Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land,
containing more or less an area of 1,211 square meters located along Tandang Sora Street,
Barangay Old Balara, Quezon City and previously covered by Transfer Certificate of Title
(TCT) No. RT-561184 issued by the Registry of Deeds of Quezon City.

On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a Contract
of Lease5 over the abovementioned parcel of land for a period of three years. The lease
commenced in March 1994 and ended in February 1997. During the effectivity of the lease,
Lourdes sent a letter6 dated January 2, 1995 to Roberto where she offered to sell to the latter
subject parcel of land. She pegged the price at P37,541,000.00 and gave him two years from
January 2, 1995 to decide on the said offer.

On June 19, 1997, or more than four months after the expiration of the Contract of Lease,
Lourdes sold subject parcel of land to her only child, Catalina Suarez-De Leon, her son-in-
law Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and Rommel S. De
Leon (the De Leons), for a total consideration of only P2,750,000.00 as evidenced by a Deed
of Absolute Sale7 executed by the parties. TCT No. 1779868 was then issued by the Registry
of Deeds of Quezon City in the name of the De Leons.

The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to vacate
the premises. Roberto refused hence, the De Leons filed a complaint for Unlawful Detainer
before the Metropolitan Trial Court (MeTC) of Quezon City against him. On August 30, 2000,
the MeTC rendered a Decision9 ordering Roberto to vacate the property for non-payment of
rentals and expiration of the contract.

Ruling of the Regional Trial Court

On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the RTC
of Quezon City a Complaint10 for Annulment of Deed of Absolute Sale, Reconveyance,
Damages and Application for Preliminary Injunction against Lourdes and the De Leons. On
November 13, 2000, Roberto filed a Notice of Lis Pendens11 with the Registry of Deeds of
Quezon City.

On January 8, 2001, respondents filed An Answer with Counterclaim12 praying that the
Complaint be dismissed for lack of cause of action. They claimed that the filing of such case
was a mere leverage of Roberto against them because of the favorable Decision issued by
the MeTC in the ejectment case.

On September 17, 2001, the RTC issued an Order13 declaring Lourdes and the De Leons in
default for their failure to appear before the court for the second time despite notice. Upon a
Motion for Reconsideration,14 the trial court in an Order15 dated October 19, 2001 set aside
its Order of default.

After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made by
Lourdes in favor of the De Leons as valid and binding. The offer made by Lourdes to Roberto
did not ripen into a contract to sell because the price offered by the former was not
acceptable to the latter. The offer made by Lourdes is no longer binding and effective at the
time she decided to sell the subject lot to the De Leons because the same was not accepted
by Roberto. Thus, in a Decision dated November 18, 2002, the trial court dismissed the
complaint. Its dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-


entitled Complaint for lack of merit, and ordering the Plaintiff to pay the Defendants, the
following:

1. the amount of P30,000.00 as moral damages;

2. the amount of P30,000.00 as exemplary damages;


3. the amount of P30,000.00 as attorney’s fees; and

4. cost of the litigation.

SO ORDERED.16

Ruling of the Court of Appeals

On May 30, 2005, the CA issued its Decision dismissing Roberto’s appeal and affirming the
Decision of the RTC.

Hence, this Petition for Review on Certiorari filed by Roberto advancing the following
arguments:

I.

The Trial Court and the Court of Appeals had decided that the "Right of First Refusal" exists
only within the parameters of an "Option to Buy", and did not exist when the property was
sold later to a third person, under favorable terms and conditions which the former buyer can
meet.

II.

What is the status or sanctions of an appellee in the Court of Appeals who has not filed or
failed to file an appellee’s brief?17

Petitioner’s Arguments

Roberto claims that Lourdes violated his right to buy subject property under

the principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the
property under the same terms and conditions or specifically based on the much lower price
paid by the De Leons.

Roberto further contends that he is enforcing his "right of first refusal" based on Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc.18 which is the leading case on the "right of
first refusal."

Respondents’ Arguments

On the other hand, respondents posit that this case is not covered by the principle of "right of
first refusal" but an unaccepted unilateral promise to sell or, at best, a contract of option
which was not perfected. The letter of Lourdes to Roberto clearly embodies an option
contract as it grants the latter only two years to exercise the option to buy the subject
property at a price certain of P37,541,000.00. As an option contract, the said letter would
have been binding upon Lourdes without need of any consideration, had Roberto accepted
the offer. But in this case there was no acceptance made neither was there a distinct
consideration for the option contract.

Our Ruling
The petition is without merit.

This case involves an option contract and not a contract of a right of first refusal

In Beaumont v. Prieto,19 the nature of an option contract is explained thus:

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
following language:

‘A contract by virtue of which A, in consideration of the payment of a certain sum to B,


acquires the privilege of buying from, or selling to, B certain securities or properties within a
limited time at a specified price. (Story vs. Salamon, 71 N. Y., 420.)’

From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser
(24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:

‘An agreement in writing to give a person the ‘option’ to purchase lands within a given time at
a named price is neither a sale nor an agreement to sell. It is simply a contract by which
the owner of property agrees with another person that he shall have the right to buy
his property at a fixed price within a certain time. He does not sell his land; he does not
then agree to sell it; but he does sell something; that is, the right or privilege to buy at the
election or option of the other party. The second party gets in praesenti, not lands, nor an
agreement that he shall have lands, but he does get something of value; that is, the right to
call for and receive lands if he elects. The owner parts with his right to sell his lands, except
to the second party, for a limited period. The second party receives this right, or rather, from
his point of view, he receives the right to elect to buy.

But the two definitions above cited refer to the contract of option, or, what amounts to the
same thing, to the case where there was cause or consideration for the obligation x x x.
(Emphasis supplied.)

On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an elucidation on the "right of
first refusal" was made thus:

In the law on sales, the so-called ‘right of first refusal’ is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per
se be brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an
offer would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might
be made determinate, the exercise of the right, however, would be dependent not only
on the grantor's eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory
juridical relations governed not by contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment,
like here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given,
for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a
recovery for damages. (Emphasis supplied.)

From the foregoing, it is thus clear that an option contract is entirely different and distinct
from a right of first refusal in that in the former, the option granted to the offeree is for a fixed
period and at a determined price. Lacking these two essential requisites, what is involved
is only a right of first refusal.

In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2,
1995 involved an option contract or a contract of a right of first refusal. In its entirety, the said
letter-offer reads:

206 Valdes Street


Josefa Subd. Balibago
Angeles City 2009

January 2, 1995

Tuazon Const. Co.


986 Tandang Sora Quezon City

Dear Mr. Tuazon,

I received with great joy and happiness the big box of sweet grapes and ham, fit for a king’s
party. Thanks very much.

I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only family.
I need money to buy a house and lot and a farm with a little cash to start.

I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in
dollars in the name of my daughter. I never offered it to anyone. Please shoulder the
expenses for the transfer. I wish the Lord God will help you buy my lot easily and you will be
very lucky forever in this place. You have all the time to decide when you can, but not for
2 years or more.

I wish you long life, happiness, health, wealth and great fortune always!

I hope the Lord God will help you be the recipient of multi-billion projects aid from other
countries.

Thank you,

Lourdes Q. del Rosario vda de Suarez

It is clear that the above letter embodies an option contract as it grants Roberto a fixed
period of only two years to buy the subject property at a price certain of P37,541,000.00. It
being an option contract, the rules applicable are found in Articles 1324 and 1479 of the Civil
Code which provide:
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as something paid or promised.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price.

It is clear from the provision of Article 1324 that there is a great difference between the effect
of an option which is without a consideration from one which is founded upon a
consideration. If the option is without any consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at anytime before acceptance; if it is founded
upon a consideration, the offeror cannot withdraw his offer before the lapse of the period
agreed upon.

The second paragraph of Article 1479 declares that "an accepted unilateral promise to buy
or to sell a determinate thing for a price certain is binding upon the promissor if the promise
is supported by a consideration distinct from the price." Sanchez v. Rigos21 provided an
interpretation of the said second paragraph of Article 1479 in relation to Article 1324. Thus:

There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a
promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said article
that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only have a binding effect
if supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. Hence, it is not disputed that
the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by appellee.

It is true that under Article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer
may be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted asmodified by the provision of Article
1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a
consideration distinct from the price.

In Diamante v. Court of Appeals,22 this Court further declared that:

A unilateral promise to buy or sell is a mere offer, which is not converted into a contract
except at the moment it is accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the promissor may withdraw it at
any time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and
the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand,
would be liable for damages if he fails to deliver the thing he had offered for sale.

xxxx
Even if the promise was accepted, private respondent was not bound thereby in the
absence of a distinct consideration. (Emphasis ours.)

In this case, it is undisputed that Roberto did not accept the terms stated in the letter of
Lourdes as he negotiated for a much lower price. Roberto’s act of negotiating for a much
lower price was a counter-offer and is therefore not an acceptance of the offer of Lourdes.
Article 1319 of the Civil Code provides:

Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptanceconstitutes a counter-offer. (Emphasis supplied.)

The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is
therefore no contract that was perfected between them with regard to the sale of subject
property. Roberto, thus, does not have any right to demand that the property be sold to him
at the price for which it was sold to the De Leons neither does he have the right to demand
that said sale to the De Leons be annulled.

Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here

It is the position of Roberto that the facts of this case and that of Equatorial are similar in
nearly all aspects. Roberto is a lessee of the property like Mayfair Theater in Equatorial.
There was an offer made to Roberto by Lourdes during the effectivity of the contract of lease
which was also the case in Equatorial. There were negotiations as to the price which did not
bear fruit because Lourdes sold the property to the De Leons which was also the case
in Equatorialwherein Carmelo and Bauermann sold the property to Equatorial. The existence
of the lease of the property is known to the De Leons as they are related to Lourdes while
in Equatorial, the lawyers of Equatorial studied the lease contract of Mayfair over the
property. The property in this case was sold by Lourdes to the De Leons at a much lower
price which is also the case in Equatorial where Carmelo and Bauerman sold to Equatorial at
a lesser price. It is Roberto’s conclusion that as in the case of Equatorial, there was a
violation of his right of first refusal and hence annulment or rescission of the Deed of
Absolute Sale is the proper remedy.

Roberto’s reliance in Equatorial is misplaced. Despite his claims, the facts


in Equatorial radically differ from the facts of this case. Roberto overlooked the fact that
in Equatorial, there was an express provision in the Contract of Lease that –

(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-
days exclusive option to purchase the same.

There is no such similar provision in the Contract of Lease between Roberto and Lourdes.
What is involved here is a separate and distinct offer made by Lourdes through a letter dated
January 2, 1995 wherein she is selling the leased property to Roberto for a definite price and
which gave the latter a definite period for acceptance. Roberto was not given a right of first
refusal. The letter-offer of Lourdes did not form part of the Lease Contract because it was
made more than six months after the commencement of the lease.

It is also very clear that in Equatorial, the property was sold within the lease period. In this
case, the subject property was sold not only after the expiration of the period provided in the
letter-offer of Lourdes but also after the effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound
thereby because of the absence of a consideration distinct and separate from the price. The
argument of Roberto that the separate consideration was the liberality on the part of Lourdes
cannot stand. A perusal of the letter-offer of Lourdes would show that what drove her to offer
the property to Roberto was her immediate need for funds as she was already very old.
Offering the property to Roberto was not an act of liberality on the part of Lourdes but was a
simple matter of convenience and practicality as he was the one most likely to buy the
property at that time as he was then leasing the same.

All told, the facts of the case, as found by the RTC and the CA, do not support Roberto’s
claims that the letter of Lourdes gave him a right of first refusal which is similar to the one
given to Mayfair Theater in the case of Equatorial.Therefore, there is no justification to annul
the deed of sale validly entered into by Lourdes with the De Leons.

What is the effect of the failure of Lourdes to file her appellee’s brief at the CA?

Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her appellee’s
brief before the CA.

Certainly, the appellee’s failure to file her brief would not mean that the case would be
automatically decided against her. Under the circumstances, the prudent action on the part
of the CA would be to deem Lourdes to have waived her right to file her appellee’s brief. De
Leon v. Court of Appeals,23 is instructive when this Court decreed:

On the second issue, we hold that the Court of Appeals did not commit grave abuse of
discretion in considering the appeal submitted for decision. The proper remedy in case of
denial of the motion to dismiss is to file the appellee’s brief and proceed with the appeal.
Instead, petitioner opted to file a motion for reconsideration which, unfortunately, was pro
forma. All the grounds raised therein have been discussed in the first resolution of the
respondent Court of Appeals. There is no new ground raised that might warrant reversal of
the resolution. A cursory perusal of the motion would readily show that it was a
near verbatim repetition of the grounds stated in the motion to dismiss; hence, the filing of
the motion for reconsideration did not suspend the period for filing the appellee’s
brief. Petitioner was therefore properly deemed to have waived his right to file
appellee’s brief. (Emphasis supplied.) lawphi 1

In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in the
RTC. He obtained a favorable judgment and so defendant went to the CA. The appeal of
defendant-appellant was taken cognizance of by the CA but De Leon filed a Motion to
Dismiss the Appeal with Motion to Suspend Period to file Appellee’s Brief. The CA denied
the Motion to Dismiss. De Leon filed a Motion for Reconsideration which actually did not
suspend the period to file the appellee’s brief. De Leon therefore failed to file his brief within
the period specified by the rules and hence he was deemed by the CA to have waived his
right to file appellee’s brief.

The failure of the appellee to file his brief would not result to the rendition of a decision
favorable to the appellant. The former is considered only to have waived his right to file the
Appellee’s Brief. The CA has the jurisdiction to resolve the case based on the Appellant’s
Brief and the records of the case forwarded by the RTC. The appeal is therefore considered
submitted for decision and the CA properly acted on it.
WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed Decision
of the Court of Appeals in CA-G.R. CV No. 78870, which affirmed the Decision dated
November 18, 2002 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No.
Q-00-42338 is AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO


Associate Justice

Retrieved from:

http://www.lawphil.net/judjuris/juri2010/dec2010/gr_168325_2010.html

Abalos vs Macatangay

SECOND DIVISION

[G.R. No. 155043. September 30, 2004]

ARTURO R. ABALOS, petitioner, vs. DR. GALICANO S.


MACATANGAY, JR., respondent.

DECISION
TINGA, J.:

The instant petition seeks a reversal of the Decision of the Court of Appeals
in CA-G.R. CV No. 48355 entitled Dr. Galicano S. Macatangay, Jr. v. Arturo R.
Abalos and Esther Palisoc-Abalos, promulgated on March 14, 2002. The
appellate court reversed the trial courts decision which dismissed the action for
specific performance filed by respondent, and ordered petitioner and his wife to
execute in favor of herein respondent a deed of sale over the subject property.
Spouses Arturo and Esther Abalos are the registered owners of a parcel of
land with improvements located at Azucena St., Makati City consisting of about
three hundred twenty-seven (327) square meters, covered by Transfer Certificate
of Title (TCT) No. 145316 of the Registry of Deeds of Makati.
Armed with a Special Power of Attorney dated June 2, 1988, purportedly
issued by his wife, Arturo executed a Receipt and Memorandum of
Agreement (RMOA) dated October 17, 1989, in favor of respondent,
binding himself to sell to respondent the subject property and not to offer the
same to any other party within thirty (30) days from date. Arturo acknowledged
receipt of a check from respondent in the amount of Five Thousand Pesos
(P5,000.00), representing earnest money for the subject property, the amount of
which would be deducted from the purchase price of One Million Three Hundred
Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated that
full payment would be effected as soon as possession of the property shall have
been turned over to respondent.
Subsequently, Arturos wife, Esther, executed a Special Power of Attorney
dated October 25, 1989, appointing her sister, Bernadette Ramos, to act for and
in her behalf relative to the transfer of the property to respondent. Ostensibly, a
marital squabble was brewing between Arturo and Esther at the time and to
protect his interest, respondent caused the annotation of his adverse claim on
the title of the spouses to the property on November 14, 1989.
On November 16, 1989, respondent sent a letter to Arturo and Esther
informing them of his readiness and willingness to pay the full amount of the
purchase price. The letter contained a demand upon the spouses to comply with
their obligation to turn over possession of the property to him. On the same date,
Esther, through her attorney-in-fact, executed in favor of respondent, a Contract
to Sell the property to the extent of her conjugal interest therein for the sum of six
hundred fifty thousand pesos (P650,000.00) less the sum already received by
her and Arturo. Esther agreed to surrender possession of the property to
respondent within twenty (20) days from November 16, 1989, while the latter
promised to pay the balance of the purchase price in the amount of one million
two hundred ninety thousand pesos (P1,290,000.00) after being placed in
possession of the property. Esther also obligated herself to execute and deliver
to respondent a deed of absolute sale upon full payment.
In a letter dated December 7, 1989, respondent informed the spouses that he
had set aside the amount of One Million Two Hundred Ninety Thousand Pesos
(P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of
the purchase price. He reiterated his demand upon them to comply with their
obligation to turn over possession of the property. Arturo and Esther failed to
deliver the property which prompted respondent to cause the annotation of
another adverse claim on TCT No. 145316. On January 12, 1990, respondent
filed a complaint for specific performance with damages against
petitioners. Arturo filed his answer to the complaint while his wife was declared in
default.
The Regional Trial Court (RTC) dismissed the complaint for specific
performance. It ruled that the Special Power of Attorney (SPA) ostensibly issued
by Esther in favor of Arturo was void as it was falsified. Hence, the court
concluded that the SPA could not have authorized Arturo to sell the property to
respondent. The trial court also noted that the check issued by respondent to
cover the earnest money was dishonored due to insufficiency of funds and while
it was replaced with another check by respondent, there is no showing that the
second check was issued as payment for the earnest money on the property.
On appeal taken by respondent, the Court of Appeals reversed the decision
of the trial court. It ruled that the SPA in favor of Arturo, assuming that it was
void, cannot affect the transaction between Esther and respondent. The
appellate court ratiocinated that it was by virtue of the SPA executed by Esther,
in favor of her sister, that the sale of the property to respondent was effected. On
the other hand, the appellate court considered the RMOA executed by Arturo in
favor of respondent valid to effect the sale of Arturos conjugal share in the
property.
Dissatisfied with the appellate courts disposition of the case, petitioner seeks
a reversal of its decision alleging that:
I.

The Court of Appeals committed serious and manifest error when it decided on
the appeal without affording petitioner his right to due process.
II.

The Court of Appeals committed serious and manifest error in reversing and
setting aside the findings of fact by the trial court.
III.

The Court of Appeals erred in ruling that a contract to sell is a contract of sale,
and in ordering petitioner to execute a registrable form of deed of sale over the
property in favor of respondent. [1]

Petitioner contends that he was not personally served with copies of


summons, pleadings, and processes in the appeal proceedings nor was he given
an opportunity to submit an appellees brief.He alleges that his counsel was in
the United States from 1994 to June 2000, and he never received any news or
communication from him after the proceedings in the trial court were
terminated.Petitioner submits that he was denied due process because he was
not informed of the appeal proceedings, nor given the chance to have legal
representation before the appellate court.
We are not convinced. The essence of due process is an opportunity to be
heard. Petitioners failure to participate in the appeal proceedings is not due to a
cause imputable to the appellate court but because of petitioners own neglect in
ascertaining the status of his case. Petitioners counsel is equally negligent in
failing to inform his client about the recent developments in the appeal
proceedings. Settled is the rule that a party is bound by the conduct, negligence
and mistakes of his counsel.[2] Thus, petitioners plea of denial of due process is
downright baseless.
Petitioner also blames the appellate court for setting aside the factual
findings of the trial court and argues that factual findings of the trial court are
given much weight and respect when supported by substantial evidence. He
asserts that the sale between him and respondent is void for lack of consent
because the SPA purportedly executed by his wife Esther is a forgery and
therefore, he could not have validly sold the subject property to respondent.
Next, petitioner theorizes that the RMOA he executed in favor of respondent
was not perfected because the check representing the earnest money was
dishonored. He adds that there is no evidence on record that the second check
issued by respondent was intended to replace the first check representing
payment of earnest money.
Respondent admits that the subject property is co-owned by petitioner and
his wife, but he objects to the allegations in the petition bearing a relation to the
supposed date of the marriage of the vendors. He contends that the alleged date
of marriage between petitioner and his wife is a new factual issue which was not
raised nor established in the court a quo. Respondent claims that there is no
basis to annul the sale freely and voluntarily entered into by the husband and the
wife.
The focal issue in the instant petition is whether petitioner may be compelled
to convey the property to respondent under the terms of the RMOA and the
Contract to Sell. At bottom, the resolution of the issue entails the ascertainment
of the contractual nature of the two documents and the status of the contracts
contained therein.
Contracts, in general, require the presence of three essential elements: (1)
consent of the contracting parties; (2) object certain which is the subject matter of
the contract; and (3) cause of the obligation which is established. [3]
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation.[4] In a contract of sale, the seller
must consent to transfer ownership in exchange for the price, the subject matter
must be determinate, and the price must be certain in money or its
equivalent.[5] Being essentially consensual, a 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.[6] However, ownership of the thing sold shall not be
transferred to the vendee until actual or constructive delivery of the property. [7]
On the other hand, 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, iswhat may properly be termed a perfected
contract of option.[8] An option merely grants a privilege to buy or sell within an
agreed time and at a determined price. It is separate and distinct from that which
the parties may enter into upon the consummation of the option.[9] A perfected
contract of option does not result in the perfection or consummation of the sale;
only when the option is exercised may a sale be perfected.[10] The option must,
however, be supported by a consideration distinct from the price.[11]
Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property
to respondent for a price certain within a period of thirty days. The RMOA does
not impose upon respondent an obligation to buy petitioners property, as in fact it
does not even bear his signature thereon. It is quite clear that after the lapse of
the thirty-day period, without respondent having exercised his option, Arturo is
free to sell the property to another. This shows that the intent of Arturo is merely
to grant respondent the privilege to buy the property within the period therein
stated. There is nothing in the RMOA which indicates that Arturo agreed therein
to transfer ownership of the land which is an essential element in a contract of
sale. Unfortunately, the option is not binding upon the promissory since it is not
supported by a consideration distinct from the price.[12]
As a rule, the holder of the option, after accepting the promise and before he
exercises his option, is not bound to buy. He is free either to buy or not to buy
later. In Sanchez v. Rigos[13] we ruled that in an accepted unilateral promise to
sell, the promissor is not bound by his promise and may, accordingly, withdraw it,
since there may be no valid contract without a cause or consideration. Pending
notice of its withdrawal, his accepted promise partakes of the nature of an offer to
sell which, if acceded or consented to, results in a perfected contract of sale.
Even conceding for the nonce that respondent had accepted the offer within
the period stated and, as a consequence, a bilateral contract of purchase and
sale was perfected, the outcome would be the same. To benefit from such
situation, respondent would have to pay or at least make a valid tender of
payment of the price for only then could he exact compliance with the
undertaking of the other party.[14] This respondent failed to do. By his own
admission, he merely informed respondent spouses of his readiness and
willingness to pay. The fact that he had set aside a check in the amount of One
Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the
balance of the purchase price could not help his cause. Settled is the rule that
tender of payment must be made in legal tender. A check is not legal tender, and
therefore cannot constitute a valid tender of payment. [15] Not having made a valid
tender of payment, respondents action for specific performance must fail.
With regard to the payment of Five Thousand Pesos (P5,000.00), the Court
is of the view that the amount is not earnest money as the term is understood in
Article 1482 which signifies proof of the perfection of the contract of sale, but
merely a guarantee that respondent is really interested to buy the property. It is
not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a
perfected sale.[16] No reservation of ownership on the part of Arturo is necessary
since, as previously stated, he has never agreed to transfer ownership of the
property to respondent.
Granting for the sake of argument that the RMOA is a contract of sale, the
same would still be void not only for want of consideration and absence of
respondents signature thereon, but also for lack of Esthers conformity
thereto. Quite glaring is the absence of the signature of Esther in the RMOA,
which proves that she did not give her consent to the transaction initiated by
Arturo. The husband cannot alienate any real property of the conjugal
partnership without the wifes consent.[17]
However, it was the Contract to Sell executed by Esther through her
attorney-in-fact which the Court of Appeals made full use of. Holding that the
contract is valid, the appellate court explained that while Esther did not authorize
Arturo to sell the property, her execution of the SPA authorizing her sister to sell
the land to respondent clearly shows her intention to convey her interest in favor
of respondent. In effect, the court declared that the lack of Esthers consent to the
sale made by Arturo was cured by her subsequent conveyance of her interest in
the property through her attorney-in-fact.
We do not share the ruling.
The nullity of the RMOA as a contract of sale emanates not only from lack of
Esthers consent thereto but also from want of consideration and absence of
respondents signature thereon. Such nullity cannot be obliterated by Esthers
subsequent confirmation of the putative transaction as expressed in the Contract
to Sell. Under the law, a void contract cannot be ratified[18] and the action or
defense for the declaration of the inexistence of a contract does not
prescribe.[19] A void contract produces no effect either against or in favor of
anyoneit cannot create, modify or extinguish the juridical relation to which it
refers.[20]
True, in the Contract to Sell, Esther made reference to the earlier RMOA
executed by Arturo in favor of respondent. However, the RMOA which Arturo
signed is different from the deed which Esther executed through her attorney-in-
fact. For one, the first is sought to be enforced as a contract of sale while the
second is purportedly a contract to sell only. For another, the terms and
conditions as to the issuance of title and delivery of possession are divergent.
The congruence of the wills of the spouses is essential for the valid
disposition of conjugal property. Where the conveyance is contained in the same
document which bears the conformity of both husband and wife, there could be
no question on the validity of the transaction. But when there are two documents
on which the signatures of the spouses separately appear, textual concordance
of the documents is indispensable. Hence, in this case where the wifes putative
consent to the sale of conjugal property appears in a separate document which
does not, however, contain the same terms and conditions as in the first
document signed by the husband, a valid transaction could not have arisen.
Quite a bit of elucidation on the conjugal partnership of gains is in order.
Arturo and Esther appear to have been married before the effectivity of the
Family Code. There being no indication that they have adopted a different
property regime, their property relations would automatically be governed by the
regime of conjugal partnership of gains.[21]
The subject land which had been admittedly acquired during the marriage of
the spouses forms part of their conjugal partnership.[22]
Under the Civil Code, the husband is the administrator of the conjugal
partnership. This right is clearly granted to him by law.[23] More, the husband is the
sole administrator. The wife is not entitled as of right to joint administration.[24]
The husband, even if he is statutorily designated as administrator of the
conjugal partnership, cannot validly alienate or encumber any real property of the
conjugal partnership without the wifes consent.[25] Similarly, the wife cannot
dispose of any property belonging to the conjugal partnership without the
conformity of the husband. The law is explicit that the wife cannot bind the
conjugal partnership without the husbands consent, except in cases provided by
law.[26]
More significantly, it has been held that prior to the liquidation of the conjugal
partnership, the interest of each spouse in the conjugal assets is inchoate, a
mere expectancy, which constitutes neither a legal nor an equitable estate, and
does not ripen into title until it appears that there are assets in the community as
a result of the liquidation and settlement. The interest of each spouse is limited to
the net remainder or remanente liquido (haber ganancial) resulting from the
liquidation of the affairs of the partnership after its dissolution.[27] Thus, the right of
the husband or wife to one-half of the conjugal assets does not vest until the
dissolution and liquidation of the conjugal partnership, or after dissolution of the
marriage, when it is finally determined that, after settlement of conjugal
obligations, there are net assets left which can be divided between the spouses
or their respective heirs.[28]
In not a few cases, we ruled that the sale by the husband of property
belonging to the conjugal partnership without the consent of the wife when there
is no showing that the latter is incapacitated is void ab initio because it is in
contravention of the mandatory requirements of Article 166 of the Civil
Code.[29] Since Article 166 of the Civil Code requires the consent of the wife
before the husband may alienate or encumber any real property of the conjugal
partnership, it follows that acts or transactions executed against this mandatory
provision are void except when the law itself authorizes their validity.[30]
Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of
Appeals,[31] we ruled that neither spouse could alienate in favor of another, his or
her interest in the partnership or in any property belonging to it, or ask for
partition of the properties before the partnership itself had been legally
dissolved. Nonetheless, alienation of the share of each spouse in the conjugal
partnership could be had after separation of property of the spouses during the
marriage had been judicially decreed, upon their petition for any of the causes
specified in Article 191[32] of the Civil Code in relation to Article 214[33] thereof.
As an exception, the husband may dispose of conjugal property without the
wifes consent if such sale is necessary to answer for conjugal liabilities
mentioned in Articles 161 and 162 of the Civil Code. [34] In Tinitigan v. Tinitigan,
Sr.,[35] the Court ruled that the husband may sell property belonging to the
conjugal partnership even without the consent of the wife if the sale is necessary
to answer for a big conjugal liability which might endanger the familys economic
standing. This is one instance where the wifes consent is not required and,
impliedly, no judicial intervention is necessary.
Significantly, the Family Code has introduced some changes particularly on
the aspect of the administration of the conjugal partnership. The new law
provides that the administration of the conjugal partnership is now a joint
undertaking of the husband and the wife. In the event that one spouse is
incapacitated or otherwise unable to participate in the administration of the
conjugal partnership, the other spouse may assume sole powers of
administration. However, the power of administration does not include the power
to dispose or encumber property belonging to the conjugal partnership. [36] In all
instances, the present law specifically requires the written consent of the other
spouse, or authority of the court for the disposition or encumbrance of conjugal
partnership property without which, the disposition or encumbrance shall be
void.[37]
Inescapably, herein petitioners action for specific performance must fail.
Even on the supposition that the parties only disposed of their respective shares
in the property, the sale, assuming that it exists, is still void for as previously
stated, the right of the husband or the wife to one-half of the conjugal assets
does not vest until the liquidation of the conjugal partnership. Nemo dat qui non
habet.No one can give what he has not.
WHEREFORE, the appealed Decision is hereby REVERSED and SET
ASIDE. The complaint in Civil Case No. 90-106 of the Regional Trial Court of
Makati is ordered DISMISSED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.
Chico-Nazario, J., on leave.

Retrieved from:
http://sc.judiciary.gov.ph/jurisprudence/2004/sep2004/155043.htm

Distinction between Option Money and Earnest Money

Adelfa Properties Inc. vs CA

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 111238 January 25, 1995


ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD
JIMENEZ, respondents.

REGALADO, J.:

The main issues presented for resolution in this petition for review on certiorari of the
judgment of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are
(1) whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa
Properties, Inc. and private respondents Rosario Jimenez-Castañeda and Salud Jimenez is an
option contract; and (2) whether or not there was a valid suspension of payment of the purchase
price by said petitioner, and the legal effects thereof on the contractual relations of the parties.

The records disclose the following antecedent facts which culminated in the present
appellate review, to wit:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the
registered co-owners of a parcel of land consisting of 17,710 square meters, covered by
Transfer Certificate of Title (TCT) No. 309773, 2situated in Barrio Culasi, Las Piñas, Metro
Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of
said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a
"Kasulatan sa Bilihan ng Lupa." 3Subsequently, a "Confirmatory Extrajudicial Partition
Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with
an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the
western portion was allocated to herein private respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion of the
property from private respondents. Accordingly, on November 25, 1989, an "Exclusive
Option to Purchase" 5 was executed between petitioner and private respondents, under the
following terms and conditions:

1. The selling price of said 8,655 square meters of the subject property is
TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED
FIFTY PESOS ONLY (P2,856,150.00)

2. The sum of P50,000.00 which we received from ADELFA PROPERTIES,


INC. as an option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November 30, 1989;

3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said


balance in accordance with paragraph 2 hereof, this option shall be cancelled
and 50% of the option money to be forfeited in our favor and we will refund
the remaining 50% of said money upon the sale of said property to a third
party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses for
the registration of the deed of sale in the Registry of Deeds are for the
account of ADELFA PROPERTIES, INC.

Considering, however, that the owner's copy of the certificate of title issued to respondent
Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said
certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private
respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but
it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa
Properties, Inc.

4. Before petitioner could make payment, it received summons 6 on November 29, 1989,
together with a copy of a complaint filed by the nephews and nieces of private respondents
against the latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court
of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of
Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private


respondents that it would hold payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces, adding that ". . . if possible,
although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our
office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by petitioner
to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion of
petitioner and attributed the suspension of payment of the purchase price to "lack of word of
honor."

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option
contract with private respondents, and its contract of sale with Jose and Dominador Jimenez,
as Entry No. 1437-4 and entry No. 1438-4, respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty.
Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were
cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided
that P500,000.00 be deducted therefrom for the settlement of the civil case. This was
rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private
respondents on the same matter but this time reducing the amount from P500,000.00 to
P300,000.00, and this was also rejected by the latter.

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-
5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No.
309773 the exclusive option to purchase as Entry No. 4442-4.

9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional
Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which
P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon
the transfer of title to the specified one-half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in
view of the dismissal of the case against them, petitioner was willing to pay the purchase
price, and he requested that the corresponding deed of absolute sale be executed. 11 This
was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing
therein a check for P25,000.00 representing the refund of fifty percent of the option money
paid under the exclusive option to purchase. Private respondents then requested petitioner
to return the owner's duplicate copy of the certificate of title of respondent Salud
Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents filed
Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of
contract with damages, praying, among others, that the exclusive option to purchase be declared
null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate
certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled.
Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention.

12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the
agreement entered into by the parties was merely an option contract, and declaring that the
suspension of payment by herein petitioner constituted a counter-offer which, therefore, was
tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly
suspend payment in favor of private respondents on the ground that the vindicatory action filed by
the latter's kin did not involve the western portion of the land covered by the contract between
petitioner and private respondents, but the eastern portion thereof which was the subject of the
sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then
directed the cancellation of the exclusive option to purchase, declared the sale to intervenor
Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees
to private respondents, with costs.

13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a
quo and held that the failure of petitioner to pay the purchase price within the period agreed
upon was tantamount to an election by petitioner not to buy the property; that the suspension
of payment constituted an imposition of a condition which was actually a counter-offer
amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension
of payments applies only to a contract of sale or a contract to sell, but not to an option
contract which it opined was the nature of the document subject of the case at bar. Said
appellate court similarly upheld the validity of the deed of conditional sale executed by
private respondents in favor of intervenor Emylene Chua.

In the present petition, the following assignment of errors are raised:

1. Respondent court of appeals acted with grave abuse of discretion in making its finding that
the agreement entered into by petitioner and private respondents was strictly an option
contract;

2. Granting arguendo that the agreement was an option contract, respondent court of
Appeals acted with grave abuse of discretion in grievously failing to consider that while the
option period had not lapsed, private respondents could not unilaterally and prematurely
terminate the option period;

3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate
fully the attendant facts and circumstances when it made the conclusion of law that Article
1590 does not apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the
sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees
which are not only excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between the parties is a
contract to sell, and not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at


this juncture to briefly discourse on the rationale behind our treatment of the alleged option
contract as a contract to sell, rather than a contract of sale. The distinction between the two
is important for in contract of sale, the title passes to the vendee upon the delivery of the
thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor
has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until the full payment of the price,
such payment being a positive suspensive condition and failure of which is not a breach but
an event that prevents the obligation of the vendor to convey title from becoming effective.
Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in
the deed that title to the property sold is reserved in the seller until the full payment of the
price, nor one giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. 15

There are two features which convince us that the parties never intended to transfer
ownership to petitioner except upon the full payment of the purchase price. Firstly, the
exclusive option to purchase, although it provided for automatic rescission of the contract
and partial forfeiture of the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a consequence of
non-payment. There is no stipulation anent reversion or reconveyance of the property to
herein private respondents in the event that petitioner does not comply with its obligation.
With the absence of such a stipulation, although there is a provision on the remedies
available to the parties in case of breach, it may legally be inferred that the parties never
intended to transfer ownership to the petitioner to completion of payment of the purchase
price.

In effect, there was an implied agreement that ownership shall not pass to the purchaser until
he had fully paid the price. Article 1478 of the civil code does not require that such a
stipulation be expressly made. Consequently, an implied stipulation to that effect is
considered valid and, therefore, binding and enforceable between the parties. It should be
noted that under the law and jurisprudence, a contract which contains this kind of stipulation
is considered a contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract of
sale, is bolstered by the fact that the deed of absolute sale would have been issued only
upon the payment of the balance of the purchase price, as may be gleaned from petitioner's
letter dated April 16, 1990 16 wherein it informed private respondents that it "is now ready and
willing to pay you simultaneously with the execution of the corresponding deed of absolute sale."

Secondly, it has not been shown there was delivery of the property, actual or constructive,
made to herein petitioner. The exclusive option to purchase is not contained in a public
instrument the execution of which would have been considered equivalent to
delivery. 17 Neither did petitioner take actual, physical possession of the property at any given
time. It is true that after the reconstitution of private respondents' certificate of title, it remained in
the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the
same to herein petitioner. Normally, under the law, such possession by the vendee is to be
understood as a delivery. 18 However, private respondents explained that there was really no
intention on their part to deliver the title to herein petitioner with the purpose of transferring
ownership to it. They claim that Atty. Bernardo had possession of the title only because he was
their counsel in the petition for reconstitution. We have no reason not to believe this explanation
of private respondents, aside from the fact that such contention was never refuted or contradicted
by petitioner.

2. Irrefragably, the controverted document should legally be considered as a perfected


contract to sell. On this particular point, therefore, we reject the position and ratiocination of
respondent Court of Appeals which, while awarding the correct relief to private respondents,
categorized the instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention of
the contracting parties and that task is, of course, to be discharged by looking to the words
they used to project that intention in their contract, all the words not just a particular word or
two, and words in context not words standing alone. 19 Moreover, judging from the subsequent
acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the
parties was to enter into a contract to sell. 20 In addition, the title of a contract does not
necessarily determine its true nature.21 Hence, the fact that the document under discussion is
entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a
contract to sell.

An option, as used in the law on sales, is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes
called an "unaccepted offer." An option is not of itself a purchase, but merely secures the
privilege to buy. 22 It is not a sale of property but a sale of property but a sale of the right to
purchase. 23 It is simply a contract by which the owner of property agrees with another person that
he shall have the right to buy his property at a fixed price within a certain time. He does not sell
his land; he does not then agree to sell it; but he does sell something, that it is, the right or
privilege to buy at the election or option of the other party. 24 Its distinguishing characteristic is
that it imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not
vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is
merely a contract by which the owner of property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms. 25

On the other hand, a contract, like a contract to sell, involves a meeting of minds two
persons whereby one binds himself, with respect to the other, to give something or to render
some service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. 28

The distinction between an "option" and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell the land, if the
holder elects to accept them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a valid and binding
contract. If an acceptance is not made within the time fixed, the owner is no longer bound by
his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the
relative rights and obligations of both parties at the time of its execution. The offer and the
acceptance are concurrent, since the minds of the contracting parties meet in the terms of
the agreement. 29

A perusal of the contract in this case, as well as the oral and documentary evidence
presented by the parties, readily shows that there is indeed a concurrence of petitioner's
offer to buy and private respondents' acceptance thereof. The rule is that except where a
formal acceptance is so required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct communicated to the offeror, it may
be made either in a formal or an informal manner, and may be shown by acts, conduct, or
words of the accepting party that clearly manifest a present intention or determination to
accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the contract of sale. 30

The records also show that private respondents accepted the offer of petitioner to buy their
property under the terms of their contract. At the time petitioner made its offer, private
respondents suggested that their transfer certificate of title be first reconstituted, to which
petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo,
who assisted private respondents in filing a petition for reconstitution. After the title was
reconstituted, the parties agreed that petitioner would pay either in cash or manager's check
the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on
November 25, 1989, but it later offered to make a down payment of P50,000.00, with the
balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents
agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive option to
purchase was prepared by petitioner and was subsequently signed by private respondents,
thereby creating a perfected contract to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain,
while the acceptance thereof was absolute and without any condition or qualification. The
agreement as to the object, the price of the property, and the terms of payment was clear
and well-defined. No other significance could be given to such acts that than they were
meant to finalize and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the corresponding capital
gains tax, cost of documentary stamps are for the account of the vendors, and expenses for
the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa
properties, Inc." Hence, there was nothing left to be done except the performance of the
respective obligations of the parties.

We do not subscribe to private respondents' submission, which was upheld by both the trial
court and respondent court of appeals, that the offer of petitioner to deduct P500,000.00,
(later reduced to P300,000.00) from the purchase price for the settlement of the civil case
was tantamount to a counter-offer. It must be stressed that there already existed a perfected
contract between the parties at the time the alleged counter-offer was made. Thus, any new
offer by a party becomes binding only when it is accepted by the other. In the case of private
respondents, they actually refused to concur in said offer of petitioner, by reason of which the
original terms of the contract continued to be enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason that
petitioner's sole purpose was to settle the civil case in order that it could already comply with
its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply
therewith, except that it was being prevented from doing so because of the filing of the civil
case which, it believed in good faith, rendered compliance improbable at that time. In
addition, no inference can be drawn from that suggestion given by petitioner that it was
totally abandoning the original contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of the
purchase price within the agreed period was attributed by private respondents to "lack of
word of honor" on the part of the former. The reason of "lack of word of honor" is to us a
clear indication that private respondents considered petitioner already bound by its obligation
to pay the balance of the consideration. In effect, private respondents were demanding or
exacting fulfillment of the obligation from herein petitioner. with the arrival of the period
agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent
upon it to perform, not merely to exercise an option or a right to buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation to give


something, that is, the payment of the purchase price. The contract did not simply give
petitioner the discretion to pay for the property. 32 It will be noted that there is nothing in the
said contract to show that petitioner was merely given a certain period within which to exercise its
privilege to buy. The agreed period was intended to give time to herein petitioner within which to
fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence
was presented by private respondents to prove otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or a mere


"option" is whether or not the agreement could be specifically enforced. 33 There is no doubt
that the obligation of petitioner to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents chosen to enforce the contract,
they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is
distinctly made manifest in the contract itself as an integral stipulation, compliance with which
could legally and definitely be demanded from petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as where
something further remains to be done before the buyer and seller obligate themselves. 34 An
agreement is only an "option" when no obligation rests on the party to make any payment except
such as may be agreed on between the parties as consideration to support the option until he has
made up his mind within the time specified. 35 An option, and not a contract to purchase, is
effected by an agreement to sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment, where the purchaser does not
agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the
payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case at
bar.

While there is jurisprudence to the effect that a contract which provides that the initial
payment shall be totally forfeited in case of default in payment is to be considered as an
option contract, 37 still we are not inclined to conform with the findings of respondent court and
the court a quo that the contract executed between the parties is an option contract, for the
reason that the parties were already contemplating the payment of the balance of the purchase
price, and were not merely quoting an agreed value for the property. The term "balance,"
connotes a remainder or something remaining from the original total sum already agreed upon.

In other words, the alleged option money of P50,000.00 was actually earnest money which
was intended to form part of the purchase price. The amount of P50,000.00 was not distinct
from the cause or consideration for the sale of the property, but was itself a part thereof. It is
a statutory rule that whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract. 38 It constitutes
an advance payment and must, therefore, be deducted from the total price. Also, earnest money
is given by the buyer to the seller to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest
money is part of the purchase price, while option money ids the money given as a distinct
consideration for an option contract; (b) earnest money is given only where there is already a
sale, while option money applies to a sale not yet perfected; and (c) when earnest money is
given, the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy. 39

The aforequoted characteristics of earnest money are apparent in the so-called option
contract under review, even though it was called "option money" by the parties. In addition,
private respondents failed to show that the payment of the balance of the purchase price was
only a condition precedent to the acceptance of the offer or to the exercise of the right to buy.
On the contrary, it has been sufficiently established that such payment was but an element of
the performance of petitioner's obligation under the contract to sell. 40

II

1. This brings us to the second issue as to whether or not there was valid suspension of
payment of the purchase price by petitioner and the legal consequences thereof. To justify its
failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of
the civil Code which provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of


the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the return
of the price in a proper case, or it has been stipulated that, notwithstanding
any such contingency, the vendee shall be bound to make the payment. A
mere act of trespass shall not authorize the suspension of the payment of the
price.

Respondent court refused to apply the aforequoted provision of law on the erroneous
assumption that the true agreement between the parties was a contract of option. As we
have hereinbefore discussed, it was not an option contract but a perfected contract to sell.
Verily, therefore, Article 1590 would properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the
parties herein involved only the eastern half of the land subject of the deed of sale between
petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of the land which is covered by the
contract subject of the present case. We have gone over the complaint for recovery of
ownership filed in said case 41 and we are not persuaded by the factual findings made by said
courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment
only of the contract of sale executed between petitioner and the Jimenez brothers, the same
likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically
covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners
of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as
incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance
made by private respondents that petitioner did not have to worry about the case because it
was pure and simple harassment 42 is not the kind of guaranty contemplated under the
exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the
existence of a vindicatory action if the vendee should give a security for the return of the price.

2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find
and hold that private respondents may no longer be compelled to sell and deliver the subject
property to petitioner for two reasons, that is, petitioner's failure to duly effect the
consignation of the purchase price after the disturbance had ceased; and, secondarily, the
fact that the contract to sell had been validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the certificate of title, it already knew of the
dismissal of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner,
through its counsel, wrote private respondents expressing its willingness to pay the balance
of the purchase price upon the execution of the corresponding deed of absolute sale. At
most, that was merely a notice to pay. There was no proper tender of payment nor
consignation in this case as required by law.

The mere sending of a letter by the vendee expressing the intention to


pay, without the accompanying payment, is not considered a valid tender of
payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute sale. It is consignation which is essential in
order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule is
different in case of an option contract 45 or in legal redemption or in a sale with right to
repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of
a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation,
hence tender of payment would be sufficient to preserve the right or privilege. This is because the
provisions on consignation are not applicable when there is no obligation to pay. 47 A contract to
sell, as in the case before us, involves the performance of an obligation, not merely the exercise
of a privilege of a right. consequently, performance or payment may be effected not by tender of
payment alone but by both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the disturbance
ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its
obligation to pay the balance again arose and resumed after it received notice of such
dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has
deposit the money with the trial court when this case was originally filed therein.

By reason of petitioner's failure to comply with its obligation, private respondents elected to
resort to and did announce the rescission of the contract through its letter to petitioner dated
July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances.
Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act
is not applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is
not necessary where the contract provides for automatic rescission in case of breach, 49 as in the
contract involved in the present controversy.

We are not unaware of the ruling in University of the Philippines vs. De los Angeles,
etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the
proper court. It is our considered view, however, that this rule applies to a situation where the
extrajudicial rescission is contested by the defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the
debtor impugns the declaration, it shall be subject to judicial determination 51 otherwise, if said
party does not oppose it, the extrajudicial rescission shall have legal effect. 52

In the case at bar, it has been shown that although petitioner was duly furnished and did
receive a written notice of rescission which specified the grounds therefore, it failed to reply
thereto or protest against it. Its silence thereon suggests an admission of the veracity and
validity of private respondents' claim. 53 Furthermore, the initiative of instituting suit was
transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the
contract.54 But then, the records bear out the fact that aside from the lackadaisical manner with
which petitioner treated private respondents' latter of cancellation, it utterly failed to seriously
seek redress from the court for the enforcement of its alleged rights under the contract. If private
respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no
intention to take any legal action to compel specific performance from the former. By such
cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now
desires but which it had theretofore disdained.

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

SO ORDERED.

Narvasa, C.J., Puno and Mendoza, JJ., concur.

Retrieved from:
http://www.lawphil.net/judjuris/juri1995/jan1995/gr_111238_1995.html

Nature of Intimidation or Threat

De Leon vs CA

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 80965 June 6, 1990

SYLVIA LICHAUCO DE LEON, petitioner,


vs.
THE HON. COURT OF APPEALS, MACARIA DE LEON AND JOSE VICENTE DE
LEON, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

De Jesus & Associates for Macaria de Leon.


Quisumbing, Torres & Evangelista for Jose Vicente de Leon.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R.
CV No. 06649 dated June 30, 1987 the decision of the Regional Trial Court of Pasig in SP
Proc. No. 8492 dated December 29, 1983; and its resolution dated November 24, 1987
denying the motion for reconsideration.

The antecedent facts are as follows:

On October 18, 1969, private respondent Jose Vicente De Leon and petitioner Sylvia
Lichauco De Leon were united in wedlock before the Municipal Mayor of Binangonan, Rizal.
On August 28, 1971, a child named Susana L. De Leon was born from this union.

Sometime in October, 1972, a de facto separation between the spouses occured due to
irreconcilable marital differences, with Sylvia leaving the conjugal home. Sometime in March,
1973, Sylvia went to the United States where she obtained American citizenship.

On November 23, 1973, Sylvia filed with the Superior Court of California, County of San
Francisco, a petition for dissolution of marriage against Jose Vicente. In the said divorce
proceedings, Sylvia also filed claims for support and distribution of properties. It appears,
however, that since Jose Vicente was then a Philippine resident and did not have any assets
in the United States, Sylvia chose to hold in abeyance the divorce proceedings, and in the
meantime, concentrated her efforts to obtain some sort of property settlements with Jose
Vicente in the Philippines.

Thus, on March 16, 1977, Sylvia succeeded in entering into a Letter-Agreement with her
mother-in-law, private respondent Macaria De Leon, which We quote in full, as follows (pp.
40-42, Rollo):

March 16, 1977

Mrs. Macaria Madrigal de Leon


12 Jacaranda, North Forbes Park
Makati, Metro Manila

Dear Dora Macaria:

This letter represents a contractual undertaking among (A) the undersigned


(B) your son, Mr. Jose Vicente de Leon, represented by you, and (C) yourself
in your personal capacity.

You hereby bind yourself jointly and severally to answer for the undertakings
of Joe Vincent under this contract.

In consideration for a peaceful and amicable termination of relations between


the undersigned and her lawfully wedded husband, Jose Vicente de Leon,
your son, the following are agreed upon:
Obligations of Jose Vicente de Leon and/ or yourself in a joint and several
capacity:

1. To deliver with clear title free from all liens and encumbrances and subject
to no claims in any form whatsoever the following properties to Sylvia
Lichauco-de Leon hereinafter referred to as the wife:

A. Suite 11-C, Avalon Condominium, Ortigas Ave., corner Xavier St.,


Mandaluyong, Rizal, Philippines.

B. Apartment 702, Wack Wack Condominium, Mandaluyong, Rizal,


Philippines.

C. The rights to assignment of 2 Ayala lots in Alabang, Rizal (Corner lots,


801 s q. meters each). (Fully paid).

D. 2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18 Block
22 Westborough Unit No. 2). (Fully paid).

E. 1) The sum of One Hundred Thousand Pesos (P100,000)

2) $30,000

3) $5,000

2. To give monthly support payable six (6) months in advance every year to
any designated assignee of the wife for the care and upbringing of Susana
Lichauco de Leon which is hereby pegged at the exchange rate of 7.50 to the
dollar subject to adjustments in the event of monetary exchange fluctuations.
Subsequent increase on actual need upon negotiation.

3. To respect the custody of said minor daughter as pertaining exclusively to


the wife except as herein provided.

Obligations of the wife:

1. To agree to a judicial separation of property in accordance with Philippine


law and in this connection to do all that may be necessary to secure said
separation of property including her approval in writing of a joint petition or
consent decree.

2. To amend her complaint in the United States before the Federal Court of
California, U.S.A. entitled "Sylvia Lichauco de Leon vs. Jose V. de Leon" in a
manner compatible with the objectives of this herein agreement. It is the
stated objective of this agreement that said divorce proceedings will continue.

3. All the properties herein described for assignment to the wife must be
assigned to Sylvia Lichauco de Leon upon the decree of the Court of First
Instance in the Joint Petition for Separation of Property; except for the
P100,000, $30,000 and $5,000 which will be paid immediately.
4. This contract is intended to be applicable both in the Republic of the
Philippines and in the United States of America. It is agreed that this will
constitute an actionable document in both jurisdictions and the parties herein
waive their right to object to the use of this document in the event a legal
issue should arise relating to the validity of this document. In the event of a
dispute, this letter is subject to interpretation under the laws of California,
U.S.A.

5. To allow her daughter to spend two to three months each year with the
father upon mutual convenience.

Very truly yours,

(Sgd.) Sylvia de Leon t/ SYLVIA L. DE LEON


CONFORME:
s/t/MACARIA M. DE LEON
with my marital consent:
s/t/JUAN L. DE LEON

On the same date, Macaria made cash payments to Sylvia in the amount of P100,000 and
US$35,000.00 or P280,000.00, in compliance with her obligations as stipulated in the
aforestated Letter-Agreement.

On March 30, 1977, Sylvia and Jose Vicente filed before the then Court of First Instance of
Rizal a joint petition for judicial approval of dissolution of their conjugal partnership, the main
part of which reads as follows (pp. 37-38,Rollo):

5. For the best interest of each of them and of their minor child, petitioners
have agreed to dissolve their conjugal partnership and to partition the assets
thereof, under the following terms and conditions-this document, a pleading
being intended by them to embody and evidence their agreement:

xxx xxx xxx

(c) The following properties shall be adjudicated to petitioner Sylvia Lichauco


De Leon. These properties will be free of any and all liens and
encumbrances, with clear title and subject to no claims by third parties.
Petitioner Jose Vicente De Leon fully assumes all responsibility and liability in
the event these properties shall not be as described in the previous
sentence:

Sedan (1972 model)

Suite 11-C, Avalon Condominium,


Ortigas Ave., comer Xavier St.,
Mandaluyong, Rizal, Philippines

Apt. 702, Wack-Wack Condominium,


Mandaluyong, Rizal, Philippines
The rights to assignment of 2 Ayala lots in Alabang Rizal (corner lots, 801 sq.
meters each) (Fully paid)

2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18, Block
22 Westborough Unit 2) (Fully paid)

The sum of One Hundred Thousand Pesos (P100,000.00)

$30,000.00 at current exchange rate


$5,000.00 at current exchange rate

After ex-parte hearings, the trial court issued an Order dated February 19, 1980 approving
the petition, the dispositive portion of which reads (p. 143, Rollo):

WHEREFORE, it is hereby declared that the conjugal partnership of the


Spouses is DISSOLVED henceforth, without prejudice to the terms of their
agreement that each spouse shall own, dispose of, possess, administer and
enjoy his or her separate estate, without the consent of the other, and all
earnings from any profession, business or industries shall likewise belong to
each spouse.

On March 17, 1980, Sylvia moved for the execution of the above-mentioned order. However,
Jose Vicente moved for a reconsideration of the order alleging that Sylvia made a verbal
reformation of the petition as there was no such agreement for the payment of P4,500.00
monthly support to commence from the alleged date of separation in April, 1973 and that
there was no notice given to him that Sylvia would attempt verbal reformation of the
agreement contained in the joint petition

While the said motion for reconsideration was pending resolution, on April 20, 1980, Macaria
filed with the trial court a motion for leave to intervene alleging that she is the owner of the
properties involved in the case. The motion was granted. On October 29, 1980, Macaria,
assisted by her husband Juan De Leon, filed her complaint in intervention. She assailed the
validity and legality of the Letter-Agreement which had for its purpose, according to her, the
termination of marital relationship between Sylvia and Jose Vicente. However, before any
hearing could be had, the judicial reorganization took place and the case was transferred to
the-Regional Trial Court of Pasig. On December 29, 1983, the trial court rendered judgment,
the dispositive portion of which reads (pp. 35-36, Rollo):

WHEREFORE, judgment is hereby rendered on the complaint in intervention


in favor of the intervenor, declaring null and void the letter agreement dated
March 16, 1977 (Exhibits 'E' to 'E-2'), and ordering petitioner Sylvia Lichauco
De Leon to restore to intervenor the amount of P380,000.00 plus legal
interest from date of complaint, and to pay intervenor the amount of
P100,000.00 as and for attorney's fees, and to pay the costs of suit.

Judgment is likewise rendered affirming the order of the Court dated


February 19, 1980 declaring the conjugal partnership of the spouses Jose
Vicente De Leon and Sylvia Lichauco De Leon DISSOLVED; and
adjudicating to each of them his or her share of the properties and assets of
said conjugal partnership in accordance with the agreement embodied in
paragraph 5 of the petition, except insofar as the adjudication to petitioner
Sylvia L. De Leon of the properties belonging to and owned by Intervenor
Macaria De Leon is concerned.

Henceforth, (a) each spouse shall own, dispose of, possess, administer and
enjoy his or her separate estate, present and future without the consent of
the other; (b) an earnings from any profession, business or industry shall
likewise belong to each of them separately; (c) the minor child Susana De
Leon shall stay with petitioner Sylvia Lichauco De Leon for two to three
months every year-the transportation both ways of the child for the trip to the
Philippines to be at the expense of the petitioner Jose Vicente De Leon; and
(d) petitioner Jose Vicente De Leon shall give petitioner Sylvia Lichauco De
Leon the sum of P4,500.00 as monthly support for the minor child Susana to
commence from February 19, 1980.

Sylvia appealed to the respondent Court of Appeals raising the following errors:

1) The trial court erred in finding that the cause or consideration of the Letter- Agreement is
the termination of marital relations;

2) The trial court failed to appreciate testimonial and documentary evidence proving that
Macaria de Leon's claims of threat, intimidation and mistake are baseless; and

3) The trial court erred in finding that Sylvia Lichauco de Leon committed breach of the
Letter-Agreement; and further, failed to appreciate evidence proving Macaria de Leon's
material breach thereof.

The respondent court affirmed the decision in toto. The motion for reconsideration was
denied. Hence, the present petition.

The only basis by which Sylvia may lay claim to the properties which are the subject matter
of the Letter-Agreement, is the Letter-Agreement itself. The main issue, therefore, is whether
or not the Letter-Agreement is valid. The third paragraph of the Letter-
Agreement, supra, reads:

In consideration for a peaceful and amicable termination of relations between


the undersigned and her lawfully wedded husband, Jose Vicente De Leon,
your son, the following are agreed upon: (emphasis supplied)

It is readily apparent that the use of the word "relations" is ambiguous, perforce, it is subject
to interpretation. There being a doubt as to the meaning of this word taken by itself, a
consideration of the general scope and purpose of the instrument in which it occurs (see
Germann and Co. v. Donaldson, Sim and Co., 1 Phil. 63) and Article 1374 of the Civil Code
which provides that the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly, is
necessary.

Sylvia insists that the consideration for her execution of the Letter-Agreement was the
termination of property relations with her husband. Indeed, Sylvia and Jose Vicente
subsequently filed a joint petition for judicial approval of the dissolution of their conjugal
partnership, sanctioned by Article 191 of the Civil Code. On the other hand, Macaria and
Jose Vicente assert that the consideration was the termination of marital relationship.
We sustain the observations and conclusion made by the trial court, to wit (pp. 44- 46, Rollo):

On page two of the letter agreement (Exhibit' E'), the parties contemplated
not only to agree to a judicial separation of property of the spouses but
likewise to continue with divorce proceedings (paragraphs 1 and 2,
Obligations of the Wife, Exhibit 'E-1'). If taken with the apparently ambiguous
provisions in Exhibit E' regarding termination of 'relations', the parties clearly
contemplated not only the termination of property relationship but likewise of
marital relationship in its entirety. Furthermore, it would be safe to assume
that the parties in Exhibit 'E' not having specified the particular relationship
which they wanted to peacefully and amicably terminate had intended to
terminate all kinds of relations, both marital and property. While there could
be inherent benefits to a termination of conjugal property relationship
between the spouses, the court could not clearly perceive the underlying
benefit for the intervenor insofar as termination of property relationship
between petitioners is concerned, unless the underlying consideration for
intervenor is the termination of marital relationship by divorce proceedings
between her son Jose Vicente and his wife petitioner Sylvia. The last
sentence of paragraph 2 under "Obligations of the Wife" unequivocally
states: "It is the stated objective of this agreement that said divorce
proceedings (in the United States) will continue. "There is merit in concluding
that the consideration by which Intervenor executed Exhibit 'E' to 'E-2' was to
secure freedom for her son petitioner Jose Vicente De Leon, especially if
Exhibit 'R'-Intervenor, which is (sic) agreement signed by petitioner Sylvia to
consent to and pardon Jose Vicente De Leon for adultery and concubinage
(among others) would be considered. In the light, therefore, of the foregoing
circumstances, this Court finds credible the testimony of intervenor as
follows:

Q Will you please go over the Exhibit 'E' to 'E-2'- intervenor


consisting of three pages and inform us whether or not this is
the letter of March 16, 1977 which you just referred to?

A Yes, this is the letter.

Why did you affix your signature to this Exh. 'E'-intervenor


(sic)?

A Because at that time when I signed it I want to buy peace


for myself and for the whole family.

Q From whom did you want to buy peace and/or what kind of
peace?

A I wanted to buy peace from Sylvia Lichauco whom I knew


was kind of 'matapang;' so I want peace for me and primarily
for the peaceful and amicable termination of marital
relationship between my son, Joe Vincent and Sylvia.
(Deposition dated September 6, 1983-Macaria de Leon, p. 6-
7)
This Court, therefore, finds and holds that the cause or consideration for the
intervenor Macaria De Leon in having executed Exhibits 'E' to 'E-2' was the
termination of the marital relationship between her son Jose Vicente De Leon
and Sylvia Lichauco de Leon.

Article 1306 of the New Civil Code provides:

Art. 1306. The contracting parties may establish such stipulations, clauses,
terms, and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy.

If the stipulation is contrary to law, morals or public policy, the contract is void
and inexistent from the beginning.

Art. 1409. The following contracts are inexistent and void from the beginning:

Those whose cause, object or purpose is contrary to law, morals, good


customs, public order or public policy;

xxx xxx xxx

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived.

But marriage is not a mere contract but a sacred social institution. Thus, Art.
52 of the Civil Code provides:

Art. 52. Marriage is not a mere contract but an inviolable social institution. Its
nature, consequences and incidents are governed by law and not subject to
stipulations...

From the foregoing provisions of the New Civil Code, this court is of the
considered opinion and so holds that intervenor's undertaking under Exhibit
'E' premised on the termination of marital relationship is not only contrary to
law but contrary to Filipino morals and public Policy. As such, any agreement
or obligations based on such unlawful consideration and which is contrary to
public policy should be deemed null and void. (emphasis supplied)

Additionally, Article 191 of the Civil Case contemplates properties belonging to the spouses
and not those belonging to a third party, who, in the case at bar., is Macaria. In the petition
for the dissolution of the conjugal partnership, it was made to appear that the said properties
are conjugal in nature. However, Macaria was able to prove that the questioned properties
are owned by her. Neither Sylvia nor Jose Vicente adduced any contrary evidence.

Granting, in gratia argumenti, that the consideration of the Letter-Agreement was the
termination of property relations, We agree with the respondent court that (pp. 46-47, Rollo):

... the agreement nevertheless is void because it contravenes the following


provisions of the Civil Code:
Art. 221. The following shall be void and of no effect:

(1) Any contract for personal separation between husband and wife;

(2) Every extra-judicial agreement, during marriage, for the dissolution of the
conjugal partnership of gains or of the absolute community of property
between husband and wife;

Besides, the Letter-Agreement shows on its face that it was prepared by Sylvia, and in this
regard, the ambiguity in a contract is to be taken contra proferentem, i.e., construed against
the party who caused the ambiguity and could have also avoided it by the exercise of a little
more care. Thus, Article 1377 of the Civil Code provides: "The interpretation of obscure
words of stipulations in a contract shall not favor the party who caused the obscurity" (see
Equitable Banking Corp. vs. IAC, G.R. No. 74451, May 25, 1988, 161 SCRA 518).

Sylvia alleges further that since the nullity of the Letter-Agreement proceeds from the
unlawful consideration solely of Macaria, applying the pari delicto rule, it is clear that she
cannot recover what she has given by reason of the Letter-Agreement nor ask for the
fulfillment of what has been promised her. On her part, Macaria raises the defenses of
intimidation and mistake which led her to execute the Letter-Agreement. In resolving this
issue, the trial court said (pp. 148-151, Rollo):

In her second cause of action, intervenor claims that her signing of Exhibits
'E' to 'E- 2' was due to a fear of an unpeaceful and troublesome separation
other son with petitioner Sylvia Lichauco de Leon. In support of her claim,
intervenor testified as follows:

Q Will you please inform us how did Sylvia Lichauco disturb


or threaten your son or yourself?

A Despite the fact that Sylvia Lichauco voluntarily left my son


Joe Vincent and abandoned him, she unashamedly nagged
Joe and me to get money and when her demands were not
met she resorted to threats like, she threatened to bring Joe
to court for support. Sylvia threatened to scandalize our family
by these baseless suits; in fact she caused the service of
summons to Joe when he went to the United States.
(Intervenor's deposition dated Sept. 6, 1983, p. 8).

On the other hand, petitioner Sylvia claims that it was intervenor and
petitioner Jose Vicente who initiated the move to convince her to agree to a
dissolution of their conjugal partnership due to the alleged extra-marital
activities of petitioner Jose Vicente de Leon. She testified as follows:

Q Now in her testimony, Macaria Madrigal de Leon also said


that you threatened her by demanding money and nagged
her until she agreed to the letter agreement of March 1977,
what can you say about that?

A I think with all the people sitting around with Atty.


Quisumbing, Atty. Chuidian, my father-in-law, my sister-in-law
and I, you know, it can be shown that this was a friendly
amicable settlement that they were much really interested in
settling down as I was. I think there were certain reasons that
they wanted to get done or planned, being at that time Jose
was already remarried and had a child. That since she then
found out that since she was worried about what might be,
you know, involved in any future matters. She just wanted to
do what she could. She just want me out of the picture. So in
no way, it cannot be said that I nagged and threatened her.
(TSN dated December 8, 1983, p. 137-138)

In resolving this issue, this Court leans heavily on Exhibit 'R'-intervenor,


which was not controverted by petitioner Sylvia. A reading of Exhibit 'R'
would show that petitioner Sylvia would consent to and pardon petitioner
Jose Vicente, son of intervenor, for possible crimes of adultery and/or
concubinage, with a sizing attached; that is, the transfer of the properties
subject herein to her. There appears some truth to the apprehensions of
intervenor for in petitioner Sylvia's testimony she confirms the worry of
intervenor as follows:'... being at that time Jose (De Leon) was already
remarried and had a child. That since she (intervenor) found out that, she
was worried about what might be, you know, involved in any future matters.
She just want me out of the picture." The aforesaid fear of intervenor was
further corroborated by her witness Concepcion Tagudin who testified as
follows:

Q Now, you mentioned that you were present when Mrs.


Macaria De Leon signed this Exhibit 'E-2, ' will you inform us
whether there was anything unusual which you noticed when
Mrs. Macaria M. De Leon signed this Exhibit 'E-2'?

A Mrs. Macaria M. De Leon was in a state of tension and


anger. She was so mad that she remarked: 'Punetang Sylvia
ito bakit ba niya ako ginugulo. Ipakukulong daw niya si Joe
Vincent kung hindi ko pipirmahan ito. Sana matapos na itong
problemang ito pagkapirmang ito,' sabi niya.' (Deposition-
Concepcion Tagudin, Oct. 21, 1983, pp. 10-11)

In her third cause of action, intervenor claims mistake or error in having


signed Exhibits '1' to 'E-2' alleging in her testimony as follows:

Q Before you were told such by your lawyers what if any were
your basis to believe that Sylvia would no longer have
inheritance rights from your son, Joe Vincent?

A Well, that was what Sylvia told me. That she will eliminate
any inheritance rights from me or my son Joe Vincent's
properties if I sign the document amicably. ... (Intervenor's
deposition-Sept. 6, 1983, pp. 9-10).

On the other hand, petitioner Sylvia claims that intervenor could not have
been mistaken in her having signed the document as she was under advice
of counsel during the time that Exhibits 'E' to 'E-2' was negotiated. To support
such claims by Sylvia Lichauco De Leon, the deposition testimony of Atty.
Vicente Chuidian was presented before this Court:

Atty. Herbosa: Now you mentioned Atty. Norberto


Quisumbing, would you be able to tell us in what capacity he
was present in that negotiation?

Atty. Chuidian: He was counsel for Dona Macaria and for Joe
Vincent, the spouse of Sylvia. (Deposition of V. Chuidian,
December 16, 1983, p. 8)

The New Civil Code provides:

Art. 1330. A contract where consent is given through mistake, violence,


intimidation, undue influence or fraud is voidable.

Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into a
contract. ...

The preponderance of evidence leans in favor of intervenor who even utilized


the statement of the divorce lawyer of petitioner Sylvia (Mr. Penrod) in
support of the fact that intervenor was mistaken in having signed Exhibits 'E'
to 'E-2' because when she signed said Exhibits she believed that fact that
petitioner Sylvia would eliminate her inheritance rights and there is no
showing that said intervenor was properly advised by any American lawyer
on the fact whether petitioner Sylvia, being an American citizen, could
rightfully do the same. Transcending, however, the issue of whether there
was mistake of fact on the part of intervenor or not, this Court could not. see
a valid cause or consideration in favor of intervenor Macaria De Leon having
signed Exhibits 'E' to 'E-2.' For even if petitioner Sylvia had confirmed Mr.
Penrod's statement during the divorce proceedings in the United States that
she would undertake to eliminate her hereditary rights in the event of the
property settlement, under Philippine laws, such contract would likewise be
voidable, for under Art. 1347 of the New Civil Code 'no contract may be
entered into upon future inheritance.

We do not subscribe to the aforestated view of the trial court. Article 1335 of the Civil Code
provides:

xxx xxx xxx

There is intimidation when one of the contracting parties is compelled by a


reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.

To determine the degree of the intimidation, the age, sex and condition of the
person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is
just or legal, does not vitiate consent.

In order that intimidation may vitiate consent and render the contract invalid, the following
requisites must concur: (1) that the intimidation must be the determining cause of the
contract, or must have caused the consent to be given; (2) that the threatened act be unjust
or unlawful; (3) that the threat be real and serious, there being an evident disproportion
between the evil and the resistance which all men can offer, leading to the choice of the
contract as the lesser evil; and (4) that it produces a reasonable and well-grounded fear from
the fact that the person from whom it comes has the necessary means or ability to inflict the
threatened injury. Applying the foregoing to the present case, the claim of Macaria that Sylvia
threatened her to bring Jose Vicente to court for support, to scandalize their family by
baseless suits and that Sylvia would pardon Jose Vicente for possible crimes of adultery
and/or concubinage subject to the transfer of certain properties to her, is obviously not the
intimidation referred to by law. With respect to mistake as a vice of consent, neither is
Macaria's alleged mistake in having signed the Letter-Agreement because of her belief that
Sylvia will thereby eliminate inheritance rights from her and Jose Vicente, the mistake
referred to in Article 1331 of the Civil Code, supra. It does not appear that the condition that
Sylvia "will eliminate her inheritance rights" principally moved Macaria to enter into the
contract. Rather, such condition was but an incident of the consideration thereof which, as
discussed earlier, is the termination of marital relations.

In the ultimate analysis, therefore, both parties acted in violation of the laws. However,
the pari delicto rule, expressed in the maxims "Ex dolo malo non oritur actio" and "In pari
delicto potior est conditio defendentis," which refuses remedy to either party to an illegal
agreement and leaves them where they are, does not apply in this case. Contrary to the
ruling of the respondent Court that (pp. 47-48, Rollo):

... [C]onsequently, intervenor appellees' obligation under the said agreement


having been annulled, the contracting parties shall restore to each other that
things which have been subject matter of the contract, their fruits and the
price or its interest, except as provided by law (Art. 1398, Civil Code).

Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the proper law
to be applied. It provides:

When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In
such case, the courts may, if the public interest wig thus be subserved, allow
the party repudiating the contract to recover the money or property.

Since the Letter-Agreement was repudiated before the purpose has been accomplished and
to adhere to the pari delicto rule in this case is to put a premium to the circumvention of the
laws, positive relief should be granted to Macaria. Justice would be served by allowing her to
be placed in the position in which she was before the transaction was entered into.

With the conclusions thus reached, We find it unnecessary to discuss the other issues
raised.

ACCORDINGLY, the petition is hereby DENIED. The decision of the respondent Court of
Appeals dated June 30, 1987 and its resolution dated November 24, 1987 are AFFIRMED.
SO ORDERED.

Narvasa (Chairman), Cruz and Gancayco, JJ., concur.

Griño-Aquino, J., is on leave.

Retrieved from:
http://www.lawphil.net/judjuris/juri1990/jun1990/gr_80965_1990.html

Bilbao vs Saudi Arabian Airlines

Republic of the Philippines


Supreme Court
Manila

FIRST DIVISION

MA. JOY TERESA O. BILBAO, G.R. No. 183915


Petitioner,
Present:

CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
- versus - BERSAMIN,
VILLARAMA, and
REYES,* JJ.

Promulgated:
SAUDI ARABIAN AIRLINES,
Respondent. December 14, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
LEONARDO-DE CASTRO, J.:

Before the Court is a petition for review on certiorari seeking the


reversal of the May 30, 2008 Decision[1] of the Court of Appeals in CA-G.R.
No. 102319 and its July 22, 2008 Resolution[2] denying petitioner Ma. Joy
Teresa O. Bilbaos (Bilbao) motion for reconsideration. The assailed decision
affirmed the ruling of the National Labor Relations Commission (NLRC)
which held that Bilbao was not illegally dismissed and had voluntarily
resigned. The NLRC reversed and set aside the decision of the Labor Arbiter
which ruled that Bilbao, together with two other complainants, was illegally
dismissed by respondent Saudi Arabian Airlines (Saudia) and ordered the
payment of full backwages, separation pay, and attorneys fees.
The facts are as follows:

Bilbao was a former employee of respondent Saudia, having been hired as a


Flight Attendant on May 13, 1986 until her separation from Saudia in
September 2004. During the course of her employment, Bilbao was assigned
to work at the Manila Office, although the nature of her work as a flight
attendant entailed regular flights from Manila to Jeddah, Saudi Arabia, and
back.

On August 25, 2004, the In-Flight Service Senior Manager of Saudia


assigned in Manila received an inter-office Memorandum dated August 17,
2004 from its Jeddah Office regarding the transfer of 10 flight attendants
from Manila to Jeddah effective September 1, 2004. The said memorandum
explained that such transfer was made due to operational
requirements.[3] Bilbao was among the 10 flight attendants to be transferred.

Bilbao initially complied with the transfer order and proceeded to Jeddah for
her new assignment. However, on September 7, 2004, she opted to resign
and relinquish her post by tendering a resignation letter, which reads:
Jeddah IFS Base Manager (F)
F/A Maria Joy Teresa O. Bilbao
PRN: 3006078
22 / 07 / 1425 H 7 / 09 / 2004

RESIGNATION
I am tendering my resignation with one (1) month notice effective 18 October
2004. Thank you for the support you have given me during my 18 years of service.

(signed)
________________
F/As SIGNATURE
3006078
(signed) September 7, 2004
_________________
AMIN GHABRA
SNR. MGR. IFS JED (F)

(signed)
ABDULLAH BALKHOYOUR
GM IFS CABIN CREW
8/8/1425
21/9/04 ADMIN ACKNOWLEDGEMENT / DATE[4]

On October 28, 2004, Bilbao executed and signed an Undertaking[5] similar


to that of a Receipt, Release and Quitclaim wherein she acknowledged
receipt of a sum of money as full and complete end-of-service award with
final settlement and have no further claims whatsoever against Saudi
Arabian Airlines.[6]

In spite of this signed Undertaking, however, on July 20, 2005, Bilbao filed
with the NLRC a complaint for reinstatement and payment of full
backwages; moral, exemplary and actual damages; and attorneys fees. Two
of the other flight attendants who were included in the list for transfer to
Jeddah, Shalimar Centi-Mandanas and Maria Lourdes Castells, also filed
their respective complaints against Saudia. These complaints were
eventually consolidated into NLRC-NCR Case Nos. 00-07-06315-05 and
00-08-06745-05, and assigned to Labor Arbiter Ramon Valentin C. Reyes.

For her part, Bilbao maintained that her resignation from Saudia was not
voluntary. She narrated that she was made to sign a pre-typed resignation
letter and was even reminded that the same was a better option than
termination which would tarnish her record of service with Saudia. Bilbao
and her co-complainants shared a common theory that their transfer to
Jeddah was a prelude to their termination since they were all allegedly
between 39 and 40 years of age.

Upon the other hand, Saudia averred that the resignation letters from Bilbao
and her co-complainants were voluntarily made since they were actually
hand-written and duly signed. Saudia asserted that Bilbao and her co-
complainants were not subjected to any force, intimidation, or coercion
when they wrote said resignation letters and even their undertakings, after
receiving without protest a generous separation package despite the fact that
employees who voluntarily resign are not entitled to any separation
pay. Saudia also added that the transfer of flight attendants from their Manila
Office to the Jeddah Office was a valid exercise of its management
prerogative.

On August 31, 2006, Labor Arbiter Reyes rendered a Decision[7] declaring


that Bilbao, together with co-complainants Centi-Mandanas and Castells,
was illegally dismissed, and ordering Saudia to pay each of the complainants
full backwages from the time of the illegal dismissal until the finality of the
decision, separation pay of one month for every year of service less the
amount already received, plus ten percent (10%) attorneys fees on the
amounts actually determined to be due the complainants.

Saudia filed an appeal before the NLRC alleging that Bilbao and her co-
complainants voluntarily executed their resignation letters and undertakings;
thus, they were not illegally dismissed.Moreover, Saudia opined that Bilbao
and her co-complainants claim of illegal dismissal was a mere afterthought
as they waited for almost one year from the date of their alleged dismissal to
file their respective complaints.

Bilbao followed suit and also appealed before the NLRC, arguing that she
was entitled to the payment of moral and exemplary damages since her
termination was allegedly attended by bad faith, fraud and deceit.

On June 25, 2007, the NLRC granted Saudias appeal, and reversed and set
aside the decision of the Labor Arbiter. The decretal portion of the NLRC
decision reads:

WHEREFORE, the foregoing premises considered, the


respondents appeal is hereby GRANTED. The decision appealed from
is REVERSED and SET ASIDE and a new one is issued finding the
respondent not guilty of illegal dismissal.

For lack of merit, the complainant Bilbaos appeal is DISMISSED.

Accordingly, the complaint is DISMISSED.[8]

In a Resolution[9] dated October 26, 2007, the NLRC amended its earlier
Resolution dated June 25, 2007, to state that Castells and Centi-Mandanas
were also not entitled to moral and exemplary damages. Moreover, the
NLRC failed to find any compelling justification or valid reason to modify,
alter or reverse its earlier resolution, thus:

WHEREFORE, the foregoing premises considered, the Appeals


and Motions for Reconsideration of complainants Maria Lourdes Castells
and Shalimar Centi-Mandanas are hereby DISMISSEDfor lack of merit.

Likewise, the Motion for Reconsideration of Maria Joy Teresa


Bilbao is DENIED.

No further motion of similar nature shall be entertained.[10]

Bilbao went to the Court of Appeals via a petition for certiorari alleging
grave abuse of discretion on the part of the NLRC in ruling that she was not
illegally dismissed and not entitled to the payment of moral and exemplary
damages.

On May 30, 2008, the Court of Appeals affirmed the Resolutions of the
NLRC dated June 25, 2007 and October 26, 2007, and held that the
resignation of Bilbao was of her own free will and intelligent act.[11]

Dissatisfied, Bilbao filed a motion for reconsideration which was denied by


the Court of Appeals in the Resolution dated July 22, 2008.

Hence, the instant petition for review filed by Bilbao on the following
grounds:

6. GROUND FOR THIS PETITION/ISSUES


6.1. The Court of Appeals committed reversible error in upholding
the erroneous Decision of the NLRC, Third Division which Decision
reversed the Labor Arbiters findings. The Court of Appeals decided the
case in a way probably not in accord with law or with applicable decisions
of the Supreme Court.

6.2. The Court of Appeals committed palpable error in ruling that


petitioner was not forced to resign; the Court of Appeals decided the case
in a way probably not in accord with law and contrary to applicable
decisions of the Supreme Court.

6.3. The Court of Appeals committed patent mistake in ruling that


the petitioners (sic) termination was valid because respondent had the right
to terminate the petitioner even without just cause; this is an outright
violation of the Labor Code and applicable laws and jurisprudence; The
Court of Appeals likewise erred in validating the resignation because it
was accompanied with words of gratitude and payment of separation
benefits.[12]

In her Petition[13] dated September 15, 2008, Bilbao asserts that the
initial step of Saudia in transferring her to Jeddah was, by itself, constructive
dismissal since the transfer order was unreasonable, discriminatory, attended
by bad faith, and would result to demotion in rank or diminution in
pay. Moreover, Bilbao maintains that her resignation letter was not
voluntarily made as it was in a pre-typed form supplied by Saudia, and was
accomplished when she was under pressure and had no choice but to
resign. Lastly, Bilbao insists that the undertaking or waiver and quitclaim
that she signed in favor of Saudia was invalid as she particularly puts in
issue the voluntariness of its execution.

In its Comment[14] dated November 14, 2008, Saudia preliminarily


asserts that the petition raises the factual issue of whether or not Bilbao
voluntarily resigned from her employment with Saudia, which is not proper
for a petition for review under Rule 45 of the Rules of Court, thus
warranting its outright dismissal. Nonetheless, Saudia presents its arguments
and contends that it validly exercised its management prerogative in
transferring Bilbao to another work station. Saudia then enumerates the
following factual circumstances which allegedly reveal the voluntariness of
Bilbaos resignation, to wit:
a) [Bilbaos] resignation letter was penned in her own handwriting and
duly signed by her;

b) [Bilbao] tendered her letter of resignation in Jeddah, KSA on 07


September 2004;

c) [Bilbao] is of sufficient age and discretion, could read, write, and


understand English and a college graduate;

d) There is no proof that any material or physical force was applied on


her person or her family;

e) [Bilbao] then voluntarily executed an Undertaking acknowledging


receipt of various sums of money and irrevocably and unconditionally
releasing Saudia, its directors, stockholders, officers and employees
from any claim or demand whatsoever in law or equity which they
may have in connection with her employment with respondent;

f) [Bilbao] received generous financial benefits without protest;

g) It took [Bilbao] at least one (1) year from the date of the alleged
dismissal to file her Complaint against [Saudia]; and

h) The intimidation, force or coercion allegedly employed by [Saudia]


surfaced, for the first time, when the Complaint were (sic) filed on 20
July 2005, which was then amended on 01 September 2005.[15]

Lastly, Saudia claims that Bilbao is not entitled to any award of moral and
exemplary damages since there is no dismissal, much less illegal dismissal
committed by Saudia, as Bilbao voluntarily resigned from her employment.

This Court finds no merit in the petition.

At the outset, it bears stressing that the jurisdiction of this Court in a


petition for review under Rule 45 of the Rules of Court, as amended, is
generally confined only to errors of law.It does not extend to questions of
fact. This rule, however, admits of exceptions, such as in the instant case,
where the findings of fact and the conclusions of the Labor Arbiter are
inconsistent with those of the NLRC and the Court of Appeals.[16] To recall,
the Labor Arbiter found that Saudia illegally dismissed Bilbao, while the
NLRC and the Court of Appeals are in agreement that Bilbao voluntarily
tendered her resignation.
After a review of the case, we uphold the findings of the Court of Appeals
that Bilbao voluntarily resigned from her employment with Saudia. Her
resignation letter and undertaking that evidenced her receipt of separation
pay, when taken together with her educational attainment and the
circumstances surrounding the filing of the complaint for illegal dismissal,
comprise substantial proof of Bilbaos voluntary resignation.

Resignation is the voluntary act of an employee who is in a situation where


one believes that personal reasons cannot be sacrificed in favor of the
exigency of the service, and one has no other choice but to dissociate oneself
from employment. It is a formal pronouncement or relinquishment of an
office, with the intention of relinquishing the office accompanied by the act
of relinquishment. As the intent to relinquish must concur with the overt act
of relinquishment, the acts of the employee before and after the alleged
resignation must be considered in determining whether he or she, in fact,
intended to sever his or her employment.[17]

In the instant case, Bilbao tendered her resignation letter a week after her
transfer to the Jeddah office. In the said letter, Bilbao expressed her gratitude
for the support which Saudia had given her for her eighteen years of
service. Clearly, her use of words of appreciation and gratitude negates the
notion that she was forced and coerced to resign. Besides, the resignation
letter was hand-written by Bilbao on a Saudia form and was in English, a
language she is conversant in.

Additionally, instead of immediately filing a complaint for illegal


dismissal after she was allegedly forced to resign, Bilbao executed an
Undertaking in favor of Saudia, wherein she declared that she received her
full and complete end-of-service award with final settlement, to wit:

I, the undersigned employee


Name/ MARIA JOY TERESA O. BILBAO
PRN/ 3006078
hereby declare that I have received my full and complete end-of-service
award with final settlement and have no further claims whatsoever against
Saudi Arabian Airlines.
By signing this undertaking, I also fully Understand that any other future
claims filed by me shall not be considered, accepted, or entertained.

Name: MARIA JOY TERESA O. BILBAO


PRN: 3006078
Signature: (SGD.)
Date: October 25, 2004[18]

What is more, Bilbao waited for more than 10 months after her separation
from Saudia to file a complaint for illegal dismissal.

Despite the foregoing circumstances, Bilbao maintains that she was


forced and coerced into writing the said resignation letter in the form
prepared by Saudia, and that she was left with no other option but to
resign. Saudia, on the other hand, claims that Bilbaos resignation was
voluntary, thus, there could be no illegal dismissal.

Even assuming that Saudia prepared the form in which Bilbao wrote
her resignation letter as claimed, this Court is not convinced that she was
coerced and intimidated into signing it.Bilbao is no ordinary employee who
may not be able to completely comprehend and realize the consequences of
her acts. She is an educated individual. It is highly improbable that with her
long years in the profession and her educational attainment, she could be
tricked and forced into doing something she does not intend to do. Under
these circumstances, it can hardly be said that Bilbao was coerced into
resigning from Saudia.

Besides, Bilbao did not adduce any competent evidence to prove that
she was forced or threatened by Saudia. It must be remembered that for
intimidation to vitiate consent, the following requisites must be present: (1)
that the intimidation caused the consent to be given; (2) that the threatened
act be unjust or unlawful; (3) that the threat be real or serious, there being
evident disproportion between the evil and the resistance which all men can
offer, leading to the choice of doing the act which is forced on the person to
do as the lesser evil; and (4) that it produces a well-grounded fear from the
fact that the person from whom it comes has the necessary means or ability
to inflict the threatened injury to his person or property. [19] In the instant
case, Bilbao did not prove the existence of any one of these essential
elements. Bare and self-serving allegations of coercion or intimidation,
unsubstantiated by evidence, do not constitute proof to sufficiently support a
finding of forced resignation. It would be utterly unfair and unjust to hold
that Saudia illegally dismissed Bilbao and to impose upon it the burden of
accepting back Bilbao who unequivocally and voluntarily manifested her
intent and willingness to sever her employment ties.

Anent the Undertaking signed by Bilbao, this Court is of the opinion


that the same was validly and voluntarily executed. Indeed, not all waivers
and quitclaims are invalid as against public policy. There are legitimate
waivers and quitclaims that represent a voluntary and reasonable settlement
of workers claims which should be respected by the courts as the law
between the parties.[20] And if such agreement was voluntarily entered into
and represented a reasonable settlement, it is binding on the parties and
should not later be disowned.

Periquet v. National Labor Relations Commission,[21] held that:

Not all waivers and quitclaims are invalid as against public


policy. If the agreement was voluntarily entered into and represents a
reasonable settlement, it is binding on the parties and may not later be
disowned simply because of a change of mind. It is only where there is
clear proof that the waiver was wangled from an unsuspecting or gullible
person, or the terms of settlement are unconscionable on its face, that the
law will step in to annul the questionable transaction. But where it is
shown that the person making the waiver did so voluntarily, with full
understanding of what he was doing, and the consideration for the
quitclaim is credible and reasonable, the transaction must be recognized as
a valid and binding undertaking. x x x.[22]

This Court quotes with approval the finding of the NLRC, to wit:

Having signed the waiver, it is hard to conclude that [Bilbao was]


merely forced by the necessity to execute the undertaking. [Bilbao is] not
[a] gullible nor unsuspecting [person] who can easily be tricked or
inveigled and, thus, need the extra protection of law. [She is a] well-
educated and highly experienced flight [attendant]. The undertaking
executed by [Bilbao is] therefore considered valid and binding on [her]
and [Saudia].

Due to [her] voluntary resignation, [Bilbao is] actually not entitled


to any separation pay benefits. Thus, the financial package given to [her]
is more than sufficient consideration for [her] execution of the
undertaking.[23]

Clearly then, Bilbaos claim that she was illegally dismissed cannot be
sustained. There is no showing that the Undertaking and resignation letter
were executed by Bilbao under force or intimidation. Bilbaos claims for
reinstatement, payment of backwages without loss of seniority rights and
with interest, moral and exemplary damages, and attorneys fees must
inevitably fail.

This Court has always reminded that:

Although the Supreme Court has, more often than not, been
inclined towards the workers and has upheld their cause in their conflicts
with the employers, such inclination has not blinded it to the rule that
justice is in every case for the deserving, to be dispensed in the light of the
established facts and applicable law and doctrine. An employee who
resigns and executes a quitclaim in favor of the employer is generally
stopped from filing any further money claims against the employer arising
from the employment.[24]

WHEREFORE, the petition is DENIED. The Decision dated May 30, 2008
and the Resolution dated July 22, 2008 of the Court of Appeals in CA-G.R.
No. 102319 are AFFIRMED.

SO ORDERED.

Retrieved from:
http://sc.judiciary.gov.ph/jurisprudence/2011/december2011/183915.htm

Undue Influence

Loyola vs CA

SECOND DIVISION

[G.R. No. 115734. February 23, 2000]

RUBEN LOYOLA, CANDELARIA LOYOLA, LORENZO LOYOLA,


FLORA LOYOLA, NICANDRO LOYOLA, ROSARIO LOYOLA,
TERESITA LOYOLA and VICENTE LOYOLA, petitioners, vs. THE
HONORABLE COURT OF APPEALS, NIEVES, ROMANA,
ROMUALDO, GUILLERMO, LUCIA, PURIFICACION, ANGELES,
ROBERTO, ESTRELLA, all surnamed ZARRAGA and THE HEIRS
OF JOSE ZARRAGA, namely AURORA, MARITA, JOSE, RONALDO,
VICTOR, LAURIANO, and ARIEL, all surnamed
ZARRAGA, respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the decision of the Court of Appeals in CA-G.R. No. CV
36090, promulgated on August 31, 1993, reversing the judgment of the Regional
Trial Court of Bian, Laguna, Branch 24, in Civil Case No. B-2194. In said
decision, the appellate court decreed:

"PREMISES CONSIDERED, the decision appealed from is hereby


REVERSED and a new judgment rendered as follows:

1. Dismissing the plaintiffs Complaint;

2. Declaring the "Bilihang Tuluyan ng Kalahati (1/2)


ng Isang (1) Lagay na Lupa" dated August 24, 1980
(Exhibit 1) as well as Transfer Certificate of Title No.
T-116067 of the Registry of Deeds for the Calamba
Branch to be lawful, valid, and effective.

"SO ORDERED."[1]

The RTC decision reversed by the Court of Appeals had disposed of the
complaint as follows:

"WHEREFORE, premises considered, judgment is hereby rendered


in favor of the plaintiffs and against the defendants as follows:

1. Declaring the simulated deed of absolute sale purportedly


executed by the late Gaudencia Zarraga on August 24, 1980 as
well as the issuance of the corresponding certificate of title in favor
of the defendants null and void from the beginning;

2. Ordering the Register of Deeds of Laguna, Calamba Branch to


cancel Transfer Certificate of Title No. T-116087 issued in favor of
the defendants and to issue another one, if feasible, in favor of the
plaintiffs and the defendants as co-owners and legal heirs of the
late Gaudencia Zarraga;

3. Order(ing) the defendants to reconvey and deliver the


possession of the shares of the plaintiff on (sic) the subject
property;

4. Ordering the defendants to pay the amount of P20,000 as and


for attorneys fees and the costs of this suit.

5. As there is no preponderance of evidence showing that the


plaintiffs suffered moral and exemplary damages, their claim for
such damages is hereby dismissed.

The plaintiffs claim under the second cause of action is hereby


dismissed on the ground of prescription.

Likewise, the defendants counterclaim is hereby dismissed for lack


of merit.

"SO ORDERED."[2]

We shall now examine the factual antecedents of this petition.

In dispute here is a parcel of land in Bian, Laguna, particularly described as


follows:

"A PARCEL OF LAND (Lot 115-A-1) of the subdivision plan (LRC)


Psd-32117), being a portion of Lot 115-A, described on Plan Psd-
55228, LRC (GLRO) Record No. 8374), situated in the Poblacion,
Municipality of Bian, Province of Laguna, Island of Luzon. Bounded
on the NE., points 3 to 4 by the Bian River; on the SE., points 4 to 1
by Lot 115-A-2 of the subd. Plan; on the SW., points 1 to 2 by the
Road and on points 2 to 3 by Lot 115-B, Psd-55228 x x x containing
an area of SEVEN HUNDRED FIFTY THREE (753) SQ. METERS,
more or less x x x."[3]

Originally owned in common by the siblings Mariano and Gaudencia Zarraga,


who inherited it from their father, the parcel is covered by Transfer Certificate of
Title (TCT) No. T-32007. Mariano predeceased his sister who died single, without
offspring on August 5, 1983, at the age of 97.

Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia
and Mariano. Victorina died on October 18, 1989, while Civil Case No. B-2194
was pending with the trial court. Cecilia died on August 4, 1990, unmarried and
childless. Victorina and Cecilia were substituted by petitioners as plaintiffs.
Private respondents, children of Mariano excepting those denominated as the
"Heirs of Jose Zarraga," are first cousins of petitioners. Respondents designated
as the "Heirs of Jose Zarraga" are first cousins once removed of the petitioners.

Private respondents allege that they are the lawful owners of Lot 115-A-1, the
one-half share inherited by their father, Mariano and the other half purchased
from their deceased aunt, Gaudencia. Transfer Certificate of Title No. 116067
was issued in their names covering Lot 115-A-1.

The records show that the property was earlier the subject of Civil Case No. B-
1094 before the then Court of First Instance of Laguna, Branch 1,
entitled "Spouses Romualdo Zarraga, et al. v. Gaudencia Zarraga, et
al." Romualdo Zarraga, one of the private respondents now, was the plaintiff in
Civil Case No. B-1094. The defendants were his siblings: Nieves, Romana,
Guillermo, Purificacion, Angeles, Roberto, Estrella, and Jose, all surnamed
Zarraga, as well as his aunt, the late Gaudencia. The trial court decided Civil
Case No. B-1094 in favor of the defendants. Gaudencia was adjudged owner of
the one-half portion of Lot 115-A-1. Romualdo elevated the decision to the Court
of Appeals and later the Supreme Court. The petition, docketed as G.R. No.
59529, was denied by this Court on March 17, 1982.

The present controversy began on August 24, 1980, nearly three years before
the death of Gaudencia while G.R. No. 59529 was still pending before this Court.
On said date, Gaudencia allegedly sold to private respondents her share in Lot
115-A-1 for P34,000.00. The sale was evidenced by a notarized document
denominated as "Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na
Lupa."[4]Romualdo, the petitioner in G.R. No. 59529, was among the vendees.

Meanwhile, the decision in Civil Case No. B-1094 became final. Private
respondents filed a motion for execution. On February 16, 1984, the sheriff
executed the corresponding deed of reconveyance to Gaudencia. On July 23,
1984, however, the Register of Deeds of Laguna, Calamba Branch, issued in
favor of private respondents, TCT No. T-116067, on the basis of the sale on
August 24, 1980 by Gaudencia to them.

On January 31, 1985, Victorina and Cecilia filed a complaint, docketed as Civil
Case No. B-2194, with the RTC of Bian, Laguna, for the purpose of annulling the
sale and the TCT. The trial court rendered judgment in favor of complainants.

On appeal, the appellate court REVERSED the trial court. On September 15,
1993, herein petitioners (as substitute parties for Victorina and Cecilia, the
original plaintiffs) filed a motion for reconsideration, which was denied on June 6,
1994.

Hence, the instant petition.


Petitioners submit the following issues for resolution by this Court:

1. WHETHER OR NOT THERE ARE STRONG AND COGENT


REASON(S) TO DISTURB THE FINDINGS AND CONCLUSIONS
OF THE TRIAL COURT THAT THE CONTRACT DENOMINATED
AS DEED OF ABSOLUTE SALE IS SIMULATED AND
THEREFORE NULL AND VOID.

2. WHETHER THE ACTS OF PRIVATE RESPONDENTS IS (SIC)


CONSISTENT WITH THE ACTS OF VENDEES WHEN THEY
DEFIED LOGIC AS FOUND BY THE TRIAL COURT...

3. WHETHER THE ALLEGED VENDORS (SIC) GAUDENCIA


ZARRAGA WHO WAS THEN 94 YEARS OLD, ALREADY WEAK
AND WHO WAS UNDER THE CARE OF ONE OF THE VENDEES
PRIVATE RESPONDENT ROMANA ZARRAGA, SINGLE AND
WITHOUT ANY CHILD BUT HAS SISTERS AND OTHER
NEPHEWS AND NIECES WILL SELL HER PROPERTY THEN
WORTH P188,250.00 IN 1980 FOR ONLY P34,000, AND
WHETHER A CONTRACT OF SALE OF REALTY IS
PERFECTED, VALID AND GENUINE WHEN ONE OF THE
VENDEES ROMUALDO ZARRAGA DOES NOT KNOW OF THE
TRANSACTION, THE OTHER VENDEE JOSE ZARRAGA WAS
ALREADY LONG DEAD BEFORE THE EXECUTION OF
THE BILIHAN IN QUESTION AND YET WAS INCLUDED AS ONE
OF THE VENDEES, LIKEWISE, OTHER SUPPOSED VENDEES
NIEVES ZARRAGA AND GUILLERMO ZARRAGA ASIDE FROM
ROMUALDO WERE NOT PRESENT WHEN THE TRANSACTION
TOOK PLACE.

4. THE LEGAL MEANING AND IMPORT OF SIMULATED


CONTRACT OF SALE WHICH INVALIDATES A TRANSACTION
IS ALSO A LEGAL ISSUE TO BE THRESHED OUT IN THIS CASE
AT BAR.

5. WHETHER PETITIONERS HAVE THE LEGAL PERSONALITY


TO SUE.[5]

Notwithstanding petitioners formulation of the issues, we find the only issue for
resolution in this case is whether or not the deed of absolute sale is valid.

Petitioners vigorously assail the validity of the execution of the deed of absolute
sale suggesting that since the notary public who prepared and acknowledged the
questioned Bilihan did not personally know Gaudencia, the execution of the deed
was suspect. However, the notary public testified that he interviewed Gaudencia
prior to preparing the deed of sale.[6] Petitioners failed to rebut this testimony. The
rule is that a notarized document carries the evidentiary weight conferred upon it
with respect to its due execution,[7] and documents acknowledged before a notary
public have in their favor the presumption of regularity.[8] By their failure to
overcome this presumption, with clear and convincing evidence, petitioners are
estopped from questioning the regularity of the execution of the deed.[9]

Petitioners also charge that one of the vendees, Jose Zarraga, was already dead
at the time of the sale. However, the records reveal that Jose died on July 29,
1981.[10] He was still alive on August 24, 1980, when the sale took place.

Petitioners then contend that three of the vendees included in the deed, namely,
Romualdo, Guillermo, and Nieves, were not aware of the transaction, which
casts doubt on the validity of the execution of the deed. Curiously, Romualdo
who questioned Gaudencias ownership in Civil Case No. B-1094, was one of
those included as buyer in the deed of sale. Romana, however, testified that
Romualdo really had no knowledge of the transaction and he was included as a
buyer of the land only because he was a brother.

Petitioners suggest that all the aforecited circumstances lead to the conclusion
that the deed of sale was simulated.

Simulation is "the declaration of a fictitious will, deliberately made by agreement


of the parties, in order to produce, for the purposes of deception, the
appearances of a juridical act which does not exist or is different what that which
was really executed."[11] Characteristic of simulation is that the apparent contract
is not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties. Perusal of the questioned deed will show that the
sale of the property would convert the co-owners to vendors and vendees, a
clear alteration of the juridical relationships. This is contrary to the requisite of
simulation that the apparent contract was not really meant to produce any legal
effect. Also in a simulated contract, the parties have no intention to be bound by
the contract. But in this case, the parties clearly intended to be bound by the
contract of sale, an intention they did not deny.

The requisites for simulation are: (a) an outward declaration of will different from
the will of the parties; (b) the false appearance must have been intended by
mutual agreement; and (c) the purpose is to deceive third persons.[12] None of
these are present in the assailed transaction.

Anent Romualdos lack of knowledge and participation in the sale, the rule is that
contracts are binding only upon the parties who execute them.[13] Romualdo had
no knowledge of the sale. He was a stranger and not a party to it. Article 1311 of
the Civil Code[14] clearly covers this situation.

Petitioners fault the Court of Appeals for not considering that at the time of the
sale in 1980, Gaudencia was already 94 years old; that she was already weak;
that she was living with private respondent Romana; and was dependent upon
the latter for her daily needs, such that under these circumstances, fraud or
undue influence was exercised by Romana to obtain Gaudencias consent to the
sale.

The rule on fraud is that it is never presumed, but must be both alleged and
proved.[15] For a contract to be annulled on the ground of fraud, it must be shown
that the vendor never gave consent to its execution. If a competent person has
assented to a contract freely and fairly, said person is bound. There also is a
disputable presumption, that private transactions have been fair and
regular.[16]Applied to contracts, the presumption is in favor of validity and
regularity. In this case, the allegations of fraud was unsupported, and the
presumption stands that the contract Gaudencia entered into was fair and
regular.

Petitioners also claim that since Gaudencia was old and senile, she was
incapable of independent and clear judgment. However, a person is not
incapacitated to contract merely because of advanced years or by reason of
physical infirmities.[17] Only when such age or infirmities impair his mental faculties
to such extent as to prevent him from properly, intelligently, and fairly protecting
his property rights,[18] is he considered incapacitated. Petitioners show no proof
that Gaudencia had lost control of her mental faculties at the time of the sale.
The notary public who interviewed her, testified that when he talked to
Gaudencia before preparing the deed of sale, she answered correctly and he
was convinced that Gaudencia was mentally fit and knew what she was doing.

On whether or not Gaudencia was under the undue influence of the private
respondents, Article 1337 of the Civil Code states:

"There is undue influence when a person takes improper advantage


of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall
be considered: confidential, family, spiritual, and other relations
between the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress."

Undue influence depends upon the circumstances of each case[19] and not on
bare academic rules.[20] For undue influence to be established to justify the
cancellation of an instrument, three elements must be present: (a) a person who
can be influenced; (b) the fact that improper influence was exerted; (c)
submission to the overwhelming effect of such unlawful conduct. [21] In the absence
of a confidential or fiduciary relationship between the parties, the law does not
presume that one person exercised undue influence upon the other. [22] A
confidential or fiduciary relationship may include any relation between persons,
which allows one to dominate the other, with the opportunity to use that
superiority to the others disadvantage.[23] Included are those of attorney and
client,[24] physician and patient,[25] nurse and invalid,[26] parent and child,[27] guardian
and ward,[28] member of a church or sect and spiritual adviser,[29] a person and his
confidential adviser,[30] or whenever a confidential relationship exists as a
fact.[31] That Gaudencia looked after Romana in her old age is not sufficient to
show that the relationship was confidential. To prove a confidential relationship
from which undue influence may arise, the relationship must reflect a dominant,
overmastering influence which controls over the dependent person. [32] In the
present case, petitioners failed to show that Romana used her aunts reliance
upon her to take advantage or dominate her and dictate that she sell her land.
Undue influence is not to be inferred from age, sickness, or debility of body, if
sufficient intelligence remains.[33] Petitioners never rebutted the testimony of the
notary public that he observed Gaudencia still alert and sharp.

In Baez v. Court of Appeals, 59 SCRA 15 (1974), we had occasion to say that


solicitation, importunity, argument, and persuasion are not undue influence. A
contract is not to be set aside merely because one party used these means to
obtain the consent of the other. We have likewise held in Martinez v. Hongkong
and Shanghai Bank, 15 Phil. 252 (1910), that influence obtained by persuasion,
argument, or by appeal to the affections is not prohibited either in law or morals,
and is not obnoxious even in courts of equity. Absent any proof that Romana
exerted undue influence, the presumption is that she did not.

Petitioners also seek the annulment of the sale due to gross inadequacy of price.
They contend that Gaudencia, in her right senses, would never have sold her
property worth P188,250.00 in 1980 for only P34,000.00. The records show that
much of petitioners evidence was meant to prove the market value of the lot at
the time of the sale.[34] A review of the records will show that lesion was not an
issue raised before the lower courts. An issue which was neither averred in the
complaint nor raised in the court below, cannot be raised for the first time on
appeal. To do so would be offensive to the basic rules of fair play.

Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1
for being absolutely simulated or for inadequacy of the price. These two grounds
are irreconcilable. If there exists an actual consideration for transfer evidenced by
the alleged act of sale, no matter how inadequate it be, the transaction could not
be a "simulated sale."[35] No reversible error was thus committed by the Court of
Appeals in refusing to annul the questioned sale for alleged inadequacy of the
price.

WHEREFORE, the petition is DENIED, and the assailed decision of the Court of
Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur.


Buena, J., on leave.

Retrieved from:
http://sc.judiciary.gov.ph/jurisprudence/2000/feb2000/115734.html

Katipunan vs Katipunan ,Jr.

THIRD DIVISION

[G.R. No. 132415. January 30, 2002]

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO


BALGUMA and LEOPOLDO BALGUMA, JR., petitioners,
vs. BRAULIO KATIPUNAN, JR., respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari[1] assailing the Decision[2] of the


Court of Appeals dated July 31, 1997 in CA-GR CV No. 45928, Braulio
Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo Balguma,
Sr., Edgardo Balguma and Leopoldo Balguma, Jr. which set aside the Decision
of the Regional Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-
39891 for annulment of a Deed of Absolute Sale.
The antecedents are:
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot
and a five-door apartment constructed thereon located at 385-F Matienza St.,
San Miguel, Manila. The lot is registered in his name under TCT No. 109193 [3] of
the Registry of Deeds of Manila. The apartment units are occupied by lessees.
On December 29, 1985, respondent, assisted by his brother, petitioner
Miguel Katipunan, entered into a Deed of Absolute Sale[4] with brothers Edgardo
Balguma and Leopoldo Balguma, Jr. (co-petitioners), represented by their father
Atty. Leopoldo Balguma, Sr., involving the subject property for a consideration
of P187,000.00. Consequently, respondents title to the property was cancelled
and in lieu thereof, TCT No. 168394[5] was registered and issued in the names of
the Balguma brothers. In January, 1986, Atty. Balguma, then still alive, started
collecting rentals from the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC of Manila, Branch 21,[6] a
complaint for annulment of the Deed of Absolute Sale, docketed as Civil Case
No. 87-39891.[7] He averred that his brother Miguel, Atty. Balguma and Inocencio
Valdez (defendants therein, now petitioners) convinced him to work abroad. They
even brought him to the NBI and other government offices for the purpose of
securing clearances and other documents which later turned out to be falsified.
Through insidious words and machinations, they made him sign a document
purportedly a contract of employment, which document turned out to be a Deed
of Absolute Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr.
(co-defendants), were able to register the title to the property in their names.
Respondent further alleged that he did not receive the consideration stated in the
contract. He was shocked when his sister Agueda Katipunan-Savellano told him
that the Balguma brothers sent a letter to the lessees of the apartment informing
them that they are the new owners. Finally, he claimed that the defendants, now
petitioners, with evident bad faith, conspired with one another in taking
advantage of his ignorance, he being only a third grader.
In their answer, petitioners denied the allegations in the complaint, alleging
that respondent was aware of the contents of the Deed of Absolute Sale and that
he received the consideration involved; that he also knew that the Balguma
brothers have been collecting the rentals since December, 1985 but that he has
not objected or confronted them; and that he filed the complaint because his
sister, Agueda Savellano, urged him to do so.[8]
Twice respondent moved to dismiss his complaint (which were granted) on
the grounds that he was actually instigated by his sister to file the same; and that
the parties have reached an amicable settlement after Atty. Balguma, Sr. paid
him P2,500.00 as full satisfaction of his claim. In granting his motions for
reconsideration, the trial court was convinced that respondent did not sign the
motions to dismiss voluntarily because of his poor comprehension, as shown by
the medical report of Dr. Annette Revilla, a Resident Psychiatrist at the Philippine
General Hospital. Besides, the trial court noted that respondent was not assisted
by counsel in signing the said motions, thus it is possible that he did not
understand the consequences of his action.[9]
Eventually the trial court set the case for pre-trial. The court likewise granted
respondents motion to appoint Agueda Savellano as his guardian ad litem.[10]
After hearing, the trial court dismissed the complaint, holding that respondent
failed to prove his causes of action since he admitted that: (1) he obtained loans
from the Balgumas; (2) he signed the Deed of Absolute Sale; and (3) he
acknowledged selling the property and that he stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997,
rendered the assailed Decision, the dispositive portion of which reads:

WHEREFORE, the judgment appealed from is hereby REVERSED and SET


ASIDE, and a new one entered annulling the Deed of Sale. Consequently, TCT
No. 168394 is hereby declared null and void and of no force and effect. The
Register of Deeds of Manila is directed to cancel the same and restore TCT No.
109193 in the name of Braulio Katipunan.

SO ORDERED.

In reversing the RTC Decision, the Court of Appeals ruled:

Upon close scrutiny of all the evidence on record, plaintiff-appellants


contention finds support in the certification dated August 4, 1987 issued by Dr.
Ana Marie Revilla, a psychiatrist at the UP-PGH, who was presented as an
expert witness. Her findings explained the reason why plaintiff-appellant
showed a lot of inconsistencies when he was put on the stand. It supports the
fact that plaintiff-appellant is slow in comprehension and has a very low IQ.
Based on such findings, the trial court was faulted for its wrong assessment of
appellants mental condition. It arbitrarily disregarded the testimony of a skilled
witness and made an unsupported finding contrary to her expert opinion.

Admittedly, expert witnesses when presented to the court must be construed to


have been presented not to sway the court in favor of any of the parties, but to
assist the court in the determination of the issue before it(Espiritu vs. Court of
Appeals, 242 SCRA 362). Expert opinions are not ordinarily conclusive. They
are generally regarded as purely advisory in character; the court may place
whatever weight they choose upon such testimony and may reject it if they find
it inconsistent with the facts in the case or otherwise unreasonable (Basic
Evidence by Ricardo J. Francisco, pp. 202).

The trial court whose decision is now under review refused to admit the experts
testimony and prefer to base its decision on its findings that contrary to the
allegation of the appellant, he is nonetheless capable of responding to the
questions expounded to him while on the stand. In short, the court was swayed
by its own observation of appellants demeanor on the stand. Of course, the rule
is to accord much weight to the impressions of the trial judge, who had the
opportunity to observe the witnesses directly and to test their credibility by
their demeanor on the stand (People vs. Errojo, 229 SCRA 49). Such
impression however, is not per se the basis of a conclusion, for it needs
conformity with the findings of facts relevant to the case.

We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla,
whose testimony remains unshaken and unimpeached. The tests she made are
revealing and unrebutted and has a bearing on facts of the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ;
that he is illiterate; and that he can not read and is slow in comprehension. His
mental age is only that of a six-year old child. On the other hand, the
documents presented by the appellees in their favor, i.e., the deeds of mortgage
and of sale, are all in English. There is no showing that the contracts were read
and/or explained to Braulio nor translated in a language he understood.

Article 1332 of the Civil Code provides:

Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former.

Furthermore, if Braulio has a mental state of a six year old child, he can not be
considered as fully capacitated. He falls under the category of incompetent as
defined in Section 2, Rule 92 of the Rules of Court, which reads:

Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent
includes persons suffering the penalty of civil interdiction or who are
hospitalized lepers, prodigals, deaf and dumb who are unable to read and write,
those who are of unsound mind, even though they have lucid intervals, and
persons not being of unsound mind, but by reason of age, disease, weak mind,
and other similar causes, can not, without outside aid, take care of themselves
and manage their property, becoming thereby an easy prey for deceit and
exploitation.

We also note the admission of defendant-appellee Miguel Katipunan, that he


and Braulio received the considerations of the sale, although he did not explain
what portion went to each other of them. Anyway, there is no reason why
Miguel should receive part of the consideration, since he is not a co-owner of
the property. Everything should have gone to Braulio. Yet, Miguel did not
refute that he was giving him only small amounts (coins).

As to the allegation of the scheme utilized in defrauding Braulio, neither


Miguel nor Atty. Balguma refuted the statement of Braulio that he was being
enticed to go abroad - which was the alleged reason for the purported sale.
Nothing was explained about the alleged trip to NBI, the fake passport, etc., nor
of Miguels own plans to go abroad. It is then most probable that it was Miguel
who wanted to go abroad and needed the money for it.
In view of the foregoing, it is apparent that the contract entered into by Braulio
and Atty. Balguma is voidable, pursuant to the provisions of Article 1390 of the
Civil Code, to wit:

Art. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation,


undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in
court, they are susceptible of ratification. [11]

Petitioners filed a motion for reconsideration but was denied. Hence, this
petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely
heavily on the rule that findings of fact by the trial courts are entitled to full faith
and credence by the Appellate Court. Petitioners contend that the Court of
Appeals erred when it overturned the factual findings of the trial court which are
amply supported by the evidence on record.
The petition is devoid of merit.
While it may be true that findings of a trial court, given its peculiar vantage
point to assess the credibility of witnesses, are entitled to full faith and credit and
may not be disturbed on appeal, this rule is not infallible, for it admits of certain
exceptions. One of these exceptions is when there is a showing that the trial
court had overlooked, misunderstood or misapplied some fact or circumstance of
weight and substance, which, if considered, could materially affect the result of
the case.[12] Also, when the factual findings of the trial court contradict those of the
appellate court, this Court is constrained to make a factual review of the records
and make its own assessment of the case.[13] The instant case falls within the said
exception.
A contract of sale is born from the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.[14] This meeting of
the minds speaks of the intent of the parties in entering into the contract
respecting the subject matter and the consideration thereof.[15] Thus, the elements
of a contract of sale are consent, object, and price in money or its
equivalent.[16]Under Article 1330 of the Civil Code, consent may be vitiated by any
of the following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence,
and (5) fraud.[17] The presence of any of these vices renders the contract voidable.
Here, as borne by the facts on hand, respondent signed the deed without the
remotest idea of what it was, thus:
ATTY. SARMIENTO:
Q After Miguel received that money which amount you do not remember how
much, do you remember having signed a document purported to be sale of
property that which you owned?
A Yes, I signed something because they forced me to sign.
COURT (To the witness)
Q Do you know how to affix your signature?
A Yes, Your Honor.
Q You sign your name here. (witness is given a piece of paper by the court
wherein he was made to sign his name)
ATTY. SARMIENTO:
Q You said that you remember you have signed a document. Did you
come to know what kind of document was that which you signed at
that time?
A I do not know.
Q Where did you sign that document?
A I signed that document in the house of Sencio.
Q Where is this house of Sencio?
A It is just behind our house at San Miguel.
Q Nobody informed you what document you were signing?
A Nobody informed me what document I was signing.
Q Who asked you to sign that document?
A My brother Miguel and Sencio asked me to sign that document.
Q You never bothered to ask your brother Miguel why you were signing that
document?
A According to them, if I will not sign, something will happen.
Q Who particularly told you that if you will not sign that document something will
happen?
A Atty. Balguma. (witness pointing to Atty. Balguma)
Q You want to tell the court that Atty. Balguma at that time you signed that
document was present?
A Yes, sir, he was there.
Q What if any did Atty. Balguma do when you were asked to sign that
document?
A He was asking me also to sign.
COURT (To the witness)
Q Were you threatened with a gun or any instrument?
A No, Your Honor.
Q How were you threatened?
A I was shoved aside by Sencio and Miguel and I was surprised why they
made me sign.
Q Did you fall down when you were shoved?
A I was made to move to the side.
Q And because of that you signed that document that you were being forced to
sign?
A Yes, sir.
Q What kind of paper did you sign?
A A coupon bond paper.
Q Was there something written?
A There was something written on it, but I do not know.
Q Was it typewritten?
A There was something typewritten when it was shown to me but I do not know
what it was.[18] (Underscoring supplied)
The circumstances surrounding the execution of the contract manifest a
vitiated consent on the part of respondent. Undue influence was exerted upon
him by his brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma.
It was his brother Miguel who negotiated with Atty. Balguma. However, they did
not explain to him the nature and contents of the document. Worse, they
deprived him of a reasonable freedom of choice. It bears stressing that he
reached only grade three. Thus, it was impossible for him to understand the
contents of the contract written in English and embellished in legal jargon. Even
the trial court, in reinstating the case which it earlier dismissed, took cognizance
of the medical finding of Dr. Revilla (presented by respondents counsel as expert
witness) who testified during the hearing of respondents motion for
reconsideration of the first order dismissing the complaint. According to her,
based on the tests she conducted, she found that respondent has a very low IQ
and a mind of a six-year old child.[19] In fact, the trial court had to clarify certain
matters because Braulio was either confused, forgetful or could not
comprehend.[20] Thus, his lack of education, coupled with his mental affliction,
placed him not only at a hopelessly disadvantageous position vis--vis petitioners
to enter into a contract, but virtually rendered him incapable of giving rational
consent. To be sure, his ignorance and weakness made him most vulnerable to
the deceitful cajoling and intimidation of petitioners. The trial court obviously
erred when it disregarded Dr. Revillas testimony without any reason at all. It must
be emphasized that petitioners did not rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to
respondent. Extant from the records is the fact that Miguel profited from the
entire transaction and gave only small amounts of money to respondent, thus:
Q Do you know how much money was given to Miguel and from whom did
that money come from?
A I do not know how much, but the money came from Atty. Balguma.
Q You do not know how much amount was given by Atty. Balguma and
for what consideration was the money given you are not aware of
that?
A I am not aware because I was not there, I do not know anything.
Q You want to tell the court that despite that it is you being the owner of
this property it was Miguel who negotiated the asking of money from
Atty. Balguma?
A Yes, it is like that.
Q Were you consulted by your brother Miguel when he asked money from Atty.
Balguma?
A No, sir, in the beginning he kept it a secret then later on he told us.
Q You want to tell this court that it was only when your brother Miguel
gave (you) money that he told you that we have now the money from
Atty. Balguma?
A No, sir, I did not even know where that money came from. He was about
to leave for abroad when he told me that he received money from
Atty. Balguma.
Q Did you receive any amount from Miguel every time he was given by
Atty. Balguma? You received also money from Miguel every time he
was given by Atty. Balguma?
A Yes, he would give me small denominations, barya.
Q When you said "barya, would you be able to tell the court how much this
barya you are referring to is?
A May be twenty pesos, may be ten pesos, but they are all loose change.
Q Tell us how many times did Miguel receive money from Atty. Balguma as
much as you can recall?
A I do not know because every time my brother Miguel and Atty. Balguma
would transact business, I was not present.
xxx
Q Before or after the signing of this piece of paper were you given any big
amount of money by your brother Miguel or Atty. Balguma or Sencio?
A After signing that document, Atty. Balguma gave me several loose
change barya, no paper bills. A just handful of coins.[21] (Underscoring
supplied)
We are convinced that respondent was telling the truth that he did not
receive the purchase price. His testimony on this point was not controverted by
Miguel. Moreover, Atty. Balguma admitted that it was Miguel who received
the money from him.[22] What Miguel gave respondent was merely loose change
or barya-barya, grossly disproportionate to the value of his property. We agree
with the conclusion of the Court of Appeals that it is then most probable that it
was Miguel who wanted to go abroad and needed the money for it.
In the case of Archipelago Management and Marketing Corp. vs. Court of
Appeals,[23] penned by Justice Artemio V. Panganiban, this Court sustained the
decision of the Court of Appeals annulling the deed of sale subject thereof. In
that case, Rosalina (the owner) was convinced by her second husband to sign
several documents, purportedly an application for the reconstitution of her burned
certificate of title. However, said documents turned out to be a Deed of Absolute
Sale where it was stipulated that she sold her property for P 1,200,000.00, a
consideration which she did not receive. The Court ruled that Rosalina, who was
quite old at that time she signed the deed, was tricked by her own husband, who
employed fraud and deceit, into believing that what she was signing was her
application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where
consent is vitiated by mistake, fraud, or intimidation is not void ab initio but only
voidable and is binding upon the parties unless annulled by proper Court action.
The effect of annulment is to restore the parties to the status quo ante insofar as
legally and equitably possible-- this much is dictated by Article 1398 of the Civil
Code. As an exception however to the principle of mutual restitution, Article 1399
provides that when the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any restitution,
except when he has been benefited by the things or price received by him. Thus,
since the Deed of Absolute Sale between respondent and the Balguma brothers
is voidable and hereby annulled, then the restitution of the property and its fruits
to respondent is just and proper. Petitioners should turn over to respondent all
the amounts they received starting January, 1986 up to the time the property
shall have been returned to the latter. During the pre-trial and as shown by the
Pre-Trial Order, the contending parties stipulated that the Balguma brothers
received from the lessees monthly rentals in the following amounts:
PERIOD AMOUNT OF RENTALS
January, 1986 to
December, 1987 P 481.00 per month

January, 1988 to
December, 1988 P2,100.00 per month

January, 1989 to
present P3,025.00 per month
Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a
party to a contract who is placed at a disadvantage on account of his ignorance,
mental weakness or other handicap, like respondent herein. We give substance
to this mandate.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of
Appeals dated July 3, 1997 in CA-GR CV No. 45928 is AFFIRMED with
MODIFICATION in the sense that petitioners Edgardo Balguma and Leopoldo
Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the
rentals they received for the five-door apartment corresponding to the period
from January, 1986 up to the time the property shall have been returned to him,
with interest at the legal rate. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.

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