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Ordinarily, an optional contract is a privilege existing in one person, for which he had paid a
consideration and which gives him the right to buy, for example, certain merchandise or certain specified
property, from another person, if he chooses, at any time within the agreed period at a fixed price.

If We look closely at the "deed of option" signed by the parties, We will notice that the first part covered
the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at the price of P70.00
per square meter "which was higher than the actual reasonable prevailing value of the lands in that place at
that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the
said lot at a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other
half-portion of 300 square meters of the land. Had the deed stopped there, there would be no dispute that the
deed is really an ordinary deed of option granting the Villamors the option to buy the remaining 300 square
meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a much
higher price. But, the "deed of option" went on and stated that the sale of the other half would be made
"whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses Julio
Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the Villamors, the
Reyeses were likewise granted an option to sell. In other words, it was not only the Villamors who were
granted an option to buy for which they paid a consideration. The Reyeses as well were granted an option to
sell should the need for such sale on their part arise.

Under Article 1475 of the Civil Code, 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. From that
moment, the parties may reciprocally demand perform of contracts." Since there was, between the
parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What
was, however, left to be done was for either party to demand from the other their respective undertakings
under the contract. It may be demanded at any time either by the private respondents, who may compel the
petitioners to pay for the property or the petitioners, who may compel the private respondents to deliver the

However, the Deed of Option did not provide for the period within which the parties may
demand the performance of their respective undertakings in the instrument. The parties could not have
contemplated that the delivery of the property and the payment thereof could be made indefinitely and render
uncertain the status of the land. The failure of either parties to demand performance of the obligation of the
other for an unreasonable length of time renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within
ten (10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint in this case was filed by the petitioners
on July 13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action
had prescribed.

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

ACCORDINGLY, the petition is DENIED.

2. DIAMANTE vs COURT OF APPEALS (G.R. No. L-51824 February 7, 1992)

Article 1601 of the Civil Code provides:

Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of article
1616 and other stipulations which may have been agreed upon.

In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29 November 1968, or barely seven (7) days
before the respondent Court promulgated its decision in this case, this Court, interpreting the above Article,

The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case.

In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in 1927, this Court had already ruled
that "an agreement to repurchase becomes a promise to sell when made after the sale, because when
the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if
he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the
purchaser, as absolute owner already of the object. In that case the vendor has not reserved to himself
the right to repurchase."

Hence, the Option to Repurchase executed by private respondent in the present case, was merely
a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows:

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

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

A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the
pleadings of the parties. This Court cannot, therefore, properly rule on whether the promise was accepted and
a consideration distinct from the price, supports the option. Undoubtedly, in the absence of either or both
acceptance and separate consideration, the promise to sell is not binding upon the promissor.

The contract of option is a separate and distinct contract from the contract which the parties
may enter into upon the consummation of the option, and a consideration for an optional
contract is just as important as the consideration for any other kind of contract. Thus, a
distinction should be drawn between the consideration for the option to repurchase, and the
consideration for the contract of repurchase itself.7

Even if the promise was accepted, private respondent was not bound thereby in the absence of a
distinct consideration.

3. PARANAQUE KINGS vs COURT OF APPEALS (G.R. No. 111538, February 26, 1997

Do allegations in a complaint showing violation of a contractual right of “first option or priority to buy the
properties subject of the lease” constitute a valid cause of action? Is the grantee of such right entitled to be
offered the same terms and conditions as those given to a third party who eventually bought such properties?
In short, is such right of first refusal enforceable by an action for specific performance?

One of such rights included in the contract of lease and, therefore, in the assignments of rights was the
lessee’s right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of
the assigned lease contract. The deed of assignment need not be very specific as to which rights and
obligations were passed on to the assignee. It is understood in the general provision aforequoted that all
specific rights and obligations contained in the contract of lease are those referred to as being assigned.
Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.

In order to have full compliance with the contractual right granting petitioner the first option to purchase, the
sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent
Raymundo, should have likewise been first offered to petitioner.

The basis of the right of the first refusal* must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. Only after the grantee** fails to exercise its right of first priority
under the same terms and within the period contemplated, could the owner validly offer to sell the
property to a third person, again, under the same terms as offered to the grantee***.

4. TUAZON vs DEL ROSARIO- SUAREZ (G.R. No. 168325, December 08, 2010)

DOCTRINE: 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.

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.

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.

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

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

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.
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.

5. IGNACIO vs HOME BANKERS G.R. No. 177783, January 23, 2013

Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The requisite acceptance of the
offer is expressed in Article 1319 of the Civil Code which states:

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

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds.
When there is merely an offer by one party without acceptance of the other, there is no contract. When
the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.

In Palattao v. Court of Appeals, this Court held that if the acceptance of the offer was not absolute, such
acceptance is insufficient to generate consent that would perfect a contract. Thus:

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the
minds. Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer must be certain. To convert the
offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection
of the original offer. Consequently, when something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of authorized duties of such director, are held not binding on the

Thus, a corporation can only execute its powers and transact its business through its Board of
Directors and through its officers and agents when authorized by a board resolution or its by-laws.

In the absence of conformity or acceptance by properly authorized bank officers of petitioner’s
counter-proposal, no perfected repurchase contract was born out of the talks or negotiations between
petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to compel respondent
bank to accept the P600,000 being tendered by him as payment for the supposed balance of
repurchase price.

6. NARANJA vs COURT OF APPEALS 603 Phil. 779

To be valid, a contract of sale need not contain a technical description of the subject property. Contracts
of sale of real property have no prescribed form for their validity; they follow the general rule on contracts
that they may be entered into in whatever form, provided all the essential requisites for their validity are
The requisites of a valid contract of sale under Article 1458 of the Civil Code are: (1) consent or
meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its

Futhermore, one who alleges any defect, or the lack of consent to a contract by reason of fraud
or undue influence, must establish by full, clear and convincing evidence, such specific acts that
vitiated the party's consent; otherwise, the latter's presumed consent to the contract prevails. For
undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of
a contracting party as to destroy his free agency, making him express the will of another rather than his

Here, petitioners failed to submit sufficient proof to show that Roque executed the deed of sale under
the undue influence of Belardo or that the deed of sale was simulated or without consideration.

A notarized document carries the evidentiary weight conferred upon it with respect to its due
execution, and documents acknowledged before a notary public have in their favor the
presumption of regularity. It must be sustained in full force and effect so long as he who impugns it does
not present strong, complete, and conclusive proof of its falsity or nullity on account of some flaws or
defects provided by law.

Having been sold already to Belardo, the two properties no longer formed part of Roque's estate which
petitioners could have inherited. The deed of extrajudicial settlement that petitioners executed over Lot No.
4 is, therefore, void, since the property subject thereof did not become part of Roque's estate.

7. SANTOS vs SANTOS 418 Phil. 681

Are payments of realty taxes and retention of possession indications of continued ownership by the
original owners?

In Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that the continued collection of rentals
from the tenants by the seller of realty after execution of alleged deed of sale is contrary to the notion of

The vendor's continued possession of the property makes dubious the contract of sale
between the parties.

Is a sale through a public instrument tantamount to delivery of the thing sold?

Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a
conclusive presumption of delivery of possession. The Code merely said that the execution shall be
equivalent to delivery. The presumption can be rebutted by clear and convincing evidence.
Presumptive delivery can be negated by the failure of the vendee to take actual possession of the land
Art. 1497. The thing shall be understood as delivered, when it is placed in the control and
possession of the vendee.

In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a public
instrument to effect tradition, the purchaser must be placed in control of the thing sold. When
there is no impediment to prevent the thing sold from converting to tenancy of the purchaser by the sole
will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy nor make use of it himself or through another in his name, then delivery has
not been effected.

As found by both the trial and appellate courts and amply supported by the evidence on record,
Salvador was never placed in control of the property. The original sellers retained their control and
possession. Therefore, there was no real transfer of ownership.

Has respondents' cause of action prescribed?

In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), we held that the right to file an action for
reconveyance on the ground that the certificate of title was obtained by means of a fictitious deed of
sale is virtually an action for the declaration of its nullity, which does not prescribe.

Neither is their action barred by laches. The elements of laches are: 1) conduct on the part of
the defendant, or of one under whom he claims, giving rise to the situation of which the complaint seeks
a remedy; 2) delay in asserting the complainant's rights, the complainant having had knowledge or
notice of the defendant's conduct as having been afforded an opportunity to institute a suit; 3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right in which he
bases his suit; and 4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred. These elements must all be proved positively. The conduct
which caused the complaint in the court a quo was petitioner's assertion of right of ownership as heir of
Salvador. This started in December 1985 when petitioner demanded payment of the lease rentals from
Antonio Hombrebueno, the tenant of the apartment units. From December 1985 up to the filing of the
complaint for reconveyance on January 5, 1989, only less than four years had lapsed which we do not
think is unreasonable delay sufficient to bar respondents' cause of action. We likewise find the fourth
element lacking. Neither petitioner nor her husband made considerable investments on the property
from the time it was allegedly transferred to the latter. They also did not enter into transactions
involving the property since they did not claim ownership of it until December 1985. Petitioner stood to
lose nothing. As we held in the same case of Lacsamana vs. CA, cited above, the concept of laches is
not concerned with the lapse of time but only with the effect of unreasonable lapse. In this case, the
alleged 16 years of respondents' inaction has no adverse effect on the petitioner to make respondents
guilty of laches.


Execution of the deed of sale only a

prima facie presumption of delivery.

Article 1477 of the Civil Code recognizes that the “ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.” Related to this article is
Article 1497 which provides that “[t]he thing sold shall be understood as delivered, when it is placed in
the control and possession of the vendee.”

With respect to incorporeal property, Article 1498 of the Civil Code lays down the general rule:
the execution of a public instrument “shall be equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.” However,

the execution of a public instrument gives rise only to a prima facie presumption of delivery, which is
negated by the failure of the vendee to take actual possession of the land sold.
“[A] person who does not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument.”

In this case, no constructive delivery of the land transpired upon the execution of the deed of
sale since it was not the spouses Villamor, Sr. but the respondents who had actual possession of the
land. The presumption of constructive delivery is inapplicable and must yield to the reality that the
petitioners were not placed in possession and control of the land.

The petitioners are not purchasers in good faith.

The petitioners can hardly claim to be purchasers in good faith.

“A purchaser in good faith is one who buys property without notice that some other person has a
right to or interest in such property and pays its fair price before he has notice of the adverse claims
and interest of another person in the same property.”[26] However, where the land sold is in the
possession of a person other than the vendor, the purchaser must be wary and must investigate the
rights of the actual possessor; without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property.


In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, such as, in
most cases, the full payment of the purchase price. What the seller agrees or obliges himself to do is to
fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered
to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by
the prospective seller without further remedies by the prospective buyer.

In a contract of sale, on the other hand, the title to the property passes to the vendee upon the
delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present, although it
is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive
condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the
suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.
The vendor loses ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded.

An examination of the alleged contract to sell, “Exhibit A,” despite its unconventional form, would
show that said document, with all the stipulations therein and with the attendant circumstances
surrounding it, was actually a Contract of Sale. The rule is that it is not the title of the contract, but its
express terms or stipulations that determine the kind of contract entered into by the parties. First, there
was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit A),
though appearing to be a mere price quotation/proposal, was not what it seemed. It contained terms
and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management, and
Engr. Rada, General Manager of MOELCI, had signed their names under the word “CONFORME,”
they, in effect, agreed with the terms and conditions with respect to the purchase of the subject 10 MVA
Power Transformer. As correctly argued by David, if their purpose was merely to acknowledge the
receipt of the proposal, they would not have signed their name under the word “CONFORME.”

In sum, since there was a meeting of the minds, there was consent on the part of David to
transfer ownership of the power transformer to MOELCI in exchange for the price, thereby complying
with the first element. Thus, the said document cannot just be considered a contract to sell but rather a
perfected contract of sale.


A common carrier may release the goods to the consignee even without the surrender of the hill
of lading.

This case presents an instance where an unpaid seller sues not only the buyer, but the carrier and the
carrier's agent as well, for the payment of the value of the goods sold. The basis for ASTI and ACCLI's
liability, as pleaded by DBI, is the bill of lading covering the shipment.

A bill of lading is defined as "a written acknowledgment of the receipt of goods and an agreement to
transport and to deliver them at a specified place to a person named or on his order." It may also be
defined as an instrument in writing, signed by a carrier or his agent, describing the freight so as to
identify it, stating the name of the consignor, the terms of the contract of carriage, and agreeing or
directing that the freight be delivered to bearer, to order or to a specified person at a specified place.

The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to
the carrier and their respective obligations are considered canceled. The law, however, provides two
exceptions where the goods may be released without the surrender of the bill of lading because the
consignee can no longer return it. These exceptions are when the bill of lading gets lost or for other
cause. In either case, the consignee must issue a receipt to the carrier upon the release of the goods.
Such receipt shall produce the same effect as the surrender of the bill of lading.

As carrier of the goods transported by plaintiff, its obligation is simply to ensure that such goods
are delivered on time and in good condition. In the case [Macam v. Court of Appeals], the Supreme
Court emphasized that "the extraordinary responsibility of the common carriers lasts until actual or
constructive delivery of the cargoes to the consignee or to the person who has the right to receive
them." x x x

It is therefore clear that the moment the carrier has delivered the subject goods, its responsibility
ceases to exist and it is thereby freed from all the liabilities arising from the transaction. Any question
regarding the payment of the buyer to the seller is no longer the concern of the carrier.

The contract between DBI and ASTI is a contract of carriage of goods; hence, ASTI's liability
should be pursuant to that contract and the law on transportation of goods. Not being a party to the
contract of sale between DBI and Ambiente, ASTI cannot be held liable for the payment of the value of
the goods sold.


Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit
of measure or number, there shall be no increase or decrease of the price, although there be a greater
or less area or number than that stated in the contract.

The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast and admits of an
exception. It held:

"A caveat is in order, however. The use of "more or less" or similar words in designating quantity covers
only a reasonable excess or deficiency. A vendee of land sold in gross or with the description "more or
less" with reference to its area does not thereby ipso facto take all risk of quantity in the land.
In a lump sum contract, a vendor is generally obligated to deliver all the land covered within the
boundaries, regardless of whether the real area should be greater or smaller than that recited in the
deed. However, in case there is conflict between the area actually covered by the boundaries and the
estimated area stated in the contract of sale, he/she shall do so only when the excess or deficiency
between the former and the latter is reasonable.

Applying Del Prado to the case before us, we find that the difference of 5,800 sq. m. is too
substantial to be considered reasonable. We note that only 6,200 sq. m. was agreed upon between
petitioners and Ingram. Declaring Ingram as the owner of the whole 12,000 sq. m. on the premise that
this is the actual area included in the boundaries would be ordering the delivery of almost twice the
area stated in the deeds of sale. Surely, Article 1542 does not contemplate such an unfair situation to
befall a vendor-that he/she would be compelled to deliver double the amount that he/she originally sold
without a corresponding increase in price.

The contract of sale is the law between Ingram and petitioners; it must be complied with in good
faith. Petitioners have already performed their obligation by delivering the 6,200 sq. m. property. Since
Ingram has yet to fulfill her end of the bargain, she must pay petitioners the remaining balance of the
contract price amounting to P145,000.00.


DOCTRINE: Novation is never presumed; it must be sufficiently established that a valid new agreement
or obligation has extinguished or changed an existing one. The registration of a later sale must be done
in good faith to entitle the registrant to priority in ownership over the vendee in an earlier sale.

Article 1600 of the Civil Code provides that “(s)ales are extinguished by the same causes as all
other obligations, x x x.” Article 1231 of the same Code states that novation is one of the ways to wipe
out an obligation. Extinctive novation requires: (1) the existence of a previous valid obligation; (2) the
agreement of all the parties to the new contract; (3) the extinguishment of the old obligation or contract;
and (4) the validity of the new one. The foregoing clearly show that novation is effected only when a
new contract has extinguished an earlier contract between the same parties. In this light, novation is
never presumed; it must be proven as a fact either by express stipulation of the parties or by implication
derived from an irreconcilable incompatibility between old and new obligations or contracts. After a
thorough review of the records, we find this element lacking in the case at bar.
As aptly found by the Court of Appeals, the petitioners and the Velezes did not reach an
agreement on the new price of P1,400,000.00 demanded by the latter. In this case, the petitioners and
the Velezes clearly did not perfect a new contract because the essential requisite of consent was
absent, the parties having failed to agree on the terms of the payment. True, petitioners made a
qualified acceptance of this offer by proposing that the payment of this higher sale price be made by
installment, with P1,000,000.00 as down payment and the balance of P400,000.00 payable thirty days
thereafter. Under Article 1319 of the Civil Code, such qualified acceptance constitutes a counter-offer
and has the ineludible effect of rejecting the Velezes’ offer. Indeed, petitioners’ counter-offer was not
accepted by the Velezes. It is well-settled that “(a)n offer must be clear and definite, while an
acceptance must be unconditional and unbounded, in order that their concurrence can give rise to a
perfected contract.” In line with this basic postulate of contract law, “a definite agreement on the manner
of payment of the price is an essential element in the formation of a binding and enforceable contract of
Since the parties failed to enter into a new contract that could have extinguished their previously
perfected contract of sale, there can be no novation of the latter. Consequently, the first sale of the
property in controversy, by the Velezes to petitioners for P1,050,000.00, remained valid and existing.

Double Sale of an Immovable

Article 1544 of the Civil Code provides the statutory solution:


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

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

Under the foregoing, the prior registration of the disputed property by the second buyer does not by
itself confer ownership or a better right over the property. Article 1544 requires that such registration must be
coupled with good faith. Jurisprudence teaches us that “(t)he governing principle is primus tempore, potior jure
(first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first
buyer’s rights except where the second buyer registers in good faith the second sale ahead of the first, as
provided by the Civil Code. Such knowledge of the first buyer does not bar her from availing of her rights under
the law, among them, to register first her purchase as against the second buyer. But in converso knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale,
since such knowledge taints his prior registration with bad faith This is the price exacted by Article 1544 of the
Civil Code for the second buyer being able to displace the first buyer; that before the second buyer can obtain
priority over the first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale and
of the first buyer’s rights) ---- from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.”

After a thorough scrutiny of the records of the instant case, the Court finds that bad faith tainted the
Avenue Group’s purchase on July 13, 1985 of the Velezes’ real property subject of this case, and the
subsequent registration thereof on August 1, 1995. The Avenue Group had actual knowledge of the Velezes’
prior sale of the same property to the petitioners, a fact antithetical to good faith. For a second buyer like the
Avenue Group to successfully invoke the second paragraph, Article 1544 of the Civil Code, it must possess
good faith from the time of the sale in its favor until the registration of the same. This requirement of good faith
the Avenue Group sorely failed to meet.


Based on the privity between petitioner Esmeraldo and Martino, the petitioner as a second buyer is
charged with constructive knowledge of prior dispositions or encumbrances affecting the subject property. The
second buyer who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith.
Moreover, although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a
party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of
occupants/tenants thereon, it is expected from the purchaser of a valued piece of land to inquire first into the
status or nature of possession of the occupants. As in the common practice in the real estate industry, an
ocular inspection of the premises involved is a safeguard that a cautious and prudent purchaser usually takes.
Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in
this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent of the
occupant's possessory rights. The failure of a prospective buyer to take such precautionary steps would mean
negligence on his part and would preclude him from claiming or invoking the rights of a "purchaser in good

The respondents, without a doubt, are possessors in good faith. Ownership should therefore vest in the
respondents because they were first in possession of the property in good faith.


DOCTRINE: The sale of Philippine land to an alien or foreigner, even if titled in the name of his Filipino spouse,
violates the Constitution and is thus, void.

[a]liens, whether individuals or corporations, are disqualified from acquiring lands of the public
domain. Hence, they are also disqualified from acquiring private lands. The primary purpose of the
constitutional provision is the conservation of the national patrimony."

Even if the Deed of Absolute Sale is in the name of Taina Manigque-Stone that does not change the
fact that the real buyer was Mike Stone, a foreigner. The appellant herself had admitted in court that the buyer
was Mike Stone and at the time of the negotiation she was not yet legally married to Mike Stone. They cannot
do indirectly what is prohibited directly by the law.

Given the fact that the sale by the Tecson spouses to Taina as Mike's dummy was totally abhorrent and
repugnant to the Philippine Constitution, and is thus, void ab initio, it stands to reason that there can be no
double sale to speak of here.


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

As regards a subsequent 'buyer in bad faith' affecting prior contracts to sell, the peculiarities of a contract to
sell, emphasized above, culminate in the unique doctrine that in case a third person purchases a property
subject of a prior contract to sell, such buyer is protected from the taint of bad faith under Article 1544.

'In a contract to sell, there being no previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance,
cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the property will transfer to the buyer after registration
because there is no defect in the owner-seller's title per se, but the latter, of course, may be sued for damages
by the intending buyer.'

This is not, however, to say that appellees are deprived of remedies. As found in the Nabus case,
appellees are entitled to the reimbursement of the sums they have paid, if only to prevent the defendants'
unjust enrichment. Appellees are also entitled to nominal damages against the defendants Manzanos and

'Sec. 3 of RA 6552 says: In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by
Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding
instalments: x x x’

Clearly, the above provision and Sec. 4 apply only when the buyer defaults in payment. In case the
defaulting buyer paid less than two years' installments, R.A. 6552 grants him no right to recover his
installments. But appellees were not in default. The acceptance by Estabillo of their late installments waived
the original period for payment.

We find that Estabillo's acceptance also bound his principals, the Manzanos, who accepted the late
payments, amounting to a tacit ratification of the agent's acts, and obligated the Manzanos to comply with its
consequences. Therefore, the period to pay the balance has not yet lapsed and appellees were not in default.


Applying now the rule on double sale under Article 1544 of the Civil Code, petitioner's right as an
innocent purchaser for value who was able to register his acquisition of the subject property should prevail over
the unregistered sale of the same to the respondent.

Article 1544 states:

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

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

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

Petitioner contends that the sale transactions are void for having been entered into by the administrator of
the properties. We disagree. The pertinent Civil Code provision provides:

“Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;” x x x

Under paragraph (2) of the above article, the prohibition against agents purchasing property in their
hands for sale or management is not absolute. It does not apply if the principal consents to the sale of
the property in the hands of the agent or administrator. In this case, the deeds of sale signed by Iluminada
Abiertas shows that she gave consent to the sale of the properties in favor of her son, Rufo, who was the
administrator of the properties. Thus, the consent of the principal Iluminada Abiertas removes the transaction
out of the prohibition contained in Article 1491(2).

Petitioner also alleges that Rufo Distajo employed fraudulent machinations to obtain the consent of
Iluminada Abiertas to the sale of the parcels of land. However, petitioner failed to adduce convincing evidence
to substantiate his allegations.

In the absence of any showing of lack of basis for the conclusions made by the Court of Appeals, this Court
finds no cogent reason to reverse the ruling of the appellate court.


Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may
reject them.[

From the evidentiary record, Negros Navigation was the party negligent in failing to deliver the complete
shipment either to Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court found, petitioner failed to
comply with the conditions precedent to the filing of a judicial action. Thus, in the last analysis, it is petitioner
that must shoulder the resulting loss. The general rule that before delivery, the risk of loss is borne by the seller
who is still the owner, under the principle of "res perit domino"


Petitioners could not validly resort to recoupment against respondent.

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is sued by
means of a legal or equitable right resulting from a counterclaim arising out of the same transaction.
It is the setting up of a demand arising from the same transaction as the plaintiff's claim, to abate or reduce
that claim.

The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the Civil Code, viz:

Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:

(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller for damages for the breach of

(3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of

(4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been
received, return them or offer to return them to the seller and recover the price or any part thereof
which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy
can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191.

In its decision, the CA applied the first paragraph of Article 1599 of the Civil Code to this case,
explaining thusly:

Paragraph (1) of Article 1599 of the Civil Code which provides for the remedy of recoupment in diminution or
extinction of price in case of breach of warranty by the seller should therefore be interpreted as referring to the
reduction or extinction of the price of the same item or unit sold and not to a different transaction or contract of
sale. This is more logical interpretation of the said article considering that it talks of breach of warranty with
respect to a particular item sold by the seller. Necessarily, therefore, the buyer's remedy should relate to the
same transaction and not to another.

Defendants-appellants' act of ordering the payment on the prime mover and transit mixer stopped was
improper considering that the said sale was a different contract from that of the dump trucks earlier purchased
by defendants-appellants.

The claim of defendants-appellants for breach of warranty, i.e. the expenses paid for the repair and
spare parts of dump truck no. 2 is therefore not a proper subject of recoupment since it does not arise out of
the contract or transaction sued on or the claim of plaintiff-appellee for unpaid balances on the last two (2)
purchases, i. e. the prime mover and the transit mixer.

The CA was correct. It was improper for petitioners to set up their claim for repair expenses and other
spare parts of the dump truck against their remaining balance on the price of the prime mover and the transit
mixer they owed to respondent. Recoupment must arise out of the contract or transaction upon which the
plaintiff's claim is founded. To be entitled to recoupment, therefore, the claim must arise from the same
transaction, i.e., the purchase of the prime mover and the transit mixer and not to a previous contract involving
the purchase of the dump truck. That there was a series of purchases made by petitioners could not be
considered as a single transaction, for the records show that the earlier purchase of the six dump trucks was a
separate and distinct transaction from the subsequent purchase of the Hino Prime Mover and the Isuzu Transit
Mixer. Consequently, the breakdown of one of the dump trucks did not grant to petitioners the right to stop and
withhold payment of their remaining balance on the last two purchases.


A stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as
the same may not be unconscionable under the circumstances is sanctioned by Article 1486 of the New Civil

he monthly installment payable by defendants-appellants was P774.00.[10] The P5,655.92 installment

payments correspond only to seven (7) monthly installments. Since they admit having used the air-conditioners
for twenty-two (22) months, this means that they did not pay fifteen (15) monthly installments on the said air-
conditioners and were thus using the same FREE for said period -- to the prejudice of plaintiff-appellee. Under
the circumstances, the treatment of the installment payments as rentals cannot be said to be unconscionable.


The vendor in a sale of personal property payable in installments may exercise one of three remedies,
namely, (1) exact the fulfillment of the obligation, should the vendee fail to pay; (2) cancel the sale upon the
vendee's failure to pay two or more installments; (3) foreclose the chattel mortgage, if one has been
constituted on the property sold, upon the vendee's failure to pay two or more installments. The third option or
remedy, however, is subject to the limitation that the vendor cannot recover any unpaid balance of the price
and any agreement to the contrary is void (Art. 1484)

The three (3) remedies are alternative and NOT cumulative. If the creditor chooses one remedy, he cannot
avail himself of the other two.


Art. 148-4. In a contract of sale of personal property the price of which is payable in installments, the vendor
may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall
be void." (New Civil Code.)

Appellants would invoke the last paragraph. But there has been no foreclosure of the chattel mortgage
nor a foreclosure sale. Therefore the prohibition against further collection does not apply.


"ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by notarial act. After the demand, the court may not grant him a new term."

It is well-settled that the above-quoted provision applies only to a contract of sale, and not to a sale on
installment or a contract to sell.

Thus, in Luzon Brokerage v. Maritime Building,[11] this Court ruled that "Art. 1592 of the new Civil Code (Art.
1504 of the old Civil Code) requiring demand by suit or notarial act in case the vendor of realty wants to
rescind does not apply to a contract to sell or promise to sell, where title remains with the vendor until" full
payment of the price. The Court stresses the difference between these two types of contract. In a contract to
sell, " the title over the subject property is transferred to the vendee only upon the full payment of the stipulated
consideration. Unlike in a contract of sale, the title does not pass to the vendee upon the execution of the
agreement or the delivery of the thing sold."

In the present case, the Deed of Conditional Sale is of the same nature as a sale on installment or a
contract to sell, which is not covered by Article 1592.

Enforcement of the Automatic Forfeiture Clause

As a general rule, a contract is the law between the parties. Thus, "from the moment the contract is
perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all
consequences which, according to their nature, may be in keeping with good faith, usage and law." Also, "the
stipulations of the contract being the law between the parties, courts have no alternative but to enforce
them as they were agreed [upon] and written, there being no law or public policy against the stipulated
forfeiture of payments already made." However, it must be shown that private respondent-vendee failed to
perform her obligation, thereby giving petitioners-vendors the right to demand the enforcement of the contract.

We concede the validity of the automatic forfeiture clause, which deems any previous payments
forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive
monthly installments or any one yearend lump sum payment. However, petitioners failed to prove the
conditions that would warrant the implementation of this clause.

Petitioners were not justified in refusing to accept the tender of payment made by private respondent on
December 30 and 31, 1990. Had they accepted it on either of said dates, she would have paid all three
monthly installments due. In other words, there was no deliberate failure on her part to meet her responsibility
to pay.[18] The Court takes note of her willingness and persistence to do so, and, petitioners cannot now say
otherwise. The fact is: they refused to accept her payment and thus have no reason to demand the
enforcement of the automatic forfeiture clause. They cannot be rewarded for their own misdeed.

Accordingly, we agree with the Court of Appeals that it would be inequitable to allow the forfeiture of the
amount of more than two million pesos already paid by private respondent, a sum which constitutes two thirds
of the total consideration. Because she did make a tender of payment which was unjustifiably refused, we hold
that petitioners cannot enforce the automatic forfeiture clause of the contract.

Application of the Maceda Law

In any event, the rescission of the contract and the forfeiture of the payments already made could not
be effected, because the case falls squarely under Republic Act No. 6552,[22] otherwise known as the
"Maceda Law." Section 3 of said law provides:

"SEC. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred Forty-
four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid
at least two years of installments, the buyer is entitled to the following rights in case he defaults in the
payment of succeeding installments:

"(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him, which is hereby fixed at the rate of one month grace period for every year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years
of the life of the contract and its extensions, if any.

"(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty percent of the total payments made and, after five
years of installments, an additional five percent every year but not to exceed ninety percent of the total
payments made: Provided, That the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.

"Down payments, deposits or options on the contract shall be included in the computation of the total
number of installments made."

Hence, the private respondent was entitled to a one-month grace period for every year of installments
paid, which means that she had a total grace period of three months from December 31, 1990. Indeed, to rule
in favor of petitioner would result in patent injustice and unjust enrichment. This tribunal is not merely a court of
law, but also a court of justice.