1

G.R. No. 166862 December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,

vs.

PHILIPPINE NATIONAL BANK, respondent,

DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. No. 46153
which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and
its Resolution3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation
(MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila.
The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To
secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a
real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of
P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its
property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in
quarterly installments of P32,650.00, plus interests and other charges.5

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and
sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to
respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.

After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent
PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered
with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February
17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of
time to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner
that the request had been referred to its Pasay City Branch for appropriate action and recommendation.9

In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17,
1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase
the property on installment.11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a
matter of policy, the bank does not accept "partial redemption."12

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and
issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent
PNB.
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Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of
June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50,
interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses
and publication cost.14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent
PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15

In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to
repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed
petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner
purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until
December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property
would be sold to other interested buyers.16

Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December
12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein
it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner
that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On
February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984.
Petitioner declared that it had already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and
that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should
PNB insist on the position.18

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's
offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On
page two of the letter was a space above the typewritten name of petitioner's President, Pablo Gabriel, where he
was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that
he had received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to
submit an amended offer to repurchase.

Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had
agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted,
respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it
had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to
pay the balance of P643,452.34 in a letter dated August 1, 1989.22

On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and
Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for
specific performance, it alleged the following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount
of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering
the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of
the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice
Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition
which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made
by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal.
PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral
computation of interest rate without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following arguments:
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36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is
constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at
least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered
besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages
should be awarded in favor of the plaintiff by way of example or correction for the public good of at least
P30,000.00.23

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect.

b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for
auction sale null and void.

c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792)
covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila
Metal and to cancel the annotation of the mortgage in question at the back of the TCT No. 37025 described in
paragraph 4 of this Complaint.

d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025 described in
paragraph 4 of this Complaint to the plaintiff Manila Metal.

e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary damages
in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this
Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation expenses
of at least P30,000.00 as may be proved during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24

In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired
ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was
perfected between it and petitioner after the period to redeem the property had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties
agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the
property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the
conditions set forth by the defendant in its letter dated June 4, 1985.

3. Whether or not there is a perfected contract of sale between the parties.26

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the
property within 15 days from notice,27 but petitioners refused to do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however
rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the
property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than
its market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30 The
offer was again rejected by respondent PNB on September 13, 1993.31
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On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's
counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court
ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action
for specific performance against respondent. The trial court declared that respondent had rejected petitioner's
offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4,
1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the
amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further
declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not
a downpayment or earnest money.

On appeal to the CA, petitioner made the following allegations:

THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985
APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND
ENFORCEABLE.

II

THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-
APPELLANT AND DEFENDANT-APPELLEE.

III

THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT
PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER
DATED 4 JUNE 1985.

IV

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED
IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE
PRICE.

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION
OF SUBJECT CONTRACT OF REPURCHASE.

VI

THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED
REPURCHASE OFFER.

VII

THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT.

VIII

THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES,
ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33

Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived,
assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani
Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the
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ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene
as plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the
motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as
intervenor.36

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner
obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept
on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of
the minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by
respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price;
petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not
pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB.
Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court
a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the
failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to
repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase
be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED
CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00
PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-
APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT
THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT
OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS
FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN
THE PARTIES.

V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED
MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE
PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38

The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for
petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property for
P1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00
with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers
that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as
gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to
purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the
contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since
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the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the
balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and
deliver the property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted
respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make
a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although the
P725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the
amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the
rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to
pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest
respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the
property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event,
respondent had the option either to accept the balance of the offered price or to cause the rescission of the
contract.

Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the
RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the
property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the
Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not
agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and
counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the
price are essential elements in the formation of a binding and enforceable contract of sale. There was no such
agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon
the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding
agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first
place, there is no basis for the application of the principles governing "suspensive conditions."

According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as
a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated
therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only
recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As
gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an
acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00
was accepted by respondent on the condition that the purchase price would still be approved by its Board of
Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not
absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of
sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority
is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD
does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so
must emanate from its Board of Directors. The SAMD was not authorized by respondent's Board to enter into
contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that
respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority.
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Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the
Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of
documentation date x x x payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total
bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's
Board of Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it
required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified
acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985
is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service.41 Under Article 1318 of the New Civil Code, there is no contract unless
the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.42 Once perfected, they bind other contracting parties
and the obligations arising therefrom have the form of law between the parties and should be complied with in
good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good faith, usage and law.43

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.44 The absence of any
of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank
of the Philippines v. Manalo:45

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation
of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the
contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale.46

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely
an offer by one party without acceptance of the other, there is no contract.47 When the contract of sale is not
perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the
parties.48

In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as
follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and
upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under
the contract of sale, culminating in the extinguishment thereof.
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A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection
of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the
withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and
without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the Court ruled
that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively
and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown
by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to
accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing
the existence of the contract of sale.52

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original
offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation
between the parties on a different basis.53 Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation
from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the
offer so as to produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked
the resources, it requested for more time to redeem/repurchase the property under such terms and conditions
agreed upon by the parties.55 The request, which was made through a letter dated August 25, 1983, was referred
to the respondent's main branch for appropriate action.56 Before respondent could act on the request, petitioner
again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS
(P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND
PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the
last six months of the one year grave period requested for.57

When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's
President reiterating its offer to purchase the property.59 There was no response to petitioner's letters dated
February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was
P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The
statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later
agree to sell the property, including interests, advances on insurance premium, advances on realty taxes,
publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer
and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind
respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60

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

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through
its officers and agents when authorized by a board resolution or its by-laws.61

It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase
the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property
and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property
be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had
previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of
petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this
counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to
have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest
money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New
Civil Code. The provision reads:

ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as
proof of the perfection of the contract.

This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement
of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this
amount as the repurchase price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of
P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB
Board.62

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event
that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to
purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no
perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract
of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to
purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified
acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still
declared that its acceptance was subject to the following terms and conditions:

1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of
account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of
approval;

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

3. All taxes and other government imposts due or to become due on the property, as well as expenses including
costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and
registration of all covering documents shall be borne by you;
 10
4. That you shall undertake at your own expense and account the ejectment of the occupants of the property
subject of the sale, if there are any;

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

6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to
protect the interest of the Bank.64

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner
refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was
ultimately rejected and respondent offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.

SO ORDERED.

G.R. No. 124791 February 10, 1999

JOSE RAMON CARCELLER, petitioner,

vs.

COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents.

QUISUMBING, J.:

Before us is a petition for review of the Decision 1 dated September 21, 1995 of the Court of Appeals 2 in CA — G.
R. CV No. 37520, as well as its Resolution 3 dated April 25, 1996, denying both parties' motion for partial
reconsideration or clarification. The assailed decision affirmed with modification the judgment 4 of the Regional
Trial Court of Cebu City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:

However, We do not find it just that the appellee, in exercising his option to buy, should pay appellant SIHI only
P1,800,000.00. In fairness to appellant SIHI, the purchase price must be based on the prevailing market price of real
property in Bulacao, Cebu City. (Emphasis supplied)

The factual background of this case is quite simple.

Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two (2) parcels of land with a
total area of 9,774 square meters, including all the improvements thereon, located at Bulacao, Cebu City, covered
by Transfer Certificate of Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu City.

On January 10, 1985, petitioner and SIHI entered into a lease contract with option to purchase 5 over said two
parcels of land, at a monthly rental of Ten Thousand (P10,000.00) pesos for a period of eighteen (18) months,
beginning on August 1, 1984 until January 30, 1986. The pertinent portion of the lease contract subject of the
dispute reads in part:
 11
4. As part of the consideration of this agreement, the LESSOR hereby grants unto the LESSEE the exclusive right,
option and privilege to purchase, within the lease period, the leased premises thereon for the aggregate amount
of P1,800,000.00 payable as follows:

a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.00.

b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over sixty (60) consecutive months
computed with interest at 24% per annum on the diminishing balance; Provided, that the LESSEE shall have the
right to accelerate payments at anytime in which event the stipulated interest for the remaining installments shall
no longer be imposed.

x . . The option shall be exercised by a written notice to the LESSOR at anytime within the option period and the
document of sale over the afore-described properties has to be consummated within the month immediately
following the month when the LESSEE exercised his option under this contract. 6

On January 7, 1986, or approximately three (3) weeks before the expiration of the lease contract, SIHI notified
petitioner of the impending termination of the lease agreement, and of the short period of time left within which
he could still validly exercise the option. It likewise requested petitioner to advise them of his decision on the option,
on or before January 20, 1986. 7

In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986, petitioner requested for a six-
month extension of the lease contract, alleging that he needs ample time to raise sufficient funds in order to
exercise the option. To support his request, petitioner averred that he had already made a substantial investment
on the property, and had been punctual in paying his monthly rentals. 8

On February 14, 1986, SIHI notified petitioner that his request was disapproved. Nevertheless, it offered to lease
the same property to petitioner at the rate of Thirty Thousand (P30,000.00) pesos a month, for a period of one (1)
year. It further informed the petitioner of its decision to offer for sale said leased property to the general public. 9

On February 18, 1986, petitioner notified SIHI of his decision to exercise the option to purchase the property and
at the same time he made arrangements for the payment of the downpayment thereon in the amount of Three
Hundred Sixty Thousand (P360,000.00) pesos. 10

On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous stand on the latter's offer,
stressing that the period within which the option should have been exercised had already lapsed. SIHI asked
petitioner to vacate the property within ten (10) days from notice, and to pay rental and penalty due. 11

Hence, on February 28, 1986, a complaint for specific performance and damages 12 was filed by petitioner against
SIHI before the Regional Trial Court of Cebu City, to compel the latter to honor its commitment and execute the
corresponding deed of sale.

After trial, the court a quo promulgated its decision dated April 1, 1991, the dispositive portion of which reads:

In the light of the foregoing considerations, the Court hereby renders judgment in Civil Case No. CEB 4700, ordering
the defendant to execute a deed of sale in favor of the plaintiff, covering the parcels of land together with all the
improvements thereon, covered by Transfer Certificates of Title Nos. 89152 and 89153 of the Registry of Deeds of
Cebu City, in accordance with the lease contract executed on January 10, 1984 between the plaintiff and the
defendant, but the purchase price may be by "one shot payment" of P1,800,000.00; and the defendant to pay
attorney's fee of P20,000.00.

No damages awarded. 13

Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by way of a petition for review.

On September 21, 1995, respondent court rendered its decision, affirming the trial court's judgment, but modified
the basis for assessing the purchase price. While respondent court affirmed appellee's option to buy the property,
 12
it added that, "the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu
City." 14

Baffled by the modification made by respondent court, both parties filed a motion for reconsideration and/or
clarification, with petitioner, on one hand, praying that the prevailing market price be the value of the property in
February 1986, the time when the sale would have been consummated. SIHI, on the other hand, prayed that the
market price of the property be based on the prevailing price index at least 10 years later, that is, 1996.

Respondent court conducted further hearing to clarify the matter, but no agreement was reached by the parties.
Thus, on April 25, 1996, respondent court promulgated the assailed resolution, which denied both parties' motions,
and directed the trial court to conduct further hearings to ascertain the prevailing market value of real properties
in Bulacao, Cebu City and fix the value of the property subject of the controversy. 14a

Hence, the instant petition for review.

The fundamental issue to be resolved is, should petitioner be allowed to exercise the option to purchase the leased
property, despite the alleged delay in giving the required notice to private respondent?

An option 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. 15 It is a separate agreement distinct from the contract which the parties may enter into upon
the consummation of the option. 16

Considering the circumstances in this case, we find no reason to disturb the findings of respondent court, that
petitioner's letter to SIHI, dated January 15, 1986, was fair notice to the latter of the former's intent to exercise the
option, despite the request for the extension of the lease contract. As stated in said letter to SIHI, petitioner was
requesting for an extension (of the contract) for six months "to allow us to generate sufficient funds in order to
exercise our option to buy the subject property". 17 The analysis by the Court of Appeals of the evidence on record
and the process by which it arrived at its findings on the basis thereof, impel this Court's assent to said findings.
They are consistent with the parties' primary intent, as hereafter discussed, when they executed the lease contract.
As respondent court ruled:

We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily, We are in accord with the
trial court that he should be allowed to exercise his option to purchase the lease property. In fact, SIHI will not be
prejudiced. A contrary ruling, however, will definitely cause damage to the appellee, it appearing that he has
introduced considerable improvements on the property and has borrowed huge loan from the Technology
Resources Center. 17a

The contracting parties' primary intent in entering into said lease contract with option to purchase confirms, in our
view, the correctness of respondent court's ruling. Analysis and construction, however, should not be limited to the
words used in the contract, as they may not accurately reflect the parties' true intent. The reasonableness of the
result obtained, after said analysis, ought likewise to be carefully considered.

It is well-settled in both law and jurisprudence, that contracts are the law between the contracting parties and
should be fulfilled, if their terms are clear and leave no room for doubt as to the intention of the contracting parties.
18 Further, it is well-settled that in construing a written agreement, the reason behind and the circumstances
surrounding its execution are of paramount importance. Sound construction requires one to be placed mentally in
the situation occupied by the parties concerned at the time the writing was executed. Thereby, the intention of the
contracting parties could be made to prevail, because their agreement has the force of law between them. 19

Moreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that the various
stipulations provided for in the contract be construed together, consistent with the parties' contemporaneous and
 13
subsequent acts as regards the execution of the contract. 20 And once the intention of the parties has been
ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed
in unequivocal terms.

As sufficiently established during the trial, SIHI, prior to its negotiation with petitioner, was already beset with
financial problems. SIHI was experiencing difficulty in meeting the claims of its creditors. Thus, in order to
reprogram the company's financial investment plan and facilitate its rehabilitation and viability, SIHI, being a quasi-
banking financial institution, had been placed under the supervision and control of the Central Bank (CB). It was in
dire need of liquidating its assets, so to speak, in order to stay afloat financially.

Thus, SIHI was compelled to dispose some of its assets, among which is the subject leased property, to generate
sufficient funds to augment its badly-depleted financial resources. This then brought about the execution of the
lease contract with option to purchase between SIHI and the petitioner.

The lease contract provided that to exercise the option, petitioner had to send a letter to SIHI, manifesting his intent
to exercise said option within the lease period ending January 30, 1986. However, what petitioner did was to
request on January 15, 1986, for a six-month extension of the lease contract, for the alleged purpose of raising
funds intended to purchase the property subject of the option. It was only after the request was denied on February
14, 1986, that petitioner notified SIHI of his desire to exercise the option formally. This was by letter dated February
18, 1986. In private respondent's view, there was already a delay of 18 days, fatal to petitioner's cause. But
respondent court found the delay neither "substantial" nor "fundamental" and did not amount to a breach that
would defeat the intention of the parties when they executed the lease contract with option to purchase. 20a

In allowing petitioner to exercise the option, however, both lower courts are in accord in their decision, rationalizing
that a contrary ruling would definitely cause damage to the petitioner, as he had the whole place renovated to
make the same suitable and conducive for the business he established there. Moreover, judging from the
subsequent acts of the parties, it is undeniable that SIHI really intended to dispose of said leased property, which
petitioner indubitably intended to buy.

SIHI's agreement to enter first into a lease contract with option to purchase with herein petitioner, is a clear proof
of its intent to promptly dispose said property although the full financial returns may materialize only in a year's
time. Furthermore, its letter dated January 7, 1986, reminding the petitioner of the short period of time left within
which to consummate their agreement, clearly showed its desire to sell that property. Also, SIHI's letter dated
February 14, 1986 supported the conclusion that it was bent on disposing said property. For this letter made
mention of the fact that, "said property is now for sale to the general public".

Petitioner's determination to purchase said property is equally indubitable. He introduced permanent

improvements on the leased property, demonstrating his intent to acquire dominion in a year's time. To increase
his chances of acquiring the property, he secured an P8 Million loan from the Technology Resources Center (TRC),
thereby augmenting his capital. He averred that he applied for a loan since he planned to pay the purchase price in
one single payment, instead of paying in installment, which would entail the payment of additional interest at the
rate of 24% per annum, compared to 73/4% per annum interest for the TRC loan. His letter earlier requesting
extension was premised, in fact, on his need for time to secure the needed financing through a TRC loan.

In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement, which is the
law between them. 21 Note that by contract SIHI had given petitioner 4 periods: (a) the option to purchase the
property for P1,800,000.00 within the lease period, that is, until January 30, 1986; (b) the option to be exercised
within the option period by written notice at anytime; (c) the "document of sale . . . to be consummated within the
month immediately following the month" when petitioner exercises the option; and (d) the payment in equal
installments of the purchase price over a period of 60 months. In our view, petitioner's letter of January 15, 1986
and his formal exercise of the option on February 18, 1986 were within a reasonable time-frame consistent with
 14
periods given and the known intent of the parties to the agreement dated January 10, 1985. A contrary view would
be harsh and inequituous indeed.

In Tuason, Jr., etc. vs. De Asis, 22 this Court opined that "in a contract of lease, if the lessor makes an offer to the
lessee to purchase the property on or before the termination of the lease, and the lessee fails to accept or make
the purchase on time, the lessee losses the right to buy the property later on the terms and conditions set in the
offer." Thus, on one hand, petitioner herein could not insist on buying the said property based on the price agreed
upon in the lease agreement, even if his option to purchase it is recognized. On the other hand, SIHI could not take
advantage of the situation to increase the selling price of said property by nearly 90% of the original price. Such
leap in the price quoted would show an opportunistic intent to exploit the situation as SIHI knew for a fact that
petitioner badly needed the property for his business and that he could afford to pay such higher amount after
having secured an P8 Million loan from the TRC. If the courts were to allow SIHI to take advantage of the situation,
the result would have been an injustice to petitioner, because SIHI would be unjustly enriched at his expense. Courts
of law, being also courts of equity, may not countenance such grossly unfair results without doing violence to its
solemn obligation to administer fair and equal justice for all.

WHEREFORE, the appealed decision of respondent court, insofar as it affirms the judgment of the trial court in
granting petitioner the opportunity to exercise the option to purchase the subject property, is hereby AFFIRMED.
However the purchase price should be based on the fair market value of real property in Bulacao, Cebu City, as of
February 1986, when the contract would have been consummated. Further, petitioner is hereby ordered to pay
private respondent SIHI legal interest on the said purchase price beginning February 1986 up to the time it is actually
paid, as well as the taxes due on said property, considering that petitioner have enjoyed the beneficial use of said
property. The case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for further proceedings to
determine promptly the fair market value of said real property as of February 1986, in Bulacao, Cebu City.

Costs against private respondent.

SO ORDERED.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee,

vs.

SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case
to Us, upon the ground that it involves a question purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall be deemed "terminated
and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch
 15
as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and damages.

After the filing of defendant's answer — admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and
the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" — on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings.
Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept
the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was,
likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

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

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

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which
was annexed to said pleading as Annex A thereof and is quoted on the margin.1 Hence, plaintiff maintains that the
promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479.
Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not
true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear
out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his
complaint, the provisions of said instrument form part "and parcel"2 of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract
to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by
the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there
is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported
by a consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this
would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in
particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479
is controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence
of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the
promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of
said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff
herein has not even alleged the existence thereof in his complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence
of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff
has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had
been held, in Bauermann v. Casas,3 that:
 16
One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and
without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of
all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9
Phil. 210). (Emphasis supplied.)

This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia Verde.5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,6 from which We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of
P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article provides:

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

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

On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any
consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:

"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such withdrawal, except when the option is founded upon consideration
as something paid or promised."

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

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

We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be
withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we
note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of
option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our
imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,8 decided later that Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no distinction between Articles 1324 and 1479 of the Civil
 17
Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved,
treating such promise as an option which, although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through
Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to
exercise his option within the specified time. After accepting the promise and before he exercises his option, the
holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon
accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto
assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a
mere option then; it was a bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities
hold that:

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also
27 Ruling Case Law 339 and cases cited.)

"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer
had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the acceptance —
could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)."
(Zayco vs. Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound
by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on contracts
— and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction that, in construing
different provisions of one and the same law or code, such interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process
of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479
of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless
the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more,
the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or
founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the
same principle.

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

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos.
It is so ordered.
 18
G.R. No. 106063 November 21, 1996

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners,

vs.

MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision1 of the Court of

Appeals2 involving questions in the resolution of which the respondent appellate court analyzed and interpreted
particular provisions of our laws on contracts and sales. In its assailed decision, the respondent court reversed the
trial court3 which, in dismissing the complaint for specific performance with damages and annulment of contract,4
found the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc. (hereafter,
Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and
unsupported by a consideration and the subsequent sale of the subject property to petitioner Equatorial Realty
Development, Inc. (hereafter, Equatorial) to have been made without any breach of or prejudice to, the said lease
contracts.5

We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim
the basis of the statement of facts as rendered by the petitioners in their pleadings:

Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M Recto
Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila.

On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion of Carmelo's
property particularly described, to wit:

A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor
area of 1,610 square meters.

THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a
floor area of 150 square meters.

for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter constructed
on the leased property a movie house known as "Maxim Theatre."

Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of
another portion of Carmelo's property, to wit:

A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor
area of 1,064 square meters.

THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of the two-storey building situated at C.M.
Recto Avenue, Manila, with a floor area of 300 square meters and bearing street numbers 1871 and 1875,

for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another movie house
known as "Miramar Theatre" on this leased property.

Both contracts of lease provides (sic) identically worded paragraph 8, which reads:

That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to
purchase the same.
 19
In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof.

Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a
telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told
Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr.
Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos.

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair replied through a
letter stating as follows:

It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr. Henry Yang through the
telephone that your company desires to sell your above-mentioned C.M. Recto Avenue property.

Under your company's two lease contracts with our client, it is uniformly provided:

8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to
purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it is (sic) herebinds (sic) and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions hereof (sic).

Carmelo did not reply to this letter.

On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only
the leased premises but "the entire building and other improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the second letter.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the
leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale,
for the total sum of P11,300,000.00.

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

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

1. That there was a deed of sale of the contested premises by the defendant Carmelo . . . in favor of defendant
Equatorial . . .;

2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff exclusive option to purchase
the leased premises should the lessor desire to sell the same (admitted subject to the contention that the
stipulation is null and void);

3. That the two buildings erected on this land are not of the condominium plan;
 20
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of lease constitute the
consideration for the plaintiff's occupancy of the leased premises, subject of the same contracts of lease, Exhibits
A and B;

xxx xxx xxx

6. That there was no consideration specified in the option to buy embodied in the contract;

7. That Carmelo & Bauermann owned the land and the two buildings erected thereon;

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

9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings
erected thereon.

xxx xxx xxx

After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads
as follows:

WHEREFORE, judgment is hereby rendered:

(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorney's fees on its
counterclaim;

(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as reasonable compensation for the
use of areas not covered by the contract (sic) of lease from July 31, 1979 until plaintiff vacates said area (sic) plus
legal interest from July 31, 1978; P70,000 00 per month as reasonable compensation for the use of the premises
covered by the contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the premises
plus legal interest from June 1, 1987; P55,000.00 per month as reasonable compensation for the use of the premises
covered by the contract of lease dated March 31, 1969 from March 30, 1989 until plaintiff vacates the premises
plus legal interest from March 30, 1989; and P40,000.00 as attorney's fees;

(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo & Bauermann.

The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all persons claiming rights
under these contracts are directed to vacate the premises.6

The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an option
clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration
therefor.

The court a quo ratiocinated:

Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease is not
supported by a separate consideration. Without a consideration, the option is therefore not binding on defendant
Carmelo & Bauermann to sell the C.M. Recto property to the former. The option invoked by the plaintiff appears in
the contracts of lease . . . in effect there is no option, on the ground that there is no consideration. Article 1352 of
the Civil Code, provides:

Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary
to law, morals, good custom, public order or public policy.

Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:
 21
When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded upon consideration, as
something paid or promised.

in relation with Article 1479 of the same Code:

A promise to buy and sell a determine thing for a price certain is reciprocally demandable.

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

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

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

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

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to sales in
particular, and, more specifically, to an accepted unilateral promise to buy or to sell. In other words, Article 1479 is
controlling in the case at bar.

(2) In order that said unilateral promise may be binding upon the promissor, Article 1479 requires the concurrence
of a condition, namely, that the promise be supported by a consideration distinct from the price.

Accordingly, the promisee cannot compel the promissor to comply with the promise, unless the former establishes
the existence of said distinct consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. 7

It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property to the
former.

Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of
Appeals. Respondent appellate court reversed the court a quo and rendered judgment:

1. Reversing and setting aside the appealed Decision;

2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty Development,
Inc. to accept such payment;

3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute the deeds
and documents necessary for the issuance and transfer of ownership to Mayfair of the lot registered under TCT
Nos. 17350, 118612, 60936, and 52571; and

4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged, declaring the Deed of
Absolute Sale between the defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty Development,
Inc. as valid and binding upon all the parties.8

Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated between
Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case, and concluded
 22
that since paragraph 8 of the two lease contracts does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale to be perfected, what paragraph 8 is, must be a right
of first refusal and not an option contract. It explicated:

Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the Civil Code.

Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept within a certain
period. Under this article, the offer may be withdrawn by the offeror before the expiration of the period and while
the offeree has not yet accepted the offer. However, the offer cannot be withdrawn by the offeror within the period
if a consideration has been promised or given by the offeree in exchange for the privilege of being given that period
within which to accept the offer. The consideration is distinct from the price which is part of the offer. The contract
that arises is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier,
defined an option as follows: "A contract by virtue of which A, in consideration of the payment of a certain sum to
B, acquires the privilege of buying from or selling to B, certain securities or properties within a limited time at a
specified price," (pp. 686-7).

Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral promise to buy or to
sell a determinate thing for a price within (which) is binding upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral promise to buy or to sell a determinate thing for a price
certain" is called an offer. An "offer", in laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil.
217). To constitute a legal offer, the proposal must be certain as to the object, the price and other essential terms
of the contract (Art. 1319, Civil Code).

Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days exclusive option to
purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the
Civil Code. Although the provision is certain as to the object (the sale of the leased premises) the price for which
the object is to be sold is not stated in the provision Otherwise stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause does not specify the price for the subject property.

Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally categorized as an
option, it is, nevertheless, a valid and binding stipulation. What the trial court failed to appreciate was the intention
of the parties behind the questioned proviso.

xxx xxx xxx

The provision in question is not of the pro-forma type customarily found in a contract of lease. Even appellees have
recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of
Mayfair. Evidently, the stipulation was intended to benefit and protect Mayfair in its rights as lessee in case Carmelo
should decide, during the term of the lease, to sell the leased property. This intention of the parties is achieved in
two ways in accordance with the stipulation. The first is by giving Mayfair "30-days exclusive option to purchase"
the leased property. The second is, in case Mayfair would opt not to purchase the leased property, "that the
purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the terms and
conditions thereof."

In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair "30-days
exclusive option to purchase the (leased premises)," was meant to provide Mayfair the opportunity to purchase
and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to
realize this intention, the implicit obligation of Carmelo once it had decided to sell the leased property, was not
only to notify Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer, before
offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right
of first refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair before
 23
offering it to other parties, or, if Carmelo should receive any offer from third parties to purchase the leased
premises, then Carmelo must first give Mayfair the opportunity to match that offer.

In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the telephone
call to Mr. Yang in 1974. Mr. Pascal thus testified:

Q Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone?

A I have an offer from another party to buy the property and having the offer we decided to make an offer to Henry
Yang on a first-refusal basis. (TSN November 8, 1983, p. 12.).

and on cross-examination:

Q When you called Mr. Yang on August 1974 can you remember exactly what you have told him in connection with
that matter, Mr. Pascal?

A More or less, I told him that I received an offer from another party to buy the property and I was offering him
first choice of the enter property. (TSN, November 29, 1983, p. 18).

We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties.9

Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of distinct
consideration indispensable in an option contract, has no application, respondent appellate court also addressed
the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible
of performance because it covered only the leased premises and not the entire Claro M. Recto property, while
Carmelo's offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in
this wise:

We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the Deed of Absolute
Sale between Carmelo and Equatorial covering the whole Claro M. Recto property, made reference to four titles:
TCT Nos. 17350, 118612, 60936 and 52571. Based on the information submitted by Mayfair in its appellant's Brief
(pp. 5 and 46) which has not been controverted by the appellees, and which We, therefore, take judicial notice of
the two theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m and TCT No.
118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of land covering the whole Recto
property demonstrates the legal and physical possibility that each parcel of land, together with the buildings and
improvements thereof, could have been sold independently of the other parcels.

At the time both parties executed the contracts, they were aware of the physical and structural conditions of the
buildings on which the theaters were to be constructed in relation to the remainder of the whole Recto property.
The peculiar language of the stipulation would tend to limit Mayfair's right under paragraph 8 of the Contract of
Lease to the acquisition of the leased areas only. Indeed, what is being contemplated by the questioned stipulation
is a departure from the customary situation wherein the buildings and improvements are included in and form part
of the sale of the subjacent land. Although this situation is not common, especially considering the non-
condominium nature of the buildings, the sale would be valid and capable of being performed. A sale limited to the
leased premises only, if hypothetically assumed, would have brought into operation the provisions of co-ownership
under which Mayfair would have become the exclusive owner of the leased premises and at the same time a co-
owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the premises sold to it.10

Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of
respondent Court of Appeals on the basis of the following assigned errors:

THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE
IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE
 24
CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF
THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.

II

WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION
TO 30 DAYS FROM NOTICE.

III

THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE
ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.

IV

THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT
ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN
THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE".11

We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in the
Court of Appeals. Suffice it to say that in our Resolution,12 dated December 9, 1992, we already took note of this
matter and set out the proper applicable procedure to be the following:

On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-complaint to this
Court alleging certain irregularities and infractions committed by certain lawyers, and Justices of the Court of
Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of
the nature of an administrative complaint for misconduct against members of the judiciary. While the letter-
complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition thereof should
be separate and independent from Case G.R. No. 106063. However, for purposes of receiving the requisite
pleadings necessary in disposing of the administrative complaint, this Division shall continue to have control of the
case. Upon completion thereof, the same shall be referred to the Court En Banc for proper disposition.13

This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and Equatorial,
to be an independent and separate subject for an administrative complaint based on misconduct by the lawyers
and justices implicated therein, it is the correct, prudent and consistent course of action not to pre-empt the
administrative proceedings to be undertaken respecting the said irregularities. Certainly, a discussion thereupon by
us in this case would entail a finding on the merits as to the real nature of the questioned procedures and the true
intentions and motives of the players therein.

In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8 stipulated in the
two contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court and the
Court of Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, in
the aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.

Both contracts of lease in question provide the identically worded paragraph 8, which reads:

That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to
purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof.14
 25
We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of
first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first
refusal.

As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our characterization of an option contract
as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether
or not to purchase a determinate thing at a predetermined fixed price.

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

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

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of
buying from, or selling to B, certain securities or properties within a limited time at a specified price. (Story vs.
Salamon, 71 N.Y., 420.)

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

An agreement in writing to give a person the option to purchase lands within a given 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, the subject of the agreement made by the parties; while
in the case at bar there was no such cause or consideration. 16 (Emphasis ours.)

The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order
to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the
option, is willing to sell.

Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square
meter upon failure to make the purchase within the time specified;17 in one other case we freed the landowner
from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such option
was not supported by a distinct consideration;18 in the same vein in yet one other case, we also invalidated an
instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
consideration;19 and as an exception to the doctrine enumerated in the two preceding cases, in another case, we
ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for
that of the other. 20 In all these cases, the selling price of the object thereof is always predetermined and specified
 26
in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very recent case
of Ang Yu Asuncion vs. Court of Appeals21 that:

. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the
thing sold in retained until the fulfillment of a positive suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory
force. . . .

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may accordingly be exacted.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor
if the promise is supported by a consideration distinct from the price. (1451a).

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings.

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely
an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by
its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a
period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right
to withdraw the offer before its acceptance, or if an acceptance has been made, before the offeror's coming to
know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll
& Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479,
modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code;
Rural Bank of Parañaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would be a breach
of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract
 27
by itself; and it is to be distinguished from the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the opinion. . .

In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease
contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second
paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts.

Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to Mayfair
and is not an option contract. It also correctly reasoned that as such, the requirement of a separate consideration
for the option, has no applicability in the instant case.

There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would
bring them into the ambit of the usual offer or option requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a
separate and distinct contract from that which the parties may enter into upon the consummation of the option. It
must be supported by consideration.22 In the instant case, the right of first refusal is an integral part of the contracts
of lease. The consideration is built into the reciprocal obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324
on withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual or "inutile" the
provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is
correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which
wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which
Carmelo is willing to accept. It is not also correct to say that there is no consideration in an agreement of right of
first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes
the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises
and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price and to buy the property at that price. As stated
in Vda. De Quirino vs. Palarca,23 in reciprocal contract, the obligation or promise of each party is the consideration
for that of the other.

The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to be
that of a contractual grant of the right of first refusal to Mayfair.

We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial.

The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu Asuncion vs.
Court of Appeals.24

First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".

What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of
first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfair's right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a
possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M
Recto property to Equatorial.
 28
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We
agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease
contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably
claim to be a purchaser in good faith, and, therefore, rescission lies.

. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced
by the sale of the subject property to the petitioner without recognizing their right of first priority under the
Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons,
to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed
for the protection of one of the contracting parties and even third persons from all injury and damage the contract
may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a
contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its
invalidation for reasons of equity.

It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action
for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and
that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is
not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be
deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in
favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the
Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed
more binding than presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes
an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the
petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it
involved stipulations that would prejudice its own interests.

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

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

Petitioners assert the alleged impossibility of performance because the entire property is indivisible property. It
was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness dictate
that instead of nullifying the agreement on that basis, the stipulation should be given effect by including the
indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal
contract where the ascendant or the more important of the two parties is the landowner should be given effect, if
 29
possible, instead of being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners
and the participation of the owner in the attempt to strip Mayfair of its rights, the right of first refusal should include
not only the property specified in the contracts of lease but also the appurtenant portions sold to Equatorial which
are claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial
without informing Mayfair, a clear violation of Mayfair's rights. While there was a series of exchanges of letters
evidencing the offer and counter-offers between the parties, Carmelo abandoned the negotiations without giving
Mayfair full opportunity to negotiate within the 30-day period.

Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be authorized
to exercise its right of first refusal under the contract to include the entirety of the indivisible property. The
boundaries of the property sold should be the boundaries of the offer under the right of first refusal. As to the
remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the concluding part of the dissenting
opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified, if not
amplified under the peculiar facts of this case.

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since
it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly
observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to
the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its own interests.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or
rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case
and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice
and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of
the contracting parties and even third persons from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract.26 The sale of the subject real property by Carmelo to
Equatorial should now be rescinded considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair
every opportunity to negotiate within the 30-day stipulated period.27

This Court has always been against multiplicity of suits where all remedies according to the facts and the law can
be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair could
have purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over it. The
damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be
to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is
P11,300,000.00. This is clear from the records.

To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of
the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to
enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of Carmelo,
it is like asking a fish if it would accept the choice of being thrown back into the river. Why should Carmelo be
rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed. After having sold
the property for P11,300,000.00, why should it be given another chance to sell it at an increased price?

Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute
because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not
by the law on contracts but by the codal provisions on human relations. This may apply here if the contract is limited
to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to
Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It
should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human
relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo
 30
to comply with its obligation to the property under the right of the first refusal according to the terms at which they
should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has
to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two
leases can be executed according to their terms.

On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that
both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into
with Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or knowledge of
the sale coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.

On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair.

Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of
interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the
property. It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial,
on the other hand, has received rents and otherwise profited from the use of the property turned over to it by
Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the
buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising
from this judgment to either Carmelo or Equatorial.

WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and
documents necessary to return ownership to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann
is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.

SO ORDERED.

G.R. No. 83759 July 12, 1991

SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO, petitioners,

vs.

HONORABLE COURT OF APPEALS and SPOUSES MARTIN VALLEJERA and APOLONIA OLEA, respondents.

Dionisio C. Isidto for petitioners.

Raymundo Lozada, Jr. for private respondents.

GUTIERREZ, JR., J.:

This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier decision of the Regional
Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No. 839 (for specific
performance and damages) ordering the petitioners (defendants in the civil case) to resell Lot No. 1860 of the
Cadastral Survey of Himamaylan, Negros Occidental to the respondents (plaintiffs in the civil case) upon payment
 31
by the latter of the amount of P24,000.00 as well as the appellate court's resolution denying a motion for
reconsideration. In addition, the appellate court ordered the petitioners to pay the amount of P5,000.00 as
necessary and useful expenses in accordance with Article 1616 of the Civil Code.

The facts of the case are not in dispute. They are summarized by the appellate court as follows:

On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action against the defendants-spouses
(petitioners herein) seeking to redeem Lot No. 1860 of the Himamaylan Cadastre which was previously sold by
plaintiffs to defendants on September 21, 1964.

The said lot was registered in the name of plaintiffs. On October 1959, the same was leased by plaintiffs to the
defendants up to crop year 1966-67, which was extended to crop year 1968-69. After the execution of the lease,
defendants took possession of the lot, up to now and devoted the same to the cultivation of sugar.

On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of Sale for the amount of
P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day and along with the execution of the
Deed of Sale, a separate instrument, denominated as Right to Repurchase (Exh. E), was executed by the parties
granting plaintiffs the right to repurchase the lot for P12,000.00, said Exh. E likewise duly ratified and notarized. By
virtue of the sale, defendants secured TCT No. T-58898 in their name. On January 2, 1969, plaintiffs sold the same
lot to Benito Derrama, Jr., after securing the defendants' title, for the sum of P12,000.00. Upon the protestations
of defendant, assisted by counsel, the said second sale was cancelled after the payment of P12,000.00 by the
defendants to Derrama.

Defendants resisted this action for redemption on the premise that Exh. E is just an option to buy since it is not
embodied in the same document of sale but in a separate document, and since such option is not supported by a
consideration distinct from the price, said deed for right to repurchase is not binding upon them.

After trial, the court below rendered judgment against the defendants, ordering them to resell lot No. 1860 of the
Himamaylan Cadastre to the plaintiffs for the repurchase price of P24,000.00, which amount combines the price
paid for the first sale and the price paid by defendants to Benito Derrama, Jr.

Defendants moved for, but were denied reconsideration. Excepting thereto, defendants-appealed, . . . (Rollo, pp.
44-45)

The petition was given due course in a resolution dated February 12, 1990.

The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan Cadastre. They
contend that the nature of the sale over the said lot between them and the private respondents was that of an
absolute deed of sale and that the right thereafter granted by them to the private respondents (Right to
Repurchase, Exhibit "E") can only be either an option to buy or a mere promise on their part to resell the property.
They opine that since the "RIGHT TO REPURCHASE" was not supported by any consideration distinct from the
purchase price it is not valid and binding on the petitioners pursuant to Article 1479 of the Civil Code.

The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides:

RIGHT TO REPURCHASE

KNOW ALL MEN BY THESE PRESENTS:

I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and Apolonia Olea, their heirs and assigns,
the right to repurchase said Lot No. 1860 for the sum of TWELVE THOUSAND PESOS (P12,000.00), Philippine
Currency, within the period TEN (10) YEARS from the agricultural year 1969-1970 when my contract of lease over
the property shall expire and until the agricultural year 1979-1980.

IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros Occidental, this 21st day of
September, 1964.
 32
SGD. CIPRIANO VASQUEZ

SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS

(Rollo, p. 47)

The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45 SCRA 368 [1972] decided
in favor of the private respondents.

In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino Rigos executed a
document entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to
Sanchez for the sum of P1,510.00, a registered parcel of land within 2 years from execution of the document with
the condition that said option shall be deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right
to buy the property" within the stipulated period. In the same document, Sanchez" . . . hereby agree and conform
with all the conditions set forth in the option to purchase executed in my favor, that I bind myself with all the terms
and conditions." (Emphasis supplied) The notarized document was signed both by Sanchez and Rigos.

After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the stipulated period
were rejected by Rigos, the former deposited said amount with the Court of First Instance of Nueva Ecija and filed
an action for specific performance and damages against Rigos.

The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum judicially consigned
and to execute in Sanchez' favor the requisite deed of conveyance. Rigos appealed the case to the Court of Appeals
which certified to this Court on the ground that it involves a pure question of law.

This Court after deliberating on two conflicting principles laid down in the cases of Southwestern Sugar and
Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 102
Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the Civil Code which provides: ––

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

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

and Article 1324 thereof which provides:

Art. 1324. When the offerer has allowed the offerer 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.

should be reconciled and harmonized to avoid a conflict between the two provisions. In effect, the Court abandoned
the ruling in the Southwestern Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll and Co.
case, to wit:

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948, 951-952) decided
later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., (supra) saw no distinction between
Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one
sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself
for lack of separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to
exercise his option within the specified time. After accepting the promise and before he exercises his option, the
holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case however, upon
accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto
 33
assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a
mere option then; it was bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities
hold that

If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient consideration . . . (77 Corpus Juris Secundum p. 652. See also
27 Ruling Case Law 339 and cases cited.)

This Court affirmed the lower court's decision although the promise to sell was not supported by a consideration
distinct from the price. It was obvious that Sanchez, the promisee, accepted the option to buy before Rigos, the
promisor, withdrew the same. Under such circumstances, the option to purchase was converted into a bilateral
contract of sale which bound both parties.

In the instant case and contrary to the appellate court's finding, it is clear that the right to repurchase was not
supported by a consideration distinct from the price. The rule is that the promisee has the burden of proving such
consideration. Unfortunately, the private respondents, promisees in the right to repurchase failed to prove such
consideration. They did not even allege the existence thereof in their complaint. (See Sanchez v. Rigos supra)

Therefore, in order that the Sanchez case can be applied, the evidence must show that the private respondents
accepted the right to repurchase.

The record, however, does not show that the private respondents accepted the "Right to Repurchase" the land in
question. We disagree with the appellate court's finding that the private respondents accepted the "right to
repurchase" under the following circumstances: . . as evidenced by the annotation and registration of the same on
the back of the transfer of certificate of title in the name of appellants. As vividly appearing therein, it was signed
by appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez spouses are
estopped from disregarding its obvious purpose and intention."

The annotation and registration of the right to repurchase at the back of the certificate of title of the petitioners
can not be considered as acceptance of the right to repurchase. Annotation at the back of the certificate of title of
registered land is for the purpose of binding purchasers of such registered land. Thus, we ruled in the case of Bel
Air Village Association, Inc. v. Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]), and
Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are bound by the annotations
found at the back of the certificate of title covering the subject parcel of land. In effect, the annotation of the right
to repurchase found at the back of the certificate of title over the subject parcel of land of the private respondents
only served as notice of the existence of such unilateral promise of the petitioners to resell the same to the private
respondents. This, however, can not be equated with acceptance of such right to repurchase by the private
respondent.

Neither can the signature of the petitioners in the document called "right to repurchase" signify acceptance of the
right to repurchase. The respondents did not sign the offer. Acceptance should be made by the promisee, in this
case, the private respondents and not the promisors, the petitioners herein. It would be absurd to require the
promisor of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given.

Furthermore, the actions of the private respondents –– (a) filing a complaint to compel re-sale and their demands
for resale prior to filing of the complaint cannot be considered acceptance. As stated in Vda. de Zulueta v. Octaviano
(121 SCRA 314 [1983]):

And even granting, arguendo that the sale was a pacto de retro sale, the evidence shows that Olimpia, through her
lawyer, opted to repurchase the land only on 16 February 1962, approximately two years beyond the stipulated
period, that is not later than May, 1960.
 34
If Olimpia could not locate Aurelio, as she contends, and based on her allegation that the contract between her was
one of sale with right to repurchase, neither, however, did she tender the redemption price to private respondent
Isauro, but merely wrote him letters expressing her readiness to repurchase the property.

It is clear that the mere sending of letters by the vendor expressing his desire to repurchase the property without
accompanying tender of the redemption price fell short of the requirements of law. (Lee v. Court of Appeals, 68
SCRA 197 [1972])

Neither did petitioner make a judicial consignation of the repurchase price within the agreed period.

In a contract of sale with a right of repurchase, the redemptioner who may offer to make the repurchase on the
option date of redemption should deposit the full amount in court . . . (Rumbaoa v. Arzaga, 84 Phil. 812 [1949])

To effectively exercise the right to repurchase the vendor a retro must make an actual and simultaneous tender of
payment or consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])

The private respondents' ineffectual acceptance of the option to buy validated the petitioner's refusal to sell the
parcel which can be considered as a withdrawal of the option to buy.

We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point.

Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25, 1952 (Emphasis supplied)
Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to private respondent
Aurelio B. Octaviano for P8,600.00 subject to certain terms and conditions. The contract was an absolute and
definite sale. On the same day, November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed another
document giving the vendor Zulueta the "option to repurchase" the property at anytime after May 1958 but not
later than May 1960. When however, Zulueta tried to exercise her "option to buy" the property, Aurelio resisted
the same prompting Zulueta to commence suit for recovery of ownership and possession of the property with the
then Court of First Instance of Iloilo.

The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed the trial court's
decision.

We affirmed the appellate court's decision and ruled:

The nature of the transaction between Olimpia and Aurelio, from the context of Exhibit "E" is not a sale with right
to repurchase. Conventional redemption takes 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. (Article 1601, Civil Code).

In this case, there was no reservation made by the vendor, Olimpia, in the document Exhibit "E" the "option to
repurchase" was contained in a subsequent document and was made by the vendee, Aurelio. Thus, it was more of
an option to buy or a mere promise on the part of the vendee, Aurelio, to resell the property to the vendor, Olimpia.
(10 Manresa, p. 311 cited in Padilla's Civil Code Annotated, Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of
Appeals (26 SCRA 189 [1968]):

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. . . (Emphasis supplied)

The appellate court rejected the application of the Zulueta case by stating:

. . . [A]s found by the trial court from which we quote with approval below, the said cases involve the lapse of
several days for the execution of separate instruments after the execution of the deed of sale, while the instant
 35
case involves the execution of an instrument, separate as it is, but executed on the same day, and notarized by the
same notary public, to wit:

A close examination of Exh. "E" reveals that although it is a separate document in itself, it is far different from the
document which was pronounced as an option by the Supreme Court in the Villarica case. The option in the Villarica
case was executed several days after the execution of the deed of sale. In the present case, Exh. "E" was executed
and ratified by the same notary public and the Deed of Sale of Lot No. 1860 by the plaintiffs to the defendants were
notarized by the same notary public and entered in the same page of the same notarial register . . .

The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the execution of the separate document
after an intervention of several days and the question of laches was decided therein, which is not present in the
instant case. That distinction is therefore crucial and We are of the opinion that the appellee's right to repurchase
has been adequately provided for and reserved in conformity with Article 1601 of the Civil Code, which states:

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with
the obligation to comply with the provision of Article 1616 and other stipulations which may have been agreed
upon. (Rollo, pp. 46-47)

Obviously, the appellate court's findings are not reflected in the cited decision.1âwphi1 As in the instant case, the
option to repurchase involved in the Zulueta case was executed in a separate document but on the same date that
the deed of definite sale was executed.

While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this, however, was not the primary
reason why this Court disallowed the redemption of the property by Zulueta. It is clear from the decision that the
ruling in the Zulueta case was based mainly on the finding that the transaction between Zulueta and Octaviano was
not a sale with right to repurchase and that the "option to repurchase was but an option to buy or a mere promise
on the part of Octaviano to resell the property to Zulueta.

In the instant case, since the transaction between the petitioners and private respondents was not a sale with right
to repurchase, the private respondents cannot avail of Article 1601 of the Civil Code which provides for conventional
redemption.

WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the Court of Appeals are hereby
REVERSED and SET ASIDE. The complaint in Civil Case No. 839 of the then Court of First Instance of Negros
Occidental 12th Judicial District Branch 6 is DISMISSED. No costs.

SO ORDERED.

G.R. No. L-32873 August 18, 1972

AQUILINO NIETES, petitioner,

vs.

HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.

Conrado V. del Rosario for petitioner.

Romeo D. Magat for private respondent.

 36
CONCEPCION, C.J.:p

Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.

It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered into a "Contract
of Lease with Option to Buy," pursuant to the terms and conditions set forth in the deed Exhibits A and A-1, (also,
marked as Exhibit 2) namely:

That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE situated at Angeles, Pampanga, a school
which is duly recognized by the Government;

That the lessor agrees to lease the above stated school to the LESSEE under the following terms and conditions:

1. That the term will be for a period of five (5) years;

2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable in the following manners:

a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS (P5,500) will be paid upon the execution of this
Contract of Lease;

b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS (P4,500) is payable on or before the 30th day of
October, 1959;

c. That the remaining balance of FIFTEEN THOUSAND PESOS (P15,000) will be paid on or before March 30, 1960;

3. That all improvements made during the lease by the LESSEE will be owned by the LESSOR after the expiration of
the term of this Contract of Lease;

4. That the LESSOR agrees to give the LESSEE an option to buy the land and the school building, for a price of ONE
HUNDRED THOUSAND PESOS (P100,000) within the period of the Contract of Lease;

5. That should the LESSEE buy the lot, land and the school building within the stipulated period, the unused payment
for the Contract of Lease will be considered as part payment for the sale of the land and school;

6. That an inventory of all properties in the school will be made on March 31, 1960;

6A. That the term of this Contract will commence in June 1960 and will terminate in June 1965;

7. That the LESSEE will be given full control and responsibilities over all the properties of the school and over all the
supervisions and administrations of the school;

8. That the LESSEE agrees to help the LESSOR to collect the back accounts of students incurred before the execution
of this contract.

Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had, as of August 4,
1961, made payments as follows:

October 6,1960 ....................................... P18,957.00 (Exh. D)

November 23, 1960 ................................. 300.00 (Exh. E)

December 21, 1960 ................................. 200.00 (Exh. F)

January 14, 1961 ..................................... 500.00 (Exh. G)

February 16, 1961 ................................... 3,000.00 (Exh. H)

March 12, 1961 ....................................... 1,000.00 (Exh. I)

March 13, 1961 ....................................... 700.00 (Exh. J)

 37
August 4, 1961 ........................................ 100.00 (Exh. K) _________

TOTAL ..................................... P24,757.00

Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia the additional
sums of P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit B and C, reading:

Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as per advance pay for the school, the
contract of lease being paid.

(Sgd.) PABLO GARCIA (Exh. B)

To Whom it May Concern:

This is to certify that I received the sum of Two Thousand Two Hundred Pesos, Philippine Currency, from Mrs.
Catherine R. Nietes as the partial payment on the purchase of the property as specified on the original contract of
"Contract of Lease with the First Option to Buy" originally contracted and duly signed.

(Sgd.) DR. PABLO GARCIA (Exh. C)

On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit V) stating:

The Director

Philippine Institute of Electronics

Angeles, Pampanga

Sir:

I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your contract, dated 19 October 1959
because of the following:

1. That you had not maintained the building, subject of the lease contract in good condition.

2. That you had not been using the original name of the school — Angeles Institute, thereby extinguishing its
existence in the eyes of the public and injuring its prestige.

3. That through your fault, no inventory has been made of all properties of the school.

4. That up to this time, you had not collected or much less helped in the collection of back accounts of former
students.

This is to remind you that the foregoing obligations had been one, if not, the principal moving factors which had
induced the lessor in agreeing with the terms embodied in your contract of lease, without which fulfillment, said
contract could not have come into existence. It is not simply one of those reminders that we make mention, that
our client under the circumstances, is not only entitled to a rescission of the contract. He is likewise entitled to
damages — actual, compensatory and exemplary.

In view of the serious nature of the breach which warrant and sanction drastic legal remedies against you, we
earnestly request you to please see the undersigned at the above-named address two days from receipt hereof.
Otherwise, if we shall not hear from you, the foregoing will serve notice on your part to vacate the premises within
five (5) days to be counted from date of notice.

Very truly yours,

(Sgd.) VICTOR T. LLAMAS, JR.

to which counsel for Nietes replied in the following language:

 38
Atty. Victor T. Llamas, Jr.

Victor Llamas Law Office

Corner Rivera-Zamora Streets

Dagupan City

Dear Sir:

Your letter dated July 31, 1964 addressed to my client, the Director of the Philippine Institute of Electronics, Angeles
City, has been referred to me and in reply, please, be informed that my client has not violated any provision of the
CONTRACT OF LEASE WITH OPTION TO BUY, executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For this
reason, there is no basis for rescission of the contract nor of the demands contained in your letter.

In this connection, I am also serving this formal notice upon your client Dr. Pablo Garcia, thru you, that my client
Mr. AQUILINO T. NIETES will exercise his OPTION to buy the land and building subject matter of the lease and that
my said client is ready to pay the balance of the purchase price in accordance with the contract. Please, inform Dr.
Pablo Garcia to make available the land title and execute the corresponding Deed of Sale pursuant to this notice,
and that if he fails to do so within fifteen (15) days from the receipt of this letter, we shall take the corresponding
action to enforce the agreement.

Truly yours,

(Sgd.) CONRADO V. DEL ROSARIO

Counsel for Mr. Aquilino T. Nietes

Angeles City

On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City checks
amounting to P84,860.50, as balance of the purchase price of the property, but he withdrew said sum of P84,860.50
on August 12, 1965, after the checks had been cleared. On August 2, 1965, he commenced the present action, in
the Court of First Instance of Pampanga, for specific performance of Dr. Garcia's alleged obligation to execute in his
(Nietes') favor a deed of absolute sale of the leased property, free from any lien or encumbrance whatsoever, he
having meanwhile mortgaged it to the People's Bank and Trust Company, and to compel him (Garcia) to accept
whatever balance of the purchase price is due him, as well as to recover from him the aggregate sum of P90,000 by
way of damages, apart from attorney's fees and the costs.

Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations thereof, as
well as setting up a counterclaim for damages in the sum of P150,000.

After due trial, said court rendered its decision, the dispositive part of which reads:

WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff and against the defendant, judgment
is hereby rendered ordering the latter to execute the Deed of Absolute Sale of property originally leased together
with the school building and other improvements thereon which are covered by the contract, Annex "A", upon
payment of the former of the balance (whatever be the amount) of the stipulated purchase price; to free the said
property from any mortgage or encumbrance and deliver the title thereto to the plaintiff free from any lien or
encumbrance, and should said defendant fail to do so, the proceeds from the purchase price be applied to the
payment of the encumbrance so that the title may be conveyed to the plaintiff; to pay the plaintiff the sum of
P1,000.00 as attorney's fees, and the cost of this suit.

Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither dismissed the
complaint nor upheld his counterclaim and failed to order Nietes to vacate the property in question, and Nietes
insofar as the trial court had granted him no more than nominal damages in the sum of P1,000, as attorney's fees.
 39
After appropriate proceedings, a special division of Court of Appeals rendered its decision, on October 18, 1969,
affirming, in effect, that of the trial court, except as regards said attorney's fees, which were eliminated. The
dispositive part of said decision of the Court of Appeals reads:

WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of the plaintiff is
eliminated, the appealed judgment is hereby affirmed in all other respects, and the defendant is ordered to execute
the corresponding deed of sale for the school building and lot in question in favor of the plaintiff upon the latter's
full payment of the balance of the purchase price. The costs of this proceedings shall be taxed against the
defendant-appellant.

On motion for reconsideration of defendant Garcia, said special division set aside its aforementioned decision and
rendered another one, promulgated on March 10, 1970 reversing the appealed decision of the court of first
instance, and dismissing the complaint of Nietes, with costs again him. Hence, the present petition of Nietes for
review certiorari of the second decision of the Court of Appeals, dated March 10, 1970, to which petition We gave
due course.

Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly predicated upon the
theory that, under the contract between the parties, "the full purchase price must be paid before the option counsel
be exercised," because "there was no need nor sense providing that "the unused payment for the Contract Lease
will be considered as part payment for the sale the land and school'" inasmuch as "otherwise there is substantial
amount from which such unused rental could be deducted"; that the statement in the letter, Exhibit L, of Nietes,
dated August 7, 1964, to the effect that he "will exercise his OPTION to buy the land and building," indication that
he did not consider the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an effective exercise of his
option to buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-Industrial Development Bank, did
not constitute a proper tender of payment, which, at any rate, was "made beyond the stipulated 5-year period";
that such deposit "was not seriously made, because on August 12, 1965, the same was withdrawn from the Bank
and ostensibly remains in the lessee's hand"; and that "the fact that such deposit was made by the lessee shows
that he himself believed that he should have paid the entire amount of the purchase price before he could avail of
the option to buy, otherwise, the deposit was a senseless gesture ... ."

Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of the contract of
lease between the parties which were paid late and not within the periods and/or schedules fixed by the contract
(Annex A.)." What is more, on the witness stand, Garcia claimed that he did "not know" whether the signatures on
Exhibits B and C — the receipt for P3,000 and P2,200, respectively — were his, and even said that he was "doubtful"
about it.

This testimony is manifestly incredible, for a man of his intelligence — a Doctor of Medicine and the owner of an
educational institution — could not possibly "not know" or entertain doubts as to whether or not the
aforementioned signatures are his and the payments therein acknowledged had been received by him. His dubious
veracity becomes even more apparent when we consider the allegations in paragraph (4) of his answer — referring
to paragraphs 5 and 6 of the complaint alleging, inter alia, the aforementioned partial payments of P3,000 and
P2,200, on account of the stipulated sale price — to the effect that said sums " paid to the herein defendant were
part of the price of the contract of lease." In other words, payment of said sums of P3,000 and P2,200 is admitted
in said answer. Besides, the rentals for the whole period of the lease aggregated P25,000 only, whereas said sums
of P3,000 and P2,200, when added to the payments previously made by Nietes, give a grand total of P29,957.00, or
P4,957 in excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less than truthful
when he tried to cast doubt upon the fact of payment of said sums of P3,000 and P2,200, as well as when he claimed
that the same were part of the rentals collectible by him.

We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the tenor of the
contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia — as reflected in the receipts Exhibits B
and C — justifies such view. The contract does not say that Nietes had to pay the stipulated price of P100,000 before
 40
exercising his option to buy the property in question. Accordingly, said option is governed by the general principles
on obligations, pursuants to which:

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins.1

In the case of an option to buy, the creditor may validly and effectively exercise his right by merely advising the
debtor of the former's decision to buy and expressing his readiness to pay the stipulated price, provided that the
same is available and actually delivered to the debtor upon execution and delivery by him of the corresponding
deed of sale. Unless and until the debtor shall have done this the creditor is not and cannot be in default in the
discharge of his obligation to pay.2 In other words, notice of the creditor's decision to exercise his option to buy
need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon
performance of his part of the agreement. Nietes need not have deposited, therefore, with the Agro-Industrial Bank
checks amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does not and
cannot affect his cause of action in the present case. In making such deposit, he may have had the intent to show
his ability to pay the balance of the sum due to Dr. Garcia as the sale price of his property. In short, said deposit
and its subsequent withdrawal cannot affect the result of the present case.

Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease," which — pursuant to
paragraph 6-A of said contract — commenced "in June 1960" and was to "terminate in June 1965." As early as
September 4, 1961, or well "within the period of the Contract of Lease," Nietes had paid Dr. Garcia the following
sums:

October 6, 1960 ............................ P18,957.00 (Exh. D)

November 23, 1960 ....................... 300.00 (Exh E)

December 21, 1960 ....................... 200.00 (Exh. F)

January 14, 1961 ........................... 500.00 (Exh. G)

February 16, 1961 ......................... 3,000.00 (Exh. H)

March 12, 1961 ............................. 1,000.00 (Exh. I)

March 13, 1961 ............................. 700.00 (Exh. J)

August 4, 1961 ............................... 100.00 (Exh. K)

September 4, 1961 ......................... 3,000.00 (Exh. B)

________

TOTAL ............................... P27,757.00

It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500 on or before
October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of P25,000, from October 19, 1959
to March 30, 1960, whereas his first payment was not made until October 10, 1960, when he delivered the sum of
P18,957 to Dr. Garcia, and the latter had by August 4, 1961, received from the former the aggregate sum of P24,757.
This is, however, P243.00 only less than the P25,000 due as of March 30, 1960, so that Nietes may be considered
as having complied substantially with the terms agreed upon. Indeed, Dr. Garcia seems to have either agreed
thereto or not considered that Nietes had thereby violated the contract, because the letter of the former, dated
July 31, 1964, demanding rescission of the contract, did not mention said acts or omissions of Nietes among his
alleged violations thereof enumerated in said communication. In fact, when, on September 4, 1961, Mrs. Nietes
turned over the sum of P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been
 41
made "as per advance pay for the school, the Contract of Lease being paid" — in other words, in accordance or
conformity with said contract. Besides, when, on December 13, 1962, Mrs. Nietes delivered the additional sum of
P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial payment on the purchase price of the
property as specified on the original contract," thus further indicating that the payment, in his opinion, conformed
with said contract, and that, accordingly, the same was in full force and effect.

In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of P27,757, or
P2,757 in excess of the P25,000 representing the rentals for the entire period of the lease, and over P21,200 in
excess of the rentals for the unexpired portion of the lease, from September 4, 1961 to June 1965. This circumstance
indicates clearly that Nietes had, on September 4, 1961, chosen to exercise and did exercise then his option to buy.
What is more, this is borne out by the receipt issued by Dr. Garcia for the payment of P2,200, on December 13,
1962, to which he referred therein as a "partial payment on the purchase of the property as specified on the original
contract of 'Contract of Lease with the First Option to Buy' ... ."

Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 — also, within the period of the
lease — stating that he "will exercise his OPTION to buy the land and building subject matter of the lease." It is not
correct to construe this expression — as did the appealed decision — as implying that the option had not been or
was not yet being exercised, or as a mere announcement of the intent to avail of it at some future time. This
interpretation takes said expression out of the context of Exhibit L, which positively states, also, that Nietes "is
ready to pay the balance of the purchase price in accordance with the contract," and requests counsel for Dr. Garcia
to inform or advise him "to make available the land title and execute the corresponding Deed of Sale pursuant to
this notice, and that if he fails to do so within fifteen (15) days ... we shall take the corresponding action to enforce
the agreement." Such demand and said readiness to pay the balance of the purchase price leave no room for doubt
that, as stated in Exhibit L, the same is "a formal notice" that Nietes had exercised his option, and expected Dr.
Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would have been no point for
said demand and readiness to pay, if Nietes had not yet exercised his option to buy.

The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to make use of his
option to buy "the unused payment for the Contract of Lease will be considered as payment for the sale of the land
and school, "simply means that the rental paid for the unused portion of the lease shall be applied to and deducted
from the sale price of P100,000 to be paid by Nietes at the proper time — in other words, simultaneously with the
delivery to him of the corresponding deed of sale, duly executed by Dr. Garcia.

It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his option to buy the
property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged receipt from Mrs. Nietes of the sum
of P2,200 then delivered by her "in partial payment on the purchase of the property" described in the "Contract of
Lease with Option to Buy"; that from the aggregate sum of P29,957.00 paid to him up to that time, the sum of
P12,708.33 should be deducted as rental for the period from June 1960 to December 13, 1962, or roughly thirty
(30) months and a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67, representing the rentals
for the unused period of the lease, plus P4,957.00 paid in excess of said rental and advanced solely on account of
the purchase price; that deducting said sum of P17,248.67 from the agreed price of P100,000.00, there results a
balance of P82,751.33 which should be paid by Nietes to Dr. Garcia, upon execution by the latter of the
corresponding deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever,
in favor of Nietes, and the delivery to him of said deed of sale, as well as of the owner's duplicate of the certificate
of title to said property; and that Dr. Garcia should indemnify Nietes in the sum of P2,500 as and for attorney's fees.

Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all other respects, and
that of the Court of Appeals reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is so ordered.
 42
G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.

THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP
No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh
Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31,
Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions
of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they
are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations,
Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of
the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with
the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because
of information received that defendants were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and interposing a special defense
of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower
court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that
the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale
at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at
a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the
decision states:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option
to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

 43
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua
and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification
the lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176
SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to
the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of
first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering
the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of
first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme
Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng
spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen
Realty and Development Corporation, subject to the following terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is
hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs,
executors, administrators or assigns, the above-described property with all the improvements found therein
including all the rights and interest in the said property free from all liens and encumbrances of whatever nature,
except the pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and
other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate
taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in
lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that
the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the
notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.

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

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both
defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno
 44
respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and
signatures upon the copy of the Motion for Execution.

The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and
that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No.

L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory.

It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that
the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that
should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the
mercurial and uncertain forces in our market economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or
more.

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in
favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the
buyer.

All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with
the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to
execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to
cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed
between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without
force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty,
at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
 45
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the
efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-
delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and
(c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some service (Art.
1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection
and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract
takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection
is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and
on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order
to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation
begins when the parties perform their respective undertakings under the contract culminating in the
extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership
of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of
Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right
to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such
perfection.3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code).4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may accordingly be exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:

Art. 1479. . . .
 46
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor
if the promise is supported by a consideration distinct from the price. (1451a)6

Observe, however, that the option is not the contract of sale itself.7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings.8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely
an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by
its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a
period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right
to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to
know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll
& Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479,
modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code;
Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach
of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract
by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature
of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract
with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the same Code. An option or
an offer would require, among other things,10 a clear certainty on both the object and the cause or consideration
of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of
the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior
thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not
by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human
conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
 47
existence, nor would it sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts.11 It is not to say, however, that the right of first refusal
would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance,
the circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in
favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In
fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the
right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an
action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution
varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:

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

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the
execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August
1991 and 27 September 1991, of the court a quo. Costs against petitioners.

SO ORDERED.

G.R. No. 111538 February 26, 1997

PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,

vs.

COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A.
RAYMUNDO, respondents.

PANGANIBAN, J.:

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
 48
terms and conditions as those given to a third party who eventually bought such properties? In short, is such right
of first refusal enforceable by an action for specific performance?

These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of
the Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in CA-G.R.
CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the order 3
of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786 for lack
of a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5 which is
reproduced in full below:

Plaintiff, by counsel, respectfully states that:

1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with
principal place of business of (sic) Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant Catalina L.
Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA,
represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant
David A. Raymundo, is of legal age, single, with residence and postal address at 1918 Kamias Street, Damariñas
Village, Makati, Metro Manila, where they (sic) may be served with summons and other court processes. Xerox
copy of the general power of attorney is hereto attached as Annex "A".

2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Parañaque, Metro Manila
with transfer certificate of title nos. S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic)
are hereto attached as Annexes "B" to "I", respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina
L. Santos, the said lease was registered in the Register of Deeds. Xerox copy of the lease is hereto attached as Annex
"J".

4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property
to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said
assignment was also registered. Xerox copy of the deed of assignment is hereto attached as Annex "K".

5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque
Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the
same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex "L".

6. Paragraph 9 of the assigned leased (sic) contract provides among others that:

"9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a
condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this
lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale,
LESSEE shall have the first option or priority to buy the properties subject of the lease;"

7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David
Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the
contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff. Xerox
copy of the deed of sale is hereto attached as Annex "M".
 49
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties
to defendant Raymundo, the said letter was personally handed by the attorney-in-fact of defendant Santos, Xerox
copy of the letter is hereto attached as Annex "N".

9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos, requesting her to rectify
the error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE
MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance are hereto attached as
Annexes "O" and "P".

10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION
(P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore (sic) the said
period expired another letter came from the counsel of defendant Santos, containing the same tenor of (sic) the
former letter. Xerox copies of the letters are hereto attached as Annexes "Q" and "R".

11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiff's counsel
wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox
copy of the letter is hereto attached as Annex "S".

12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant
Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy
of the second deed of sale is hereto attached as Annex "T".

13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to
defendant Raymundo.

14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's offer to buy or two
days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff
is not a privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex "U".

15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the
assignee of all rights and interest of the former lessor. Xerox copy of the letter is hereto attached as Annex "V".

16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant
Raymundo. Xerox copy of the letter is hereto attached as Annex "W".

17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the
defendants in the sales of the leased properties, on the ground that when plaintiff wrote a letter to defendant
Santos to rectify the error, she immediately have (sic) the property reconveyed it (sic) to her in a matter of twelve
(12) days.

18. Defendants have the same counsel who represented both of them in their exchange of communication with
plaintiff's counsel, a fact that led to the conclusion that a collusion exist (sic) between the defendants.

19. When the property was still registered in the name of defendant Santos, her collector of the rental of the leased
properties was her brother-in-law David Santos and when it was transferred to defendant Raymundo the collector
was still David Santos up to the month of June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes
"X" to "HH", respectively.

20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the plaintiff and
make it appear that the price of the leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a higher price.

21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey, six (6)
doors commercial building amounting to THREE MILLION (P3,000,000.00) PESOS. This considerable improvement
was made on the belief that eventually the said premises shall be sold to the plaintiff.
 50
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss of THREE MILLION
(P3,000,000.00) PESOS as the actual cost of the building and as such defendants should be charged of the same
amount for actual damages.

23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff in the process suffered
mental anguish, sleepless nights, bismirched (sic) reputation which entitles plaintiff to moral damages in the
amount of FIVE MILLION (P5,000,000.00) PESOS.

24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a deterrent
to the commission of similar acts, they should be made to answer for exemplary damages, the amount left to the
discretion of the Court.

25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed, but defendants
refused and failed to comply with plaintiffs just and valid and (sic) demands. Xerox copies of the demand letters are
hereto attached as Annexes "KK" to "LL", respectively.

26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy plaintiff's claim,
and was constrained to engaged (sic) the services of undersigned counsel to institute this action at a contract fee
of P200,000.00, as and for attorney's fees, exclusive of cost and expenses of litigation.

PRAYER

WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against defendants
and ordering that:

a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be sold to the
plaintiff in the amount of P5,000,000.00;

b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;

c. Defendants pay the sum of P5,000,000.00 as moral damages;

d. Defendants pay exemplary damages left to the discretion of the Court;

e. Defendants pay the sum of not less than P200,000.00 as attorney's fees.

Plaintiff further prays for other just and equitable reliefs plus cost of suit.

Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of
cause of action, estoppel and laches.

On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action.
It ratiocinated thus:

Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the defendant Santos
had verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff
for ~1 5 M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as
"RIDICULOUS". There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant
Santos. For in acquiring the said properties back to her name, and in so making the offers to sell both by herself
(attorney-in-fact) and through her counsel, defendant Santos was indeed conscientiously complying with her
obligation under paragraph 9 of the Lease Agreement. . . . .

xxx xxx xxx

This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized
itself by its subsequent averments which erased or extinguished its earlier allegations of an impending wrong.
 51
Consequently, absent any actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent
protestations of collusion is bereft or devoid of any meaning or purpose. . . . .

The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually
does not contain any valid cause of action and should therefore be as it is hereby ordered DISMISSED. The Court
finds no further need to consider the other grounds of estoppel and laches inasmuch as this resolution is sufficient
to dispose the matter. 6

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further
reasoned that:

. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when
she later resold the leased properties to Raymundo has no valid legal moorings because appellant, as a prospective
buyer, cannot dictate its own price and forcibly ram it against appellee Santos, as owner, to buy off her leased
properties considering the total absence of any stipulation or agreement as to the price or as to how the price
should be computed under paragraph 9 of the lease contract, . . . . 7

Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8

Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order and/or
Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion
sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint or of
any similar action that may have been filed; and to require respondent Raymundo to explain why he should not be
held in contempt of court for forum-shopping. The ejectment suit initiated by respondent Raymundo against
petitioner arose from the expiration of the lease contract covering the property subject of this case. The ejectment
suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said motion
moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach
of the contractual right of "first option or priority to buy" states a valid cause of action.

Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because
it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of
first refusal founded in law, and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not
raising a question of law as the issue involved is purely factual — whether respondent Santos complied with
paragraph 9 of the lease agreement — and for not having complied with Section 2, Rule 45 of the Rules of Court,
requiring the filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed by petitioner
before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate
its claim that the lower courts decided the same "in a way not in accord with law and applicable decisions of the
Supreme Court"; or that the Court of Appeals has "sanctioned departure by a trial court from the accepted and
usual course of judicial proceedings" so as to merit the exercise by this Court of the power of review under Rule 45
of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that
petitioner's payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30,
1990, was an acknowledgment of the latter's status as new owner-lessor of said property, by virtue of which
petitioner is deemed to have waived or abandoned its first option to purchase.

Private respondents likewise contend that the deed of assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract
 52
of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.

The Court's Ruling

Preliminary Issue: Failure to File

Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file twelve (12)
copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did not
result in prejudice to the adverse party, dismissal of appeal on mere technicalities — in cases where appeal is a
matter of right — may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not appear that
respondents were unduly prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was
intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents' contention that the issue involved is purely factual. The principal legal question,
as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action.
Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is
one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to
the truth or the falsehood of alleged facts. 11

At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such
ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the
facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts
alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court
could render a valid judgment upon the same in accordance with the prayer of the petition or complaint.

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or
not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff
or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action
for recovery of damages. 12

In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in
mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at the
outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of
cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has been
defectively stated, or is ambiguous, indefinite or uncertain. 13

Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded
as having hypothetically admitted all the averments thereof. 14

A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the
part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner,
the latter was granted the "first option or priority" to purchase the leased properties in case Santos decided to sell.
If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such "right." But on
September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner.
Santos indeed realized her error, since she repurchased the properties after petitioner complained. Thereafter, she
offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the
"ridiculous" price. But Santos again appeared to have violated the same provision of the lease contract when she
 53
finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner
at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable
relief, is a question which can better be resolved after trial on the merits where each party can present evidence to
prove their respective allegations and defenses. 15

The trial and appellate courts based their decision to sustain respondents' motion to dismiss on the allegations of
Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final
sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had
verily complied with her obligation to grant the right of first refusal to petitioner.

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

The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first
refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees
(Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash,
less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by
Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only
when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms
and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies
failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others,
and only under the same terms and conditions previously offered to the Bonnevies.

Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first
priority, "all things and conditions being equal." This Court interpreted this proviso to mean that there should be
identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies
to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right of
first refusal (or the first option to buy) is not to be rendered illusory.

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

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was
decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the
property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period" (emphasis supplied).

In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell
the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially
offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing
the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later,
the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for
knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property despite being
aware of the contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to
allow Mayfair to buy the subject property at the same price of P11,300,000.00.
 54
No cause of action

under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right
of first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its structures"
since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would have occupied
the property for fourteen (14) years at the end of the contractual period.

Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court
has previously ruled that under

Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal
to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, . . . .
certain prerequisites must be complied with by anyone who wishes to avail himself of the benefits of the decree."
19 There being no allegation in its complaint that the prerequisites were complied with, it is clear that the complaint
did fail to state a cause of action on this ground.

Deed of Assignment included

the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to
petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to matters
assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as
assignee, it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, . . . . 20 (emphasis supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner,
represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased
premises, . . . . 21 (emphasis supplied)

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

Respondent Raymundo privy

to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he
assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of
rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the
exercise by petitioner of its right of first refusal.
 55
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable,
party to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.

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

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

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby
REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further proceedings.

SO ORDERED.

G.R. No. 106837 August 4, 1993

HENRY MACION and ANGELES MACION, petitioners,

vs.

HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the Regional Trial Court Branch 14, Cotabato City
and DELA VIDA INSTITUTE represented by MS. JOSEPHINE LANZADERAS, respondents.

Leonardo J. Rendon for petitioners.

Mama Dalandag for private respondent Dela Vida Institute.

ROMERO, J.:

The subject of this litigation revolves around two (2) parcels of adjoining lots owned by petitioners which are the
proposed extension sites of De La Vida Institute, an educational institution located in Cotabato City.

On April 26, 1991, the petitioners and private respondent entered into a contract to sell under which terms, private
respondent, as president of De la Vida Institute, assured petitioners that they would buy the said properties on or
before July 31, 1991 in the amount of P1,750,000.00. In the meantime, petitioners surrendered the physical
possession of the two lots to private respondent who promptly built an edifice worth P800,000.00.1

But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint for unlawful detainer
against private respondent (MTCC Civil Case No. 2739). In retaliation, private respondent filed a complaint for
 56
reformation of the contract to sell executed on April 26, 1991 (Civil Case 592).2 Afterwards, the parties met to settle
their differences.

On February 6, 1992, the parties entered into a compromise agreement which stipulated among others that
petitioners would give private respondent five (5) months to raise the amount of P2,060,000.00;3 that in the event
of failure to raise the said amount within the designated period, private respondent would vacate the premises
immediately. The compromise agreement, inter alia, provided:

6. that upon the execution of this agreement, the defendant will furnish the plaintiff with xerox copy of the land
title for each lot which the latter may use for the purpose of providing information in securing a loan from any
financing or banking institution of their choice.

7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff succeeds in obtaining
funds for the purpose of settling their obligations with defendants in the total sum of P2,060,000.00 the latter shall
oblige themselves to execute, sign and deliver to the former the corresponding Deed of Sale for the two (2) lots
which is the subject of this case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos. T-22004 and
T-22005 of the Registry of Deeds for the City of Cotabato.

In affirmation of the compromise agreement, the Board of Trustees of De La Vida College passed thereafter a
resolution expressing full support to the said agreement entered into between the parties.4

On March 10, 1992, private respondent wrote petitioners that "the compromise agreement we have had in the
presence of Judge Guiani is not the same as per attached xerox copy you gave us." In that letter, which essentially
was a counter proposal, private respondent said that the price of P2,060,000.00 was higher than they were willing
to pay in the amount of P2,000,000.00 only.5 Other matters taken up in the letter were: De la Vida Institute would
admit students and hold classes until July 6, 1992 but in case they (private respondent) fail to deliver the said
amount, they would voluntarily vacate the premises and that "in the event that the bank and other lending
institutions give its nod and approval to our loan and require the submission of other documents, you will give to
us the Deed of Sale and Owner's copies of the Titles of the two (2) to t expedite release of the amount concerned."6

On March 25, 1992, the trial court approved the compromise agreement dated February 6, 1992.

Two (2) months after, private respondents, alleging that they had negotiated a loan from the Bank of the Philippine
Islands, wrote letters dated May 19, 20 and 26 requesting petitioners to execute with them a contract to sell in
their favor. On May 28, 1992, private respondent filed with the trial court an urgent motion for an order directing
petitioners to execute a contract to sell in private respondent's favor in accordance with paragraph 7 of the
compromise agreement.7

On July 8, 1992, petitioners filed a motion for execution of judgement alleging that after a lapse of five (5) months
from February 6, 1992, private respondent have failed to settle their obligations with petitioners.8

In its order dated August 6, 1992, respondent judge denied the motion for execution and directed petitioners to
execute the required contract to sell in favor of private respondent. Respondent judge opined that the proximate
cause of private respondent's failure to comply with the compromise agreement was the refusal of petitioners to
execute a contract to sell as required under the agreement. Respondent judge added that petitioners should have
executed the contract to sell because anyway they would not be prejudiced since there was no transfer of
ownership involved in a contract to sell.9

Hence this instant petition for certiorari, with prayer for a temporary restraining order enjoining respondent judge
from enforcing its August 6, 1992 order.

On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that private respondent be ordered to
consign with the court below P135,000.00 representing rentals from May 1991 to January 1992. In our resolution
dated November 18, 1992, we granted said prayer. On March 9, 1992, private respondent consigned with the Office
 57
of the Clerk of Court the sum of P135,000.00. On March 29, 1993, petitioners filed with the lower court a motion
to withdraw the consigned amount and on April 5, 1993, the trial court released the consigned amount to
petitioners. 10

The issue in the case at bar is whether or not respondent judge committed grave abuse of discretion in ordering
petitioner to execute a contract to sell in favor of private respondent.

We dismiss the petition.

The resolution of this case hinges on whether the compromise agreement gives private respondent-buyer the right
to demand from petitioner-sellers the execution of a contract to sell in favor of the former.

Apparently, paragraph 7 of the compromise agreement does not give such right to private respondent-buyer. To
wit:

7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff succeeds in obtaining
funds for the purpose of settling their obligations with defendants in the total sum of P2,060,000.00 the latter shall
oblige themselves to execute, sign and deliver to the former the corresponding Deed of Sale for the two (2) lots
which is the subject of this case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos. T-22004 and
T-22005 of the Registry of Deeds for the City of Cotabato. (Italics provided).

From the aforecited paragraph, it is clear that the seller is obliged to execute a Deed of Sale and not a Contract to
Sell upon payment of the full price of P2.06 million. Thereafter, the sellers would turn over to the buyers,
respondents herein, the owner's duplicate copy of Transfer Certificate of Title Nos. T-22004 and T-22005.

However, in the interpretation of the compromise agreement, we must delve in the contemporaneous and
subsequent acts of the parties to fathom the real intention of the parties. 11 A review of the facts reveal that even
prior to the signing of the compromise agreement and the filing of Civil Case No. 592 before the trial court, the
parties had already entered into a contract to sell. Thereafter, when the transaction failed to materialize, the parties
filed suits against each other; petitioners, their unlawful detainer case, and private respondent a complaint for
reformation of contract, alleging that petitioners in fact had caused the preparation of the contract to sell dated
April 26, 1991 with the understanding that the land would be used as a collateral in obtaining a loan with DBP.

Said contract to sell was superseded by the compromise agreement entered into on February 6, 1992 containing
the abovequoted paragraph. It must be recalled that private respondent was given five (5) months from February
6, 1992, i. e., on or before July 6, 1992 to secure the purchase price of the two (2) lots. We note that within the time
frame agreed upon by the parties, private respondents wrote three (3) letters dated may 19, 20 and 26 requesting
petitioners to execute a contract to sell in its favor.

Under these factual circumstances, we opine that the compromise agreement must be interpreted as bestowing
upon private respondent-buyer the power to demand a contract to sell from petitioner-sellers. Where the seller
promised to execute a deed of absolute sale upon completing payment of the price, it is a contract to sell. 12 In the
case at bar, the sale is still in the executory stage since the passing of title is subject to a suspensive condition,
namely, that if private respondent is able to secure the needed funds to be used in the purchased of the two (2)
lots owned by petitioners. A mere executory sale, one where the sellers merely promise to transfer the property at
some future date, or where some conditions have to be fulfilled before the contract is converted from an executory
to an executed one, does not pass ownership over the real estate being sold. 13

In our jurisdiction, it has been that an accepted bilateral promise to buy and sell is in a sense similar to, but not
exactly the same, as a perfected contract of sale because there is already a meeting of minds upon the thing which
is the object of the contract and upon the price. 14 But a contract of sale is consummated only upon the delivery
and payment. It cannot be denied that the compromise agreement, having been signed by both parties, is
tantamount to a bilateral promise to buy and sell a certain thing for a price certain. Hence, this gives the contracting
 58
parties rights in personam, such that each has the right to demand from the other the fulfillment of their respective
undertakings. 15 Demandability may be exercised at any time after the execution of the Deed. 16

The order of respondent judge directing petitioners to issue a contract to sell does not place petitioners in any
danger of losing their property without consideration, for, to repeat, in a contract to sell there is no immediate
transfer of ownership. In contracts to sell, payment is a positive suspensive condition, failure of which does not
constitute a breach but an event that prevents the obligation of the vendor to convey title from materializing, in
accordance with Article 1184 of the Civil Code. 17 Petitioners as promisors were never obliged to convey title before
the happening of the suspensive condition. In fact, nothing stood in the way of their selling the property to another
after a unsuccessful demand for said price upon the expiration of the time agreed upon.

Since the period given by the petitioners under the compromise agreement has already lapsed, we order the trial
court to fix anew a period within which private respondents could secure the needed funds for the purchase of the

land. 18 Moreover, considering that private respondents have only consigned rentals from May 1991 to January
1992 and have since accepted students for the present school year, it is only proper that they be ordered to deposit
the monthly rentals collected thereafter with the trial court.

WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby ordered to EXECUTE a contract to sell in
favor of private respondents. On the other hand, private respondent is ordered to DEPOSIT with the trial court
current rentals pending consummation of the transaction between the parties. The trial court is ordered to FIX
anew the period within which private respondents may be given the opportunity to raise funds for the purchase of
the two (2) adjoining lots owned by petitioners.

SO ORDERED.

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR.,
LIBRADO and ENRIQUETA, all surnamed OESMER,

Petitioners,

- versus -

PARAISO DEVELOPMENT CORPORATION,

Respondent.

G.R. No. 157493

Present:

YNARES-SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,

CALLEJO, SR., and

CHICO-NAZARIO, JJ.
February 5, 2007

DECISION

CHICO-NAZARIO, J.:
59
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure
seeking to reverse and set aside the Court of Appeals Decision[1] dated 26 April 2002 in CA-G.R. CV No. 53130
entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs.
Paraiso Development Corporation, as modified by its Resolution[2] dated 4 March 2003, declaring the Contract to
Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said document,
herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer);
and ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of land
in favor of herein respondent Paraiso Development Corporation, and to pay the latter the attorneys fees plus costs
of the suit. The assailed Decision, as modified, likewise ordered the respondent to tender payment to the
petitioners in the amount of P3,216,560.00 representing the balance of the purchase price of the subject parcels of
land.

The facts of the case are as follows:

Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with
Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided shares
of two parcels of agricultural and tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as
Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a total
land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano Oesmer and
Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration No. 3438[3] (cancelled
by I.D. No. 6064-A) for Lot 720 and Tax Declaration No. 3437[4] (cancelled by I.D. No. 5629) for Lot 834. When the
spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of the former by right
of succession.

Respondent Paraiso Development Corporation is known to be engaged in the real estate business.

Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought
along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development
Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners
properties to respondent corporation.

Pursuant to the said meeting, a Contract to Sell[5] was drafted by the Executive Assistant of Sotero Lee, Inocencia
Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the
amount of P100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora,
Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did
not sign the document.

On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989,
respondent brought the same to a notary public for notarization.

In a letter[6] dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of
their intention to rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as
option money.
 60
Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo and
Jesus, filed a Complaint[7] for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with
Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-
91-49.

During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,[8] dated 16
September 1992, to the effect that the deceased petitioner be substituted by his surviving spouse, Josefina O.
Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of Rizalino was
retained in the title of the case both in the RTC and the Court of Appeals.

After trial on the merits, the lower court rendered a Decision[9] dated 27 March 1996 in favor of the respondent,
the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso
Development Corporation. The assailed Contract to Sell is valid and binding only to the undivided proportionate
share of the signatory of this document and recipient of the check, [herein petitioner] co-owner Ernesto Durumpili
Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8 share over the
subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in
the sum of Ten Thousand (P10,000.00) Pesos plus costs of suit.

The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.[10]

Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate
court rendered a Decision modifying the Decision of the court a quo by declaring that the Contract to Sell is valid
and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein
petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The
decretal portion of the said Decision states that:

WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby
rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid
and binding with respect to the undivided proportionate share of the six (6) signatories of this document, [herein
petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The
said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the
subject two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the attorneys fees
in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.[11]

Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July
2002. Acting on petitioners Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March
2003, maintaining its Decision dated 26 April 2002, with the modification that respondent tender payment to
petitioners in the amount of P3,216,560.00, representing the balance of the purchase price of the subject parcels
of land. The dispositive portion of the said Resolution reads:

WHEREFORE, premises considered, the assailed Decision is hereby modified. Judgment is hereby rendered in favor
of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with
respect to the undivided proportionate shares of the six (6) signatories of this document, [herein petitioners],
namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said
[petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject
two parcels of land in favor of herein [respondent] corporation, and to pay the latter attorneys fees in the sum of
Ten Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered to tender payment to the
above-named [petitioners] in the amount of Three Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos
(P3,216,560.00) representing the balance of the purchase price of the subject two parcels of land. [12]
 61
Hence, this Petition for Review on Certiorari.

Petitioners come before this Court arguing that the Court of Appeals erred:

I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not
binding upon petitioner Ernesto Oesmers co-owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora).

II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void
altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms.
Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from the price, and hence,
void.

Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora,
on the margins of the supposed Contract to Sell did not confer authority on petitioner Ernesto as agent to sell their
respective shares in the questioned properties, and hence, for lack of written authority from the above-named
petitioners to sell their respective shares in the subject parcels of land, the supposed Contract to Sell is void as to
them. Neither do their signatures signify their consent to directly sell their shares in the questioned properties.
Assuming that the signatures indicate consent, such consent was merely conditional. The effectivity of the alleged
Contract to Sell was subject to a suspensive condition, which is the approval of the sale by all the co-owners.

Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of Appeals,
is not couched in simple language.

They further claim that the supposed Contract to Sell does not bind the respondent because the latter did not sign
the said contract as to indicate its consent to be bound by its terms. Furthermore, they maintain that the supposed
Contract to Sell is really a unilateral promise to sell and the option money does not bind petitioners for lack of cause
or consideration distinct from the purchase price.

The Petition is bereft of merit.

It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora,
on the Contract to Sell did not confer authority on petitioner Ernesto as agent authorized to sell their respective
shares in the questioned properties because of Article 1874 of the Civil Code, which expressly provides that:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.

The law itself explicitly requires a written authority before an agent can sell an immovable. The conferment of such
an authority should be in writing, in as clear and precise terms as possible. It is worth noting that petitioners
signatures are found in the Contract to Sell. The Contract is absolutely silent on the establishment of any principal-
agent relationship between the five petitioners and their brother and co-petitioner Ernesto as to the sale of the
subject parcels of land. Thus, the Contract to Sell, although signed on the margin by the five petitioners, is not
sufficient to confer authority on petitioner Ernesto to act as their agent in selling their shares in the properties in
question.

However, despite petitioner Ernestos lack of written authority from the five petitioners to sell their shares in the
subject parcels of land, the supposed Contract to Sell remains valid and binding upon the latter.

As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed the said Contract to
Sell; the other five petitioners also personally affixed their signatures thereon. Therefore, a written authority is no
longer necessary in order to sell their shares in the subject parcels of land because, by affixing their signatures on
the Contract to Sell, they were not selling their shares through an agent but, rather, they were selling the same
directly and in their own right.
 62
The Court also finds untenable the following arguments raised by petitioners to the effect that the Contract to Sell
is not binding upon them, except to Ernesto, because: (1) the signatures of five of the petitioners do not signify
their consent to sell their shares in the questioned properties since petitioner Enriqueta merely signed as a witness
to the said Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did
not understand the importance and consequences of their action because of their low degree of education and the
contents of the aforesaid contract were not read nor explained to them; and (2) assuming that the signatures
indicate consent, such consent was merely conditional, thus, the effectivity of the alleged Contract to Sell was
subject to a suspensive condition, which is the approval by all the co-owners of the sale.

It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer
made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good
faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer. However, the
acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.[13]

In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to the respondent
of their shares in the subject parcels of land by affixing their signatures on the said contract. Such signatures show
their acceptance of what has been stipulated in the Contract to Sell and such acceptance was made known to
respondent corporation when the duplicate copy of the Contract to Sell was returned to the latter bearing
petitioners signatures.

As to petitioner Enriquetas claim that she merely signed as a witness to the said contract, the contract itself does
not say so. There was no single indication in the said contract that she signed the same merely as a witness. The
fact that her signature appears on the right-hand margin of the Contract to Sell is insignificant. The contract
indisputably referred to the Heirs of Bibiano and Encarnacion Oesmer, and since there is no showing that Enriqueta
signed the document in some other capacity, it can be safely assumed that she did so as one of the parties to the
sale.

Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract
to Sell. As the Court of Appeals mentioned in its Decision,[14] the records of the case speak of the fact that
petitioner Ernesto, together with petitioner Enriqueta, met with the representatives of the respondent in order to
finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said contract when
the same was drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto
made in connection with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract
to Sell, she updated the payment of the real property taxes and transferred the Tax Declarations of the questioned
properties in her name.[15] Hence, it cannot be gainsaid that she merely signed the Contract to Sell as a witness
because she did not only actively participate in the negotiation and execution of the same, but her subsequent
actions also reveal an attempt to comply with the conditions in the said contract.

With respect to the other petitioners assertion that they did not understand the importance and consequences of
their action because of their low degree of education and because the contents of the aforesaid contract were not
read nor explained to them, the same cannot be sustained.

We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of this
issue. Thus,

First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and understand.
The terms of the Contract, specifically the amount of P100,000.00 representing the option money paid by
[respondent] corporation, the purchase price of P60.00 per square meter or the total amount of P3,316,560.00 and
 63
a brief description of the subject properties are well-indicated thereon that any prudent and mature man would
have known the nature and extent of the transaction encapsulated in the document that he was signing.

Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of the
case clearly indicate the [petitioners] intention to be bound by the stipulations chronicled in the said Contract to
Sell.

As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property as
he in fact was the one who initiated the negotiation process and culminated the same by affixing his signature on
the Contract to Sell and by taking receipt of the amount of P100,000.00 which formed part of the purchase price.

As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a
document written in a language (English) that he purportedly does not understand. He testified that the document
was just brought to him by an 18 year old niece named Baby and he was told that the document was for a check to
be paid to him. He readily signed the Contract to Sell without consulting his other siblings. Thereafter, he exerted
no effort in communicating with his brothers and sisters regarding the document which he had signed, did not
inquire what the check was for and did not thereafter ask for the check which is purportedly due to him as a result
of his signing the said Contract to Sell. (TSN, 28 September 1993, pp. 22-23)

The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p. 19). As such, he is
expected to act with that ordinary degree of care and prudence expected of a good father of a family. His unwitting
testimony is just divinely disbelieving.

The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to Sell. The theory
adopted by the [petitioners] that because of their low degree of education, they did not understand the contents
of the said Contract to Sell is devoid of merit. The [appellate court] also notes that Adolfo (one of the co-heirs who
did not sign) also possess the same degree of education as that of the signing co-heirs (TSN, 15 October 1991, p.
19). He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and has even accompanied
Rogelio Paular to the Assessors Office to locate certain missing documents which were needed to transfer the titles
of the subject properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners], like Adolfo,
are far from ignorant, more so, illiterate that they can be extricated from their obligations under the Contract to
Sell which they voluntarily and knowingly entered into with the [respondent] corporation.

The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the case of Tan Sua
Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows:

The Court does not accept the petitioners claim that she did not understand the terms and conditions of the
transactions because she only reached Grade Three and was already 63 years of age when she signed the
documents. She was literate, to begin with, and her age did not make her senile or incompetent. x x x.

At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere has it been proven
that she is unable to read or that the contracts were written in a language not known to her. It was her responsibility
to inform herself of the meaning and consequence of the contracts she was signing and, if she found them difficult
to comprehend, to consult other persons, preferably lawyers, to explain them to her. After all, the transactions
involved not only a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos.

As the Court has held:

x x x The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of
illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the
contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable
persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able
to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from avoiding it
on the ground that he was ignorant of its contents.[16]
 64
that the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective of
whether or not all of the heirs consented to the said Contract to Sell, was unveiled by Adolfos testimony as follows:

ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody will
agree, the properties would not be sold, was that agreement in writing?

WITNESS: No sir.

ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign that
agreement which had been marked as [Exhibit] D, your brothers and sisters were grossly violating your agreement.

WITNESS: Yes, sir, they violated what we have agreed upon.[17]

We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such consent
was merely conditional, and that, the effectivity of the alleged Contract to Sell was subject to the suspensive
condition that the sale be approved by all the co-owners. The Contract to Sell is clear enough. It is a cardinal rule in
the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulation shall control.[18] The terms of the Contract to Sell
made no mention of the condition that before it can become valid and binding, a unanimous consent of all the heirs
is necessary. Thus, when the language of the contract is explicit, as in the present case, leaving no doubt as to the
intention of the parties thereto, the literal meaning of its stipulation is controlling.

In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can dispose
of their shares even without the consent of all the co-heirs. Article 493 of the Civil Code expressly provides:

Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except
when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners,
shall be limited to the portion which may be allotted to him in the division upon the termination of the co-
ownership. [Emphases supplied.]

Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid and
binding with respect to the 6/8 proportionate shares of the petitioners, as properly held by the appellate court.

Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners who were
signatories in the Contract to Sell are bound thereby.

The final arguments of petitioners state that the Contract to Sell is void altogether considering that respondent
itself did not sign it as to indicate its consent to be bound by its terms; and moreover, the Contract to Sell is really
a unilateral promise to sell without consideration distinct from the price, and hence, again, void. Said arguments
must necessarily fail.

The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation.
Respondent corporations consent to be bound by the terms of the contract is shown in the uncontroverted facts
which established that there was partial performance by respondent of its obligation in the said Contract to Sell
when it tendered the amount of P100,000.00 to form part of the purchase price, which was accepted and
acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the payment
to enforce the terms of the contract. Accordingly, despite the absence of respondents signature in the Contract to
Sell, the former cannot evade its obligation to pay the balance of the purchase price.

As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it
used the word option money when it referred to the amount of P100,000.00, which also form part of the purchase
price.
 65
Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting
parties is to be discharged by looking to the words they used to project that intention in their contract, all the
words, not just a particular word or two, and words in context, not words standing alone.[19]

In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as option
money. However, a careful examination of the words used in the contract indicates that the money is not option
money but earnest money. Earnest money and option money are not the same but distinguished thus: (a) earnest
money is part of the purchase price, while option money is the money given as a distinct consideration for an option
contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet
perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the
option.[20]

The sum of P100,000.00 was part of the purchase price. Although the same was denominated as option money, it
is actually in the nature of earnest money or down payment when considered with the other terms of the contract.
Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the
trial court and the appellate court declared in their Decisions.

THEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of Appeals
dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell is DECLARED valid
and binding with respect to the undivided proportionate shares in the subject parcels of land of the six signatories
of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the amount of P3,216,560.00
representing the balance of the purchase price for the latters shares in the subject parcels of land; and (c)
petitioners are further ORDERED to execute in favor of respondent the Deed of Absolute Sale covering their shares
in the subject parcels of land after receipt of the balance of the purchase price, and to pay respondent attorneys
fees plus costs of the suit. Costs against petitioners.

SO ORDERED.

G.R. No. 71694 August 16, 1991

NYCO SALES CORPORATION, petitioner,

vs.

BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL COURT, BR. II, INTERMEDIATE
APPELLATE COURT, FIRST CIVIL CASES DIVISION, respondents.

ABC Law Offices for petitioner.

Valera, Urmeneta & Associates for private respondent.

PARAS, J.:

In this petition for review on certiorari, petitioner challenges the April 22, 1985 decision* and the July 16, 1985
resolution* of the then Intermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA Finance Corporation v.
Nyco Sales Corporation, et al." which affirmed with modification the July 20, 1983 decision** of the Regional Trial
Court, National Capital Region, Manila, Branch II in the same case docketed as Civil Case No. 125909 ordering
 66
petitioner to pay respondent the amount of P60,000.00 as principal obligation plus corresponding interest, the sum
of P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.

It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco) whose president and
general manager is Rufino Yao, is engaged in the business of selling construction materials with principal office in
Davao City. Sometime in 1978, the brothers Santiago and Renato Fernandez (hereinafter referred to as the
Fernandezes), both acting in behalf of Sanshell Corporation, approached Rufino Yao for credit accommodation.
They requested Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco had with BA Finance
Corporation (hereinafter referred to as BA Finance). Yao apparently acquiesced, hence on or about November 15,
1978, the Fernandezes went to Yao for the purpose of discounting Sanshell's post-dated check which was a BPI-
Davao Branch Check No. 499648 dated February 17, 1979 for the amount of P60,000.00. The said check was payable
to Nyco. Following the discounting process agreed upon, Nyco, thru Yao, endorsed the check in favor of BA Finance.
Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Sanshell then made
use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of Assignment executed by
Nyco in favor of BA Finance with the conformity of Sanshell. Nyco was represented by Rufino Yao, while Sanshell
was represented by the Fernandez brothers. Under the said Deed, the subject of the discounting was the aforecited
check (Rollo, pp- 26-28). At the back thereof and of every deed of assignment was the Continuing Suretyship
Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full, faithful and prompt
payment and discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check, however, was
dishonored by the drawee bank upon presentment for payment. BA Finance immediately reported the matter to
the Fernandezes who thereupon issued a substitute check dated February 19,1979 for the same amount in favor
of BA Finance. It was a Security Bank and Trust Company check bearing the number 183157, which was again
dishonored when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes failed to
settle the obligation with BA Finance, thus prompting the latter to institute an action in court (Ibid., p 28). Nyco and
the Fernandezes, despite having been served with summons and copies of the complaint, failed to file their answer
and were consequently declared in default. On May 16, 1980, the lower court ruled in favor of BA Finance ordering
them to pay the former jointly and severally, the sum of P65,536.67 plus 14% interest per annum from July 1, 1979
and attorney's fees in the amount of P3, 000. 00 as well as the costs of suit (Rollo, pp. 51-52). Nyco, however, moved
to set aside the order of default, to have its answer admitted and to be able to implead Sanshell. The prayer was
granted through an order dated June 23, 1980, wherein the decision of the court was set aside only as regards
Nyco. Trial ensued once more until the court reached a second decision which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Nyco Sales
Corporation by ordering the latter to pay the former the following:

1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from February 1, 1979
until fully paid;

2) The amount of P100,000.00 as and for attorney's fees; and

3) One-third (1/3) of the costs of this suit.

With respect to defendants Santiago and Renato Fernandez, the decision of May 16, 1980 stands.

The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago B. Fernandez and Renato B.
Fernandez is hereby denied, as there is no showing that Nyco's Answer with cross-claim dated May 29, 1980 was
ever received by said Fernandez brothers, even as it is noted that the latter have not been declared in default with
respect to said cross-claim, nor were evidence adduced in connection therewith.

As to the would-be litigant Sanshell Construction and Development Corporation, defendant Nyco Sales Corporation
did not properly implead said corporation which should have been by way of a third-party complaint instead of a
mere cross-claim. The same observations are noted as regard this cross-claim against Sanshell as those made with
respect to the Fernandez brothers.
 67
SO ORDERED.

On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by ordering that the
interest should run from February 19, 1979 until paid and not from February 1, 1979. Nyco's subsequent motion
for reconsideration was denied (Ibid., pp. 33, 62). Hence, the present recourse.

The crux of the controversy is whether or not the assignor is liable to its assignee for its dishonored checks.

For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court erred in affirming
its liability for the BPI check despite a similar finding of liability for the SBTC check rendered by the same lower
court; b) that it was actually discharged of its liability over the SBTC check when BA Finance failed to give it a notice
of dishonor; c) that there was novation when BA Finance accepted the SBTC check in replacement of the BPI check;
and d) that it cannot be held liable for its Presidents unauthorized acts.

The petition is devoid of merit.

An assignment of credit is the process of transferring the right of the assignor to the assignee, who would then be
allowed to proceed against the debtor. It may be done either gratuitously or generously, in which case, the
assignment has an effect similar to that of a sale.

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its existence and
legality) and the person of the debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be
any breach of the above warranties, the assignor-vendor should be held answerable therefor. There is no question
then that the assignor-vendor is indeed liable for the invalidity of whatever he as signed to the assignee-vendee.

Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of assignment in favor
of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the
check covered thereby is merely an incidental or collateral matter. This particular check merely evidenced the credit
which was actually assigned to BA Finance. Thus, the designation is immaterial as it could be any other check. Both
the lower and the appellate courts recognized this and so it is utterly misplaced to say that Nyco is being held liable
for both the BPI and the SBTC checks. It is only what is represented by the said checks that Nyco is being asked to
pay. Indeed, nowhere in the dispositive parts of the decisions of the courts can it be gleaned that BA Finance may
recover from the two checks.

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter
but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had
frequent contacts before, during and after the dishonor (Rollo, p. 40). More importantly, it fails to realize that for
as long as the credit remains outstanding, it shall continue to be liable to BA Finance as its assignor. The dishonor
of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it from
such liability. This is because the cause of action stems from the breach of the warranties embodied in the Deed of
Assignment, and not from the dishonoring of the check alone (See Art. 1628, Civil Code).

Novation is the third defense set up by petitioner Nyco.1âwphi1 It insists that novation took place when BA Finance
accepted the SBTC check in replacement of the BPI cheek. Such is manifestly untenable.

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing
an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in
unequivocal terms as novation is never presumed (Mondragon v. Intermediate Appellate Court, G.R. No. 71889,
April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322, February 5, 1990). Secondly, the old and the new
obligations must be incompatible on every point. The test of incompatibility is whether or not the two obligations
can stand together, each one having its independent existence If they cannot, they are incompatible and the latter
obligation novates the first (Mondragon v. Intermediate Appellate Court, supra; Caneda Jr. v. Court of Appeals,
supra). In the instant case, there was no express agreement that BA Finance's acceptance of the SBTC check will
discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to terminate
 68
a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations,
such is inapplicable to this case.

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's President) to even
apply to BA Finance for credit accommodation. It supports its argument with the fact that it did not issue a Board
resolution giving Yao such authority. However, the very evidence on record readily belies Nyco's contention. Its
corporate By-Laws clearly provide for the powers of its President, which include, inter alia, executing contracts and
agreements, borrowing money, signing, indorsing and delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower court's observation that there was already a previous
transaction of discounting of checks involving the same personalities wherein any enabling resolution from Nyco
was dispensed with and yet BA Finance was able to collect from Nyco and Sanshell was able to discharge its own
undertakings. Such effectively places Nyco under estoppel in pais which arises when one, by his acts,
representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief,
so that he will be prejudiced if the former is permitted to deny the existence of such facts (Panay Electric Co., Inc.
v. Court of Appeals, G.R. No. 81939, June 29,1989). Nyco remained silent in the course of the transaction and spoke
out only later to escape liability. This cannot be countenanced. Nyco is estopped from denying Rufino Yao's
authority as far as the latter's transactions with BA Finance are concerned.

PREMISES CONSIDERED, the decision appealed from is AFFIRMED.

SO ORDERED.

G.R. No. 78903 February 28, 1990

SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,

vs.

THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.

Francisco A. Puray, Sr. for petitioners.

Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:

This is a petition to annul and set aside the decision of the Court of Appeals rendered on May 26, 1987, upholding
the validity of the sale of a parcel of land by petitioner Segundo Dalion (hereafter, "Dalion") in favor of private
respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described thus:

A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name of Segundo Dalion, under Tax
Declaration No. 11148, with an area of 8947 hectares, assessed at P 180.00, and bounded on the North, by Sergio
Destriza and Titon Veloso, East, by Feliciano Destriza, by Barbara Bonesa (sic); and West, by Catalino Espina. (pp.
36-37, Rollo)

The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the dispositive portion of
which provides as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.

 69
(a) Ordering the defendants to deliver to the plaintiff the parcel of land subject of this case, declared in the name
of Segundo Dalion previously under Tax Declaration No. 11148 and lately under Tax Declaration No. 2297 (1974)
and to execute the corresponding formal deed of conveyance in a public document in favor of the plaintiff of the
said property subject of this case, otherwise, should defendants for any reason fail to do so, the deed shall be
executed in their behalf by the Provincial Sheriff or his Deputy;

(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's fees and P 500.00 as litigation
expenses, and to pay the costs; and

(c) Dismissing the counter-claim. (p. 38, Rollo)

The facts of the case are as follows:

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private document of absolute
sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who, however denied the fact of sale, contending
that the document sued upon is fictitious, his signature thereon, a forgery, and that subject land is conjugal
property, which he and his wife acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura de Venta
Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje that after executing a deed of sale over the parcel
of land, they had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did not
have any means of livelihood. They admitted, however, administering since 1958, five (5) parcels of land in Sogod,
Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956. They never
received their agreed 10% and 15% commission on the sales of copra and abaca, respectively. Sabesaje's suit, they
countered, was intended merely to harass, preempt and forestall Dalion's threat to sue for these unpaid
commissions.

From the adverse decision of the trial court, Dalion appealed, assigning errors some of which, however, were
disregarded by the appellate court, not having been raised in the court below. While the Court of Appeals duly
recognizes Our authority to review matters even if not assigned as errors in the appeal, We are not inclined to do
so since a review of the case at bar reveals that the lower court has judicially decided the case on its merits.

As to the controversy regarding the identity of the land, We have no reason to dispute the Court of Appeals' findings
as follows:

To be sure, the parcel of land described in Exhibit "A" is the same property deeded out in Exhibit "B". The boundaries
delineating it from adjacent lots are identical. Both documents detail out the following boundaries, to wit:

On the North-property of Sergio Destriza and Titon Veloso;

On the East-property of Feliciano Destriza;

On the South-property of Barbara Boniza and

On the West-Catalino Espina.

(pp. 41-42, Rollo)

The issues in this case may thus be limited to: a) the validity of the contract of sale of a parcel of land and b) the
necessity of a public document for transfer of ownership thereto.

The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule 132 of the Revised Rules
of Court.

SEC. 21. Private writing, its execution and authenticity, how proved.-Before any private writing may be received in
evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the writing executed;

 70
(b) By evidence of the genuineness of the handwriting of the maker; or

(c) By a subscribing witness

xxx xxx xxx

SEC. 23. Handwriting, how proved. — The handwriting of a person may be proved by any witness who believes it
to be the handwriting of such person, and has seen the person write, or has seen writing purporting to be his upon
which the witness has acted or been charged, and has thus acquired knowledge of the handwriting of such person.
Evidence respecting the handwriting may also be given by a comparison, made by the witness or the court, with
writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine
to the satisfaction of the judge. (Rule 132, Revised Rules of Court)

And on the basis of the findings of fact of the trial court as follows:

Here, people who witnessed the execution of subject deed positively testified on the authenticity thereof. They
categorically stated that it had been executed and signed by the signatories thereto. In fact, one of such witnesses,
Gerardo M. Ogsoc, declared on the witness stand that he was the one who prepared said deed of sale and had
copied parts thereof from the "Escritura De Venta Absoluta" (Exhibit B) by which one Saturnina Sabesaje sold the
same parcel of land to appellant Segundo Dalion. Ogsoc copied the bounderies thereof and the name of appellant
Segundo Dalion's wife, erroneously written as "Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)

xxx xxx xxx

Against defendant's mere denial that he signed the document, the positive testimonies of the instrumental
Witnesses Ogsoc and Espina, aside from the testimony of the plaintiff, must prevail. Defendant has affirmatively
alleged forgery, but he never presented any witness or evidence to prove his claim of forgery. Each party must
prove his own affirmative allegations (Section 1, Rule 131, Rules of Court). Furthermore, it is presumed that a person
is innocent of a crime or wrong (Section 5 (a), Idem), and defense should have come forward with clear and
convincing evidence to show that plaintiff committed forgery or caused said forgery to be committed, to overcome
the presumption of innocence. Mere denial of having signed, does not suffice to show forgery.

In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and A-3) with the admitted
signatures or specimens (Exhs. X and Y or 3-C) convinces the court that Exhs. A-2 or Z and A-3 were written by
defendant Segundo Dalion who admitted that Exhs. X and Y or 3-C are his signatures. The questioned signatures
and the specimens are very similar to each other and appear to be written by one person.

Further comparison of the questioned signatures and the specimens with the signatures Segundo D. Dalion
appeared at the back of the summons (p. 9, Record); on the return card (p. 25, Ibid.); back of the Court Orders dated
December 17, 1973 and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on the open
court notice of April 13, 1983 (p. 235, Ibid.) readily reveal that the questioned signatures are the signatures of
defendant Segundo Dalion.

It may be noted that two signatures of Segundo D. Dalion appear on the face of the questioned document (Exh. A),
one at the right corner bottom of the document (Exh. A-2) and the other at the left hand margin thereof (Exh. A-3).
The second signature is already a surplusage. A forger would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-43,
Rollo)

We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate that

Appellate courts have consistently subscribed to the principle that conclusions and findings of fact by the trial courts
are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons, since it is
undeniable that the trial court is in a more advantageous position to examine real evidence, as well as to observe
 71
the demeanor of the witnesses while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13,
1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)

Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless still impugns the
validity of the sale on the ground that the same is embodied in a private document, and did not thus convey title
or right to the lot in question since "acts and contracts which have for their object the creation, transmission,
modification or extinction of real rights over immovable property must appear in a public instrument" (Art. 1358,
par 1, NCC).

This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel
of land that this be embodied in a public instrument.

A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular
form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance
(Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold (Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to execute
corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC, when the sale is made
through a public instrument, the execution thereof is equivalent to the delivery of the thing. Delivery may either
be actual (real) or constructive. Thus delivery of a parcel of land may be done by placing the vendee in control and
possession of the land (real) or by embodying the sale in a public instrument (constructive).

As regards petitioners' contention that the proper action should have been one for specific performance, We
believe that the suit for recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives the
parties to a perfected contract of sale the right to reciprocally demand performance, and to observe a particular
form, if warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's complaint sufficiently alleged a cause
of action to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership, which is
premised on the binding effect and validity inter partes of the contract of sale, merely seeks consummation of said
contract.

... . A sale of a real property may be in a private instrument but that contract is valid and binding between the
parties upon its perfection. And a party may compel the other party to execute a public instrument embodying their
contract affecting real rights once the contract appearing in a private instrument hag been perfected (See Art.
1357).

... . (p. 12, Decision, p. 272, Records)

ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals upholding the ruling of the trial
court is hereby AFFIRMED. No costs.

SO ORDERED.
 72
G.R. No. L-23351 March 13, 1968

CIRILO PAREDES, plaintiff-appellant,

vs.

JOSE L. ESPINO, defendant-appellee.

Simeon Capule for plaintiff-appellant.

Iñigo R. Peña for defendant-appellee.

REYES, J.B.L., Actg. C.J.:

Appeal from an order of the Court of First Instance of Palawan in its Civil Case No. 453, granting a motion to
dismiss the complaint.

Appellant Cirilo Parades had filed an action to compel defendant-appellee Jose L. Espino to execute a deed of
sale and to pay damages. The complaint alleged that the defendant "had entered into the sale" to plaintiff of Lot
No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that the deal had been "closed by letter and
telegram" but the actual execution of the deed of sale and payment of the price were deferred to the arrival of
defendant at Puerto Princesa; that defendant upon arrival had refused to execute the deed of sale altho plaintiff
was able and willing to pay the price, and continued to refuse despite written demands of plaintiff; that as a result,
plaintiff had lost expected profits from a resale of the property, and caused plaintiff mental anguish and suffering,
for which reason the complaint prayed for specific performance and damages.

Defendant filed a motion to dismiss upon the ground that the complaint stated no cause of action, and that
the plaintiff's claim upon which the action was founded was unenforceable under the Statute of Frauds.

Plaintiff opposed in writing the motion to dismiss and annexed to his opposition a copy of a letter purportedly
signed by defendant (Annex "A"), wherein it was stated (Record on Appeal, pp. 19-20) —

106 GonzagaSt.

Tuguegarao,Cagayan

May18,1964

Mr.CiriloParedes

Pto.Princesa,Palawan

Dear Mr. Paredes:

So far I received two letters from you, one dated April 17 and the other April 29, both 1964. In reply thereto,
please be informed that after consulting with my wife, we both decided to accept your last offer of Four (P4.00)
pesos per square meter of the lot which contains 1826 square meters and on cash basis.

In order that we can facilitate the transaction of the sale in question, we (Mrs. Espino and I), are going there
(Puerto Princess, Pal.) to be there during the last week of the month, May. I will send you a telegram, as per your
request, when I will reach Manila before taking the boat for Pto. Princess. As it is now, there is no schedule yet of
the boats plying between Manila and Pto. Princess for next week.

Plaintiff also appended as Annex "A-1", a telegram apparently from defendant advising plaintiff of his arrival
by boat about the last week of May 1964 (Annex "A-1" Record on Appeal, p. 21), as well as a previous letter of
 73
defendant (Appendix B, Record on Appeal, p. 35) referring to the lot as the one covered by Certificate of Title No.
62.

These allegations and documents notwithstanding, the Court below dismissed the complaint on the ground
that there being no written contract, under Article 1403 of the Civil Code of the Philippines —

Although the contract is valid in itself, the same can not be enforced by virtue of the Statute of Frauds. (Record
on Appeal, p. 37).1äwphï1.ñët

Plaintiff duly appealed to this Court.

The sole issue here is whether enforcement of the contract pleaded in the complaint is barred by the Statute
of Frauds; and the Court a quo plainly erred in holding that it was unenforceable.

The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the
contract itself be in writing. The plain text of Article 1403, paragraph (2) is clear that a written note or memorandum,
embodying the essentials of the contract and signed by the party charged, or his agent, suffices to make the verbal
agreement enforceable, taking it out of the operation of the statute.

Art. 1403. — The following contracts are unenforceable, unless they are ratified:

(1) . . .

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:

xxx xxx xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein.1äwphï1.ñët

xxx xxx xxx

In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and
telegram" (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended
as Exhibit A to plaintiff's opposition to the motion dismiss. This letter, transcribed above in part, together with that
one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the
defendant-appellee; refer to the property sold as a lot in Puerto Princesa, Palawan, covered, by TCT No. 62; give its
area as 1826 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We
have in them therefore, all the essential terms of the contract, and they satisfy the requirements of the Statute of
Frauds. We have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a sufficient memorandum may be
contained in two or more documents.

Defendant-appellee argues that the authenticity of the letters has not been established. That is not necessary
for the purpose of showing prima facie that the contract is enforceable. For as ruled by us in Shaffer vs. Palma, L-
24115, March 1, 1968, whether the agreement is in writing or not, is a question of evidence; and the authenticity
of the writing need not be established until the trial is held. The plaintiff having alleged that the contract is backed
by letter and telegram, and the same being a sufficient memorandum, his cause of action is thereby established,
especially since the defendant has not denied the letters in question. At any rate, if the Court below entertained
any doubts about the existence of the written memorandum, it should have called for a preliminary hearing on that
point, and not dismissed the complaint.

WHEREFORE, the appealed order is hereby set aside, and the case remanded to the Court of origin for trial
and decision. Costs against defendant-appellee Jose L. Espino. So ordered.
 74
G.R. No. L-55048 May 27, 1981

SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO SOTTO, petitioners,

vs.

HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA
NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU, OSCAR DY, DY CHIU SENG, BENITO YOUNG,
FERNANDO YU, SEBASTIAN YU, CARLOS UY, HOC CHUAN and MANUEL DY, respondents.

BARREDO, J.:1äwphï1.ñët

Petition for certiorari and prohibition to declare void for being in grave abuse of discretion the orders of respondent
judge dated November 2, 1978 and August 29, 1980, in Civil Case No. 5759 of the Court of First Instance of Leyte,
which denied the motion filed by petitioners to dismiss the complaint of private respondents for specific
performance of an alleged agreement of sale of real property, the said motion being based on the grounds that the
respondents' complaint states no cause of action and/or that the claim alleged therein is unenforceable under the
Statute of Frauds.

Finding initially prima facie merit in the petition, We required respondents to answer and We issued a temporary
restraining order on October 7, 1980 enjoining the execution of the questioned orders.

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

To be more specific, the parties do not dispute that on July 12, 1978, petitioners, thru a certain Pedro C. Gamboa,
sent to respondents the following letter:

Mr. Yao King Ong

Life Bakery

Tacloban City

Dear Mr. Yao: 1äwphï1.ñët

This refers to the Sotto property (land and building) situated at Tacloban City. My clients are willing to sell them at
a total price of P6,500,000.00.

While there are other parties who are interested to buy the property, I am giving you and the other occupants the
preference, but such priority has to be exercised within a given number of days as I do not want to lose the
opportunity if you are not interested. I am therefore gluing you and the rest of the occupants until July 31, 1978
within it which to decide whether you want to buy the property. If I do not hear from you by July 31, I will offer or
close the deal with the other interested buyer.

Thank you so much for the hospitality extended to me during my last trip to Tacloban, and I hope to hear from you
very soon. 1äwphï1.ñët

Very truly yours,

 75
Pedro C. Gamboa 1

(Page 9, Record.)

Reacting to the foregoing letter, the following telegram was sent by "Yao King Ong & tenants" to Atty. Pedro
Gamboa in Cebu City:

Atty. Pedro Gamboa

Room 314, Maria Cristina Bldg.

Osmeña Boulevard, Cebu City

Reurlet dated July 12 inform Dra. Yuvienco we agree to buy property proceed Tacloban to negotiate details
1äwphï1.ñët

Yao King Ong & tenants

(Page 10, Record.)

Likewise uncontroverted is the fact that under date of July 27, 1978, Atty. Gamboa wired Yao King Ong in Tacloban
City as follows:

NLT

YAO KING ONG

LIFE BAKERY

TACLOBAN CITY

PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH CONTRACT PREPARE PAYMENT BANK DRAFT
1äwphï1.ñët

ATTY. GAMBOA

(Page 10, Id.)

Now, Paragraph 10 of the complaint below of respondents alleges: 1äwphï1.ñët

10. That on August 1, 1978, defendant Pedro Gamboa arrived Tacloban City bringing with him the prepared contract
to purchase and to sell referred to in his telegram dated July 27, 1978 (Annex 'D' hereof) for the purpose of closing
the transactions referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of plaintiffs, the
defendant (except def. Tacloban City Ice Plant, Inc.) without giving notice to plaintiffs, changed the mode of
payment with respect to the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount within thirty
(30) days from execution of the contract instead of the former term of ninety (90) days as stated in paragraph 8
hereof. (Pp. 10-11, Record.)

Additionally and to reenforce their position, respondents alleged further in their complaint: 1äwphï1.ñët

8. That on July 12, 1978, defendants (except defendant Tacloban City Ice Plant, Inc.) finally sent a telegram letter
to plaintiffs- tenants, through same Mr. Yao King Ong, notifying them that defendants are willing to sell the
properties (lands and building) at a total price of P6,500,000.00, which herein plaintiffs-tenants have agreed to buy
the said properties for said price; a copy of which letter is hereto attached as integral part hereof and marked as
Annex 'C', and plaintiffs accepted the offer through a telegram dated July 25, 1978, sent to defendants (through
defendant Pedro C. Gamboa), a copy of which telegram is hereto attached as integral part hereof and marked as
Annex C-1 and as a consequence hereof. plaintiffs except plaintiff Tacloban - merchants' Realty Development
 76
Corporation) and defendants (except defendant Tacloban City Ice Plant. Inc.) agreed to the following terms and
conditions respecting the payment of said purchase price, to wit: 1äwphï1.ñët

P2,000,000.00 to be paid in full on the date of the execution of the contract; and the balance of P4,500,000.00 shall
be fully paid within ninety (90) days thereafter;

9. That on July 27, 1978, defendants sent a telegram to plaintiff- tenants, through the latter's representative Mr.
Yao King Ong, reiterating their acceptance to the agreement referred to in the next preceding paragraph hereof
and notifying plaintiffs-tenants to prepare payment by bank drafts; which the latter readily complied with; a copy
of which telegram is hereto attached as integral part hereof and marked as Annex "D"; (Pp 49-50, Record.)

It was on the basis of the foregoing facts and allegations that herein petitioners filed their motion to dismiss alleging
as main grounds: 1äwphï1.ñët

I. That plaintiff, TACLOBAN MERCHANTS' REALTY DEVELOPMENT CORPORATION, amended complaint, does not
state a cause of action and the claim on which the action is founded is likewise unenforceable under the provisions
of the Statute of Frauds.

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

With commendable knowledgeability and industry, respondent judge ruled negatively on the motion to dismiss,
discoursing at length on the personality as real party-in-interest of respondent corporation, while passing lightly,
however, on what to Us are the more substantial and decisive issues of whether or not the complaint sufficiently
states a cause of action and whether or not the claim alleged therein is unenforceable under the Statute of Frauds,
by holding thus: 1äwphï1.ñët

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

To take a contract for the sale of land out of the Statute of Frauds a mere note or memorandum in writing
subscribed by the vendor or his agent containing the name of the parties and a summary statement of the terms
of the sale either expressly or by reference to something else is all that is required. The statute does not require a
formal contract drawn up with technical exactness for the language of Par. 2 of Art. 1403 of the Philippine Civil
Code is' ... an agreement ... or some note or memorandum thereof,' thus recognizing a difference between the
contract itself and the written evidence which the statute requires (Berg vs. Magdalena Estate, Inc., 92 Phil. 110; Ill
Moran, Comments on the Rules of Court, 1952 ed. p. 187). See also Bautista's Monograph on the Statute of Frauds
in 21 SCRA p. 250. (Pp. 110-111, Record)

Our first task then is to dwell on the issue of whether or not in the light of the foregoing circumstances, the
complaint in controversy states sufficiently a cause of action. This issue necessarily entails the determination of
whether or not the plaintiffs have alleged facts adequately showing the existence of a perfected contract of sale
between herein petitioners and the occupant represented by respondent Yao King Ong.

In this respect, the governing legal provision is, of course, Article 1319 of the Civil Code which provides:1äwphï1.ñët
 77
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are constitute the contract. The offer must be certain the acceptance absolute. A qualified acceptance
constitute a counter-offer.

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

In the instant case, We can lay aside, for the moment, petitioners' contention that the letter of July 12, 1978 of
Atty. Pedro C. Gamboa to respondents Yao King Ong and his companions constitute an offer that is "certain",
although the petitioners claim that it was a mere expression of willingness to sell the subject property and not a
direct offer of sale to said respondents. What We consider as more important and truly decisive is what is the
correct juridical significance of the telegram of respondents instructing Atty. Gamboa to "proceed to Tacloban to
negotiate details." We underline the word "negotiate" advisedly because to Our mind it is the key word that negates
and makes it legally impossible for Us to hold that respondents' acceptance of petitioners' offer, assuming that it
was a "certain" offer indeed, was the "absolute" one that Article 1319 above-quoted requires.

Dictionally, the implication of "to negotiate" is practically the opposite of the Idea that an agreement has been
reached. Webster's Third International Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine copyright) gives the
meaning of negotiate as "to communicate or confer with another so as to arrive at the settlement of some matter;
meet with another so as to arrive through discussion at some kind of agreement or compromise about something;
— to arrange for or bring about through conference or discussion; work at or arrive at or settle upon by meetings
and agreements or compromises — ". Importantly, it must be borne in mind that Yao King Ong's telegram simply
says "we agree to buy property". It does not necessarily connote acceptance of the price but instead suggests that
the details were to be subject of negotiation.

Respondents now maintain that what the telegram refers to as "details" to be "negotiated" are mere "accidental
elements", not the essential elements of the contract. They even invite attention to the fact that they have alleged
in their complaint (Par. 6) that it was as early as "in the month of October, 1977 (that) negotiations between
plaintiffs and defendants for the purchase and sale (in question) — were made, thus resulting to offers of same
defendants and counter-offer of plaintiffs". But to Our mind such alleged facts precisely indicate the failure of any
meeting of the minds of the parties, and it is only from the letter and telegrams above-quoted that one can
determine whether or not such meeting of the minds did materialize. As We see it, what such allegations bring out
in bold relief is that it was precisely because of their past failure to arrive at an agreement that petitioners had to
put an end to the uncertainty by writing the letter of July 12, 1978. On the other hand, that respondents were all
the time agreeable to buy the property may be conceded, but what impresses Us is that instead of "absolutely"
accepting the "certain" offer — if there was one — of the petitioners, they still insisted on further negotiation of
details. For anyone to read in the telegram of Yao that they accepted the price of P6,500,000.00 would be an
inference not necessarily warranted by the words "we agree to buy" and "proceed Tacloban to negotiate details".
If indeed the details being left by them for further negotiations were merely accidental or formal ones, what need
was there to say in the telegram that they had still "to negotiate (such) details", when, being unessential per their
contention, they could have been just easily clarified and agreed upon when Atty. Gamboa would reach Tacloban?

Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier above, We gather that it was in answer to
the telegram of Yao. Considering that Yao was in Tacloban then while Atty. Gamboa was in Cebu, it is difficult to
surmise that there was any communication of any kind between them during the intervening period, and none such
is alleged anyway by respondents. Accordingly, the claim of respondents in paragraph 8 of their complaint below
that there was an agreement of a down payment of P2 M, with the balance of P4.5M to be paid within 90 days
afterwards is rather improbable to imagine to have actually happened.

Respondents maintain that under existing jurisprudence relative to a motion to dismiss on the ground of failure of
the complaint to state a cause of action, the movant-defendant is deemed to admit the factual allegations of the
 78
complaint, hence, petitioners cannot deny, for purposes of their motion, that such terms of payment had indeed
been agreed upon.

While such is the rule, those allegations do not detract from the fact that under Article 1319 of the Civil Code above-
quoted, and judged in the light of the telegram-reply of Yao to Atty. Gamboa's letter of July 12, 1978, there was not
an absolute acceptance, hence from that point of view, petitioners' contention that the complaint of respondents
state no cause of action is correct.

Nonetheless, the alleged subsequent agreement about the P2 M down and P4.5 M in 90 days may at best be
deemed as a distinct cause of action. And placed against the insistence of petitioners, as demonstrated in the two
deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10 of the answer of herein respondents, that there
was no agreement about 90 days, an issue of fact arose, which could warrant a trial in order for the trial court to
determine whether or not there was such an agreement about the balance being payable in 90 days instead of the
30 days stipulated in Annexes 9 and 10 above-referred to. Our conclusion, therefore, is that although there was no
perfected contract of sale in the light of the letter of Atty. Gamboa of July 12, 1978 and the letter-reply thereto of
Yao; it being doubtful whether or not, under Article 1319 of the Civil Code, the said letter may be deemed as an
offer to sell that is "certain", and more, the Yao telegram is far from being an "absolute" acceptance under said
article, still there appears to be a cause of action alleged in Paragraphs 8 to 12 of the respondents' complaint,
considering it is alleged therein that subsequent to the telegram of Yao, it was agreed that the petitioners would
sell the property to respondents for P6.5 M, by paving P2 M down and the balance in 90 days and which agreement
was allegedly violated when in the deeds prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given
to respondents.

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

It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is any writing or memorandum, much
less a duly signed agreement to the effect that the price of P6,500,000 fixed by petitioners for the real property
herein involved was agreed to be paid not in cash but in installments as alleged by respondents. The only
documented indication of the non-wholly-cash payment extant in the record is that stipulated in Annexes 9 and 10
above-referred to, the deeds already signed by the petitioners and taken to Tacloban by Atty. Gamboa for the
signatures of the respondents. In other words, the 90-day term for the balance of P4.5 M insisted upon by
respondents choices not appear in any note, writing or memorandum signed by either the petitioners or any of
them, not even by Atty. Gamboa. Hence, looking at the pose of respondents that there was a perfected agreement
of purchase and sale between them and petitioners under which they would pay in installments of P2 M down and
P4.5 M within ninety 90) days afterwards it is evident that such oral contract involving the "sale of real property"
comes squarely under the Statute of Frauds (Article 1403, No. 2(e), Civil Code.)

On the other score of considering the supposed agreement of paying installments as partly supported by the letter
and t telegram earlier quoted herein, His Honor declared with well studied ratiocination, albeit legally inaccurate,
that: 1äwphï1.ñët

The next issue relate to the State of Frauds. It is contended that plaintiffs' action for specific performance to compel
the defendants to execute a good and sufficient conveyance of the property in question (Sotto land and building)
is unenforceable because there is no other note memorandum or writing except annexes "C", "C-l" and "D", which
by themselves did not give birth to a contract to sell. The argument is not well founded. The rules of pleading limit
 79
the statement of the cause of action only to such operative facts as give rise to the right of action of the plaintiff to
obtain relief against the wrongdoer. The details of probative matter or particulars of evidence, statements of law,
inferences and arguments need not be stated. Thus, Sec. 1 of Rule 8 provides that 'every pleading shall contain in
a methodical and logical form, a plain concise and direct statement of the ultimate facts on which the party pleading
relies for his claim or defense, as the case may be, omitting the statement of mere evidentiary facts.' Exhibits need
not be attached. The contract of sale sued upon in this case is supported by letters and telegrams annexed to the
complaint and plaintiffs have announced that they will present additional evidences during the trial to prove their
cause of action. The plaintiffs having alleged that the contract is backed up by letters and telegrams, and the same
being sufficient memorandum, the complaint states a cause of action and they should be given their day in court
and allowed to substantiate their allegations (Parades vs. Espino, 22 SCRA 1000). (Pp 165-166, Record.)

The foregoing disquisition of respondent judge misses at least two (2) juridical substantive aspects of the Statute
of Frauds insofar as sale of real property is concerned. First, His Honor assumed that the requirement of perfection
of such kind of contract under Article 1475 of the Civil Code which provides that "(t)he contract of sale is perfected
at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the
price", the Statute would no longer apply as long as the total price or consideration is mentioned in some note or
memorandum and there is no need of any indication of the manner in which such total price is to be paid.

We cannot agree. In the reality of the economic world and the exacting demands of business interests monetary in
character, payment on installments or staggered payment of the total price is entirely a different matter from cash
payment, considering the unpredictable trends in the sudden fluctuation of the rate of interest. In other words, it
is indisputable that the value of money - varies from day to day, hence the indispensability of providing in any sale
of the terms of payment when not expressly or impliedly intended to be in cash.

Thus, We hold that in any sale of real property on installments, the Statute of Frauds read together with the
perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea
of payment on installments must be in the requisite of a note or memorandum therein contemplated. Stated
otherwise, the inessential elements" mentioned in the case of Parades vs. Espino, 22 SCRA 1000, relied upon by
respondent judge must be deemed to include the requirement just discussed when it comes to installment sales.
There is nothing in the monograph re — the Statute of Frauds appearing in 21 SCRA 250 also cited by His Honor
indicative of any contrary view to this ruling of Ours, for the essence and thrust of the said monograph refers only
to the form of the note or memorandum which would comply with the Statute, and no doubt, while such note or
memorandum need not be in one single document or writing and it can be in just sufficiently implicit tenor,
imperatively the separate notes must, when put together', contain all the requisites of a perfected contract of sale.
To put it the other way, under the Statute of Frauds, the contents of the note or memorandum, whether in one
writing or in separate ones merely indicative for an adequate understanding of all the essential elements of the
entire agreement, may be said to be the contract itself, except as to the form.

Secondly, We are of the considered opinion that under the rules on proper pleading, the ruling of the trial court
that, even if the allegation of the existence of a sale of real property in a complaint is challenged as barred from
enforceability by the Statute of Frauds, the plaintiff may simply say there are documents, notes or memoranda
without either quoting them in or annexing them to the complaint, as if holding an ace in the sleeves is not correct.
To go directly to the point, for Us to sanction such a procedure is to tolerate and even encourage undue delay in
litigation, for the simple reason that to await the stage of trial for the showing or presentation of the requisite
documentary proof when it already exists and is asked to be produced by the adverse party would amount to
unnecessarily postponing, with the concomitant waste of time and the prolongation of the proceedings, something
that can immediately be evidenced and thereby determinable with decisiveness and precision by the court without
further delay.

In this connection, Moran observes that unlike when the ground of dismissal alleged is failure of the complaint to
state a cause of action, a motion to dismiss invoking the Statute of Frauds may be filed even if the absence of
compliance does not appear an the face of the complaint. Such absence may be the subject of proof in the motion
 80
stage of the proceedings. (Moran, Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It follows then that
when such a motion is filed and all the documents available to movant are before the court, and they are insufficient
to comply with the Statute, it becomes incumbent upon the plaintiff, for the reasons of policy We have just'
indicated regarding speedy administration of justice, to bring out what note or memorandum still exists in his
possession in order to enable the court to expeditiously determine then and there the need for further proceedings.
In other words, it would be inimical to the public interests in speedy justice for plaintiff to play hide and seek at his
own convenience, particularly, when, as is quite apparent as in the instant case that chances are that there are no
more writings, notes or memoranda of the installment agreement alleged by respondents. We cannot divine any
reason why any such document would be withheld if they existed, except the unpermissible desire of the
respondents to force the petitioners to undergo the ordeals, time, effort and expenses of a futile trial.

In the foregoing premises, We find no alternative than to render judgment in favor of petitioners in this certiorari
and prohibition case. If at all, appeal could be available if the petitioners subjected themselves to the trial ruled to
be held by the trial court. We foresee even at this point, on the basis of what is both extant and implicit in the
records, that no different result can be probable. We consider it as sufficiently a grave abuse of discretion
warranting the special civil actions herein the failure of respondent judge to properly apply the laws on perfection
of contracts in relation to the Statute of Frauds and the pertinent rules of pleading and practice, as We have
discussed above.

ACCORDINGLY, the impugned orders of respondent judge of November 2, 1978 and August 29, 1980 are hereby set
aside and private respondents' amended complaint, Annex A of the petition, is hereby ordered dismissed and the
restraining order heretofore issued by this Court on October 7, 1980 is declared permanent. Costs against
respondents.

G.R. No. 118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner,

vs.

COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, respondents.

MELO, J.:

The issue in the petition before us is whether or not there was a perfected contract between petitioner Limketkai
Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel of land,
approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila.

Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that there was
a perfected contract of sale between petitioner and BPI. It stated that there was mutual consent between the
parties; the subject matter is definite; and the consideration was determined. It concluded that all the elements of
a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI to respondent National
Book Store (NBS) while the case was pending and the nullification of a title issued in favor of said respondent NBS.

Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected because there
was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The decision of the trial
court was reversed and the complaint dismissed.

Hence, the instant petition.

 81
Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of facts of
the trial court and the Court of Appeals narrate basically the same events and occurrences. The records show that
on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and sell its real
estate property. One such piece of property placed under trust was the disputed lot, a 33,056-square meter lot at
Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122.

On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot
for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine Remnants.

Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988,
petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President, to enter
and view the property they were buying.

On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11, 1988,
petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by
Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price of P1,000.00 per
square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that
the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the authority to sell was on a first
come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over
petitioner's being the first comer and the buyer to be first served.

Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked if it was
possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms
because in previous transactions, the same had been allowed. It was the understanding, however, that should the
term payment be disapproved, then the price shall be paid in cash.

It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon,
Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the payment initially of
10% and the remaining 90% within a period of 90 days.

Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI
on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused because
Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit.
The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment.

An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner against BPI.
In the course of the trial, BPI informed the trial court that it had sold the property under litigation to NBS on July
14, 1989. The complaint was thus amended to include NBS.

On June 10, 1991, the trial court rendered judgment in the case as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of the Philippine Islands
and National Book Store, Inc.: —

1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the Philippine
Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store, Inc., null and void;

2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of Title which may have
been issued in favor of National Book Store, Inc. by virtue of the aforementioned Deed of Sale dated July 14, 1989;

3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to execute a Deed of Sale
in favor of plaintiff of the aforementioned property at the price of P1,000.00 per square meter; in default thereof,
the Clerk of this Court is directed to execute the said deed;
 82
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether executed by defendant BPI
or the Clerk of Court and payment of the corresponding fees and charges, to cancel said T.C.T. No. 493122 and to
issue, in lieu thereof, another transfer certificate of title in the name of plaintiff;

5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the plaintiff the sums of
P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney's fees and litigation expenses,
both with interest at 12% per annum from date hereof;

6. On the cross-claim of defendant bank against National Book Store, ordering the latter to indemnify the former
of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and

7. Dismissing the counterclaims of the defendants against the plaintiff and National Book Store's cross-claim against
defendant bank.

Costs against defendants.

(pp. 44-45, Rollo.)

As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and Mabutas, JJ.),
on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for specific performance
and damages.

The issues raised by the parties revolve around the following four questions:

(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject matter of
the contract and the cause of the obligation?

(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned contract?

(3) Is there competent and admissible evidence to support the alleged meeting of the minds?

(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?

There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant Co.
authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine
Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c) that petitioner
and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin
allowed the broker and the buyer to inspect the property; and (e) that BPI was formally informed about the broker
having procured a buyer.

The controversy revolves around the interpretation or the significance of the happenings or events at this point.

Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and broker
Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI offices.

Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy the
land and not the perfection of the sale. The arguments of respondents center on two propositions — (1) Vice-
Presidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the subsequent
attempts of petitioner to pay under terms instead of full payment in cash constitutes a counter-offer which negates
the existence of a perfected contract.

The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record.

At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot. Exhibit
B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the property located
at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to him was to sell and
not merely to look for a buyer, as contended by respondents.
 83
Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and in
behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land, Revilla saw
it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed broker, we see no
reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage
and administer real estate property.

Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top bank
officials. It appears from the record that this trust committee meets rather infrequently and it does not have to
pass on regular transactions.

Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real Property
Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising officer of real
estate matters. Aromin had been with the BPI Trust Department since 1968 and had been involved in the handling
of properties of beneficial owners since 1975 (tsn., December 3, 1990, p. 5).

Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while purporting to
inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of Torrens titles, lease
contracts, problems of tenants, insurance policies, installment receivables, management fees, quitclaims, and other
matters involving real estate transactions. His immediate superior, Vice-President Merlin Albano had been with the
Real Estate Division for only one week but he was present and joined in the discussions with petitioner.

There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla brought
the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural manner on the
transaction before him with not the slightest indication that he was acting ultra vires. This shows that BPI held
Aromin out to the public as the officer routinely handling real estate transactions and, as Trust Officer, entering
into contracts to sell trust properties.

Respondents state and the record shows that the authority to buy and sell this particular trust property was later
withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as alleged,
there was no need to withdraw authority which he never possessed.

Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court of
Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818,
40 ALR 1021), to wit:

Accordingly a banking corporation is liable to innocent third persons where the representation is made in the course
of its business by an agent acting within the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person
for his own ultimate benefit.

(at pp. 652-653.)

In the present case, the position and title of Aromin alone, not to mention the testimony and documentary evidence
about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction. There is no
allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate benefit. BPI later
dismissed Aromin because it appeared that a top official of the bank was personally interested in the sale of the
Pasig property and did not like Aromin's testimony. Aromin was charged with poor performance but his dismissal
was only sometime after he testified in court. More than two long years after the disputed transaction, he was still
Assistant Vice-President of BPI.

The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants Co.
regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page of broker
Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down again to
P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin and honored
 84
by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a buyer was addressed
to Aromin. The conference on July 11, 1988 when the contract was perfected was with Aromin and Vice-President
Albano. Albano and Aromin were the ones who assured petitioner Limketkai's officers that term payment was
possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment
on terms and it was to Aromin that Philippine Remnants gave the go signal to proceed with the cash sale. Everything
in the record points to the full authority of Aromin to bind the bank, except for the self-serving memoranda or
letters later produced by BPI that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed
after he testified in this case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully clothed
with authority to bind BPI.

Respondents' second contention is that there was no perfected contract because petitioner's request to pay on
terms constituted a counter-offer and that negotiations were still in progress at that point.

Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his statements
is one to the effect that —

. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-offered to sell the
property at P1,100.00 per square meter but after the usual haggling, we finally agreed to sell the property at the
price of P1,000.00 per square meter . . .

(tsn, 12-3-90, p. 17; Emphasis supplied.)

Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of P1,000.00 per
square meter, Aromin answered:

Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir.

(ibid, p. 17.)

The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-
President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying on
terms was referred to the Trust Committee but with the mutual agreement that "if the proposed payment on terms
will not be approved by our Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject
to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly
established in the following testimony of Aromin:

A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority says the payment
must be in cash basis, what transpired later on?

B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting the covering
proposal if they will be allowed to pay on terms. They requested us to give them a guide on how to prepare the
corresponding letter of proposal. I recall that, upon the request of Mr. Albino Limketkai, we dictated a guide on
how to word a written firm offer that was to be submitted by Mr. Lim to the bank setting out the terms of payment
but with the mutual agreement that if his proposed payment on terms will not be approved by our trust committee,
Limketkai should pay the price in cash.

Q And did buyer Limketkai agree to pay in cash in case the offer of terms will be cash (disapproved).

A Yes, sir.

Q At the start, did they show their willingness to pay in cash?

A Yes, sir.

Q You said that the agreement on terms was to be submitted to the trust committee for approval, are you telling
the Court that what was to be approved by the trust committee was the provision on the payment on terms?
 85
A Yes, sir.

Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the terms?

A Yes, sir.

(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)

The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because
petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials.
Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right within
the period given to him and tendered payment in full. The BPI rejected the payment.

In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602
[1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case strengthen and
support petitioner's submission that the contract was perfected upon the meeting of the minds of the parties.

The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the lot,
followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the
property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations with
Aromin and Albano at the BPI offices.

The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim
with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter.
Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a
concurrence of offer and acceptance, on the object, and on the cause thereof.

The phases that a contract goes through may be summarized as follows:

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 (Toyota
Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995).

But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:

. . . A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest
in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon
the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established
upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause
thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain
formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership
of a thing or right to another, called the buyer, over which the latter agrees.
 86
(238 SCRA 602; 611 [1994].)

In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents similar to this case,
the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the perfection of the
contract of sale thusly:

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.)

xxx xxx xxx

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).

xxx xxx xxx

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., 105 Fed. 2nd
965, citing Sec. 79, Williston on Contracts).

xxx xxx xxx

. . . 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 or a counter-offer. (Stuart vs. Franklin Life
Ins. Co., supra.)

(at pp. 362-363; 365-366.)

In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon the
cause of the contract is belied by the testimony of the very BPI official with whom the contract was perfected.
Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed and notarized
does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may
have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article
1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not
affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law and
Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special form, as in the sale of
real property, the contracting parties may compel each other to observe that form, once the contract has been
perfected. Their right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code).

Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of Appeals
ruled that because the sale involved real property, the statute of frauds is applicable.

In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts infringing
the Statute of Frauds are ratified when the defense fails to object, or asks questions on cross-examination. The
succinct words of Justice Araullo still ring in judicial cadence:

As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the
contract; and as the motion to strike out said evidence came too late; and, furthermore, as the defendants
themselves, by the cross-questions put by their counsel to the witnesses in respect to said contract, tacitly waived
their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or illegal, and
court, far from having erred in taking it into consideration and basing his judgment thereon, notwithstanding the
 87
fact that it was ordered to be stricken out during the trial, merely corrected the error he committed in ordering it
to be so stricken out and complied with the rules of procedure hereinbefore cited.

(at p. 748.)

In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract itself,
the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the
litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba
43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent
and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected
contract. The cross-examination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).

The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken out, the
cross-examination could have no object whatsoever, and if the questions were put to the witnesses and answered
by them, they could only be taken into account by connecting them with the answers given by those witnesses on
direct examination" (pp. 747-748).

Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to the
Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The memorandum
may be found in several writings, not necessarily in one document. The memorandum or memoranda is/are written
evidence that such a contract was entered into.

We cite the findings of the trial court on this matter:

In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract of the sale is
not necessary so long as the agreement to sell real property is evidenced by a written note or memorandum,
embodying the essentials of the contract and signed by the party charged or his agent. Thus, it has been held:

The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the
contract itself be written. The plain test of Article 1403, Paragraph (2) is clear that a written note or memorandum,
embodying the essentials of the contract and signed by the party charged, or his agent suffices to make the verbal
agreement enforceable, taking it out of the operation of the statute. (Emphasis supplied)

xxx xxx xxx

In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram
(Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as Exhibit A
to plaintiffs opposition to the motion to dismiss. The letter, transcribed above in part, together with the one marked
as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-
appellant; refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give its area as
1,825 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in
them, therefore, all the essential terms of the contract and they satisfy the requirements of the Statute of Frauds.

(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).

While there is no written contract of sale of the Pasig property executed by BPI in favor of plaintiff, there are
abundant notes and memoranda extant in the records of this case evidencing the elements of a perfected contract.
There is Exhibit P, the letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of the
subject property at the price of P1,000.00 per square meter giving 2% commission to the broker and instructing
that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to
sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co., authorizing the latter to sell the
property at the initial quoted price of P1,000.00 per square meter which was altered on an unaccepted offer by
Technoland. After the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
 88
allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On July 9, 1988, Pedro Revilla,
Jr., acting as agent of BPI, wrote a letter to BPI informing it that he had procured a buyer in the name of Limketkai
Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. Vice-
President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank,
through Merlin Albano, confirming their transaction regarding the purchase of the subject property (Exh. E). On
July 18, 1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00 covered by Check No.
CA510883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new
offers only if there is no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and memoranda,
the Court is convinced of the existence of perfected contract of sale. Aptly, the Supreme Court, citing American
cases with approval, held:

No particular form of language or instrument is necessary to constitute a memorandum or note in writing under
the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing
evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents
and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient memorandum
or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a
printed form. (37 C.J.S., 653-654).

The note or memorandum required by the statute of frauds need not be contained in a single document, nor, when
contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute.
Two or more writings properly connected may be considered together, matters missing or uncertain in one may be
supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet
the requirements of the statute as to contents and the requirements of the statutes as to signature, as considered
respectively infra secs. 179-200 and secs. 201-215.

(pp. 460-463, Original RTC Record).

The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and manner
of testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic notes.

In this regard, the court of origin had this to say:

Apart from weighing the merits of the evidence of the parties, the Court had occasion to observe the demeanor of
the witnesses they presented. This is one important factor that inclined the Court to believe in the version given by
the plaintiff because its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president of the
bank, were straightforward, candid and unhesitating in giving their respective testimonies. Upon the other hand,
the witnesses of BPI were evasive, less than candid and hesitant in giving their answers to cross examination
questions. Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison III insisted that the
authority to sell issued to Mr. Revilla was merely an evidence by which a broker may convince a prospective buyer
that he had authority to offer the property mentioned therein for sale and did not bind the bank. On the contrary,
Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to sell issued to Mr. Pedro Revilla,
Jr. was valid, effective and binding upon the bank being signed by two class "A" signatories and that the bank cannot
back out from its commitment in the authority to sell to Mr. Revilla.

While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted with Edmundo
Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and that they have even discussed in
one of the luncheon meetings the matter of the sale of the Pasig property to NBS. George Feliciano emphatically
said that he was not a consultant of Mr. Ramos nor was he connected with him in any manner, but his calling card
states that he was a consultant to the chairman of the Pacific Rim Export and Holdings Corp. whose chairman is
Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to Mr. Alfredo Ramos
evidently was done by him to avoid possible implication that he committed some underhanded maneuvers in
manipulating to have the subject property sold to NBS, instead of being sold to the plaintiff.
 89
(pp. 454-455, Original RTC Record.)

On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial
court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107
[1991]) bears stressing:

It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses
are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the
demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. While the Supreme
Court ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not properly
raised in a petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for instance,
as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the
credibility of witnesses.

(at p. 110.)

On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is not. It
acted in bad faith.

Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the
willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the contract
with Limketkai.

Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from paying the
agreed price and getting possession of the property:

1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and directly
took over this particular sale when a close friend became interested.

2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his friend; that
they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's father was a
business associate of Ramos.

3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case and
give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince him inspite
of various and increasing offers.

4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by easy
portability. The warehouse is bolted to its foundations and can easily be dismantled.

It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any
allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its title
to the land and recognize the right of the vendee to proceed against the vendor if the title to the land turns out to
be defective as when the land belongs to another person, the reverse is found in the deed of sale between BPI and
NBS. Any losses which NBS may incur in the event the title turns out to be vested in another person are to be borne
by NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI's title be
found defective.

NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites the
badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there is
exclusive. The decision in said case plainly states "the following are some of the circumstances attending sales which
have been denominated by courts (as) badges of fraud." There are innumerable situations where fraud is
manifested. One enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up to
the present and into the future.
 90
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended complaint
to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based counsel. Petitioner
also claimed, and the trial court awarded, damages for the profits and opportunity losses caused to petitioner's
business in the amount of P10,000,000.00.

We rule that the profits and the use of the land which were denied to petitioner because of the non-compliance or
interference with a solemn obligation by respondents is somehow made up by the appreciation in land values in
the meantime.

Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner Limketkai; that
the BPI officials who transacted with petitioner had full authority to bind the bank; that the evidence supporting
the sale is competent and admissible; and that the sale of the lot to NBS during the trial of the case was
characterized by bad faith.

WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE. The June 10,
1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial Region stationed in Pasig,
Metro Manila is REINSTATED except for the award of Ten Million Pesos (P10,000,000.00) damages which is hereby
DELETED.

SO ORDERED.

G.R. No. L-11311 May 28, 1958

MARTA C. ORTEGA, plaintiff-appellant,

vs.

DANIEL LEONARDO, defendant-appellee.

Jose Ma. Reyes for appellant.

Tomas A. Leonardo for appellee.

BENGZON, J.:

Well known is the general rule in the Statute of Frauds precluding enforcement of oral contracts for the sale of land.
Not so well known is exception concerning the partially executed contracts1 — least our jurisprudence offers few,
if any, apposite illustrations. This appeal exemplifies such exception.

Alleging partial performance, plaintiff sought to compel defendant to comply with their oral contract of sale of a
parcel of land. Upon a motion to dismiss, the Manila court of first instance ordered dismissal following the above
general rule.

Hence this appeal. It should be sustained if the allegations of the complaint — which the motion to dismiss admitted
— set out an instance of partial performance.

Stripped of non-essentials, the complaint averred that long before and until her house had been completely
destroyed during the liberation of the City of Manila, plaintiff occupied a parcel of land, designated as Lot 1, Block
3 etc. (hereinafter called Lot I) located at San Andres Street, Malate, Manila; that after liberation she re-occupied
it; that when the administration and disposition of the said Lot I (together with other lots in the Ana Sarmiento
Estate) were assigned by the Government to the Rural Progress Administration2 plaintiff asserted her right thereto
 91
(as occupant) for purposes of purchase; that defendant also asserted a similar right, alleging occupancy of a portion
of the land subsequent to plaintiff's; that during the investigation of such conflicting interests, defendant asked
plaintiff to desist from pressing her claim and definitely promised that if and when he succeeded in getting title to
Lot I3 , he would sell to her a portion thereof with an area of 55.60 square meters (particularly described) at the
rate of P25.00 per square meter, provided she paid for the surveying and subdivision of the Lot and provided further
that after he acquired title, she could continue holding the lot as tenant by paying a monthly rental of P10.00 until
said portion shall have been segregated and the purchase price fully paid; that plaintiff accepted defendant's offer,
and desisted from further claiming Lot I; that defendant finally acquired title thereto; that relying upon their
agreement, plaintiff caused the survey and segregation of the portion which defendant had promised to sell
incurring expenses therefor, said portion being now designated as Lot I-B in a duly prepared and approved
subdivision plan; that in remodelling her son's house constructed on a lot adjoining Lot I she extended it over said
Lot I-B; that after defendant had acquired Lot I plaintiff regularly paid him the monthly rental of P10.00; that in July
1954, after the plans of subdivision and segregation of the lot had been approved by the Bureau of Lands, plaintiff
tendered to defendant the purchase price which the latter refused to accept, without cause or reason.

The court below explained in its order of dismissal:

It is admitted by both parties that an oral agreement to sell a piece of land is not enforceable. (Art. 1403, Civil Code,
Section 21, Rule 123, Rules of Court.) Plaintiff, however, argues that the contract in question, although verbal, was
partially performed because plaintiff desisted from claiming the portion of lot I in question due to the promise of
defendant to transfer said portion to her after the issuance of title to defendant. The court thinks that even granting
that plaintiff really desisted to claim not on oral promise to sell made by defendant, the oral promise to sell cannot
be enforced. The desistance to claim is not a part of the contract of sale of the land. Only in essential part of the
executory contract will, if it has already been performed, make the verbal contract enforceable, payment of price
being an essential part of the contract of sale.

If the above means that partial performance of a sale contract occurs only when part of the purchase price is paid,
it surely constitutes a defective statement of the law. American Jurisprudence in its title "Statute of Frauds" lists
other acts of partial performance, such as possession, the making of improvements, rendition of services, payment
of taxes, relinquishment of rights, etc.

Thus, it is stated that "The continuance in possession may, in a proper case, be sufficiently referable to the parol
contract of sale to constitute a part performance thereof. There may be additional acts or peculiar circumstances
which sufficiently refer the possession to the contract. . . . Continued possession under an oral contract of sale, by
one already in possession as a tenant, has been held a sufficient part performance, where accompanied by other
acts which characterize the continued possession and refer it to the contract of purchase. Especially is this true
where the circumstances of the case include the making of substantial, permanent, and valuable improvements."
(49 American Jurisprudence — 44)

It is also stated that "The making of valuable permanent improvements on the land by the purchaser, in pursuance
of the agreement and with the knowledge of the vendor, has been said to be the strongest and the most
unequivocal act of part performance by which a verbal contract to sell land is taken out of the statute of frauds,
and is ordinarily an important element in such part performance. . . . Possession by the purchaser under a parol
contract for the purchase of real property, together with his making valuable and permanent improvements on the
property which are referable exclusively to the contract, in reliance on the contract, in the honest belief that he has
a right to make them, and with the knowledge and consent or acquiescence of the vendor, is deemed a part
performance of the contract. The entry into possession and the making of the improvements are held on amount
to such an alteration in the purchaser's position as will warrant the court's entering a degree of specific
performance." (49 American Jurisprudence p.755, 756.)

Again, it is stated that "A tender or offer of payment, declined by the vendor, has been said to be equivalent to
actual payment, for the purposes of determining whether or not there has been a part performance of the contract.
 92
This is apparently true where the tender is by a purchaser who has made improvements. But the doctrine now
generally accepted, that not even the payment of the purchase price, without something more, . . . is a sufficient
part performance. (49 American Jurisprudence p. 772.)

And the relinquishment of rights or the compromise thereof has likewise been held to constitute part performance.
(See same title secs. 473, 474, 475.)

In the light of the above four paragraphs, it would appear that the complaint in this case described several
circumstance indicating partial performance: relinquishment of rights4 continued possession, building of
improvements, tender of payment plus the surveying of the lot at plaintiff's expense and the payment of rentals.

We shall not take, time to discuss whether one or the other or any two or three of them constituted sufficient
performance to take the matter away from the operation of the Statute of Frauds. Enough to hold that the
combination of all of them amounted to partial performance; and we do so line with the accepted basis of the
doctrine, that it would be a fraud upon the plaintiff if the defendant were permitted to oppose performance of his
part after he has allowed or induced the former to perform in reliance upon the agreement. (See 49 American
Jurisprudence p. 725.)

The paragraph immediately preceding will serve as our comment on the appellee's quotations from American
Jurisprudence itself to the effect that "relinquishment" is not part performance, and that neither "surveying the
land"5 nor tender of payment is sufficient. The precedents hereinabove transcribed oppose or explain away or
qualify the appellee's citations. And at the risk of being repetitious we say: granting that none of the three
circumstances indicated by him, (relinquishment, survey, tender) would separately suffice, still the combination of
the three with the others already mentioned, amounts to more than enough.

Hence, as there was partial performance, the principle excluding parol contracts for the sale of realty, does not
apply.

The judgment will accordingly be reversed and the record remanded for further proceedings. With costs against
appellee.

G.R. No. 85240 July 12, 1991

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL, LORETA HERRERA, JOSE
CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL,
LEONARDO CLAUDEL, ARSENIA VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL, petitioners,

vs.

HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and CELESTINA, all surnamed
CLAUDEL, respondents.

Ricardo L. Moldez for petitioners.

Juan T. Aquino for private respondents

SARMIENTO, J.:

This petition for review on certiorari seeks the reversal of the decision rendered by the Court of Appeals in CA-G.R.
CV No. 044291 and the reinstatement of the decision of the then Court of First Instance (CFI) of Rizal, Branch CXI,
in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which
 93
dismissed the complaint of the private respondents against the petitioners for cancellation of titles and
reconveyance with damages.2

As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau of Lands, Lot No.
1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa, Rizal, with an area of 10,107
square meters; he secured Transfer Certificate of Title (TCT) No. 7471 issued by the Registry of Deeds for the
Province of Rizal in 1923; he also declared the lot in his name, the latest Tax Declaration being No. 5795. He dutifully
paid the real estate taxes thereon until his death in 1937.3 Thereafter, his widow "Basilia" and later, her son Jose,
one of the herein petitioners, paid the taxes.

The same piece of land purchased by Cecilio would, however, become the subject of protracted litigation thirty-
nine years after his death.

Two branches of Cecilio's family contested the ownership over the land-on one hand the children of Cecilio, namely,
Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita, Arsenia Villalon, and Felisa
Claudel, and their children and descendants, now the herein petitioners (hereinafter referred to as HEIRS OF
CECILIO), and on the other, the brother and sisters of Cecilio, namely, Macario, Esperidiona, Raymunda, and
Celestina and their children and descendants, now the herein private respondents (hereinafter referred to as
SIBLINGS OF CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:

TCT No. 395391 1,997 sq. m. –– Jose Claudel

TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children

TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon

TCT No. 395394 1,997 sq. m. –– Felisa Claudel4

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case No. 5276-P as
already adverted to at the outset, with the then Court of First Instance of Rizal, a "Complaint for Cancellation of
Titles and Reconveyance with Damages," alleging that 46 years earlier, or sometime in 1930, their parents had
purchased from the late Cecilio Claudel several portions of Lot No. 1230 for the sum of P30.00. They admitted that
the transaction was verbal. However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of
the said land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the complaint, disregarding
the above sole evidence (subdivision plan) presented by the SIBLINGS OF CECILIO, thus:

Examining the pleadings as well as the evidence presented in this case by the parties, the Court can not but notice
that the present complaint was filed in the name of the Heirs of Macario, Espiridiona, Raymunda and Celestina, all
surnamed Claudel, without naming the different heirs particularly involved, and who wish to recover the lots from
the defendants. The Court tried to find this out from the evidence presented by the plaintiffs but to no avail. On
this point alone, the Court would not be able to apportion the property to the real party in interest if ever they are
entitled to it as the persons indicated therein is in generic term (Section 2, Rule 3). The Court has noticed also that
with the exception of plaintiff Lampitoc and (sic) the heirs of Raymunda Claudel are no longer residing in the
property as they have (sic) left the same in 1967. But most important of all the plaintiffs failed to present any
document evidencing the alleged sale of the property to their predecessors in interest by the father of the
defendants. Considering that the subject matter of the supposed sale is a real property the absence of any
document evidencing the sale would preclude the admission of oral testimony (Statute of Frauds). Moreover,
considering also that the alleged sale took place in 1930, the action filed by the plaintiffs herein for the recovery of
the same more than thirty years after the cause of action has accrued has already prescribed.

WHEREFORE, the Court renders judgment dismissing the complaint, without pronouncement as to costs.
 94
SO ORDERED.5

On appeal, the following errors6 were assigned by the SIBLINGS OF CECILIO:

1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE CONCLUSIVE EVIDENCE SHOWING THE
PORTION SOLD TO EACH OF PLAINTIFFS' PREDECESSORS.

2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE ANY DOCUMENT EVIDENCING THE
ALLEGED SALE.

3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A, SHOWING THE PORTIONS SOLD TO
EACH OF THE PLAINTIFFS' PREDECESSORS-IN-INTEREST.

4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF THE PORTION COVERED BY THE PLAN,
EXHIBIT A.

5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES OF TITLE NOS. 395391, 395392, 395393
AND 395394 OF THE REGISTER OF DEEDS OF RIZAL AS NULL AND VOID.

The Court of Appeals reversed the decision of the trial court on the following grounds:

1. The failure to bring and prosecute the action in the name of the real party in interest, namely the parties
themselves, was not a fatal omission since the court a quo could have adjudicated the lots to the SIBLINGS OF
CECILIO, the parents of the herein respondents, leaving it to them to adjudicate the property among themselves.

2. The fact of residence in the disputed properties by the herein respondents had been made possible by the
toleration of the deceased Cecilio.

3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the case at bar
where oral evidence may be admitted as cited in Iñigo v. Estate of Magtoto7 and Diana, et al. v. Macalibo.8

In addition,

. . . Given the nature of their relationship with one another it is not unusual that no document to evidence the sale
was executed, . . ., in their blind faith in friends and relatives, in their lack of experience and foresight, and in their
ignorance, men, in spite of laws, will make and continue to make verbal contracts. . . .9

4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of over forty years
from the time of the alleged sale in 1930 up to the filing of the "Complaint for Cancellation of Titles and
Reconveyance . . ." in 1976.

According to the Court of Appeals, the action was not for the recovery of possession of real property but for the
cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO commenced their
complaint for cancellation of titles and reconveyance with damages on December 7, 1976, only four years after the
HEIRS OF CECILIO partitioned this lot among themselves and obtained the corresponding Transfer Certificates of
Titles, then there is no prescription of action yet.

Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391, 395392,
395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS OF CECILIO and corollarily
ordered the execution of the following deeds of reconveyance:

To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.

To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.

To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.

To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10

 95
The respondent court also enjoined that this disposition is without prejudice to the private respondents, as heirs of
their deceased parents, the SIBLINGS OF CECILIO, partitioning among themselves in accordance with law the
respective portions sold to and herein adjudicated to their parents.

The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters, respectively would go
to Cecilio or his heirs, the herein petitioners. Beyond these apportionments, the HEIRS OF CECILIO would not receive
anything else.

The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error in disposing
the question of the true ownership of the lots.

And the real issues are:

1. Whether or not a contract of sale of land may be proven orally:

2. Whether or not the prescriptive period for filing an action for cancellation of titles and reconveyance with
damages (the action filed by the SIBLINGS OF CECILIO) should be counted from the alleged sale upon which they
claim their ownership (1930) or from the date of the issuance of the titles sought to be cancelled in favor of the
HEIRS OF CECILIO (1976).

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been entered
into.11 For nowhere does law or jurisprudence prescribe that the contract of sale be put in writing before such
contract can validly cede or transmit rights over a certain real property between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the person against
whom that claim is brought can not present any proof of such sale and hence has no means to enforce the contract.
Thus the Statute of Frauds was precisely devised to protect the parties in a contract of sale of real property so that
no such contract is enforceable unless certain requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases, an
agreement hereafter made shall be unenforceable by action unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:

xxx xxx xxx

e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;

xxx xxx xxx

(Emphasis supplied.)

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations depending
for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and
transactions to be evidenced in Writing.12

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence. However when the Civil
Code was re-written in 1949 (to take effect in 1950), the provisions of the Statute of Frauds were taken out of the
Rules of Evidence in order to be included under the title on Unenforceable Contracts in the Civil Code. The transfer
was not only a matter of style but to show that the Statute of Frauds is also a substantive law.
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Therefore, except under the conditions provided by the Statute of Frauds, the existence of the contract of sale
made by Cecilio with his siblings13 can not be proved.

On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court only in 1976 to
enforce a light acquired allegedly as early as 1930, is difficult to comprehend.

The Civil Code states:

Art. 1145. The following actions must be commenced within six years:

(1) Upon an oral contract . . . (Emphasis supplied).

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral purchase made by their
parents in 1930, then the action filed in 1976 would have clearly prescribed. More than six years had lapsed.

We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in favor of the
SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO executed a contract of partition over the
said properties.

But as we had pointed out, the law recognizes the superiority of the torrens title.

Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of ownership
than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF CECILIO.

The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person of any portion
of the land could defeat the title of the registered owners thereof.14

A torrens title, once registered, cannot be defeated, even by adverse, open and notorious possession. A registered
title under the torrens system cannot be defeated by prescription.1âwphi1 The title, once registered, is notice to
the world. All persons must take notice. No one can plead ignorance of the registration.15

xxx xxx xxx

Furthermore, a private individual may not bring an action for reversion or any action which would have the effect
of cancelling a free patent and the corresponding certificate of title issued on the basis thereof, with the result that
the land covered thereby will again form part of the public domain, as only the Solicitor General or the officer acting
in his stead may do so.16

It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the circumstances
in the case at bar varied significantly from these cases.

In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the transferee who
took it had notice of the flaws in the transferor's title. No right passed to a transferee from a vendor who did not
have any in the first place. The transferees bought the land registered under the torrens system from vendors who
procured title thereto by means of fraud. With this knowledge, they can not invoke the indefeasibility of a certificate
of title against the private respondent to the extent of her interest. This is because the torrens system of land
registration, though indefeasible, should not be used as a means to perpetrate fraud against the rightful owner of
real property.

Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise registration
becomes an exercise in futility.18

In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the title was wrongfully
registered in another person's name. An implied trust was therefore created. This trustee was compelled by law to
reconvey property fraudulently acquired notwithstanding the irrevocability of the torrens title.20

In the present case, however, the facts belie the claim of ownership.
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For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and Celestina were
living on the contested premises, they regularly paid a sum of money, designated as "taxes" at first, to the widow
of Cecilio, and later, to his heirs.21 Why their payments were never directly made to the Municipal Government of
Muntinlupa when they were intended as payments for "taxes" is difficult to square with their claim of ownership.
We are rather inclined to consider this fact as an admission of non-ownership. And when we consider also that the
petitioners HEIRS OF CECILIO had individually paid to the municipal treasury the taxes corresponding to the
particular portions they were occupying,22 we can readily see the superiority of the petitioners' position.

Renato Solema and Decimina Calvez, two of the respondents who derive their right from the SIBLINGS OF CLAUDEL,
bought a portion of the lot from Felisa Claudel, one of the HEIRS OF CLAUDEL.23 The Calvezes should not be paying
for a lot that they already owned and if they did not acknowledge Felisa as its owner.

In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the property, they had to
ask first the permission of Jose Claudel again, one of the HEIRS OF CECILIO.24 In fact the only reason why any of the
heirs of SIBLINGS OF CECILIO could stay on the lot was because they were allowed to do so by the HEIRS OF
CECILIO.25

In view of the foregoing, we find that the appellate court committed a reversible error in denigrating the transfer
certificates of title of the petitioners to the survey or subdivision plan proffered by the private respondents. The
Court generally recognizes the profundity of conclusions and findings of facts reached by the trial court and hence
sustains them on appeal except for strong and cogent reasons inasmuch as the trial court is in a better position to
examine real evidence and observe the demeanor of witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal of the lower
court's findings. Thus, in this case, between the factual findings of the trial court and the appellate court, those of
the trial court must prevail over that of the latter.26

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

SO ORDERED.